Silver Spike Investment Corp. (NASDAQ:SSIC) Q4 2023 Earnings Call Transcript March 28, 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. Fiscal Year End 2023 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. Please go ahead, sir.
Umesh Mahajan: Thank you. Thank you, Sharon [ph]. Good morning. This is Umesh Mahajan, Chief Financial Officer 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 fiscal year end 2023. Silver Spike’s financial results for the fiscal year ended December 31, 2023 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 later. 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, March 28, 2024. Therefore, you’re advised that time sensitive information may no longer be accurate at the time of any replay or transcript reading. With that said, good morning again, and thank you all for joining today. We released our earnings yesterday and there is a management presentation deck attached to the 8-K that was filed yesterday evening.
A financial planner carefully scrutinizing company’s investment portfolio.
Those who have joined us on this earnings call webcast should also see a link to the slides. We may refer to the slides by numbers for your reference as we walk through those pages. And I will cover the presentation slides to start and then turn it over to Scott Gordon for his thoughts and remarks. Turning to Page 3 of our presentation; financial highlights for the quarter ended December 31, 2023. The very first column shows the results for the quarter; gross investment income of $3.6 million compared to $2.9 million in the previous quarter. Expenses of approximately $1.2 million excluding expenses related to the loan portfolio acquisition. A transaction that we have previously announced but not has — but has not closed yet; Scott will discuss the transaction in more detail later in this presentation.
We then have the loan portfolio acquisition expenses of $0.7 million, essentially legal expenses for the transaction incurred so far. We have net investment income of $1.7 million for the quarter. Again, this net investment income would have been higher if we exclude the impact of the loan portfolio acquisition expenses. Net investment income per share of $0.28 this quarter, net assets of $85.6 million at the end of the period, down slightly from last quarter due to the payment of dividend. And our net asset value per share at December 31 is $13.77 [ph]. There were no new investments this quarter; we’ll discuss our origination efforts and our portfolio in more detail in subsequent slides. Also, our Board declared a regular quarterly dividend of $0.25 per share; this dividend will be payable on March 28, today, to shareholders on record as of March 28 [ph].
On Page 4, we show the financial highlights for the full year of 2023. Please note that this was the first full year of operations for us. The comparison for the previous year is for nine months, from April 1, 2022 till December 31, 2022. So for the fiscal year ended 2023, the first column goes investment income of $11.9 million, total expenses of $5.3 million which includes the $0.7 million expenses related to the loan portfolio acquisition, net investment income of $6.6 million, again, this net investment income would have been higher if we exclude the impact of the loan portfolio acquisition expenses, net investment income per share of $1.07, and we have paid a poor [ph] dividend of $1.33 during the year ended 2023. We will not be covering the next few slides in the slide deck in detail as most of the investors are already familiar with our story.
But turning to Page 10, I would like to talk a little bit about the origination and the deal pipeline. Our deal pipeline remains very strong. In general, the last quarter of 2023 was a slow period for loan transactions in the cannabis sector as a whole. To a large extent, there was an expectation among the cannabis operators that some progress on the rescheduling of cannabis is imminent, and that these borrowers should wait. At this point, many of those potential borrowers have figured it may be best to not necessarily wait for an update on the rescheduling front and have begun to re-engage with lenders like us. So, we expect activity to pick up — in fact, the discussions have already picked up. And we have an active pipeline of over $420 million, we — we have used the slow period in the industry productively by working on the loan portfolio acquisition transaction.
So turning to Page 12, we share our portfolio summary as of December 31. Companies A and B are Shrine and PharmaCann, which were investments we made last year in the summer. Company C is purely 8% secured bonds that we had purchased at a significant discount to the par value last year. Company D is one of our large positions in Verano [ph], it’s a first lien term loan transaction done in the last quarter of last year. And company E represents DreamFields Brands or Jeeter. One of our portfolio companies MayMaid [ph] prepaid the loan along with a prepayment premium in the quarter ending December 31, 2023. So overall, if you look at the top of the page, our total investment value is a little over $54 million, average yield to maturity across all the zones is 18%.
