Q2 2022 Great Elm Group Inc Earnings Call
Speaker 1: Good morning, my name is Chris and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Great Elm Group second quarter 2022 financial results.
Good morning, My name is Chris and I'll be your conference operator today.
At this time I would like to welcome everyone to the great Elm group's second quarter 2022 financial results.
Speaker 1: All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a ques-
All lines have been placed on mute to prevent any background noise.
After the Speakers' remarks, there'll be a question and answer session.
Speaker 1: If you'd like to ask a question during this time, simply press star, then the number 1 on your telephone keypad. And to withdraw your question, please press star 1 again. Thank you. used at 4.00 Dairy Place
I'd like to ask a question. During this time simply press Star then the number one on your telephone keypad and to withdraw your question. Please press star one again.
Thank you Adam Yates managing director you may begin.
Speaker 2: Thank you and good morning everyone. Thank you for joining us for Great Elm Group's fiscal second quarter 2022 earnings conference call.
Thank you and good morning, everyone. Thank you for joining us for Great Elm group's fiscal second quarter 2022 earnings conference call.
Speaker 2: As a reminder, this conference call is being recorded on Friday, February 11, 2022.
As a reminder, this conference call is being recorded on Friday February 11 2022.
Speaker 2: If you'd like to be added to our distribution list, you can email InvestorRelations at GreatElmCap.com, or you can sign up for alerts directly on our website, www.GreatElmGroup.com.
You'd like to be added to our distribution list you can email investor relations at Great Elm cap Dot Com, where you can sign up for alerts directly on our website Www Dot Greyhound group Dot com.
Speaker 2: The slide presentation accompanying today's conference call and webcast can be found on our website under events and presentations.
The slide presentation accompanying today's conference call and webcast can be found on our website under events and presentations.
Speaker 2: 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.
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.
I would like to call your attention to the customary safe Harbor statement regarding forward looking information.
Speaker 2: I would like to call your attention to the Customary Safe Harbor Statement regarding forward-looking information.
Speaker 2: Also, please note that nothing in today's call constitutes an offer to sell or a solicitation of offers to purchase our security.
Also please note that nothing in today's call constitutes an offer to sell or solicitation of offers to purchase our securities.
Speaker 2: Today's conference call includes forward-looking statements and projections, 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 projections.
Today's conference call includes forward looking statements and projections 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 projections.
Speaker 2: Great Elm Group does not undertake to update its forward-looking statements unless required by law.
Great Elm group does not undertake to update its forward looking statements unless required by law.
Speaker 2: To obtain copies of SEC filings, please visit Great Elm Group's website under Financial Information and select SEC Filings.
To obtain copies of our SEC filings. Please visit great Elm group's website under financial information and select SEC filings.
Speaker 2: For those who may not be familiar with great own group, I'll take a brief moment to review our general structure and strategy.
For those who may not be familiar with great home group I'll take a brief moment to review our general structure and strategy.
Speaker 2: Great Elm is a holding company, and our objective is to create shareholder value through the collective efforts driving our two verticals, operating companies and investment management, each of which employs a distinct strategy.
<unk> is a holding company and our objective is to create shareholder value through the collective efforts driving our two verticals operating companies and investment management, each of which employs a distinct strategy.
Speaker 2: In operating companies, we manage Great Elm Durable Medical Equipment, or DME, a distributor of respiratory care equipment and sleep study services.
And operating companies, we manage great elm durable medical equipment or <unk>, a distributor of respiratory care equipment and fleet steady surfaces and.
Speaker 2: In investment management, we seek to increase assets under management, both in Great Elm Capital Corp, the publicly traded BDC, and in other investment vehicles managed by Great Elm Capital Management, or GECM.
In investment management, we seek to increase assets under management, both in Great Elm Capital Corp. The publicly traded BDC and another investment vehicles managed by Great Elm capital management or <unk>.
Speaker 2: Hosting the call today is Peter Reed, Great Elm Group's Chief Executive Officer. I will now turn the call over to Peter.
Hosting the call today is Peter Reed, Great Elm group's Chief Executive Officer, I will now turn the call over to Peter.
Yeah.
Welcome everyone and thank you for joining us today.
