Chicago Atlantic BDC (NASDAQ:LIEN) released first-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.

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Summary

Chicago Atlantic BDC reported record net investment income of $10 million, or $0.44 per share, for Q1 2026, driven by strong deployments and increased interest income.

The company funded $93.9 million across seven portfolio companies, growing its portfolio to the largest level in its history, with a focus on senior secured loans.

The weighted average yield on debt investments was 15.8%, significantly higher than the industry average, and the portfolio is insulated against interest rate declines.

Chicago Atlantic BDC announced a 34 cent dividend for the seventh consecutive quarter, showcasing its strong financial performance and commitment to shareholder returns.

The federal rescheduling of cannabis from Schedule 1 to Schedule 3 is expected to positively impact the company's borrowers by improving cash flow and strengthening balance sheets.

The company filed a shelf registration statement with the SEC to issue up to $500 million in securities, aiming to increase liquidity and financial flexibility.

Management highlighted a significant increase in its non-cannabis origination pipeline, while remaining optimistic about future cannabis opportunities due to favorable regulatory shifts.

The company maintains a low debt-to-equity ratio of 0.18, providing room for leverage expansion, and reported no loans on non-accrual status.

Full Transcript

OPERATOR

Good day and welcome to Chicago Atlantic BDC Inc. First Quarter 2026 earnings conference call all participants will be in the listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to turn the conference over to Lisa Kemps. Please go ahead, ma'am.

Lisa Kemps (Moderator)

Thank you. Good morning. Welcome to the Chicago Atlantic BDC conference call to review the company's results. On the call today will be Peter Sack, Chief Executive Officer, Tom Jeffrey, Interim Chief Financial Officer and Dino Colonna, President. Our results were released this morning in our earnings press release, which can be found on the Investor Relations section of our website and in our supplemental earnings presentation filed with the SEC. A live audio webcast of this call is being made available today. For those who listen to the replay of this webcast, we remind you the remarks made herein are as of today and will not be updated subsequent to this call. 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 security laws. Such statements involve known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those forward looking statements. We encourage you to refer to our most recent SEC filings for information on some of these risk factors. Chicago Atlantic BDC 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 14, 2026. Therefore, you are advised that that time sensitive information may no longer be accurate at the time of any replay or transcript reading. I will now turn the call over to Peter Sack. Please go ahead.

Peter Sack (Chief Executive Officer)

Thank you, Lisa. Good morning everyone. Chicago Atlantic BDC's record results this quarter demonstrate the benefits of our differentiated strategy. As the first publicly listed BDC focused primarily on lending to the cannabis industry, we remain uniquely positioned to participate in a market with limited competition. In an environment where other BDCs are struggling against credit performance, dividend coverage concerns and interest rate uncertainty, Chicago Atlantic BDC has continued to strengthen its position. Net investment income for the first quarter of 2026 reached a record 10 million or $0.44 per share during the quarter we executed on our pipeline, funding a record 93.9 million across seven portfolio companies, including three new borrowers. We efficiently utilized additional capacity on our credit facility, growing the portfolio to its largest level in company history. Today we announced a 34 cent dividend marking the seventh consecutive quarter. At that rate, we continue to benchmark the company's performance against the broader public BDC industry as as documented in the Raymond James BDC Weekly Insights as of May 1, 2026 and Oppenheimer's BDC Quarterly Report as of March 27, 2026. Our weighted average yield on debt investments as of March 31, 2026 was 15.8% compared to 10.8% for the average public BDC. 100% of our debt portfolio is senior secured. 1.3% of our total investment portfolio has exposure to sub debt equity or JV investments compared to other BDCs who have an average exposure of 25.5%. 94% of the portfolio at par is either fixed rate or floating rate at their respective floor, insulating the company against a drop in interest rates. 100 basis point drop in benchmark rates would have an estimated annualized impact of less than 15 basis points on interest income. Importantly, our floating rate loans combined with our rate floor protections provides a structural advantage in portfolio construction. Only 2.6% of the portfolio at fair value has exposure to the software industry. We believe that our investments have very little overlap with the investments made by other public BDCs due to our unique investment strategy focused on underserved markets. The portfolio is underlevered with only $54.5 million of debt as of quarter end with 0.18 times debt to equity ratio. This compares with the BDC average of 1.3 times debt to equity ratio, providing us with ample room to expand our liquidity and still below industry average for leverage. Lastly, we have no non accruals compared with an industry average of 3.4% of cost. In addition to our record quarter in April, federal cannabis policy momentum accelerated meaningfully. The Department of Justice took a significant step announcing that state licensed medical cannabis products will be moved from Schedule 1 to Schedule 3. This represents the most significant federal policy shift in decades. The rescheduling will eliminate the onerous 280e tax code, meaning that medical cannabis will be taxed like a normal business on pre tax income and no longer taxed on gross profit. Operators with medical cannabis market exposure will benefit with increased cash flow and strengthen balance sheets over time. We foresee this as favorably impacting the credit quality of our borrowers, although each business will be impacted differently based on based on their medical market exposure. We await the administrative hearing scheduled for June 29, when the rescheduling of recreational cannabis will be considered. The outcome of this hearing, expected to conclude by July 15, could have tremendous impact on the economics of the broader cannabis industry in the US including increasing capital markets and M and A activity which Chicago Atlantic is well positioned to benefit from. While the current regulatory trajectory supports improved industry economics, we believe ongoing federal constraints and industry complexity will limit new large scale lending competition in the near term. Consistent with our historical approach, we will maintain our rigorous underwriting standards based on today's regulatory framework, not potential future regulatory reform. In conclusion, relying on our niche strategy enables us to operate in markets with limited competition and generate yields above our BDC peers. By focusing on underserved segments of the debt market, we benefit from strong pricing power with meaningful downside protection. We believe cannabis and the lower middle market remain structurally attractive relative to larger markets with less competition, stronger lender controls and stable underlying credit fundamentals. The Company's performance through volatile markets underscores the resilience of our business model and its ability to support a consistent dividend. Now I'll turn it over to Tom to discuss the numbers in greater detail.

