AFC Gamma Q2 2026 Earnings Call Transcript

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August 13, 2026

Key Takeaways

  • Net asset value increased to $8.25 per share, up $0.35 sequentially, driven by $0.15 of net investment income, $0.17 of accretion from share repurchases, and approximately $0.08 of unrealized appreciation. Net investment income covered the $0.05 quarterly distribution by three times.
  • AFC reported a $1.3 billion lower-middle-market pipeline and more than $70 million of available liquidity, supporting continued investment despite management’s expectation that originations will remain lumpy. The company also committed $7 million to a behavioral-health credit facility after quarter-end.
  • The company repurchased approximately $2.8 million of stock during the quarter at an average price of $3.29 per share, leaving $2.2 million under its authorized $5 million program. Management said the buybacks were $0.17 accretive to NAV per share.
  • Legacy cannabis credit issues remain a key risk: the Justice Grown loan is in maturity default and AFC has begun Article 9 foreclosure proceedings, while other non-accrual cannabis investments continue through liquidation or repayment processes.
  • AFC’s portfolio totaled $290 million across 17 companies, consisting entirely of senior secured first-lien investments with a 13.2% weighted-average yield excluding non-accrual loans. Leverage was 1.1 times debt-to-equity, while management said it remains cautious on new cannabis lending because borrowers still face limited access to equity capital.
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Earnings Conference Call
AFC Gamma Q2 2026
00:00 / 00:00

Transcript Sections

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Operator

Day, and thank you for standing by. Welcome to the AFC second quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, please press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Gabriel Katz, Chief Legal Officer. Sir, please go ahead.

Gabriel Katz
Chief Legal Officer at AFC

Good morning, and thank you all for joining AFC's earnings call for the quarter ended June 30, 2026. I am joined this morning by Robyn Tannenbaum, our President and Chief Investment Officer, Daniel Neville, our Chief Executive Officer, and Brandon Hetzel, our Chief Financial Officer. Before we begin, I would like to note that this call is being recorded. Replay information is included in our July 17, 2026 press release and is posted on the investor relations portion of AFC's website at afcbdc.com, along with our second quarter 2026 earnings release and investor presentation. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, market developments, anticipated portfolio yield, and financial performance and projections in 2026 and beyond. These statements are subject to inherent uncertainties in predicting future results.

Gabriel Katz
Chief Legal Officer at AFC

Please refer to AFC's most recent periodic filings with the SEC, including our quarterly report on Form 10-Q filed earlier this morning for certain conditions and significant factors that could cause actual results to differ materially from these forward-looking statements and projections. Today's call will begin with Robyn providing an overview of the lending environment and our results. Dan will then provide an update on our portfolio and pipeline. Finally, Brandon will conclude with a summary of our financial results before we open the line for Q&A. With that, I will now turn the call over to our President and Chief Investment Officer, Robyn Tannenbaum.

Robyn Tannenbaum
Robyn Tannenbaum
President and Chief Investment Officer at AFC

Thanks, Gabe, and good morning, everyone. We appreciate you joining us to discuss AFC's second quarter 2026 earnings. Before turning to our results, I want to provide some context on the broader lending environment. As many of you know, the private credit ecosystem is experiencing stress. Default rates across private credit have risen notably, with Fitch reporting a 6% default rate as of July 2026, and Proskauer's Private Credit Default Index tracking a similar upward trend. Banks, while not direct lenders to much of the middle market, hold indirect exposure through leverage facilities extended to private credit funds, and that exposure is now drawing increased scrutiny. In response to broader market stress, we are seeing a pullback in available capital, particularly in the lower middle market, where many lenders have either exited or shifted upmarket to support their existing portfolios.

Robyn Tannenbaum
Robyn Tannenbaum
President and Chief Investment Officer at AFC

As a result, we continue to believe the lower middle market offers one of the most compelling risk-adjusted return investment opportunities in private credit today. Competition remains rational in our segment. Unlike the upper middle market, where larger direct lending funds continue to compete aggressively on pricing, leverage, and documentation, the lower middle market continues to reward lenders with sponsor relationships, internal sourcing capabilities, and the ability to execute quickly. For AFC, this environment is exciting and what we are prepared for. We believe that this location is creating a compelling vintage for new originations. The loans we originate are generally supported by both enterprise value and asset coverage. We continue to negotiate comprehensive maintenance covenant packages, including leverage and fixed charge coverage tests. Our pipeline continues to reflect that opportunity, and we are being thoughtful in how we deploy capital.