And a few additional points that we’d like to highlight about this portfolio and remind the investors to consider when they compare SSIC with other listed BDCs; first, all of our positions are firstly in bonds — are firstly in loans or secured bonds. Second, none of our loans or bonds are in non-accrual status. Third, all of — sorry, actually over 90% of our portfolio is in floating rate notes. And our gross portfolio yield of 18% compares quite favorably to the broader listed BDC universe. And we believe each of these portfolio companies is extremely well positioned in the industry for the longer term. With that, let me pass it on to Scott for his remarks.
Scott Gordon: Thank you, Umesh. Good morning, everybody. Just wanted to take a few moments to discuss the proposed loan portfolio acquisition. SSIC announced on February 20 of this year that it entered into a definitive agreement to purchase from Chicago Atlantic Loan Portfolio, portfolio of loans in exchange for newly issued shares of SSIC’s common stock. This acquisition is expected to provide various benefits to SSIC and it’s stockholders, including increased scale and liquidity, enhanced portfolio diversification, improved access to debt and equity capital markets, and accretion to net investment income. Pro forma information following the closing of the loan portfolio acquisition based on SSIC data as of December 31, 2023 and the capital loan portfolio data as of January 21 — January 1, 2024 as the following pro forma net assets of approximately $213 million, including approximately $187 million of portfolio investments across 27 portfolio companies, and approximately $25 million of cash.
Approximately 19.1% pro forma combined gross weighted yield to maturity of the loan portfolio. SSIC’s present officers will continue to be part of the SSIC management team following the loan portfolio acquisition and anticipated closing is mid-2024, subjected to satisfaction of customary closing conditions. In February, we also announced that our Board of Directors unanimously approved an expansion of our investment strategy to permit investments in companies outside of the cannabis and health and wellness sectors that otherwise meet our investment criteria. The investment strategy change is expected to become effective on or about April 22 of this year. With that, I’ll pass it back to Umesh.
Umesh Mahajan: Thank you, Scott. That’s all we actually had in our prepared remarks. We are ready for the Q&A event.
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TORONTO, March 20, 2024 (GLOBE NEWSWIRE) — Firm Capital Mortgage Investment Corporation (the “Corporation”) (TSX FC, FC.DB,H, FC.DB.I, FC.DB.J ,FC.DB. K and FC.DB.L) released its financial statements for the three and twelve months ended December 31, 2023.
NET INCOME
For the three months ended December 31, 2023, net income increased by 4.8% to $8,335,525 as compared to $7,955,086 for the same period in 2022. For the year ended December 31, 2023, net income increased by 6.0% to $34,164,416 as compared to $32,234,067 for the year ended December 31, 2022.
The increase is primarily a result of higher interest income due to a higher weighted average interest rate (2023 weighted average interest rate – 11.15% vs 2022 weighted average interest rate – 9.28%) offset by a reduction in overall portfolio size.
EARNINGS PER SHARE
Basic weighted average profit per share for the three months ended December 31, 2023, was $0.242, as compared to the $0.231 per share reported for the three months ended December 31, 2022. Basic weighted average profit per share for the year ended December 31, 2023, was $0.991, compared to the $0.939 per share reported for the year ended December 31, 2022.
PORTFOLIO
The Corporation’s Investment Portfolio decreased by $63 million to $598.1 as at December 31, 2023, in comparison to $661.0 million as at December 31, 2022 (in each case, gross of impairment allowance, fair value adjustment, and unamortized fees). During 2023, new investment funding was $249.5 million (2022 – $461.8 million), and repayments were $312.3 million (2022 – $443.0 million). On December 31, 2023, the Investment Portfolio comprised of 243 investments (2022 – 252). The average gross investment size was approximately $2.4 million, with 14 investments exceeding $7.5 million.
