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- **Strategic Shift to BDC**: Shareholder-approved conversion to a BDC in Q1 2026, enabling expansion into non-cannabis lending with a $350M pipeline targeting low double-digit IRRs.
- **Dividend Suspension**: Q4 2025 dividend canceled due to $4M taxable loss from private company P settlement, already reserved in Q3.
- **Portfolio Resilience**: $43M in repayments redeployed into higher-yield opportunities, with CECL reserve at $51.3M (18.7% of loans).
- **Cannabis Caution**: Limited fresh capital deployment in cannabis until federal reform, with selective underwriting focused on stable, recession-resistant industries.
- **Key Risk**: Ongoing litigation and asset recovery efforts for Justice Grown, with potential impact on 2026 earnings.

**【Management Opening Remarks】**
- Gabe Katz, CLO, introduced the call and highlighted the conversion to a BDC, which was approved by 94% of shareholders on November 6, 2025. The conversion is expected to occur in Q1 2026, enabling AFC to expand into non-cannabis lending opportunities.
- The company emphasized the rationale for diversification, citing the need to mitigate cannabis industry risks and capitalize on broader middle-market lending opportunities.

**【CEO Commentary】**
- **Financial Performance**: Q3 2025 distributable earnings were $0.16 per share, with a $0.15 dividend paid in October. The company received $43 million in principal repayments during the quarter, redeploying $10 million into higher-yield opportunities.
- **Portfolio Management**: Notable developments include:
  - Private company A's liquidation process yielding $4.2 million.
  - Private company P's $13.3 million settlement, resulting in a $4 million taxable loss (already reserved).
  - Justice Grown litigation progress, with potential asset recovery in NJ and PA.
- **Future Outlook**: The $350 million non-cannabis pipeline targets low double-digit IRRs, focusing on stable, recession-resistant industries. The company anticipates no Q4 dividend due to the P loan loss.

**【CFO Financial Commentary】**
- **Key Metrics**: 
  - GAAP net loss: $12.5 million (Q3 2025).
  - Book value per share: $7.49 (as of Sep 30, 2025).
  - CECL reserve: $51.3 million (18.7% of loans).
- **Balance Sheet**: $327.7 million in principal outstanding across 14 loans as of Nov 3, 2025.
- **Dividend Policy**: Q4 dividend suspended; future policy will align with BDC structure post-Q1 2026 conversion.

**【Q&A Highlights】**
- **Pipeline Expansion**: The $350 million non-cannabis pipeline includes opportunities in stable industries like manufacturing and services, with yields below historical cannabis levels but attractive risk-adjusted returns.
- **Cannabis Strategy**: Selective underwriting will continue, with limited fresh capital deployment until federal reform or equity capital return.
- **BDC Transition**: The external management fee structure is detailed in the proxy, with no dividend guidance beyond Q4 2025.
- **Litigation Update**: Justice Grown's NJ and PA assets remain key recovery targets, with ongoing legal actions.


Advanced Flower Capital Inc. (AFCG) Q3 2025 Earnings Call Transcript

Revenue

Sales and Services Revenue

Financing Services Revenue

Other Revenue

Cost of Revenue

Cost of Goods and Services

Cost of Financing Services

Other Cost

Gross Profit

Other Operating Income

Operating Expenses

Selling, General and Administrative Expenses

Selling and Marketing Expenses

General and Administrative Expenses

Research and Development Expenses

Loss on Bad Debts

Loss on Impairment of Other Assets

Loss on Disposal of Assets

Other Operating Expenses

Operating Income

Non-Operating Income (Loss)

Income (Loss) from Affiliates

Income (Loss) from Associates

Income (Loss) from Joint ventures

Gain (Loss) on Other Investment

Gain (Loss) on Change in Fair Value

Gain (Loss) on Foreign Currency Exchange

Other Non-Operating Income (Loss)

Net Interest Expense

Interest Expense

Interest Income

Pretax Income From Continuing Operations

Income Tax Expense

Current Income Tax

Deferred Income Tax

Income Tax Adjustments

Net Income from Continuing Operations

Income from Discontinued Operations

Other Items Before Net Income

Net Income

Net Income Attributable to Minority Interests

Net Income Attributable to Owners of the Company

Preferred Stock Dividends

Other Adjustments

Net Income Attributable to Common Stockholders

Other Comprehensive Income

Total Comprehensive Income

Total Comprehensive Income Attributable to Minority Interests

Total Comprehensive Income Attributable to Owners of the Company

Basic EPS

Basic EPS from Continuing Operations

Basic EPS from Discontinued Operations

Diluted EPS

Diluted EPS from Continuing Operations

Diluted EPS from Discontinued Operations

AFCG

AFCG fundamentals

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