Tom Jeffrey (Interim Chief Financial Officer)

Good morning. Thanks Peter. I want to highlight the investor presentation that was filed with the SEC this morning that serves as our earnings supplemental. I'll start with the investment portfolio. We have 40 portfolio company investments. 24% of the portfolio is invested in non cannabis companies across multiple sectors. The average credit investment size is approximately 2.3% of our debt portfolio at fair value, while approximately 94% of the debt portfolio is insulated from interest rate declines through fixed rate structures or interest rate floors. The portfolio retains meaningful upside through favorable convexity in a rising rate environment. The gross weighted average yield of the Company's debt investment portfolio is approximately 15.8%, which is in line with last quarter's yield and none of our loans are on non accrual status. As of March 31, 2026, the company had $54.5 million of debt outstanding, all of which was drawn from the revolving line of Credit. As of May 13, 2026, the Company had approximately $51.5 million of liquidity comprised of $50 million of borrowing capacity under its $100 million credit facility subject to a borrowing base and other restrictions, and approximately $1.5 million of cash on the balance sheet. Subsequent to quarter end, the Company filed a shelf registration statement with the SEC to allow the Company to issue up to $500 million in securities, including debt securities to increase our available liquidity beyond the credit facility and create additional financial flexibility. We believe the opportunistic use of additional leverage deployed into high quality, high yielding assets can be accretive to earnings and supportive towards shareholder returns. Turning now to the financial highlights for the first quarter, gross investment income increased to 16.7 million from 14.2 million for the fourth quarter of 2025, primarily due to higher interest income. Net expenses for the quarter were 6.7 million compared to 5.9 million in 4Q25. This increase was driven by an increase in interest expense from the utilization of the credit facility to fund new originations. Net investment income for the quarter was a record 10 million or $0.44 per share, up from 8.3 million or $0.36 per share in the fourth quarter of 2025. The increase was driven by increases in both interest income and fee income on strong deployments and partially offset by changes in expense in our investment portfolio. We recognized a net unrealized loss this quarter of 1.4 million which was due to the impact of widening spreads, not underlying credit performance. Net assets reached a new high of 304.2 million at quarter end. Net asset value per share was $13.33 compared to $13.30 in the fourth quarter of 2025. At quarter end there were 22.8 million common shares issued and outstanding on a basic and fully diluted basis. I will now turn it over to DINO to talk about our origination efforts.

Dino Colonna (President)