PRUDENT IMPAIRMENT ALLOWANCE
The allowance for impairment and fair value adjustment as of December 31, 2023 was $22.7 million (2022 – $10.16 million), comprising (i) $10.65 million (2022 – $3.70 million) representing the total amount of management’s estimate of the shortfall between the investment balances and the estimated recoverable amount from the security under the specific loans, (ii) $10.38 million (2022 – $4.70) representing the total amount of management’s estimate of fair value adjustment on an investment stated at fair value through profit or loss; and (iii) a collective allowance balance of $1.7 million (2022 – $1.76 million).
INVESTMENT PORTFOLIO DETAILS
Details on the Corporation’s investment portfolio as at December 31, 2023, are as follows:
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Total gross investment portfolio of $598,059,570, which is lower by 9.5% than the $661,003,596 reported at December 31, 2022.
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Conventional first mortgages, being those first mortgages with loan-to-values less than 75%, comprise 87.5% of the total portfolio (83.5% as at December 2022), and total conventional mortgages with loan-to-values less than 75%, comprise 94.1% of the total portfolio (88.6% as at December 2022).
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The weighted average face interest rate on the Corporation’s Investment Portfolio as at December 31, 2023 and as at December 31, 2022 was 10.99% per annum.
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Regionally, the mortgage investment portfolio is diversified as follows: Ontario (86.8%), Quebec (7.1%), Western Canada (3.0%), and USA (3.1%).
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96% of the Portfolio consists of investments with variable interest rates. These rates are calculated to be the higher of (i) Bank Prime plus a spread (known as the ‘Base Rate’), or (ii) a fixed floor rate.
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Approximately 80% of the portfolio matures by December 31, 2024.
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Of the 243 investments, 90% were underwritten (as part of a renewal process or for a new fundings) between 2022 and 2023, while only 10% were underwritten in 2021 or prior to that.
CASH DIVIDEND DISTRIBUTION
The Corporation is pleased to announce that its board of directors has declared a monthly cash dividend of $0.078
per common share (subject to adjustment at the discretion of the board of directors) payable on each dividend payment date set out below to holders of common shares of record at the close of business on each record date set out below:
Record Date |
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Dividend Payment Date |
DIVIDEND AND SHARE PURCHASE PLAN
The Corporation has in place a Dividend Reinvestment Plan (DRIP) and Share Purchase Plan that is available to its shareholders. The DRIP allows participants to have their monthly cash dividends reinvested in additional shares. The price paid per share is 97% (if the share price is higher than $14.85) of the weighted average trading price calculated five trading days immediately preceding each dividend date with no commission cost. Once registered with the Share Purchase Plan, participants have the right to purchase additional shares, totaling no greater than $12,000 per year and no less than $250 per month. Shareholders participating pay no commission.
For the year ended December 31, 2023, the Corporation declared dividends on its common shares totaling $34,142,921 or $0.990 per share, versus $32,631,802 or $ $0.950 respectively, per share for the year ended December 31, 2022. The number of common shares outstanding at December 31, 2023, was 34,489,308, as compared to 34,485,740 at December 31, 2022.
About the Corporation
Where Mortgage Deals Get Done®
The Corporation, through its mortgage banker, Firm Capital Corporation, is a non-bank lender providing residential and commercial short-term bridge and conventional real estate financing, including construction, mezzanine, and equity investments. The Corporation’s investment objective is the preservation of shareholders’ equity, while providing shareholders with a stable stream of monthly dividends from investments. The Corporation achieves its investment objectives through investments in selected niche markets that are under-serviced by large lending institutions. Lending activities to date continue to develop a diversified mortgage portfolio, producing a stable return to shareholders. Full reports of the financial results of the Corporation for the year are outlined in the audited consolidated financial statements and the related management discussion and analysis of the Corporation, available on the SEDAR+ website at www.sedarplus.ca. In addition, supplemental information is available on the Corporation’s website at www.firmcapital.com.
