AFC Gamma(AFCG) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q3 2024, the company generated distributable earnings of $0.35 per basic weighted average share of common stock, with a GAAP net income of$ 1.4 million or $0.06 per share [14][26]. - The Board declared a post-spin dividend of$ 0.33 per share, marking the first dividend since the spin-off [15][32]. - Total assets as of September 30, 2024, were $366.6 million, with cash and cash equivalents of$ 122.2 million [29]. Business Line Data and Key Metrics Changes - The company originated approximately $59 million in new loans during Q3 2024, exceeding the annual target of$ 100 million, with total new originations reaching $116 million [8][24]. - The portfolio had a weighted average yield to maturity of approximately 18% as of both September 30 and November 1, 2024 [28][20]. Market Data and Key Metrics Changes - The company reported a modest exposure of 10% to the Florida market, focusing on current market conditions rather than future projections [44]. - The demand for debt capital in the cannabis sector is increasing, driven by refinancing activity and expansions, while traditional lenders remain cautious [19]. Company Strategy and Development Direction - The company aims to move up the quality curve while targeting a portfolio yielding mid- to high-teens internal rates of return (IRRs) [21]. - The strategy includes deploying capital into strong operators in limited license states and diversifying the portfolio [18][20]. Management's Comments on Operating Environment and Future Outlook - Management noted that the cannabis industry is facing challenges with revenue growth, particularly in mature markets like Illinois and New Jersey [40]. - The company remains optimistic about its ability to capitalize on opportunities in cannabis lending, despite a cautious lending environment [19][48]. Other Important Information - The company raised capital through its ATM stock offering program, generating net proceeds of approximately$ 12.2 million [30]. - The CECL reserve increased to $25.3 million, representing about 10.7% of loans at carrying value [31]. Q&A Session Summary Question: Guidance for 2025 loan origination targets - Management indicated that while they aim to be fully invested, they will cautiously deploy capital into good credits and new vintage loans, with a similar target for 2025 likely to be discussed in the fourth quarter call [35][36]. Question: Current risks in the cannabis industry compared to six months ago - Management acknowledged that revenue growth has been challenging, with competitive pressures in mature markets affecting profitability, but noted that as a debt lender, the current environment is manageable [40][41]. Question: Insights on Florida market exposure - Management stated that their Florida exposure is modest and they underwrite based on current market conditions, emphasizing the importance of being a challenger in the market [44][45]. Question: Trends in regional banks and lending activity - Management observed that more lenders are becoming cautious rather than entering the market, indicating that recent favorable rates are exceptions rather than the norm [47][48].