Q4 2021 Great Elm Group Inc Earnings Call
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Good day and thank you for standing by welcome to the Great Elm Group, Inc. Q4, 2021 conference call and webcast 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 the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to a representative of the company.
Please go ahead.
Thank you so much and good morning, everyone. Thank you for joining us for a great AUM groups fiscal fourth quarter and year end 2021 earnings conference call.
As a reminder, this conference call is being recorded on Tuesday September 22021.
We'd like to be added to our distribution list you can email investor relations at Great Elm capital income or you can sign up for alerts directly on our website at www Dot great AUM group Dot com.
With one presentation accompanying today's conference call and webcast can be found on our website under events and presentation, while we will not be directly referring to define themselves. Our comments today will generally follow the form and structure of the presentation.
A link to the webcast will also be available on our website as well as in the press release that was definitive to announce our quarterly results. This morning.
For those who may not be familiar with great. Andrew I'll take a brief moment to review the Companys general structure and strategy right now is a holding company and our objective is to create shareholder value through the collective efforts of driving our two verticals operating.
Operating companies and investment management, each of which employ a distinct strategy.
And operating companies, we currently manage great elm durable medical equipment or <unk>.
Distributor of respiratory care equipment and sleep study services.
In investment management, we seek to increase the assets under management, both in Great Elm Capital Corp, publicly traded BDC and.
And in other investment vehicles managed by Great Elm Capital Management, Virginia ECM.
I would like to call your attention to the customary safe Harbor statement regarding forward looking information. So please note that nothing in today's call constitutes an offer to sell or solicitation of offers to purchase our securities. Today's conference call includes forward looking statements and projections and we ask that you refer to great AUM group's filings with the SEC for important factors that could cause actual.
Our results to differ materially from those predictions great.
<unk> does not undertake to update its forward looking statements unless required by law.
To obtain copies of our SEC filings. Please visit great AUM group's website under financial information and select SEC filings.
With that hosting the call today is Mr. Peter Reed, Great AUM group's Chief Executive Officer. Please go ahead.
Welcome everyone and thank you for joining us today.
I am joined this morning by our President and COO, Adam Kleinman, and our CFO Brent Pearson.
Over the course of fiscal 2021.
We made considerable progress for <unk> and our shareholders.
Our <unk> business grew two difficult pandemic conditions and is poised for further growth. Thanks to two acquisitions that have been completed in calendar 2021.
Similarly, our investment management segment has benefited from two capital raises the GEC completed in FY 'twenty one.
Additionally, yesterday G SEC issued another $38.0 million of equity at net asset value.
Connection with its acquisition of lenders funding.
Taken together these transactions should drive increased fee revenue at GEC M.
Finally, we have dramatically simplified our corporate structure.
As a result of two different transactions, our consolidated balance sheet has $57 million less debt on it and our corporate structure has less complexity.
We completed a transformative financing J P. Morgan.
This transaction resulted in a $5 million distributions UGG as well as lowered <unk> cost of capital and provided it with funds for future acquisitions.
After a period of investment into enhancing its scalability dnb use the incremental growth capital from the Jpmorgan transaction and completed two acquisitions.
On the investment management side, we completed several transactions that recapitalized and better position GE SEC for growth with.
We successfully raised $38.0 million and a rights offering at G SEC, increasing its investable assets.
We also closed a new three year $25 million revolving credit facility at GE SEC and in June and then July 2021, GEC issued $57 million of senior notes due 2026 that bear interest at a rate of five 875.
875% per year.
GEC subsequently used the proceeds of this offering.
Redeem at six 5% notes due 2022, resulting in $24 million <unk>.
Incremental liquidity.
G. SEC also continued its portfolio rotation with a focus on proprietary investments in specialty finance.
In the aggregate all of these initiatives have helped to lead GEC with financial flexibility to both expand its portfolio as well as open new potential areas for growth.
We also launched.
G saw a private investment vehicle with a focus on investments and special purpose acquisition companies, we invested $10 million in G. Soft to help feed this vehicle, which we hope will contribute to increased assets under management for the investment management business and help drive additional fee revenue.
Finally, we dramatically simplified our corporate structure through the sale of our Fort Myers real estate investment and the cleanup transactions at GEC GP Corp.
As a result of these efforts our consolidated balance sheet has $57 million less debt on it.
In the fiscal fourth quarter <unk> sold its entire ownership interest in two class a office buildings located in Fort Myers, Florida for an affiliate of <unk> properties LLC privately held an industrial property focused REIT for a cash payment of $10.0 million.