Speaker 3: I'm joined this morning by our President and COO, Adam Kleinman, and our CFO , Brent Pearson.
I'm joined this morning by our President and COO, Adam Kleinman, and our CFO Brent Pearson.
Speaker 3: I will begin with a general overview and key highlights of the quarter, and Brent will discuss our financial results in greater detail, and then I'll return for closing remarks. This was a
I will begin with a general overview and key highlights of the quarter and Brent will discuss our financial results in greater detail and then I'll return for closing remarks.
This was a solid quarter for great Elm group.
Speaker 3: We achieve growth in sales and reported profits within our operating company business at DME.
We achieved growth in sales and reported profits within our operating company business at CME.
Speaker 3: And in our investment management business, we continue to make progress on building a specialty finance continuum of lending at GECC.
And then our investment management business, we continued to make progress on building a specialty finance continuum of lending at GE C C.
Speaker 3: In addition, we continue to work on a number of strategic initiatives.
In addition, we continue to work on a number of strategic initiatives.
Speaker 3: After the successful integration of recent acquisitions, AMPM, and MedOne, we reported strong quarterly results for our DME business despite challenges in the supply chain.
After the successful integration of recent acquisitions M. P M and med one we reported strong quarterly results for our DNA business despite challenges in the supply chain.
Speaker 3: We continue to observe increasing demand across our product and service offerings following the prolonged pandemic conditions in the prior fiscal year, and we are focused on growing revenue and profitability at DME.
We continue to observe increasing demand across our product and service offerings. Following the prolonged pandemic conditions in the prior fiscal year and we are focused on growing revenue and profitability at D&B.
On the investment management side.
Speaker 3: Revenue for the quarter was slightly higher due to an increase in the average assets on which such fees are calculated.
Revenue for the quarter was slightly higher due to an increase in the average assets on which such fees are calculated.
Speaker 3: One of our key areas of focus at GEG is to increase the feed generating AUM.
One of our key areas of focus at J E. T is to increase the fee generating AUM.
As you may be aware GE ge's fiscal year does not match GEC sees S.
Speaker 3: As you may be aware, GEG's fiscal year does not match GECC's.
Speaker 4: As such, GECC, whose fiscal year ends December 31st, has not completed its audit process, which limits the information we have to disclose about GECC as compared to other quarters in the year.
As such she ECC, whose fiscal year ended December 31 has not completed its audit process, which limits. The information we have to disclose about GEC as compared to other quarters in the year.
One of the most important ways to grow assets at G. E. C. C is through the build out of our specialty finance platform.
Speaker 3: One of the most important ways to grow assets at GECC is through the buildout of its specialty finance platform.
Speaker 3: GCC has made good progress on this initiative, as evidenced by its recent acquisition, Sterling Commercial Credit, which is a leading provider of asset-based loans to middle market companies across the United States.
GCC has made good progress on this initiative as evidenced by its recent acquisition Sterling commercial credit, which is a leading provider of asset based loans to middle market companies across the United States.
Speaker 3: Sterling has been providing working capital solutions to small and medium-sized businesses in a wide variety of industries since 2004.
Sterling has been providing working capital solutions to small and medium sized businesses and a wide variety of industry since 2004.
Speaker 3: coupled with the acquisitions of Prestige Capital and more recently, Lenders Funding.
Coupled with the acquisition of prestige capital and more recently lenders funding.
Speaker 3: The GECC family of specialty finance businesses has an increasingly broad array of capital solutions to offer small and medium-sized businesses.
<unk> family of specialty finance businesses has an increasingly broad array of capital solutions to offer small and medium sized businesses collectively.
Speaker 3: Collectively, we believe that this platform will offer attractive and uncorrelated risk-adjusted returns to GECC's shareholders.
Collectively we believe that this platform will offer attractive and uncorrelated risk adjusted returns to <unk> shareholders.
Speaker 3: With that, I'll turn it over to Brent to discuss our financial results for the quarter in more detail, and then I'll return for a few closing remarks. Brent?
With that I'll turn it over to Brent to discuss our financial results for the quarter in more detail and then I'll return for a few closing remarks Bret.
Thanks Peter.
Speaker 5: I'll provide a brief overview and, of course, welcome all of you to review our filings in greater detail or to reach out to our team with questions you may have.