Thanks, Tom. The first quarter of 2026 was our most active origination period to date from both a gross and net deployment perspective. We funded $93.9 million in new debt investments, including a $38.3 million refinancing to our largest borrower, which we believe remains an attractive investment for the portfolio now with an extended duration. Three of the seven portfolio companies we transacted with were new borrowers to the BDC. Of these new debt investments, 100% of them were senior secured and 83% are fixed rate or floating rate loans at their respective floor. At quarter end, net investment activity for the quarter stood at 30. During the first quarter we had loan repayments and amortization totaling approximately 63.4 million, which included refinancings of 42.1 million and 21.3 million in paydowns and amortization. As of the end of the first quarter there were approximately 13.7 million in total unfunded commitments for the portfolio. Since quarter end, one borrower fully repaid a $7 million loan. The pipeline across the Chicago Atlantic platform as of quarter end, which includes cannabis and non cannabis opportunities, total approximately $810 million in potential debt transactions. The breakdown of the opportunity set includes approximately $482 million in cannabis opportunities and approximately $328 million in non cannabis opportunities. Our non cannabis origination pipeline expanded meaningfully throughout the quarter as companies increasingly looked past broader macro uncertainty and reengaged in strategic activity while larger lenders seem to take a more cautious posture. At the start of the first quarter we saw a clear inflection point mid quarter with a notable pickup in deal flow and financing demand. We also expect activity in cannabis to pick up throughout the remainder of the year as regulatory tailwinds start to filter through to industry fundamentals and M and A appetite. Regardless of which way activity or competition for financing shifts or regulatory reform plays out, we will remain disciplined in our approach to underwriting. As the BDC sector continues to navigate macro uncertainty, we believe performance dispersion across BDCs will continue to widen while peers face pressure from mark to market volatility, yield compression and evolving dividend dynamics. We see these as largely market driven repricing events rather than broad based BDC industry deterioration. In this context, differentiation matters. Our focus on cannabis and the underserved lower middle market positions us in a less competitive segment with favorable pricing dynamics and strong lender protection. Combined with our disciplined underwriting and senior secured portfolio, we believe we are well positioned to capture attractive risk adjusted returns while managing downside risk and delivering sustainable returns for our shareholders. Operator, we're now ready for questions.

Sue

Thank you Sue. We will now begin the question and answer session. To ask a question you may press Star and one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any times your question has been addressed and you would like to withdraw your question, please press Star then two. At this time we will pause momentarily to assemble our roster. First question come from Pablo Zuanik with Zuanyik Associates. Please go ahead.

Pablo Zuanik (Analyst)

Thank you and good morning everyone. Can you just give more color on the shelf registration? 500 million. I suppose because of a discount to book value per share, equity would not be an option? It would be mostly debt securities. Can you talk about the type of rates you could get compared to your current revolver and timing you may tap into the debt security market? Thank you.

Tom Jeffrey (Interim Chief Financial Officer)

Hi Pablo, thank you for the question. We filed the shelf registration primarily with a focus on being able to raise debt in the future. It's too early to speak to what rates we may or may not be able to get and when we might raise the capital.

Pablo Zuanik (Analyst)

Understood. And then just a reminder, in terms of what leverage you are comfortable with, I know you mentioned 1.3 is the BDC average, but what are you comfortable with? Given your model, we expect to stay well below the BDC average. All right, thank you. And then just moving on to book loan growth. I know Dino talked about he gave the split of the pipeline between cannabis and non cannabis. I don't remember a number had been given before. Can you just remind us by how much the just better sense of how much the non cannabis pipeline grew by. And then given the favorable regulatory news from cannabis, I would have thought that over the next one or two years you would skew more into cannabis in terms of new lending than non cannabis. But that doesn't seem to be the case based on the numbers you are giving us.

Dino Colonna (President)

Thank you. Hey Pablo, thanks for that. I think the non cannabis origination pipeline grew significantly, but it's just a pipeline. What actually will wind up transacting? It's hard to tell. I do think the cannabis portfolio as I mentioned, or the origination pipeline will continue to grow. Off the back of the recent news, we've seen increased MA activity and I think we expect to see more as the year progresses.

Pablo Zuanik (Analyst)

Okay, thank you. But just for modeling purposes and I know we could do this offline, but for modeling purposes, can we just assume that you will make full use of the revolver by end of the year?

Tom Jeffrey (Interim Chief Financial Officer)

We certainly aim to do so.

Pablo Zuanik (Analyst)

Okay, thank you. And then just I was trying to do the math in terms of the average loan size for those three new portfolio companies. I don't know if you can give that number. I don't think the 10Q has been filed yet and I couldn't figure it out from the presentation, but it just seems to me that a lot of the new loans have been a lot smaller. And is that within your target range or do you expect them to be larger over time?

Dino Colonna (President)

I think you might notice that our non cannabis portfolio is comprised of loans that are much smaller and that's by design that we expect that cannabis non cannabis diversified lending portfolio to range between 20 and 30% of the portfolio and to be comprised of smaller positions than you'll see in our cannabis portfolio. Right, okay.

Pablo Zuanik (Analyst)

And then just stepping back, bigger picture. I know everyone is talking about, you know, this ramp on potential M and A activity because of the rescaling news, but are you really seeing that so far and is this going to be more about public companies buying private operators or both ways private and private just give more color in terms of M&A because what we are hearing is that it has changed but not as much as one would have expected. Just give more color in that regard.

Dino Colonna (President)

We are certainly seeing it in our pipeline that a an increasing portion of our pipeline of opportunities is driven by M and A. I think not all of this M and A is large enough or with public companies enough just to be publicly announced but I think the interest and the interest is definitely there. The excitement is there and the eagerness to take advantage what seems like a one time opportunity within the industry is driving this sentiment change.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.