Q4 2023 Great Elm Capital Corp Earnings Call

Operator: Welcome to the Great Elm Cptl Corporation's 4th Quarter and Full Year 2023 Earnings Conference Call. At this time, all participants are in listen-only mode.

Fourth quarter and full year of 2023 earnings conference call.

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

Operator: The question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll now turn the conference over to Garrett Edson, a representative of the company. Chris Redson, you may now begin.

A question and answer session will file a formal presentation.

If anyone today should require operator assistance during the conference. Please press star zero from your telephone keypad.

Please note that this conference is being recorded.

At this time I'll now turn the conference over to Garrett Edson a representative of the company.

Mister Hudson you May now begin.

Garrett Edson: Good morning, and thank you everyone for joining us for Great Elm Capital Corp.'s fourth quarter and full year 2023 earnings. If you'd like to be added to our distribution list, you can email investor relations at greatelmcap.com, or you can sign up for alerts directly on our website, www.greatelmcc.com. I'd like to note the slide presentation posted on our website accompanying today's call. The slide presentation can be found on our website under Financial Information Quarterly Results. On our website, you can also find our earnings release and SEC filings. I would like to call your attention to the customary safe harbor statement regarding forward-looking information. Also, please note that nothing in today's call constitutes an offer to sell or a solicitation of offers to purchase our security.

Good morning, and thank you everyone for joining us for Greyhound capital corpse fourth quarter and full year 20 twenty-three earnings conference call. If you liked to be added toward distribution list you can email the investor relations at Great Elms calf Dot com or you can sign up for alerts directly on our website www dot great M. C C.

Dot com I would like to know what the slide presentation posted on a web site accompanying today's call. The slide presentation can be found on our website under financial information quarterly results on our website. You can also find our earnings release in a SEC filings I would like to call your attention to the customary safe Harbor statement regarding forward looking information also please note that nothing in today's call.

Paul constitutes an offer to sell or solicitation of offers to purchase our securities.

Garrett Edson: Today's conference call includes forward-looking statements, and we ask that you refer to Great Elm Capital Corp.'s filings with the SEC 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 SEC filings, please visit Great Elm Capital Corp.'s website under Financial Information, SEC Filings or visit the SEC's website. Hosting the call this morning is Matt Kaplan, Great Elm Capital Course Chief Executive Officer, will be joined by Chief Financial Officer Keri Davis, Chief Compliance Officer Adam Kleinman, and Mike Keller, President of Great Elm Specialty Finance. I will now turn the call over to GECC's CEO, Matt Kaplan. Thanks, Garrett.

Today's conference call and fluids forward looking statements and we ask that you referred to great capital of course filings with the S. C. C for important factors that could cause the actual results to differ materially from these statements great on capital Court does not undertake to update its four statements unless required by law to obtain copies of S. E. C filings. Please visit greed uncap it of course website and drift.

And Angel information SEC filings or visit the S. A sees web site.

Hosting the call. This morning, as Matt Caplan, Great on capital of course, Chief Executive Officer will be joined by Chief Financial Officer carry Davis, Chief compliance Officer, Adam climbing and Michaela President Great Elms specialty finance I will now turn the call over to G. E. C. C. C E O match caplin. Thanks get good morning, and thank you all for joining us today.

Matt Kaplan: Good morning, and thank you all for joining us today. We finished 2023 on a high note, generating an approximately 30% return on equity for the year, and we have continued our momentum into 2024, with the closing of a $24 million equity raise at net asset value earlier this month. Before diving into our strong performance, I want to further highlight our capital. On February 8th, GECC issued 1.85 million shares at a then current NAV of $12.97 per share, a 25% premium to the prior day's closing price. Great Elm Strategic Partnership I and SPV acquired the shares for gross proceeds to GECC of $24 million. Great Elm Group invested $6 million, and a strategic institutional investor invested the other $18 million in the SPV.

We finished 2023 on a high note generating and approximately three per cent return on equity for the year and we have continued our momentum into 2024 of the closing of a 24 million dollar equity raised net asset value earlier this month.

Before diving into our strong performance I want to further highlight are capital right.

On February 8th G. E. C. C issued 1.85 million shares have you been current <unk> of 12 97 per share 25 per cent premium to the prior day of closing price great.