The proceeds were then reinvested and dividend paying <unk> shares.
This transaction represented a solid return on investment GEC. Originally acquired these properties in 2008 for $9.0 million.
It also diversified our real estate holdings from a single asset to interest and a diversified industrial properties portfolio, which generates cash flow through ongoing dividend payments.
In summary, we.
We have had a productive and busy year at <unk> <unk>.
<unk> ahead, we believe there are compelling opportunities on the <unk> side.
Industry continues to consolidate.
In investment management, we are making strong progress and increasing assets under management and revenues.
During the year, our investment management business benefited greatly from the execution of the shared services agreement with Imperial capital, providing both the depth and.
Improving both the depth and experience of our investment team.
Together with our corporate structure simplification efforts, we've made considerable progress in positioning the company for strategic growth opportunities.
With that I'll turn it over to Brent to discuss our financial results for the quarter and full year in more detail and then I'll return for a few closing remarks.
Thanks, Steve.
I'll provide a brief overview and of course welcome all of you to review our filings in greater detail or reach out to our team with any questions you may have.
During the quarter ended June 32021, we reported consolidated revenue of $19.0 million a net loss from continuing operations of $5.0 million and adjusted EBITDA of $8.0 million.
For the same period last year, we reported consolidated revenue of $21.0 million net income from continuing operations of $5.0 million and adjusted EBITDA of $14.0 million.
These amounts do not include the contributions of our real estate business, which was sold on June 23, 2021, and previously reported financial information has been recast to reflect the real estate business as discontinued operations.
As a result, we no longer report real estate as a separate segment of continuing operations.
Great Elm reports the results of each of our two operating segments, including durable medical equipment and investment management as well as unallocated general corporate activity.
We will begin the review with durable medical equipment.
For the fiscal fourth quarter, <unk> generated $19.0 million in revenue compared to $22.0 million last year.
Increase in revenues was due to organic growth and resupply sales and contributions from MTM add on acquisition.
The demand for sleep studies was soft due to the ongoing impact from COVID-19 pandemic.
Referrals for new equipment setups remains depressed as they are generally driven by in house or external sleep studies.
Although there are positive signs of recovering demand for sleep studies and per equivalent setups heading into our next fiscal year.
Late in the fiscal fourth quarter, it looks respironic announced a voluntary recall of certain CPAP and ventilator products.
Our DIY business has sufficient on an inventory storage CPAP and ventilator equipment to meet demand in the near term.
Over the magnitude and duration of the current supply chain issues are unknown at this time.
We continue to work closely with our suppliers, while we navigate these industry challenges.
That being said, we remain opportunistic on the acquisition front as the industry continues to consolidate.
For the year ended June 32021, <unk> operations recognize a three 6% increase in total revenue.
Increasing to $63.0 million compared to $62.0 million in the prior year.
The increase in total revenue was due primarily to the <unk> acquisition and organic growth and recent glass sales.
Great on <unk> operations reported net income of $14.0 million in comparison to $10.0 million in the prior period.
Net income increased largely due to a $10.0 million benefit related to a fair value adjustment on an embedded derivative that was bifurcated from our series H preferred stock.
Preferred stock issued supports investments Inc. Our majority owned subsidiary and therefore, the income recognized on this adjustment has an offsetting charge to general corporate and eliminates in consolidation.
Also contributing to net income was $6.0 million stimulus in the form of refundable employee retention payroll tax credits that were claimed burn during our fiscal fourth quarter 2021.
This compares to $6.0 million of cares Act stimulus received in the comparable prior year period.
<unk> reported a net loss of $7.0 million for the year ended June 32021, compared to a net loss of $1.0 million in the prior year.
In the current year, we recorded a nonrecurring charge of $10.0 million related to the extinguishment of Dms term loan in December which lowered its cost of capital and provided <unk> with additional capital for acquisition opportunities.
Also impacting this comparison is $10.0 million of employee retention credits recognized in fiscal 2021 versus $6.0 million in cares Act stimulus.
<unk> for the fiscal year 2020.
Adjusted EBITDA, a non-GAAP measure was $7.0 million in the fiscal 2021 fourth quarter compared to $7.0 million in the prior period.
Adjusted EBITDA was $16.0 million for the year ended June 32021, compared to 16.01 million in the prior year.
Next turning to investment management.
For the fiscal fourth quarter investment management generated <unk> 9 million in revenue compared to zero point $7 million during the same period in the prior year.