Robyn Tannenbaum
Robyn Tannenbaum
President and Chief Investment Officer at AFC

In contrast, much of the upper middle market remains characterized by covenant-lite structures with fewer lender protections and more aggressive EBITDA adjustments. Now turning to our results. For the second quarter of 2026, AFC generated net investment income of $0.15 per weighted average share of common stock. Additionally, the board of directors declared a second quarter distribution of $0.05 per share, which was paid on July 15th, 2026, to shareholders of record on June 30th, 2026. Last quarter, we announced a share repurchase program. During the quarter, we repurchased about $2.8 million, which was $0.17 accretive to net asset value. We have approximately $2.2 million remaining in our $5 million share buyback program. Year to date, we have deployed approximately $102 million in new lower middle market commitments.

Robyn Tannenbaum
Robyn Tannenbaum
President and Chief Investment Officer at AFC

Our pipeline remains well-diversified across industries, and we tend to avoid sectors where we believe cyclicality or disruption creates an unfavorable risk profile. I will now turn it over to Dan to discuss our portfolio.

Dan Neville
CEO at AFC

Thanks, Robyn, and good morning, everyone. I'll start with the portfolio and our investment activity for the quarter, then provide an update on our legacy positions and our pipeline. As of June 30th, 2026, the fair value across our investment portfolio was $290 million across 17 portfolio companies, compared to $279 million across 15 portfolio companies at March 31st. 100% of the portfolio is in senior secured first lien debt investments, and the weighted average yield, excluding non-accrual loans, was 13.2%. During the quarter, we funded $17 million, including $5 million to two new portfolio companies and $12 million to two existing portfolio companies

Dan Neville
CEO at AFC

Fundings were $8 million against $9 million of amortization and repayments. Subsequent to quarter end, we committed $7 million to a $25 million senior secured credit facility for a leading outpatient behavioral health platform with $3 million funded at close. The use of proceeds was to refinance existing debt and support future growth through acquisitions, and is consistent with our expanded lower middle market mandate. Turning to non-accrual loans, which remain concentrated in the legacy cannabis book. Regarding DEBI, the receiver has continued the liquidation process. During the quarter, DEBI entered into a binding term sheet to sell two additional assets of DEBI for $12.5 million in cash proceeds. Subsequent to quarter end, DEBI earned a $2 million non-refundable deposit on the purchase, and we expect the transaction to close this year. Inception to date, we have received $58 million of principal repayment on the DEBI loan.

Dan Neville
CEO at AFC

Regarding DMA, the receiver has continued the liquidation process and closed the sale of two of the three dispensaries subsequent to quarter end. Moving on to Justice Grown. The Justice Grown loan matured on May 1st, 2026, and is in maturity default. We have commenced Article 9 foreclosures and are pursuing our rights and remedies under both the credit agreement, including the parent guarantee and the shareholder guarantee. Our collateral includes vertically integrated assets in New Jersey and three operating dispensaries in Pennsylvania, and a non-operating cultivation facility in Pennsylvania. AFC has engaged SSC Advisors to conduct a robust marketing process for these assets, and we encourage any interested buyers to see the notices available on our website and reach out to SSC for additional information. Given the active legal proceedings, we will not comment further on the specifics outside of what is disclosed in our SEC filings.

Dan Neville
CEO at AFC

Taking a step back, the portfolio continues to evolve as we make progress towards resolving the legacy cannabis loans on non-accrual and the performing cannabis book amortizes and repays over time. Multiple trends signal that capital demand in the lower middle market is only accelerating as legacy lenders push upmarket. We will look to redeploy that capital into strong risk-adjusted opportunities in the lower middle market. Our pipeline remains active with $1.3 billion across a diverse range of industries. We remain focused on cash flowing borrowers with $5 million to $15 million of EBITDA, primarily in sponsored transactions where we believe we can achieve risk-adjusted returns with strong structural protections. We are maintaining a disciplined approach to underwriting while actively advancing several opportunities through our pipeline. Now, I'll turn it over to Brandon to discuss our financial results in more detail.