Great Elm strategic partnership one and S. P V acquired the shares for gross proceeds to G. E C C of $24 million.

Great Elm group invested $6 million and a strategic institutional investor invested the other $18 million in the S. P. V. This non dilutive equity raised increases the scale of G. E. C C, which will provide operating efficiencies as we leveraged our fixed cost base and over time, we believe <unk>.

Matt Kaplan: This non-dilutive equity raise increases the scale of GECC, which will provide operating efficiencies as we leverage our fixed cost base and, over time, we believe will lead to an improved cost of capital. The transaction comes on the heels of success from our repositioning efforts over the past two years, further enabling us to build upon our growth strategy and execute on our strong investment pipeline at greater scale. Differing back to earnings, we are proud to have closed out the year with NII exceeding our base dividend for the fourth consecutive quarter and another quarter of increasing NAF, positioning us for continued success in 2024. We continue to excel in the fourth quarter across all facets of our business. We generated an annualized ROE of approximately 18%, bringing our calendar year 2023 ROE to approximately 30%.

Lead to an improved cost of capital.

The transaction comes on the heels of success from a repositioning efforts over the past two years further enabling us to build upon our growth strategy and execute on our strong investment pipeline at greater scale.

Drifting back to earnings we are proud to have closed out the year with N I exceeding our base dividend for the fourth consecutive quarter and another quarter of increasing naff positioning us for continued success in 2024.

We continue to excel in the fourth quarter across all facets of our business, we generated an annualized <unk> of approximately 18%, bringing a calendar year 2023 are we to approximately 30%.

Matt Kaplan: Additionally, we increased our net assets, generated another quarter of significant cash income, and further enhanced both our capital structure and overall operation. I remain proud of our team's unwavering execution and tremendous effort this past quarter and year, positioning us for long-term platform and portfolio growth. Turning to slide 3, you can see we reported NII of $0.43 per share. Additionally, full-year NII was $12.5 million, or $1.65 per share, exceeding the $1.50 per share of total declared dividends in 2023, which is inclusive of a $0.10 special distribution declared in December.

Additionally, we increased our net assets generated another quarter of significant cash income and further enhanced both our capital structure and overall operations I remain proud of our teams unwavering execution and tremendous effort this past quarter and year positioning us for longterm plan.

Warm and portfolio growth.

Turning to slide three you can see we reported and I I have 43 cents per share.

Additionally, full year and I I was 12, and a half a million dollars or $1.65 per share exceeding the one dollar and 50 cents per share of total declared dividends in 2023, which is inclusive of a 10 cents special distribution declared in December we are very pleased to have been able to deliver the special cash disk.

Matt Kaplan: We are very pleased to have been able to deliver the special cash distribution to our stockholders, a testament to our portfolio's strong performance throughout the year. I would also like to highlight slide 8, which shows our total investment income for the fourth quarter was $9.2 million. Notably, for the full year, we generated cash income of over $30 million, easily the highest full year total in Great Elm's history.

<unk> to our stockholders a testament to our portfolios strong performance throughout the year.

I would also like to highlight slide eight which shows are total investment income for the fourth quarter was $9.2 million, notably for the full year, we generated cash income of over $30 million easily the highest full your total in great Elms history.

Matt Kaplan: This is a true validation of our efforts over the past couple of years to enhance the portfolio's cash income generation. We also continue to proactively harvest lower yielding investments, reinvesting the proceeds into higher yielding, higher quality credits, and improving our mix of first lien secured debt, with 98% of our deployments in the quarter going to first lien investments, all while further enhancing the overall corporate portfolio yield. These results underscore our ability to construct and maintain a high-quality portfolio for those attractive cash yielding investors. In addition to another quarter of solid NII performance as displayed on slide nine, our net asset value per share grew to 1299, up from 1288 in the previous quarter. More noteworthy is our NAV growth over the past year, as seen on slide 10, which experienced a 16% increase from the beginning of 2023, driven primarily by gains on investment. We are committed to further growing our MAI and MAP over the long term.

This is a true validation of our efforts over the past couple of years to enhance the portfolio's cash income generation.

