Advanced Flower Capital Inc. (AFCG)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 delivered GAAP EPS of $0.18 and distributable EPS of $0.21; EPS beat consensus ($0.1625) while revenue came in below S&P Global consensus — a mixed print with solid profitability but softer top-line drivers from lower borrower income and absent TRS dividends. Bold: EPS beat vs consensus; revenue below consensus *.
• Net interest income declined sequentially to $6.6M from $7.6M in Q4 2024 as income from “private company G” fell and TRS dividends did not repeat; management emphasized opportunistic originations and capital preservation amid industry volatility .
• Liquidity and funding improved: AFC renewed its senior secured credit facility (matures Apr 29, 2028, prime +50 bps, 6.5% floor) and ended Q1 with $321.7M total assets, $200.8M equity, book value $8.89; portfolio yield to maturity ~18% remained stable .
• Strategic actions included a $14M senior secured facility to Standard Wellness post-quarter (12.5% coupon) and continued workout progress on legacy loans (sales and receiverships), though litigation around Justice Grown introduces uncertainty near term .
• Dividend of $0.23 per share was paid April 15; board reiterates policy to pay 85–100% of annual distributable earnings, with next declaration expected around June 15 — a potential near-term catalyst depending on earnings trajectory .

What Went Well and What Went Wrong

What Went Well

• “Our top priority at AFC is reducing our exposure to underperforming credits, while also remaining disciplined on providing debt capital to accomplished operators.” — CEO Dan Neville, highlighting portfolio de-risking and selective originations .
• Pipeline remains active despite muted near-term originations; $287M in active deals, focus on proven operators and construction financing only where operators have existing operations — reinforcing risk-adjusted return discipline .
• Post-quarter transaction strengthened portfolio diversification: $14M senior secured credit facility to Standard Wellness at 12.5% supports growth in MO/UT and debt refinancing, aligning with strategy to back strong operators in limited license states .

What Went Wrong

• Net interest income declined Q/Q ($6.6M in Q1 vs $7.6M in Q4) driven by lower income from “private company G” ($0.6M in Q1 vs $1.6M in Q4) and the absence of TRS dividends; originations only partially offset the decline .
• Ongoing receiverships and legal proceedings press on earnings visibility: “private company A” asset sale proceeds timing is uncertain; “private company K” asset sales progressing but timing undisclosed; Justice Grown litigation limits commentary and creates event risk .
• Distributable EPS stepped down Y/Y ($0.21 vs $0.49) and Q/Q ($0.21 vs $0.29) as legacy loan underperformance persisted, indicating transitional earnings pressure while repositioning the book .

Financial Results

KPIs and Portfolio Metrics

Estimates vs Actuals (S&P Global)

Values marked with * retrieved from S&P Global.

Notes:

• Management disclosed Q1 interest income of $8.5M and net interest income of $6.6M; S&P Global’s “Revenue” classification may differ from company “interest income/net interest income.” Use company-reported figures for core analysis; use S&P Global for consensus benchmarking .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our top priority at AFC is reducing our exposure to underperforming credits, while also remaining disciplined on providing debt capital to accomplished operators.” — CEO Dan Neville .
• “As of May 1, 2025, our active pipeline has $287 million of deals… focused on sourcing deals and backing operators with a prior track record of success.” — President & CIO Robyn Tannenbaum .
• “For the quarter ended March 31, 2025, we generated net interest income of $6.6 million and distributable earnings of $4.5 million… GAAP net income of $4.1 million.” — CFO Brandon Hetzel .
• “We had renewed our senior secured credit facility… maturity date of April 29, 2028, and bears interest at a floating rate of prime plus 50 bps, subject to a prime floor of 6.5%.” — CFO .
• “We are laser-focused on unlocking value from underperforming loans and evaluating new lending opportunities that we are seeing.” — CEO .

Q&A Highlights

• Drivers of interest income decline: Lower income from “private company G” ($1.6M in Q4 vs $0.6M in Q1) and absent TRS dividends; new originations partially offset .
• Dividend trajectory: Board targets 85–100% payout over a year; next declaration expected ~June 15; distributable earnings Q1 at $0.21 vs dividend $0.23, sustainability evaluated across the year .
• Workout timing/proceeds: Company A (GA sale $15M) and Company K sales under receivership; timing and distribution uncertain and outside AFC control .
• Justice Grown litigation: Pre-discovery preliminary injunction limits exercise of certain rights; AFC refers to 10-Q for details; no further public commentary .
• PA regulatory outlook: Senate committee rejected state-run model; AFC deck does not assume state-run approach .
• Tariffs: Minimal impact given cost exposure concentrated in hardware/packaging (3–4% of COGS), fertilizers sourced domestically .
• Originations/yields: Timing not guided; yields have ticked up versus recent history, while AFC moves up the quality curve .

Estimates Context

• Q1 2025 EPS beat: Actual GAAP EPS $0.18 vs consensus $0.1625; positive surprise (+10.8%)* .
• Q1 2025 revenue below consensus: S&P Global revenue consensus $7.98M vs actual $7.34M*; note that AFC’s company framework emphasizes interest income ($8.5M) and net interest income ($6.6M), which may not map directly to S&P’s revenue definition *.
• Coverage breadth: 4 estimates for EPS and revenue*, a relatively narrow panel for a niche lender.
  Values marked with * retrieved from S&P Global.

Where estimates may need to adjust:

• Given continued workout activity and muted near-term originations, street models should reflect lower net interest income run-rate and potential nonrecurring variability tied to TRS dividends and legal proceedings. Portfolio yield (~18%) and debt facility renewal suggest stable funding costs; however, timing of paydowns and redeployment is the swing factor .

Key Takeaways for Investors

• EPS headline beat offsets softer revenue; underlying trend shows sequential pressure in net interest income from borrower-specific issues and lack of TRS dividends — monitor workout pacing and redeployment .
• Liquidity enhanced via renewed bank facility (prime +50 bps, 6.5% floor, maturity 2028); supports opportunistic originations without forcing growth targets .
• Pipeline is active ($287M) but origination selectivity remains high; expect muted near-term deployment until visibility improves — quality over quantity stance is intact .
• Credit normalization continues: CECL reserve at $29.9M (9.75%), unrealized losses $20.4M; progress on asset sales (company A, K) but Justice Grown litigation is a key overhang .
• Dividend reset to $0.23 aligns with distributable earnings; policy unchanged (85–100% annually); next declaration mid-June is a watchpoint for yield investors .
• Tactical long case centers on credit clean-up, redeploying capital to higher-quality, limited-license borrowers at mid-to-high teens IRRs; any resolution from litigation or receiverships could be an earnings catalyst .
• Macro/regulatory: PA rejection of state-run model removes a potential structural impediment; tariffs are de minimis for borrowers; federal reform remains uncertain, keeping lender advantage intact .