Q1 2021 Great Elm Capital Group Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Great capital group's fiscal first quarter 2021 earnings call.

At this time all participants are in olefin only mode.

After the speaker's presentation, there will be a question and answer session.

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I would now like to hand, the conference over to one of your speakers for today out of me managing director. Please go ahead Sir.

Thank you Carol and good morning, everyone.

Thank you for joining us for great and capital group's fiscal first quarter 2021 earnings conference call.

As a reminder, this webcast of being recorded on Monday November 16 2020.

If you'd like to be added to our distribution list you can either email and investor relations at great on cap Dot com the sign up for alerts directly on our website the.

The slide presentation accompanying this morning's conference call and webcast can be found on great on capital group's website, www dot great Elm cap dotcom under events and presentations and.

The link to the webcast is also available on the website as wells and the press release that was disseminated to announce the quarterly results.

I'd like to call your attention to the customary safe Harbor statement regarding forward looking information.

Also please note the nothing in today's call constitutes an offer to sell or solicitation of offers to purchase our securities.

The.

Today's conference call include forward looking statements and projections and we ask that you were for the great on capital groups filings with the FCC for important factors that could cause actual results to differ materially from these projections.

Great and capital group does not undertake to update and forward looking statements unless required by law.

The team copies of the SEC filings. Please visit great on capital group's website under financial and FFO and select FCC filings.

Hosting the call this morning, and Peter Reid, Great on capital groups, Chief Executive Officer, and we'll now turn the call over the Peter.

Thank you Adam and good morning, everyone. Thank you for joining us today.

I'm joined this morning by our President and COO, Adam climb and her CFO, Brent Pearson and two senior members of our investment team and the eight and John LNG.

We will walk through an update on our operating companies investment management real estate and general corporate business segments as well as their associated financials.

Where relevant and our prepared remarks, we will point you to the corresponding slide and the presentation debt and referenced.

There are a number of objectives on which were focused to achieve long term success for GE Si and our shareholders.

We are focused on growing damage EBITDA and free cash flow, both organically and via M&A.

We are focused on increasing the free cash flow generated by our investment management business.

We believe the the best way to achieve this increase is by successfully monetizing existing investments and growing the assets under management as we've recently done.

We've also focused on continuing to reduce our corporate overhead as we grow cash flows and both our DMD and investment management businesses.

It's a multi pronged approach is the foundation for how we plan to increase the equity value per share at GE Si throughout fiscal year 2021 and beyond.

Please turn to slide four coverage you know to shareholders.

Of good momentum in both our GMI business and our investment management business. Despite the negative impact of cope and 19, the EMEA grew revenue by 10.4% year over year and the quarter the.

And me generated 2.8 million of adjusted EBITDA during the quarter down from 3.0 million last year and certain operating cost increased and.

Importantly, the army has resumed its search for attractive add on the acquisition candidates and is looking for businesses with the complimentary product lines and our existing or tangential geographic markets.

And our investment management business, right and capital Corp, or G. SIFI is developed and attractive pipeline of 10.

Total investments and the specialty finance sector.

Focused on opportunities in the sector and part of this of the performance of GE, Ccs investment and prestige capital, which has exceeded internal expectations.

In order to capitalize on the pipeline do you see she successfully completed the rights offering and October raising gross proceeds of $31.7 million.

We're actively deploying the the rights offering proceeds and we expect the increase and GE Ccs AIU and CTU and result in of the increase in investment management revenue and profitability.

Importantly, we remain confident and the quality of our businesses and are well positioned to capitalize on new potential opportunities for growth.

Please turn to slide six.

During the quarter ended September Thirtyth 2020, we reported consolidated revenue net loss and adjusted EBITDA of 16.7 million 3.9 million and 3.0 million respectively. Both.

Both revenue and adjusted EBITDA grew year over year, we're intently focused on growing both revenue and profitability at a faster pace across our verticals.

Please turn to slide eight to discuss the drivers of shareholder value.

The of clear objectives, and each of our verticals. The operating companies, we're focused on acquiring undercapitalized companies with significant growth potential both organic and through M&A and.

And investment management, we seek increased assets under management, both and GCC and and other investment vehicles managed by GCM and.

And real estate were managing our existing investment and Fort Myers to monetize their substantial tax assets.

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Please turn to slide nine is very important for us to maintain long term alignment with you our shareholders.

Our team collectively owns almost 2 million shares or 7% of the company, including our board of directors and their funds under management insiders collectively own or manage circa 27 per cent of the shares outstanding.

We believe this fosters the significant and long term alignment of interest amongst the employees directors and other shareholders.

[noise], let's turn to slide 11 for an overview of our operating company activity.

Jimmy generated $14.6 million of revenue and 2.8 million of adjusted EBITDA during the quarter the.

The managed to generate meaningful year over year revenue growth and the fiscal first quarter of despite the challenging environment.