Brandon Hetzel
CFO at AFC

Thank you, Dan. For the quarter ended June 30th, 2026, we generated total investment income of $8.7 million and net investment income of $3.5 million or $0.15 per weighted average share of common stock. This provided 3x coverage of our $0.05 second quarter 2026 distribution. Total investment income was $8.7 million, compared with $9.8 million in the first quarter. The decline primarily reflects $1.8 million of other income recognized in the first quarter that did not recur in the second quarter, mainly relating to a $1.5 million exit fee from the Bloom repayment. Excluding these exit fees that are episodic, investment income increased modestly quarter-over-quarter, driven by higher interest income. Total operating and income tax expenses were $5.2 million compared to $5 million in the first quarter and are present a net of a management fee rebate of approximately $176,000 for the quarter.

Brandon Hetzel
CFO at AFC

We ended the second quarter with $364.5 million of principal outstanding spread across 17 loans. As of June 30, 2026, we had total assets of $399.7 million, total net assets of $187.3 million, and our net asset value per share was $8.25. This is an increase of $0.35 per share over the prior quarter. The increase in net asset value per share was driven by net investment income of $0.15 per share, $0.17 per share of accretion from repurchasing shares below net asset value, and an increase in unrealized appreciation on investments of approximately $0.08 per share, and offset by the second quarter distribution of $0.05 per share. Regarding the share repurchase program, during the quarter, we repurchased and extinguished approximately 839,000 shares at a weighted average price of $3.29 per share for approximately $2.8 million in the aggregate.

Brandon Hetzel
CFO at AFC

Approximately $2.2 million remains available under the $5 million share repurchase program. Turning to the balance sheet, as of June 30, 2026, we had $207 million of debt outstanding, consisting of $110 million drawn under our secured revolving credit facility, $20 million drawn under our unsecured revolving credit facility, and $77 million of senior unsecured notes outstanding. Subsequent to quarter end, the company repaid $84 million and $20 million respectively on the company's outstanding debt obligations under the secured revolving credit facility and the unsecured revolving credit facility. The weighted average interest rate on our debt outstanding was 6.3% for the quarter. Debt to equity was 1.1x as of June 30, compared to 1.09x at March 31, and net debt to equity was 0.53x compared to 0.48x respectively. Our asset coverage ratio was 190%, which provides meaningful cushion against the 150% requirement applicable to us.

Brandon Hetzel
CFO at AFC

We ended the quarter with $106.5 million of cash and cash equivalents. This provides substantial liquidity for new investments and other capital allocation opportunities. On distributions, we paid the second quarter distribution of $0.05 per common share on July 15, 2026 to shareholders of record as of June 30, 2026. With that, I will now turn it back over to the operator to start the Q&A.

Operator

Our first question is going to come from the line of Aaron Grey with Alliance Global Partners. Your line is open. Please go ahead.

Aaron Grey
Aaron Grey
Analyst at Alliance Global Partners

Hi. Thank you very much for the questions here. I guess first one for me, just in terms of activity. Can certainly appreciate incremental funding for existing borrowers, but as we think about new borrowers, today you have this participation in July, but how best to think about the pipeline relative to your ability to execute on opportunities in the near term? It does seem like there has been a little bit maybe of a slowdown considering the fast start you got off to in January, February. Just curious in terms of that is partially the environment, maybe a bit longer of a process, some timing. Any color there would be appreciated. Thank you.

Robyn Tannenbaum
Robyn Tannenbaum
President and Chief Investment Officer at AFC

Dan, do you want to take that one?

Dan Neville
CEO at AFC

Yeah, sure. Thanks, Aaron. We have a very active pipeline, $1.3 billion in the pipeline, and I think we are happy with the quality of the opportunities that we are seeing in the pipeline, the pricing that we are seeing, et cetera. But originations are going to be lumpy. You saw it in Q1, we did about $80 million. We did less in Q2. I think that we are advancing a bunch of opportunities through the pipeline and are seeing good looks, and we will look to continue the momentum over the course of the year. But it will be lumpy and episodic, just given the deals that we are hunting.