We also continued to proactively harvest lower you'll be investments reinvesting the proceeds into higher yielding higher quality credits and improving our mixer, firstly secured debt with 98 per cent of our deployments in the quarter going to first lien investments all while further enhancing the overall corporate portfolio.

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These results underscore our ability to construct and maintain a high quality portfolio filled with attractive calf yielding investments.

In addition to another quarter of solid and I I performance as displayed on slide nine or net asset value per share glued to 12 99 up from 12, 88 and the previous quarter <unk>.

More noteworthy as our Nab growth over the past year as seen on slide 10, which experienced a 16% increase from the beginning of 2023, driven primarily by games on the investments we.

We are committed to further growing R. M I N that over the long term.

Keri A. Davis: Along with our strong results in the quarter, we were pleased to amend our $25 million Revolving Line of Credit, extending the maturity by three years to May 2027 and reducing its cost by 50 basis points to SOFR plus 3%. This provides us with additional flexibility in our capital structure and demonstrates our lenders' sustained confidence in our business. We are continuously assessing the capital markets and potential financing opportunities to strategically extend our maturities at favorable costs, priming us for both short and long-term success. With that, I'd like to hand the call over to Keri Davis to discuss our fourth quarter 2023 performance. Thanks, Matt.

Along with our strong results in the quarter, we were pleased to amend our 25 million dollar revolving line of credit extending the maturity by three years to May 2027, and reducing its costs by 50 basis points to sofa plus three per cent.

This provides us with additional flexibility in our capital structure and demonstrates or lenders sustained confidence in our business.

We are continuously assessing the capital markets and potential financing opportunities strategically extend our maturities favorable costs priming us for both short and long term success with that I'd like to hand, the call over to carry Davis to discuss our fourth quarter of 2023 performance.

Keri A. Davis: I'll go over our financial highlights now, but we invite all of you to review our press release accompanying this presentation and our SEC filings for greater detail. During the fourth quarter, GECC generated NII of $3.3 million compared to $3.1 million in the third quarter. Additionally, full year NII was $12.5 million dollars, or $1.65 per share. Our net assets as of December 31 rose to $99 million compared to $98 million at September 30. Our NAV per share also improved to $12.99 as of December 31st versus $12.88 as of September 30th and $11.16 as of the end of last year. Details for the quarter-over-quarter and year-over-year change in NAV can be found on slides 9 and 10 of the investor presentation. NII per share was $0.43 for the quarter, exceeding our quarterly base dividend for the fourth consecutive quarter and compared to $0.40 per share in the prior quarter.

<unk> I'll go over our financial highlights now between by all I need to review our press release accompanying presentation and R. S. A C filing for greater detail during.

During the fourth quarter at G. E C C generated N I, I, a $3.3 million compared to $3.1 million in the third corner.

Additionally, four year, and I, I was $12.5 million or $1.65 per share.

<unk>, that's as of December 31st Rose to $99 million compared to $98 million at September 30th.

I know for sure also printed 12 99 as of December 31st verses 12 88.

<unk>, 30th and 11 16 as at the end of last year.

Detailed for the quarter over quarter and you're over near changing that can be found on slides 1910 at the investor presentation.

And I I appreciate it with 43 cents for the corner exceeding our quarterly based in the N for the fourth consecutive quarter and compared to 40 cents per share in the prior quarter.

Keri A. Davis: As of December 31st, GECC's asset coverage ratio was approximately 169% compared to 168.4% as of December 30th. As of December 31st, our total debt outstanding was approximately $143 million, and cash and money market securities totaled approximately $12 million. Our $25 million dollar revolving line of credit also remained under. Our Board of Directors authorized a $0.35 per share cash distribution for the quarter ending March 31, 2024. The first quarter cash distribution will be payable on March 29, 2024, to stockholders of record as of March 15. The distribution equates to an 11% annualized dividend yield on our December 31st NAV of $12.99 per share. In addition, the 2023 distributions, inclusive of the $0.10 per share special distribution, totaled $1.50 per share for the trailing 12-month period, equating to an 11.6% yield on December 2023 net.

As of December 31st T. E C sees ethic coverage ratio with approximately 169% compared to 168.4% as of December 30th.

As of December 31st at total debt outstanding with approximately $143 million in cash and money market security totaled approximately 12 million.

