Silver Spike Investment Corp. (NASDAQ:SSIC) Q1 2024 Earnings Call Transcript

Silver Spike Investment Corp. (NASDAQ:SSIC) Q1 2024 Earnings Call Transcript May 10, 2024

Silver Spike Investment Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to Silver Spike Investment Corp. First Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation there'll be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your first speaker today, Umesh Mahajan, Chief Financial Officer. Please go ahead.

Umesh Mahajan: Good morning. This is Umesh Mahajan, CFO of Silver Spike Investment Corp. With me here today is Scott Gordon, CEO of Silver Spike Investment Corp. Welcome to Silver Spike’s earnings conference call and live webcast for the first quarter ended March 31, 2024. Silver Spike’s financial results for the first quarter ended March 31, 2024 were released yesterday, and can be accessed from our website at ssic.silverspikecap.com. A replay of this call will also be available on our website. Before we begin, I would like to remind everyone that certain statements that are not based on historical facts made during this call, including any statements related to financial guidance may be deemed forward-looking statements under Federal Securities Laws.

Because these forward-looking statements involve known and unknown risks and uncertainties that are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. We encourage you to refer to our most recent SEC filings for information on some of these risk factors. Silver Spike assumes no obligation or responsibility to update any forward-looking statements. Please note that the information reported on this call speaks only as of today, May 10, 2024. Therefore, you're advised that time-sensitive information may no longer be accurate at the time of any replay or transcript reading. So, good morning again, and thank you all for joining the release our results yesterday along with our 10-Q and there is a management presentation deck attached to the 8-K that was filed and made available this morning.

A finance professional in their office, surrounded by financial documents and charts.

Those who have joined us on this earnings webcast should also see a link to the slides that we will use for our discussion today. We may refer to the slides by numbers for your reference. I'll cover the presentation slides and then turn it over to Scott Gordon for his thoughts and remarks. Before we get to the financial highlights for the quarter ended March 31, 2024, a quick recap about the loan portfolio acquisition that we announced in this quarter. On February 20, 2024, the company announced that it entered into a definitive agreement to purchase from Chicago Atlantic Loan Portfolio, LLC, a portfolio of loans in exchange for newly issued shares of the company's common stock, subject to certain customary closing conditions. On April 15, 2024, the company filed a registration statement on Form N-14 in connection with this loan portfolio acquisition with the Securities and Exchange Commission, SEC.

We are currently anticipating this transaction to close in mid-2024. With that, turning to Page 3 of the presentation for financial highlights for the first quarter 2024. The gross investment income for this quarter was $2.8 million compared to $2.5 million in the first quarter last year. Expenses of approximately $0.8 million excluding the expenses related specifically to the loan portfolio acquisition. Results in investment income excluding transaction expenses of $2 million compared to $1.4 million last year. We have incurred transaction related expenses of $2.1 million in the quarter as the definitive agreements were signed in this quarter. Net investment income of negative $0.1 million, net assets of $84.5 million down from last year due to the payment of dividends and the transaction expenses.

On a per-share basis, the investment income, excluding the transaction expenses, was $0.33 per share compared to $0.22 per share last year. The net investment income was negative $0.01 per-share and net asset value at the end of the period as of March 31, 2024 was $13.60. Also, the Board declared a regular quarterly cash dividend of $0.25 per share. This dividend will be payable on June 28th to stockholders of record on June 20th. We will not really go through the subsequent few slides in the slide deck in detail as we have covered them in the past and most investors are already familiar with our story. But turning to Page 9, to talk about our origination efforts, our deal pipeline remains strong. In general, since last quarter of 2023, many of the potential borrowers in the industry have not rushed into borrowing money as they were watching the interest rate movements in the credit markets, as well as the developments on the rescheduling of cannabis to Schedule 3.

We view that time period towards due diligence and underwriting of over 25 borrowers, as a part of our loan portfolio acquisition that we announced. And at this point, as the industry continues to grow, good operators in the industry have started revisiting their growth and expansion plans and have started thinking about raising more capital to support their plans. We have an active dialogue with many of the best operators in the industry and have an active pipeline of over $425 million. On Page 11, we show our portfolio summary as of March 31st. Similar new investments in this quarter, as you can see at the top of the page, we have over $54 million, almost $55 million invested with an average yield to maturity of about 18%. A few points we'd like to reiterate about this portfolio.

First, all of our positions are first lien loans or secured bonds. None of these loans or bonds are in on accrual status. Over 90% of our invested portfolio is in floating-rate loans and our gross portfolio yield of 18% compares favorably to the broader listed BDC universe. With that, let me pass it on to Scott Gordon for a few remarks.

Scott Gordon: Thanks, Umesh. Just wanted to take a minute and talk about the big industry news of late, which has been the apparent approval by the DEA of the HHS's recommendation to reschedule cannabis. This has been a widely anticipated move since the HHS announcement last year. The process timeline, however, is uncertain and could take up to several years to complete if met with challenges seeking judicial review and/or administrative hearings. The change, however, would have a major impact on company cash flows through the elimination of the 280E tax effect. While we view the news as positive, like all legislative initiatives in the cannabis realm, the devil remains in the detail around both timing and implementation. Given the myriad of ambiguities with respect to that, we believe that the current dynamic of capital constraints in the industry will be largely unchanged.

Nor do we extrapolate anything further on the regulatory front because of the rescheduling process. SAFER Act and other pending pieces of reform will muddle as usual and continue to be subject to all of the same vagaries and obstacles that have been present for some time. As such, we take a mildly optimistic view of the news and maintain some hope that perhaps this time is different. On balance, it's clearly a step in the right direction. With that, I'll pass it back to Umesh.

Umesh Mahajan : Thank you, Scott. That's all we had in terms of prepared remarks. We can take questions. Is there anything, Gigi?

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