Aaron Grey
Aaron Grey
Analyst at Alliance Global Partners

I appreciate that. That is helpful. Then just in that line, given the potential lumpiness of this, and you could have some potential larger opportunities, how comfortable do you feel regarding your liquidity position today to ensure that you are able to capitalize on potential larger opportunities that could come in the pipeline? Thanks.

Robyn Tannenbaum
Robyn Tannenbaum
President and Chief Investment Officer at AFC

Dan, do you want to do that one, or Brandon?

Brandon Hetzel
CFO at AFC

Yeah, sure. As stated in my remarks, at the end of the quarter in our investment presentation, we have over $70 million in liquidity available to deploy. So we are very comfortable with our liquidity position.

Dan Neville
CEO at AFC

Yeah. I would say in terms of some of the larger opportunities too as well outside of AFC, we do operate under a co-investment relief order with the SEC, which allows us to potentially participate with other affiliates under the TCG platform. One of the opportunities that you saw in July, we participated alongside an affiliate, and if there are larger opportunities out there that we are chasing, that is also an option to deploy into larger opportunities. There is also the opportunity to syndicate deals that are above our target hold threshold as well. Okay, great. Thanks. Last question from me. I know you said in prepared remarks, nothing further from some of the SEC filings regarding Justice, but just maybe to clarify things.

Aaron Grey
Aaron Grey
Analyst at Alliance Global Partners

Now that you have the processes in place that you talked about in prepared remarks, there is nothing outstanding or maybe that the legacy operators are doing that could keep you from going through with a sale process and for you to be able to retrieve as much as possible from those assets? Just any clarification on that would be helpful. Thanks.

Robyn Tannenbaum
Robyn Tannenbaum
President and Chief Investment Officer at AFC

Gabe or Dan?

Dan Neville
CEO at AFC

Yeah, Aaron, we have pretty extensive disclosures in the SEC filings. I would encourage you and the investors to read through that. Outside of that, we just are not going to be able to comment given the active stages of litigation there.

Aaron Grey
Aaron Grey
Analyst at Alliance Global Partners

Fair enough. Thank you very much. I will jump back in the queue.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Pablo Zuanic with Zuanic & Associates. Your line is open. Please go ahead.

Pablo Zuanic
Analyst at Zuanic & Associates

Thank you, and good morning, everyone. Dan, can you maybe go back to your comments in prior quarters about your views about lending in the cannabis industry? You have implied that you remain very cautious there and that pretty much all the new activity will be outside of cannabis, but we do have a more favorable regulatory backdrop. Do you want to expand on that, please? Thanks.

Dan Neville
CEO at AFC

Sure. Thanks for the question, Pablo. I think what we have said in prior quarters and in prior years is that access to equity capital in the cannabis industry was challenged, and I think unfortunately it still continues to be challenged. There have been a lot of milestones that people have been hoping for a while that have been long overdue, like the rescheduling of medical cannabis, which happened, I think, quicker relative to where people thought it was going to be a few months ago, and the pending potential rescheduling of adult use cannabis. We have also had, I think, two companies now uplist to NYSE, and unfortunately, you have not seen a lot of activity on the equity capital side of things associated with it, and I think it is still a difficult environment to raise equity capital.

Dan Neville
CEO at AFC

As a result, I think we have concerns about the industry being continued to be funded on the debt side of things without having access to equity capital. That also impacts the re-up ability of these borrowers. These are not straightforward businesses. There can be some volatility in the industry, in the regulatory environment, and a lack of re-up ability on the equity side of things to deal with those problems is problematic to debt investors. We applaud the progress. I think there has been good progress, but the lack of equity capital is very problematic for us.

Pablo Zuanic
Analyst at Zuanic & Associates

Thank you. That is good color. Maybe just going back to DEBI and DMA. In the case of DEBI, you said that you are expecting the assets to be sold for $12.5 million in the second half and that a deposit was already taken on the transaction for $2 million. That pretty much confirms that the transaction is in place. I just want to make sure I hear that right. I know I can go back to the transcript and whether you have access to the full amount, or are there other parties that have access to those proceeds also? Thanks.

