Great Elm Group Q2 2024 Earnings Call Transcript

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February 14, 2024

There are 4 speakers on the call.

Operator

Hello, and welcome to the Great Elm Group Fiscal Second Quarter 20 24 Earnings Call. All lines have been placed on mute to prevent any background noise. I will now turn the conference over to Adam Yates, Managing Director. Please go ahead.

Speaker 1

Good morning, everyone. Thank you for joining us for Great Elm Group's Fiscal Second Quarter 2024 Earnings Conference Call. As a reminder, this conference call is being recorded on Wednesday, February 14, 2024. If you would like to be added to our distribution list, you can email geginvestorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmgroup.com. The slide presentation accompanying today's conference call and webcast can be found on our website under Events and Presentations.

Speaker 1

A link to the webcast is also available on our website as well as in the press release that was disseminated to announce the quarterly results. Today's conference call includes forward looking statements and we ask that you refer to Great Elm Group's filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Group does not undertake to update its forward looking statements unless required by law. In addition, during today's call, management will refer to certain non GAAP financial measures. Reconciliations to the most comparable financial measures are included in our earnings release.

Speaker 1

To obtain copies of our SEC filings, Please visit Great Elm Group's website under Financial Information and select SEC filings. On the call today, we have Jason Rees, CEO Adam Kleinman, President and General Counsel Nicole Mills, COO and Kerry Davis, CFO. I will now turn the call over to Jason Rees,

Speaker 2

CEO. Welcome everyone and thank you for joining us. Before diving into 2nd quarter earnings, I want to highlight a pivotal transaction for our alternative credit platform that closed last week. On Thursday, GEG announced a $24,000,000 equity capital raise at our BDC Great Elm Capital Corporation. GEG provided significant support in this capital raise by investing $6,000,000 alongside an institutional investor in a special purpose vehicle that acquired $24,000,000 of common stock in GECC at net asset value.

Speaker 2

The institutional investor aims to establish a strategic relationship with Great Elm. This transaction is a step change for GEG. It increases GEG's basis for earning fees from GECC, giving the company the ability to add significant recurring asset management fee revenue and the potential to earn incentive fee revenue on this incremental capital. Most importantly, the investment structure embedded in this transaction provides a template for future capital raising and investment opportunities. Great Elm Group also launched the Great Elm Credit Income Fund during the fiscal Q2 with $13,000,000 of total capital.

Speaker 2

GEG ceded this private fund with

Operator

a $6,000,000

Speaker 2

investment alongside several additional investors. The Credit Income Fund will focus on direct lending, syndicated credit and special situations and we'll leverage our existing operational and origination platforms to manage and source investments. Management is focused on raising third party capital in the fund, providing another opportunity to grow our AUM and enhance recurring fee revenue. These investments made alongside other capital partners serve as a testament to GEG utilizing its strong liquid balance sheet to scale existing businesses, launch new fund products and deploy capital into new platform opportunities. Along with growing our recurring revenue, We believe that GEG's investments in these vehicles will deliver a strong return.

Speaker 2

In addition to these key strategic developments, GEG had a solid fiscal 2nd quarter of 24. We continue to grow our fee paying assets under management on both a sequential quarter and year over year basis. We generated total revenue of $2,800,000 a 50% increase from the prior year period and adjusted EBITDA of $600,000 up from $100,000 from the prior year period. We ended the quarter with approximately $69,000,000 in cash and marketable securities to deploy across our growing alternative Asset Management Platform. Reflecting on our 2 anchor fee paying vehicles, Monomoy and GECC, We have increased both fee revenue and AUM across both platforms.

Speaker 2

We will seek to accelerate the momentum at these core businesses and are pleased with continued solid performance from both during the quarter. GECC once again had a solid quarter. GECC will pay incentive fees to GEG for the 3rd consecutive quarter of approximately $750,000 bringing total fees earned by GEG from GECC to $1,700,000 for the quarter. GECC remains well positioned to continue paying GEG incentive fees moving forward as we see the results successful portfolio repositioning efforts. Additionally, NII continues to exceed the regular quarterly dividend and GECC declared a special dividend in December.

Speaker 2

Net asset value at GECC grew to $12.99 per share as of December 31, closed calendar 2023 with a 30% return on equity. Additionally, Monomoy made great strides during the quarter as the REIT acquired 3 properties with in place leases deploying $4,000,000 of capital amended 9 existing tenant leases for meaningful term extensions and executed 5 year renewal options on 2 properties with a key tenant. In addition, our built to suit business continued to make meaningful progress on its 2 construction projects in Florida and Mississippi. The real estate team remains on track to complete these projects within our current fiscal year. With a robust pipeline of new properties and open requirements from significant tenants, we remain confident of continued growth at Monomoy REIT and VTS through fiscal 2024.

Speaker 2

During the fiscal second quarter, our book value remained steady at $2.25 per share, which is why we intend to repurchase shares in the open market as part of our $10,000,000 common stock repurchase program approved in November 23. I'd like to conclude by reflecting upon the three goals we have consistently outlined in recent quarters: enhance our financial performance, broaden our platform and increase our AUM. I'm extremely pleased with great strides we have made toward achieving these goals so far in fiscal 2024. Our results demonstrate our commitment to repositioning Great Elm in the alternative asset management space by growing our core businesses and launching new products. Additionally, We continue to evaluate multiple strategic M and A opportunities in our promising pipeline.

Speaker 2

We will remain steadfast in pursuing opportunities to expand our business and invest capital in new platform opportunities that offer attractive risk adjusted returns. With that, I'll turn it over to Keri.

Speaker 3

Thank you, Jason. I'll provide a brief overview of the quarter and of course welcome all of you to review our filings in greater or reach out to our team with any questions. In review of continuing operations, quarter to date revenues grew 50% year over year to $2,800,000 driven by increased fee paying assets under management related to GECC and Monomoy and the recognition of incentive fees from GECC for the 3rd consecutive quarter, generating approximately $700,000 during the fiscal Q2. AUM of $655,000,000 as of December 31, 2023 was up 2% from the prior quarter end and up 6% from the prior year quarter end, while fee paying AUM grew to $461,000,000 up 2% quarter to date and up 5% from prior year quarter end. For the quarter, Great Elm Group generated a net loss from continuing operations of $200,000 compared to net income from continuing operations of $29,700,000 in the prior year period.

Speaker 3

Net income from continuing operations in the prior year period was inclusive of $22,200,000 in net realized and unrealized gain on investments and $10,500,000 gain related to the Forest transaction. Adjusted EBITDA for the quarter was $600,000 up from $100,000 generated in the prior year period. As of December 31, Great Elm Group approximately $69,000,000 of combined cash and marketable securities on our balance sheet to deploy across growing alternative asset management platform. Please refer to Slide 6 that provides an overview of our financial position and highlights our book value per share of approximately $2.25 which remains steady compared to September 30. This concludes my financial review of the quarter.

Speaker 3

With that, we will turn the call over to the operator to open for questions.

Operator

Thank you. There are no questions at this time. I will turn the call to Jason Rees.

Speaker 1

Thank you again for joining

Speaker 2

us today. We look forward to speaking with you in the future.

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Earnings Conference Call
Great Elm Group Q2 2024
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