I'll provide a brief overview and of course welcome all of you to review our filings in greater detail or to reach out to our team with questions you may have.
Speaker 5: During the quarter ended December 31st, 2021. We reported consolidated revenue of 16.7M. A net loss of 4.2M and adjusted EBITDA of 1.4M.
During the quarter ended December 31, 2021, we recorded consolidated revenue of $16 7 million, a net loss of $4 2 million and adjusted EBITDA of $1 4 million.
For the same period last year, we reported consolidated revenue of $15 3 million a net loss from continuing operations of <unk> 9 million and adjusted EBITDA of $0 9 million.
Speaker 5: We reported consolidated revenue of $15.3 million, a net loss from continuing operations of $0.9 million, and adjusted EBITDA of $0.9 million.
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.
Speaker 5: Great Elm reports the results of each of our two operating segments, including durable medical equipment and investment management, as well as unallocated.
Speaker 5: We'll begin with the review of durable medical.
We will begin with the review.
A durable medical equipment.
For the fiscal second quarter, CME generated $15 7 million in revenue compared to $14 5 million for the same period last year.
Speaker 5: For the fiscal second quarter, DME generated $15.7 million in revenue compared to $14.5 million for the same period last year.
Speaker 5: The increase in revenues was driven by record gross resupply sales, as well as from contributions from recent acquisitions, AMPM, and MedOne.
The increase in revenues was driven by record gross re supply sales as well as from contributions from recent acquisitions and PM and med warm.
Speaker 5: In addition, our previous investments into the business have significantly improved the intake and collections process, resulting in a sustainable reduction in revenue reserves of $0.7 million as compared to the prior year period.
In addition, our previous investments into the business has significantly improved the intake and collections process, resulting in a sustainable reduction in revenue reserves at 0.7 million as compared to the prior year period.
We improved our gross margins in DNA, increasing to 61, 6% as compared to 56, 5% in the prior year period.
Speaker 5: increasing to 61.6% as compared to 56.5% in the prior year period. In addition to the
In addition to the efficiencies reducing revenue reserves. The improved margins are also driven by improved vendor pricing as compared to the prior period.
Speaker 5: The improved margins are also driven by improved vendor pricing as compared to the prior.
Speaker 5: Great Elms DME operations reported net income of $0.9 million in comparison to a net loss of $2.9 million in the prior year.
Great Aunt <unk> operations reported net income of <unk> 9 million in comparison to a net loss of $2 9 million in the prior year period.
Speaker 5: The prior year period includes a non-recurring loss on the extinguishment of the corbel note of 1.9 million.
The prior year period includes a nonrecurring loss on the extinguishment of the corn belt note of $1 9 million.
Speaker 5: The net income comparison of the DME segment is also impacted by the recurring valuation adjustment of the embedded derivative, which is eliminated in consolidation and added back for EBITDA.
Net income comparison of the <unk> segment is also impacted by the recurring valuation adjustment of the embedded derivative, which is eliminated in consolidation and added back for EBITDA purposes.
Speaker 5: Adjusted EBITDA, a non-GAP measure, was $2.6 million compared to $1.9 million in the same period in the prior year, an increase of nearly 40%.
Adjusted EBITDA, a non-GAAP measure was $2 6 million compared to $1 9 million in the same period.
Prior year.
An increase of nearly 40%.
Next turning to investment management.
Speaker 5: For the fiscal second quarter, investment management reported total revenue of $1.0 million compared to $0.8 million during the same period in the prior year.
For the fiscal second quarter investment management reported total revenue of 1.0 million compared to zero point $8 million during the same period in the prior year.
Speaker 6: Revenue for the quarter was higher due to increases in the average assets on which such fees are calculated.
Revenue for the quarter was higher due to increases in the average assets on which such fees are calculated.
Adjusted EBITDA was negative $47000 in the fiscal second quarter compared to positive 33000 during the same period in the prior year adjusted.
Speaker 5: Adjusted EBITDA was negative $47,000 in the fiscal second quarter compared to positive 33,000 during the same period in the prior year.
Speaker 5: Adjusted EBITDA for the quarter was impacted primarily by increased employee related costs and professional fees related to investment management growth initiatives.