Sales growth of Pep supplies with strong offset by moderate decline and rental revenues.

During the quarter of physician referrals, and new Pap patient set up sort of periodically disrupted due to cope it.

Consequently, new Pat patient set up the climbed 24.7% year over year, driven by reduced physician referrals.

Physician referrals and new pet patient set up did improve throughout the quarter, although not yet rebounding to pretty cold and levels.

After a sustained period of investment and the scalability of the platform. The management is focused on growing revenue and enhancing margins. Additionally, the Emmy husbands and its search for add on acquisition candidates.

In the near term, we're focused on acquiring businesses and existing or tangential geographic markets with significant product overlap were seeking incremental debt capital at the M. either fund our pipeline of attractive add on acquisitions.

Please turn to slide 12 to walk through the financial update for the EMEA segment.

Total revenue for the quarter was approximately 14.6 million.

Yeah, and we generated the net loss of 458000 and adjusted EBITDA was approximately 2.8 million.

The Emmys Unlevered free cash flow of 1.2 million was aided by minimal maintenance capital expenditure necessary to run the business net of 1.1 million of payments on equipment financing Levered free cash flow was the use of 840000 during the quarter.

Turning to slide 14, let's discuss the operating environment for our investment management business.

Revenue and profitability were stable quarter over quarter net assets. The GCC grew to approximately 60.5 million at quarter end as compared to the 53.2 million at June Thirtyth 2020, and 50.8 million at March 31 2020.

Notably Ci Ccs and investment and proceeds capital has exceeded the internal expectations.

Profitability of that investment the recent growth that his experience and that's the outlook for future growth and help GE CTG develop and attractive pipeline of potential investment opportunities and the specialty finance sector as I mentioned earlier the easy recently closed on the successful rights offering raising 31.7 million and gross proceeds in the quarter.

And the capitalize on this attractive pipeline.

It was an important step and our plan to increase GE Pcms AIU and.

The creeping GCM AIU and should increase our revenue earnings and cash flow.

Please turn to slide 15 to discuss the characteristics of the investment management vertical we.

We believe investment management, it's an attractive business for great Elm did the scalable business model high margins and the potential for free cash flow generation.

Over the long term, we plan to grow our investment management business by increasing assets under management, either through additional GCC capital raises BDC M&A or by growing the other investment vehicles with significant embedded operating leverage and then the established infrastructure with the lead the investment management business has the potential to generate free cash.

Flow on of meaningful scale.

On slide 16, we break out the segment financials for investment management total revenues, which include both management fees and administration fees were approximately 773000 and increase quarter over quarter, we generated the modest net loss and.

The adjusted EBITDA was approximately 204 to 2000.

Potential adjusted EBITDA growth should translate to a commensurate amount of free cash flow generation.

Please turn to slide 18 to discuss real estate.

Our real estate investment has been characterized by a limited amount of upfront capital deployed a significant amount of non recourse leverage the finance our acquisition and 2008 and continued taxable income to help monetize our and wells.

Let's turn to slide nine and.

The on the chart, assuming no appreciation and the property value she sees equity and the Fort Myers investment will continue to grow between now and the lease expiration and 2030 is.

Cash flow from the rental stream are utilized to amortize debt equity growth from one times, our investment of acquisition the greater than seven times and 2030, all without deploying and the additional capital.

Turning to slide 20.

Let's walk through the segment financials, the real estate.

During the quarter, we generated approximately 1.3 million and rental income 67000, and net income and 1.11 million of adjusted EBITDA.

Well not generating Levered free cash flow for great Elm as we discussed on the prior slide we continued to build the equity value and this investment through the amortization of debt.

On slide 22, we have.

For a review of great on the general corporate segment financial detail.

This quarter's 3.4 million net loss was in large part driven by a 1.9 million unrealized loss on the investment and GCC shares as.

As of September Thirtyth, 2020, Ci Ses consolidated cash balance was approximately 22.5 million cheat and he is actively looking for new investment opportunities.

Beyond the financial review on Slide 27, and where the summary of how we plan to continue to drive shareholder value, we intend to achieve the school through growth and great Elm, D. and me and investment management enhanced by reduced corporate overhead.

That concludes our review of Great items fiscal first quarter of 2021 financial results, let's open up the called for Q and a.

As a reminder to ask a question you all need to press star one on your telephone.

Withdraw your question please press the pound or how much cash.

Please standby and hope we can pilots you many roster.

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Good question.

And if we have no questions at the time I'll turn the call back over to out of me for final comments.

Thank you again for joining us this morning to discuss great on capital group's fiscal first quarter 2021 financial results. We appreciate your support and we look forward to creating long term shareholder value together.

Please do not hesitate to reach out to us the can be helpful with anything and follow up and have the great day.

Ladies and gentlemen, this does conclude today's conference call. Thank you again for participating you may now disconnect.

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