Forward-Looking Statements
This news release contains forward-looking statements within the meaning of applicable securities laws including, among others, statements concerning our objectives, our strategies to achieve those objectives, our performance, our investment portfolio and our dividends, as well as statements with respect to management’s beliefs, estimates, and intentions, and similar statements concerning anticipated future events, results, circumstances, performance, or expectations that are not historical facts. Forward-looking statements generally can be identified by the use of forward-looking terminology such as “outlook”, “objective”, “may”, “will”, “expect”, “intent”, “estimate”, “anticipate”, “believe”, “should”, “plans”, or “continue”, or similar expressions suggesting future outcomes or events. Such forward-looking statements reflect management’s current beliefs and are based on information currently available to management.
These statements are not guarantees of future performance and are based on our estimates and assumptions that are subject to risks and uncertainties, including those described in our current Annual Information Form under “Risk Factors” (a copy of which can be obtained at www.sedarplus.ca), which could cause our actual results and performance to differ materially from the forward-looking statements contained in this news release.
Those risks and uncertainties include, among others, risks associated with mortgage lending, dependence on the Corporation’s manager and mortgage banker, competition for mortgage lending, real estate values, interest rate fluctuations, environmental matters, and shareholder liability. Material factors or assumptions that were applied in drawing a conclusion or making an estimate set out in the forward-looking information include, among others, that the Corporation is able to invest in mortgages at rates consistent with rates historically achieved; adequate mortgage investment opportunities are presented to the Corporation; and adequate bank indebtedness and bank loans are available to the Corporation. Although the forward-looking information contained in this news release is based upon what management believes are reasonable assumptions, there can be no assurance that actual results and performance will be consistent with these forward-looking statements.
All forward-looking statements in this news release are qualified by these cautionary statements. Except as required by applicable law, the Corporation undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.
For further information, please contact:
Firm Capital Mortgage Investment Corporation
Eli Dadouch
President & Chief Executive Officer
(416) 635-0221
Boutique Mortgage Lenders®
MOUNT VERNON — Interest income from the county’s investment portfolio was stronger than expected in 2023.
“It was a little over $1.1 million, way over what we anticipated,” County Treasurer Shelley Coon told the county commissioners on Thursday.
That compares to a little over $435,000 in interest earnings in 2022.
Coon estimated $700,000 in interest revenue for 2024 budget purposes but believes it will be higher.
Coon met with the commissioners along with Scott Gruber and Harold Meadows of Meeder Investment Management. Meeder is the county’s investment portfolio financial advisor.
As of Feb. 29, the county’s $77,430,450 portfolio included $41,121,905 in securities and $36,308,545 in cash. Coon said the cash was a bit inflated because she had not yet distributed property tax receipts to the schools, townships, and other entities.
The average maturity of securities is 2.38 years with an average yield of 2.75 percent. Forty percent is in three- to five-year assets.
Gruber recommended increasing the amount in the longer-term investments to lock in current interest rates, which are around 4 percent.
He noted that while the economy is still pretty positive, economic indicators warn of recession. Global conflict, elections, and AI’s impact on the labor force are additional areas to watch.
Meadows said the market expects rates to decline in 2024. While no one knows exactly when, the Federal Reserve is expected to cut rates in June and possibly May.
“There are still some really good rates out there for the long term,” Meadows said.
What money goes into the investment portfolio?
Revenue comes into the county every day, but the county does not necessarily spend it every day.
“Instead of putting that money in a checking account where it gets zero interest, they invest it until it’s needed,” explained County Administrator Jason Booth.
The $12.1 million the county received in American Rescue Plan Act money is an example of money that could go into the investment portfolio.
The money came in two installments in June 2021 and June 2022. However, not all of the projects are completed. Until they are and the bills become due, the county can invest the unused portion of the ARPA money.
Another example is the money Knox DD used for its recent building expansion. Superintendent Steve Oster said DD saved money for six or seven years to pay for the nearly $2 million price tag.