Adjusted EBITDA for the quarter was impacted primarily by increased employee related costs and professional fees related to investment management growth initiatives.
Moving on to our general corporate segment.
Speaker 5: For the fiscal second quarter, Great Elms General Corporate Segment recognized $172,000 in revenue compared to $45,000 in revenue during the same period in the prior year.
For the fiscal second quarter Greyhounds General corporate segment recognized 172000 in revenue.
Third to 45000 in revenue during the same period in the prior year.
Speaker 5: Revenue increased as a result of increased management fees earned from DME, along with management fees earned from GEG's majority-owned subsidiary, Forest Investments, Inc., under a management agreement put into place in December 2020.
Revenue increased as a result of increased management fees earned from DMA.
Along with management fees earned from GE <unk> majority owned subsidiary for US investments, Inc. Under a management agreement put into place in December 2020.
General corporate adjusted EBITDA for the current quarter was negative $1 2 million.
Speaker 5: General corporate adjusted EBITDA for the current quarter with negative 1.2 million.
Speaker 5: compared to negative 1.0 million during the same period in the prior year.
Compared to negative 1.0 million during the same period in the prior year.
Speaker 5: Radom continues to focus on rationalizing our corporate overhead to put us in the best position to execute our strategy.
<unk> continues to focus on rationalizing our corporate overhead.
It is in the best position to execute our strategy.
Speaker 5: We ended the quarter with a healthy liquidity position of $25 million in cash exclusive of liquid investment.
We ended the quarter with a healthy liquidity position of $25 million in cash exclusive of liquid investments.
Speaker 5: This concludes my financial review of the quarter, and I'll turn it back to Peter for closing remarks.
This concludes my financial review of the quarter and I will turn it back to Peter for closing remarks.
Thanks, Brent overall, we believe that the solid performance of our operating company and investment management businesses together with our corporate simplification efforts leave us well positioned for future growth.
Speaker 3: Thanks, Brent. Overall, we believe that the solid performance of our operating company and investment management businesses, together with our corporate simplification efforts, leave us well-positioned for future growth.
Speaker 7: In closing, I will comment on a topic with which many of you are familiar, the extent to which our team is aligned with other shareholders of Great Elm. Employees and directors, including funds under their management, collectively own or manage approximately 30% of Great Elm's outstanding shares. With that, we will turn the call over to the operator to open for questions.
In closing I will comment on a topic with which many of you are familiar the extent to which our team is aligned with other shareholders of great.
Employees and directors, including funds under their management collectively own or manage approximately 30% of greyhounds outstanding shares with that we will turn the call over to the operator to open for questions.
Speaker 1: Thank you. As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad.
Thank you.
A reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
And we'll pause for just a moment to compile the Q&A roster.
Speaker 1: Our first question is from Brian Alexich with Greenwich Investment Management. Your line is open.
Our first question is from Brian Alex Alex Itch, with Greenwich Investment management. Your line is open.
Good morning, guys how are you.
Good morning, Brian doing well how are you.
Speaker 8: I have two questions for you, actually. I follow both GEG and GECC, since they're, obviously, that their fates are a bit intertwined. One of the questions I had for you is, you know, the businesses, Sterling, Prestige, your specialty financing businesses, why not acquire those at the GEG level? It seems like they're acquiring, or they're generating...
Well also thanks.
Two questions for you actually.
I follow both GE and GE CEC since there.
Obviously.
Their fate there are intertwined.
One of the questions I had for you is the businesses Sterling prestige your specialty financing businesses.
Not acquire those at the <unk> level, but it seems like their acquirer or they're generating.
Speaker 3: pretty solid returns on equity, and is that the sort of business that would not utilize the NOLs or would it utilize the NOLs? They seem like attractive, compelling investments. I just wonder why, put it in the BDC versus the corporation.
Pretty solid returns on equity.
And that's.
That's the sort of business that would not utilize the nols or what it utilize the Nols.
I mean, they seem like attractive compelling investments so.
I, just wonder why put at the BDC versus the.
The Corporation.
Speaker 3: Brian , I think it's an excellent question.
Brian I think it's an excellent question.
Yeah.
Speaker 3: And they do earn very attractive ROEs. So we're very happy with that. And they otherwise.
