Great Elm Group Inc. Q3 2023 Earnings Call

Hello, and thank you for standing by my name is Regina and I will be your conference operator today at this time I'd like to welcome everyone to the Great Elm group fiscal 'twenty twenty-three third quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

If you'd like to ask a question. During this time simply press Star then the number one on your telephone keypad I would now like to turn the conference over to Adam Yates Managing director. Please go ahead.

Good morning, everyone. Thank you for joining us for Great Elm group's fiscal third quarter 2023 earnings conference call.

As a reminder, this conference call is being recorded on Friday may five 2023.

If you would like to be added to our distribution list you can email G. G Investor relations at Great Elm capped dot com or you can sign up for alerts directly on our website www dot great on group Dot com.

The slide presentation accompanying today's conference call and webcast can be found on our website under events and presentations.

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 on 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.

To obtain copies of our SEC filings. Please visit Greyhound group's website under financial information and select SEC filings.

On the call today, we have Jason Reese, our newly appointed CEO , Adam Kleinman, President Nicole Mills, CLO and Brent Pearson CFO I will now turn the call over to Jason Reid CEO .

Thank you Adam welcome.

Welcome everyone and thank you for joining us I am thrilled to report as of today, Great. On group has completed its transformation from a diversified holding company to a focused alternative asset manager.

We spent the last year, taking deliberate steps to reposition the company to simplify the balance sheet.

<unk> the organization for growth.

Let me walk you through some key highlights in.

In March of 'twenty, two key management changes were made at Great Elm Capital Corp.

Publicly traded BDC.

Matt Kaplan was appointed as CEO in three new directors were appointed to the board.

G G waived all accrued incentive fees at the BDC and we started with a clean slate under Mac's leadership.

With these changes the BDC has been successfully repositioned to become a consistent income producing vehicle for G. E G.

<unk> reported strong first quarter yesterday, if you would not have if you've not had the opportunity to review the materials or listen to the call I strongly suggest you take the opportunity to do so.

After the G E C. C leadership changes, we acquired the management of Monte <unk> properties in May of 'twenty two.

Transaction marked our entry into the private REIT industry.

<unk> AUM and highlighted our ability to add long duration capital vehicles to J&J.

Later in May Dave matter joined our board of directors after retiring from Blackrock, where he was the co chief investment officer of Blackrock alternative advisors their hedge fund solutions team, Dave brings incredible relationships and investment experience degrade them.

Yeah.

In June we successfully raised $27 million in 7.25% unsecured notes due in 2027.

In August G E. C C shareholders approved an amendment to reset <unk> incentive fees to start fresh on April one 2022.

As a result, we believe that we're well positioned to start receiving cash incentive fees in the future.

Around the end of the calendar year, we closed two large strategic business divestitures first we sold our entire majority interest in forest investments to port transaction, taking place in December 'twenty, two and January 23.

In January we sold our majority interest in the non core <unk> business.

This leaves us with a streamlined corporate structure and a clean easy to understand balance sheet.

Today, the company announced that Pete read resigned as CEO effective with the filing of our Form 10-Q I.

I am fortunate that the board asked me to assume the additional role of CEO and I am gratefully accept their appointment.

As the largest shareholder of GE EG my interests are directly aligned with all of our shareholders.

I would like to take the opportunity to thank Pete for his service and contributions to great al.

Pete steps down with our full support and we look forward to working with Pete as a consultant to the company to ensure a smooth transition.

We are grateful for his expertise passion dedication and leadership over the years.

We are now a focused alternative asset manager with two anchor investment vehicles G. E. C C and bottomley properties, we have a healthy pipeline of new business opportunities and a clean liquid balance sheet to execute upon that.

Our institutional back office has the ability to effectively service our growing platform.

We are well positioned to achieve our strategic goals.

It is now my job as CEO to prove to our shareholders that we can achieve our goals which are simple.

Our assets under management.

Group, our profitability and execute on opportunities to expand our platform.

I look forward to leading great Elm in its next phase of growth and reporting to you on our progress with that I'll turn it over to Brent to discuss our financial results for the quarter.

Yeah.

Okay.

Thank you Jason.

Ill provide a brief overview of the quarter and of course, we welcome all of you to review our filings in greater detail our reach out to our team with any questions.

As Jason highlighted great Elm completed two significant transactions during the quarter.