Dan Neville
CEO at AFC

Yeah. So you heard correct. It was a binding term sheet that was signed up, subject to a $2 million cash hard deposit. So our expectation is that closes sometime this year, and that would be for $12.5 million of total cash proceeds. We are a participant in, we are the lead participant in the DEBI loan, but I believe we have 78% or somewhere around 80% is our participation in DEBI. So 80% of the proceeds would be distributed to us on a pro rata basis.

Pablo Zuanic
Analyst at Zuanic & Associates

Thank you. That is good color. The same question on DMA, and I am sorry if I misheard. You said that two of the three dispensaries closed the transaction, or they closed operations. I am just trying, and I do not know if you can give a number in terms of what you are expecting there. Thanks.

Dan Neville
CEO at AFC

No. Luckily, the transaction closed. The dispensaries did not close. So we had two of the three dispensaries under APA previously. Both of those sales received regulatory approval in June, and both of those transactions closed in July. I think in terms of the rest of the transaction and the wind down of DMA, we have one more to go. You can look at our new BDC filings to see where our market is on that.

Pablo Zuanic
Analyst at Zuanic & Associates

Right. Again, apologies if there are more people on the Q&A line here, Uhm. In terms of the new loan you made in the third quarter, can you give more color on the amount? I think you said $17 million, or maybe I misheard. More color on the company itself, if you can. Thank you.

Dan Neville
CEO at AFC

In the second quarter, Pablo, you were asking? The loan in the second quarter.

Pablo Zuanic
Analyst at Zuanic & Associates

I thought unless I misheard, I thought that you said subsequent to the quarter, you also funded a new loan, or maybe I misheard that.

Dan Neville
CEO at AFC

Yep. Yeah, that's correct. We talked a little bit in the script. It's a behavioral health roll-up focused in the Northeast. They have 10 locations throughout the Northeast and do a mix of talk therapy, medication management, as well as some additional add-ons, both in an outpatient setting as well as a partial hospitalization setting. It's an industry we had talked about previously, focusing on industries that are more predictable, recession-resistant, have good cash flow characteristics, and highlighted healthcare as one of the areas we'd be focused on. We've done a couple transactions in and around that space, one in the insurance space in Q1, and this deal in Q3.

Brandon Hetzel
CFO at AFC

Pablo, the size of that deal was we committed $7 million and funded $3.1 million on closing.

Pablo Zuanic
Analyst at Zuanic & Associates

Thank you. That's good color there. I haven't gone through the 10-Q in full, only partially. I think a while ago you said that Sunburn was in non-accruals. Just a reminder of where you are with the Sunburn loan, which I think was renamed under another borrower's name, but just some color there.

Dan Neville
CEO at AFC

Oh, sure. We had some disclosure last quarter. We entered into a forbearance agreement with Sunburn that was conditioned on the company raising additional equity capital as well as some other conditions. The company fulfilled those obligations in Q2, and we received a pay-down associated with the loan. There was additional equity capital that went into the business for some expansion that they're looking to do. The company fulfilled the forbearance obligations, and the loan is in good standing.

Pablo Zuanic
Analyst at Zuanic & Associates

Okay, thank you. The very last one. Obviously, we know how much credit lines you have available. But right now, you're at net debt to equity at 0.53. What are you comfortable with? I understand the average on BDCs is like 1.3x, but what are you comfortable with?

Dan Neville
CEO at AFC

Sure. I think on our side of things, we've always said that somewhere around one times or potentially above that, but I think one times is a good intermediate target for us.

Pablo Zuanic
Analyst at Zuanic & Associates

Okay. That is good. Thank you. That is all for me.

Operator

Thank you.

Dan Neville
CEO at AFC

Great. Thank you, Pablo.

Operator

Thank you, and I am showing no further questions, and I would like to hand the conference back over to Dan Neville for closing remarks.

Dan Neville
CEO at AFC

Thanks everyone for joining us today, and we look forward to keeping you updated on future progress.

Operator

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Executives
Analysts
    • Gabriel Katz
      Chief Legal Officer at AFC
    • Dan Neville
      CEO at AFC
    • Brandon Hetzel
      CFO at AFC
    • Aaron Grey
      Analyst at Alliance Global Partners
    • Pablo Zuanic
      Analyst at Zuanic & Associates
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