And they do earn very attractive ROE, So, we're very happy with that and they otherwise.
Speaker 3: probably would utilize NOLs for Great Elm Group. So, you raise a good point there. On the other hand, the attractive earnings that they generate and their ability to pay out a lot of those earnings as dividends up to GECC, which also doesn't pay any income tax and then can distribute those as yield out to its investors, we think does make a
<unk> would utilize Nols for great Elm groups. So you raised a good point there on the other hand, the attractive earnings that they generate and their ability to pay out a lot of those earnings as dividends of <unk>, which also doesn't pay any income tax.
And then can distribute those as yield out to its investors we think it does make.
<unk>.
Speaker 3: make for an attractive proposition for GECC shareholders. As you point out,
Make for an attractive proposition for <unk> shareholders.
As you point out.
Speaker 3: those dividends or a chunk of those dividends end up flowing through to GEG, where the NOLs are able to be utilized against the income stream. So, GEG definitely does benefit as a large shareholder from GECC from those businesses, which I agree with you, they are very attractive.
Those dividends are a chunk of those dividends end up flowing through the <unk>, where the Nols are able to be utilized again.
<unk> definitely does benefit as a large shareholder from GCC from those businesses, which I agree with you they are very attractive.
Speaker 5: Okay, interesting. I didn't realize that the dividends, you know, allow you to utilize the NOLs. Maybe that's an important piece of the story that, you know, that people understand.
Got it okay interesting I didn't realize that the dividend.
How you can utilize the Nols, maybe thats an MPV sorry.
Sorry, an important piece of the story of that.
People and invested in either business or missing.
Speaker 9: The second question I had for you is, I noticed through the UK filing system that your representative from grade L management, of course, the manager of...
The second question I had for you is.
Notice through the U K filing system that your representative from Great Aldon management.
Of course the manager.
Speaker 9: GECC resigned from the board of Avanti last month, does that pave the way for taking liquidity in the investment since you guys are not insiders, of course, it's probably a period of time where you're still considered.
GCC resigned from the board of Avanti last month does that pave the way for taking liquidity into investments. Since you guys are not insiders of course, there's probably a period of time, where.
Tom.
You are still considered an insider but.
Speaker 9: At some point, do you stop being insiders and then you are free to do as you wish with
At some point do you stop the being insiders and then <unk>.
Are free to do as you wish.
With the investment.
Speaker 3: Sure. So, I appreciate your question. It's a difficult time for us to talk about a lot of specifics with GECC because it still hasn't filed its annual financial statement. So, it's a lot easier for us, and I'm happy to have a broad-ranging GECC discussion with you or with anyone after it files its results in March.
Sure. So I appreciate your question, it's a difficult time for us to talk about a lot of specifics with GE ECC because it still hasn't filed its annual financial statements. So it's a lot easier for us and I'm happy to have a broad range and GCC discussion with.
You are with anyone after it files its results in March.
But it.
Speaker 3: But that's about all I can say at the moment.
But that's about all I can say at the moment.
Okay.
Speaker 10: I will hang on until you guys file the BDC information.
Suppose I will Oh hang on until you file the the BDC and information.
Speaker 11: Thanks for taking the questions, you know, looks like you guys are building some momentum, you know, obviously the pandemic that you guys back, but it looks like.
Thanks for taking my questions.
It looks like you guys are building some momentum.
And obviously the pandemic, that's you guys back, but it looks like.
Speaker 12: He's got four quarters of growth now and good things are coming.
<unk> got four quarters of growth now and.
Good things are coming.
Thank you we agree we're going to keep pushing.
Thanks take care guys.
Thanks, Brad.
Again that is star one if you would like to ask a question.
Speaker 13: And it appears that we have no further questions. I'll turn the call back over to Mr. Reid for any closing remarks.
And it appears we have no further questions I'll turn the call back over to Mr. Yu for any closing remarks.
Speaker 14: Thank you again for joining us today, and we look forward to speaking with you in follow-up.
Thank you again for joining us today, and we look forward to speaking with you in follow up.
Speaker 15: Ladies and gentlemen, this concludes today's conference call and webcast. Thank you for participating. You may now.
Ladies and gentlemen, this concludes today's conference call and webcast. Thank you for participating you may now disconnect.
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