On January 3rd we sold our majority interest in the durable medical equipment business to a subsidiary of quip for a total purchase price of $80 million.

After repayment of obligations, we received approximately $26 million in cash as well as just over 346000 shares of flip common stock.

On January 17th we exercised the right to put our remaining 19% interest in for us to an affiliate of J P. Morgan for nearly $27 million.

The transaction followed the sale of 61% of our majority ownership interest in for us to JP Morgan for over $18 million on December 30, <unk> 2022.

The January sale brought our aggregate cash proceeds from the <unk> transactions to approximately $45 million.

As a result of these transactions, we realized material gains on these investments generated significant value for <unk> shareholders and added over $70 million of cash to <unk> balance sheet.

Please note that as in the prior quarter due to the forest and <unk> transactions, we recast our historically reported segment information to reflect our ongoing business as a single reportable segment and to remove the activity of discontinued operations.

In review of continuing operations during the quarter revenues were up 92% year over year, driven by higher assets under management and management fees related to GE ECC and <unk>.

AUM of $631 million as of March 31, 2023 increased 2% from the prior quarter end and was up 4% fiscal year to date.

While fee paying AUM grew to $439 million up 1% quarter to date and over 8% fiscal year to date.

For the quarter, Great owned group generated a net loss from continuing operations of <unk> 5 million compared to a net loss from continuing operations of $6 5 million in the prior year period.

The change was primarily driven by $2 million and net realized and unrealized gains on investments in the prior quarter compared to a net realized and unrealized loss on investments of $3 5 million in the prior year quarter.

Adjusted EBITDA loss for the quarter was $1 2 million compared to $1 6 million in the prior year period.

As of March 31.

<unk> group had approximately $84 million of cash on our balance sheet to deploy across our growing alternative asset management platform.

Please refer to slide eight provides an overview of our financial position and highlights our book value per share of approximately $2 34.

This concludes my financial review of the quarter and with that we will turn the call over to the operator to open for questions.

At this time I'd like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad again that is star one for any questions well pause for just a moment to compile the Q&A roster.

Our first question will come from the line of Mark Kingdon with Kingdon capital. Please go ahead.

Hi, gentlemen, Jason good luck going forward to wish all the best.

Wanted to ask first what the impact.

It is.

On your spreads.

GCC.

Overall in the company.

The credit Crunch receipt in the banking system currently in <unk>.

How it impacts your ability to fund some of these transactions.

Yeah.

Thank you Mark.

I don't know that Theres specific impacts.

We're seeing more opportunities and if you look at GE cc over the last year, we have moved significantly to owning floating rate debt at.

<unk> so the moves by the fed have.

If anything probably helped us.

NII.

More than covered our dividend this quarter.

<unk>.

Yeah.

And.

We have had the ability we announced yesterday.

We see that they were just able to put a new $100 million credit facility in place for the health care business. So we have not seen.

Credit crunch to be able to fund deals, but we're actually seeing more opportunity for transactions. There is banks are kind of pulling out of the market.

Good.

On <unk> I think at some point there was discussion about.

Using the <unk>.

Great Elm NOL to help.

Produced an EBIT more competitive product wonder what's your growth strategy going forward now that pay down.

It does not have that NOL.

Well, we still have an NOL, but not nearly as big as we had in the past.

We really like the space that <unk> zone.

And we have not had any issues with convincing investors that that space is still good space, we've been slow to grow the business. This year, because you talked about with rates moving.

Significantly cap rates in the industrial space have not.

Kind of move this quickly so there's been a little bit of a stalemate. If you look at industrial space Theres been less transactions.

Because sellers have not.

With each of their expectations for prices, even though the cost of debt.

To fund those acquisitions has gone up but we have a pretty strong pipeline I think.

You will see significant growth in the calendar second and calendar third.

Quarters for amount of money.

So thanks, Jason So what you are saying is that.

Our issue isn't finding new investors that amount or more it's more just putting the opportunities at a price you link.

Yes.

That's exactly what I was trying to say.

Great. Thank you.

Okay.

Once again for any questions Press star one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

So we have no further questions at this time I will turn the call back to Jason Rice CEO for any closing remarks.

Thank you for joining us today, we look forward to speaking with you in the future.

That will conclude today's meeting. Thank you all for joining you may now disconnect.

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