Revenue was slightly higher due to increases in the average assets on which such fees are calculated.
Great owns investment management business recognized $5.0 million in revenue for the year ended June 32021, compared to $6.0 million in the prior year.
Investment management reported net income of $4.0 million in comparison to $7.0 million in the prior year period.
The increase was primarily due to an unrealized gain on managed investments of $1.0 million as compared to a gain of $11.0 million in the comparable quarter of the prior year.
For the year investment management recognized net income of $9.0 million as compared to a net loss of $8.0 million in fiscal 2020.
The improvement is primarily related to <unk> 7 million and unrealized gains and manage investments in the current year versus $15.0 million in unrealized losses in fiscal year 2020.
Before discussing EBITDA.
I wanted to highlight that beginning with the current quarter. We have made certain changes to segment presentation as it relates to the activity of our managed investments primarily our investment in GEC LNG sauce.
Non operating activity related to these managed investments, including dividend income and unrealized gains and losses.
Are now presented as investment management activity, whereas previously they were presented within general corporate.
We believe this presentation provides a better view into the performance of the segment.
As such previously reported financial information have been reclassified to conform to this presentation.
Adjusted EBITDA was 0.1 million fiscal 2021 fourth quarter compared to 0.2 million during the same period in the prior year.
Adjusted EBITDA was impacted in the current quarter, primarily by increased professional fees and employee related costs related to growth initiatives.
Adjusted EBITDA was <unk> 4 million for the year ended June 32021, compared to $3.0 million during the prior year.
Again, driven by costs related to growth initiatives.
Moving onto our general corporate segments.
For the fiscal fourth quarter, great on general corporate segment recognized <unk> $3 million in revenue compared to $45000 in revenue during the same period in the prior year.
For the year ended June 32021 General corporate segment recognized Europe was $6 million in revenue compared to <unk> 2 million in the prior year.
Revenue increased as a result of increased management fees earned from Dnb, along with management fees earned from for Us.
Under a new management agreement put into place in connection with the Jpmorgan transactions in December 2020.
For the quarter General corporate reported a net loss of $14.0 million as compared to a net loss of $3.0 million for our fourth fiscal quarter last year.
This comparison was primarily impacted by the embedded derivative charge of $10.0 million in the current quarter.
For the year and general corporate had a net loss of $15.0 million in fiscal 2021 versus a net loss of $8.0 million in fiscal 2020.
Activity impacting this comparison includes <unk> 7 million of year to date embedded derivative net charges as well as $9.0 million in income tax expense in 2021 versus <unk> $44000 of income tax expense in the prior year.
The current year tax provision as a result of the reorganization activities of certain subsidiaries in the current year.
General corporate adjusted EBITDA for the current quarter was negative <unk> 9 million compared to negative $3.0 million in the comparable quarter last year.
General corporate adjusted EBITDA for the current year was negative $6.0 million compared to negative 6.0 million in fiscal year 2020.
The improvement comes as a result of significant progress and reducing corporate overhead.
It's driven by lower audit and other professional fees related to active vendor management and other efficiencies.
Turning to our consolidated financial position at quarter end.
Turning to fiscal 2021, we've made significant strides in simplifying our corporate structure and reducing our leverage.
Our aggregate borrowings, including debt convertible notes and redeemable preferred stock decreased by approximately $47 million, while our net working capital improved by $24 million as compared to the prior year. These.
These improvements combined with an undrawn line of credit and $24 million in cash on hand put us in an excellent position to execute on our strategies in fiscal 2022.
This concludes my financial review of the quarter and I'll turn it back to Pete for closing remarks.
Thanks Brent.
I will comment on a topic that many of you who have been following us know well and that is.
The extent to which our team and insiders are aligned with our shareholders in terms of their ownership in the company.
Employees and directors, including funds under their management of great Elm collectively own or manage approximately 30% of <unk> outstanding shares.
In closing, we exited fiscal 2021 in a much better position than we began.
With that we will turn the call over to the operator to open for questions.
Sure.
As a reminder to ask a question you will need to press Star then the number one on your telephone keypad to withdraw your question press the pound key please standby, while we come out compile the Q&A roster.
And again to ask a question you will need to press Star then the number one on your telephone keypad to withdraw your question press the pound key.
Okay.
And at this time there are no audio questions. We will now turn the conference back over to Mr. Peter Reed for closing remarks.
Thank you again for joining us today.
Look forward to speaking to you again next quarter.
Thank you.
Concludes today's conference you may now disconnect.
Please hold one moment.
Okay.