Q2 2023 Great Elm Capital Corp Earnings Call

Good morning, ladies and gentlemen, and welcome to the Great Elm Corp, second quarter 2022 financial results.

At this time, all participants are in listen only mode.

A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press Star then zero on your telephone keypad.

As a reminder, this conference is being recorded.

Now I'd like to turn the conference over to your host Cole scripts are representative of the company.

Please go ahead Sir.

Good morning, and thank you everyone for joining us for Great Elm Capital Corp, second quarter 2023 earnings Conference call.

If 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 world worse directly on our website www dot great M D C dot com.

I'd like to note the slide presentation posted on our website accompanying today's call.

Slide presentation can be found on our website under financial information quarterly results.

On our website you can also find our earnings release and S. E C filings.

I'd 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 we ask that you refer to great Elm capital of course filings with the U S. D. C for important factors that could cause actual results to differ materially from these statements.

Great Elm Capital Corp, does not undertake to update its forward looking statements unless required by law.

To obtain copies of S. E. SEC filings. Please visit great Elm capital of course website under financial information.

The SEC filings or visit the SEC's website.

Hosting the call. This morning, it's not Kaplan, great Elm capital of course, Chief Executive Officer, who will be joined by Chief Financial Officer, Barry Davis, Chief Compliance Officer, Adam Kleinman, and Mitel are causing a great specialty finance I will now turn the call over to G. E. C. C D O Matt Kaplan.

Thank you Peter good morning, and thank you for joining us today.

I am proud of our second quarter 2023 performance as we executed in all facets of our operations and continued to make significant progress with respect to our overall portfolio strategy.

Turning to slide six in the quarter, our continued focus on cash generation and portfolio construction, namely deploying capital into senior secured floating rate investments enabled us to generate second quarter NII of $3 4 million or <unk> 44 per share.

18% gain from the 37 reported for the first quarter of 2023 and easily exceeding our quarterly distribution of 35 per share.

Even more important than our NII growth I want to highlight slide seven which shows our cash NII for the first time in G. E. C. C history, we generated enough cash income from our portfolio to cover our distribution.

As we move to slide eight.

This is driven by the fact that for the third consecutive quarter. The cash income generated from our investment portfolio was the highest amount in G. E C. CS history, representing approximately 87% of total investment income.

Our focus on repositioning the portfolio to generate cash income is operationally paying off. In addition, you will see later in the presentation. We increased our mix of first lien secured debt and reduced our equity exposure in the period, while still improving overall portfolio yield these results.

<unk> are a testament to our ability to revamp and build a new portfolio filled with high quality cash yielding attractive investments.

Buoyed by our excellent NII performance, our net asset value increased by 3% in the quarter to 12 21 per share as you can see on slide nine.

<unk> benefited from both realized and unrealized mark to market gains on investments in the quarter. We remained focused on further recovering and improving our NAV moving forward.

I would also like to note that we are aware of our near term maturities and are actively evaluating various options to refinance them.

We are constantly monitoring the capital markets and have initiatives in place to take advantage of potential financing transactions to opportunistically refinance these maturities at an attractive cost of capital as.

As you may have noticed we havent and too long file, which adds to our toolkit of potential financing pads, which we may execute on.

Key focus of ours is to put in place a capital structure that sets up J E. T. C for success, both the near and the long term.

Before turning the call over to Carrie to review our financials in detail.

To highlight that as a result of many strategic initiatives at G. E. C. C to lay the foundation for long term success, including our capital structure efforts you should expect our expenses to tick up in the third quarter. Thus you should not expect to see our NII constantly grow by seven cents per share each quarter as we have done in the past two quarters.

That said given our current portfolio composition, our overall strategy and the current rate environment. We believe we remain well positioned to cover our quarterly distribution for the remainder of the year with that I'd like to hand, the call over to Karen Davis to discuss our second quarter 2023 performance.

Thanks, Matt I'll go over our financial highlights now, but we invite all of you to review our press release accompanying presentation, and our SEC filings for greater detail.

And the second quarter I can easily see generated NII of $34 million growing nicely.

8 million in the first quarter of 2023.

Nearly tripling our NII wherever here from one 2 million in the prior year quarter.

Our net assets as of June 30th 'twenty total thing were $92 $9 million compared to $93 million that much but of course and 97 six.

30th 2022.

NAV per share was 12 21.

June 30th totaled 23, but there's a level of 88 as of March 31st and probably before as part of the total care.

Details for the quarter over quarter change in NAV can be found on slide nine.

And I I push out was about 44, that's exceeding our quarterly dividend.

The fourth quarter.

I think it was already at 2023.

I think penetration was approximately 161, 5% compared to one eight.

As of last Friday.

Hello, Greg.

I think June 30th our total debt outstanding was approximately $151 million, including 5 million outstanding on our $25 million line of credit.

I think it was already at our cash and money market Securities totaled approximately 11.

Our board of directors, because authorized 35 cents per share cash distribution for the quarter ending September 30th 'twenty time frame.

Third quarter past. It took me said will be payable on September 29.

Stockholders of record as of September fiscal 'twenty three.

Annualized the distribution equates to an 11, 5% dividend yield on our June 32012.

$12 21 per share with that I'll turn the call back over to Mac.

Thanks Carey.