25 million dollar revolving line of credit also remained undrawn.

Our board of directors authorized 835 cents per share cash distribution for the quarter ending March 31st 2024 the.

The first quarter cash distribution will be payable on March 29th 2024 to stockholders a record as of March 15th.

The distribution equates to an 11% annualized dividend yield on our December 31st May I have a 12 99 per share.

In addition, the 20th 23 distributions inclusive of the 10 cents per share special distribution totaled $1.50 per share for the trailing 12th month period equating to an 11.6 per cent yield on December 2023 math.

With that I'll turn the call back over to Matt. Thanks carry in the fourth quarter, we continued to rotate into higher yielding investments taking advantage of the ongoing elevated rate environment and deploying approximately $30 million into new investments average yield of approximately 14 per cent.

Matt Kaplan: With that, I'll turn the call back over to Matt, up from 11.4% in the previous quarter. Meanwhile, we opportunistically monetized $36 million of assets in the quarter at average yields of approximately 11%. Our rotation into floating rate investments continued, with 67% of our debt investment portfolio at quarter end comprised of floating rate debt compared to 63% last quarter and well above 50% in the prior year period. Notably, along with our portfolio's yield profile, which stood at 13.8% at quarter end, most of the capital deployed in the quarter was into first lien investments, strengthening the overall credit quality of our portfolio. We are pleased with the composition and return profile of our current portfolio and the strides we have made over the past two years.

From 11.4 per cent in the previous quarter <unk>.

Meanwhile, we opportunistically monetize $36 million of assets in the quarter at average yields of approximately 11%.

All rotation into floating right investments continued with 67 per cent of our debt investment portfolio at quarter end comprised of floating right that compared to 63 per cent last quarter and well above 50 per cent in.

In the prior year period.

Notably.

Along with our portfolios your profile stood at 13.8% a quarter and most of the capital deployed in the quarter wasn't the first lien investments strengthening the overall credit quality of our portfolio. We are pleased with the composition and returned profile of our current portfolio and the strides we have made over the past two years.

Matt Kaplan: Looking ahead for 2024, we continue to prioritize investments that are benefiting from the elevated rate environment while focused on credit quality, as we actively monitor the ever-changing macro landscape. In sum, we are proud of our performance and transformation over the past couple of years, resulting in a higher quality portfolio with a strong yield profile, sustainably improving NAV, and enabling NII to consistently exceed the regular quarterly distribution. We will remain disciplined in deploying capital towards opportunities with durable returns and a limited risk of permanent capital loss.

Looking ahead for 2024, we continue to Prioritise investments that are benefiting from the elevator right environment, while focused on credit quality as we actively monitor the ever changing macro landscape.

We are proud of our performance and transformation over the past couple of years, resulting in a higher quality portfolio with a strong yield profile sustainably, improving nap and enabling <unk> to consistently exceed the regular quarterly distribution.

We will remain disciplined and deploying capital towards opportunities <unk> returns and limited risk of permanent capital loss by maintaining this approach we are well situated to further <unk> capital Corp, and deliver compelling risk adjusted returns for our shareholders. We remain excited for the future of G. C C.

Mike Keller: By maintaining this approach, we are well situated to further grow Great Elm Capital Corp. and deliver compelling risk-adjusted returns for our shareholders. We remain excited about the future of GECC, and with that, I'd like to turn the call over to Mike Keller to provide an update on specialty finance. Thanks, Matt. First, I'd like to note a key hire we made earlier this month. Jason Schwartz, an industry veteran, has joined GESF as its chief credit officer.

What's that I'd like to turn the call over to <unk> to provide an update on specialty finance.

Thanks, Matt.

First I'd like to note a key higher we made earlier this month, Jason Schwartz and industry bedroom is joy J E. F F. As its chief Credit Officer, Jason has significant experience in all levels of lending healthcare, a b L real estate and lend refinance he will help drive growth in each of our businesses as well as assist with our <unk>.

Mike Keller: Jason has significant experience in all levels of lending, healthcare, ABL, real estate, and lender finance. He will help drive growth in each of our businesses, as well as assist with our multiple lending arrangements. Moving to our businesses, I'll start with Prestige, which saw some weakness in invoice financing volume in the back half of the year but ended 2023 on a strong note, outperforming budget. Going into the first quarter, we are seeing volumes pick up again, and we expect another strong year from the team.