Other examples include grant money received in January for projects that start in July, the carryover amount that funds the county in the first quarter of a new year, and local dollars used to match grant money.
Booth acknowledged that $70 million seems like a big number but noted it is spread across 100 departments.
The county can only invest in assets guaranteed to return the principal amount plus interest. No variable rates are allowed and assets must have a high rating.
Introduction to the Transaction
Baillie Gifford (Trades, Portfolio), a renowned investment management firm, has recently made a significant adjustment to its holdings in Staar Surgical Co (NASDAQ:STAA). On December 1, 2023, the firm reduced its position in the company, signaling a strategic shift in its investment portfolio. This move by Baillie Gifford (Trades, Portfolio) has caught the attention of investors and market analysts alike, as it reflects the firm’s ongoing portfolio management decisions.
Baillie Gifford (Trades, Portfolio)’s Profile
With over a century of experience, Baillie Gifford (Trades, Portfolio) stands as a testament to investment excellence and client-focused strategies. The firm’s dedication to fundamental analysis and proprietary research underpins its long-term, bottom-up investment approach. Baillie Gifford (Trades, Portfolio)’s portfolio is a reflection of its commitment to identifying companies with sustainable growth potential, a philosophy that has been the cornerstone of its success for more than 100 years.
Details of the Trade Action
The transaction in question occurred on December 1, 2023, when Baillie Gifford (Trades, Portfolio) decided to reduce its stake in Staar Surgical Co. The firm sold 469,918 shares, resulting in a 9.55% decrease in its position. This reduction had a minor impact of -0.01% on Baillie Gifford (Trades, Portfolio)’s overall equity, with the trade executed at a price of $32.99 per share.
Impact on Baillie Gifford (Trades, Portfolio)’s Portfolio
Following the transaction, Baillie Gifford (Trades, Portfolio) holds 4,448,208 shares of Staar Surgical Co, which represents a 0.13% position in the firm’s portfolio and a 9.11% stake in the company. This adjustment reflects Baillie Gifford (Trades, Portfolio)’s strategic portfolio realignment and its ongoing assessment of investment opportunities.
Staar Surgical Co’s Stock Information
Staar Surgical Co, a USA-based medical device manufacturer, specializes in lenses for eye surgeries, including those for cataract and refractive surgeries. Since its IPO on July 7, 1983, the company has shown significant growth. With a market capitalization of $1.44 billion and a stock price of $29.58, Staar Surgical Co operates within the competitive Medical Devices & Instruments industry. Despite its current PE Ratio of 75.85, the company’s stock is considered a possible value trap by GuruFocus, urging investors to think twice before investing.
Market Context and Analysis
Staar Surgical Co’s market capitalization and stock price have experienced fluctuations, with a current stock price representing a 10.34% decrease since the trade date. The company’s stock has grown 886% since its IPO, but the year-to-date performance shows a slight decline of 0.5%. GuruFocus ranks the company’s financial health and growth prospects with a GF Score of 72/100, indicating potential for average performance.
Other Notable Investors in Staar Surgical Co
While Baillie Gifford (Trades, Portfolio) has adjusted its holdings, other notable investors maintain positions in Staar Surgical Co. Ken Fisher (Trades, Portfolio) is among the gurus who also hold shares in the company, highlighting the interest from various investment management entities.
Conclusion
The recent trade by Baillie Gifford (Trades, Portfolio) in Staar Surgical Co reflects a strategic decision by the firm to realign its investment portfolio. Despite the reduction, Staar Surgical Co remains a part of Baillie Gifford (Trades, Portfolio)’s diverse holdings, with the company’s future outlook and market standing continuing to be monitored by the investment community. Investors and analysts will be watching closely to see how this transaction influences both Baillie Gifford (Trades, Portfolio)’s portfolio and the performance of Staar Surgical Co’s stock in the market.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
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