In the second quarter, we continued to rotate into higher yielding investments taking advantage of the rally in rates to deploy approximately $23 million into new investments average yields of approximately 15%.

Meanwhile, we opportunistically monetized $16 million of assets in the quarter and average yields of approximately 10%.

We continue to increase our exposure to floating rate investments, 63% of our debt investment portfolio at quarter end consisted of floating rate debt up from 58% at the end of the prior quarter and almost double the 33% from a year ago.

Most notably along with our portfolio's enhanced deal profile, which stood at 13.5% at quarter end up 40 basis points from the prior quarter.

We increased the proportion of our portfolio that consists of first lien loans. Thus also improving the overall credit quality of our portfolio.

Increase in both yield and portfolio quality is further validation of the work we have accomplished over the past year.

Looking ahead, we will continue to focus on investments that benefit from the elevated rate environment.

Also closely monitoring the fed to see when they determined to officially conclude the rate hike cycle.

We also continued to scale, our specialty finance platform during the quarter. We noted on our prior call that great home Health care Finance was able to access up to $100 million of financing for health care related secured lending and in the quarter. It began deploying that capital into new loans, while maintaining a robust pipeline of new.

Potential investments in addition.

Berlin the asset based lending platform also closed a couple of attractive deals and prestige the invoice financing business had another strong quarter.

Early July we exited our equity and sub debt investments and lenders funding while.

While we decided to part ways with the management team. There. We believe lender finance is an attractive piece of the specialty finance platform, which might color will discuss shortly.

To believe the specialty finance platform is well positioned to provide material contributions to G. C C in future quarters.

Given the ongoing macro environment, we will remain disciplined with respect to deploying capital towards opportunities that have limited risk of permanent capital impairment and durable returns by staying measured we are well positioned to continue growing great Elm capital Corp, and generate further attractive risk adjusted returns for.

Shareholders.

As I noted before we are pleased with our ability to navigate through the choppy environment in the first half of this year, improving both our overall yield and the quality of our portfolio composition.

We continue to believe there will be opportunities in the back half of the year to selectively make thoughtful investments, while keeping a watchful eye on the rate environment.

With that I would like to turn the call over to Mike <unk> to provide an update of our specialty finance initiatives.

Thanks, Matt we continue to see positive momentum with our specialty finance businesses during the second quarter, Great Elm Health care finance close down the leverage facility that provides up to $100 million in financing from which to deploy capital into secured investments.

We continue to see buoyant deal flow in our health care.

And we've expanded the platform from both new business and operational standpoint, we.

We will continue to keep you apprised of our progress, but we expect great home health care finance to scale in the months and quarters ahead.

As I noted on previous calls structural and macroeconomic factors have created an opportunity in health care that have not seen since the early two thousands.

We continue to expect GE H F to become a major contributor to the specialty finance business, we are building across the continuum of lending.

In addition to the health care opportunities, we are beginning to see dislocation in lender pullback and maybe all market.

This is being fueled by economic uncertainty shrinking deposit basis higher interest rates and credit losses.

As a result, our investment professionals are receiving inbound calls on specific deals as well as potential portfolio purchase opportunities.

As previously discussed we have taken steps to bolster the operations and the asset monitoring capabilities of our specialty finance businesses.

This should allow us to take advantage of both portfolio purchase opportunities and the platform in basketball.

As Matt noted shortly after the quarter closed we exited our equity and sub debt investments and lenders funding at valuations consistent with the 630 fair values.

While we ultimately decided to part ways with management, we continue to hold the commitment and the lenders funding senior credit facility and we believe the lender finance market is attractive.

Building on the servicing capabilities of Sterling, which have allowed great Elm health care finance to scale rapidly we are exploring the opportunity to launch our own lender finance platform under great specialty finance I expect to have more to say on this initiative later this year.

Finally, as noted last quarter, our invoice financing business prestige capital is directly benefiting from lender pullback in credit dislocation.

St's, followed up a strong first quarter with a tremendous second quarter exceeding our management's expectations on both volumes and net income the prestige team continues to generate and execute on attractive risk adjusted opportunities.

We remain confident that our specialty finance platforms are properly positioned to execute on our growth initiatives and generate increasing sustainable income.

Thanks, Mike.

Sum it up it was another excellent quarter for Greenhill.

Evidenced by another quarter of NII exceeding our quarterly dividend and a record cash income generation.

We remain well positioned to continue covering our dividend on an ongoing basis with that I'll turn the call over to the operator for questions operator.

Thank you so ladies and gentlemen, we will now begin the question and answer a question. If you would like to ask a question. Please press star and then one on your telephone keypad.

A confirmation tone will indicate your line is in the question queue.

Chris thought and then two if you would like to remove your question from the queue.

If you would like to ask a question. Please press star and then one now.

A moment to see if we have any questions.

Ladies and gentlemen, again, if he would like to ask a question. Please press star and then one now.

At this stage there are no questions I will now hand back to Matt Kaplan for closing remarks. Please go ahead.

Yeah.

Thank you again for joining US today, we continue to make solid progress in our efforts to transform <unk> and we look forward to continued investor dialogue. Please let us know if we can help with any follow up questions that you may have thank you.

Thank you, Sir ladies and gentlemen that does conclude today's conference. Thank you for joining US you may now disconnect your lines.

Okay.

[music].