Multiple lending arrangements.

Moving to our businesses I'll start with prestige, which saw some weakness an invoice for Nancy volume in the back half of the year that ended 2023 and a strong note outperforming budget.

Going into the first quarter, we are two volumes pick up again and expecting another strong ear from the team.

Mike Keller: At Great Elm Healthcare Finance, we continue to see robust deal flow, and our team has been successful in expanding its financing relationships. We expect Great Elm Healthcare Finance to continue to take advantage of the healthcare market dislocation in 2024. As mentioned last quarter, we continue to build out Sterling Commercial Credit and its asset-based servicing capabilities. Today, we have a platform in place to support growth. The Sterling team grew the pipeline in the fourth quarter and has a strong foundation to convert that pipeline into earning assets over the coming month. Turning to our latest business initiative, we are working with various bank and non-bank capital providers to further grow a new asset-based and asset-backed financing vertical. We believe that this will provide Great Elm Specialty Finance with the ability to take advantage of opportunistic secured lending transactions.

<unk> health care Finance, we continue to see robust deal flow entertain has been successful and expanding its financing relationships. We expect great in home health care for me is to continue to take advantage of the health care market dislocation in 2024.

As mentioned last quarter, we continued to build out sterling commercial credit and its asset base servicing capabilities today, we have a platform in place to support growth. The Sterling team grew the pipeline in the fourth quarter and he has a strong foundation to convert that pipeline into arena assets over the coming months.

Turning to our latest business initiative, we are working with various bank <unk> bank capital providers to further grow a new asset based in asset backed for Nancy and vertical we believe that this will provide <unk> specialty finance with the ability to take advantage of opportunistic secured lending transit.

Actions.

Mike Keller: In summary, now under GESF, I am confident that our specialty finance companies are properly positioned to execute on our growth initiatives as we seek to generate increasing and sustainable income over the coming years. Thanks, Mike. To sum up, it was an excellent quarter and a fantastic year for GECC. Given our current portfolio composition, overall strategy, and the recent equity capital raise at NAV, we believe we remain well-positioned to continue to cover our quarterly base distribution throughout 2024. In addition, we remain focused on continuing our capital raising initiatives and growing the business.

In summary, now under G E F F. I am confident that our specialty finance companies are properly position to execute on our growth initiatives as we seek to generate increasing and sustainable income over the coming years.

Mike.

To sum up it was an excellent quarter and a fantastic ear for G. E C C.

Given our current portfolio composition overall strategy in the recent equity capital raise at math, we believe we remain well positioned to continue to cover a quarterly based distribution throughout 2024.

In addition, we remain focused on continuing our capital raising initiatives and growing the business with that I'll turn the call over to the offer it up for questions operator.

Operator: With that, I'll turn the call over to the operator for questions. Operator? Thank you. We'll now be conducting a question and answer session. If you'd like to ask a question today, you may press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Thank you will now be conducting a question and answer session if.

If you'd like to ask a question today you May press star one from your telephone keypad and confirmation tone indicate your line is in the question Q U.

Operator: You may press star two if you'd like to remove your question from the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Once again, that's star one to ask a question.

Give me a fresh start too if you'd like to move your question from the queue.

Purchase instead of using speaker equipment may be necessary to pick up your handset before pressing the star Keith.

Once again, that's star one to ask a question or pause a moment to assemble queue. Thank.

Operator: We'll pause for a moment to assemble a queue. Thank you. Thank you. Once again, as a reminder, you may press star one at this time to ask a question. Thank you. It appears that at this time there are no questions. I would turn it over to the manager for any further remarks. Thank you all for joining us again today. We're pleased with our strong momentum and the incredible progress we've made. We look forward to continued investor dialogue.

Thank you.

Thank you once again as a reminder, you May press star one at this time to ask a question. Thank you.

Thank you.

It appears at this time there are no questions I would turn it over to match with for any further remarks.

Thank you all for joining US again today, we are pleased with our strong momentum and the incredible progress. We've made we look forward to continued investor dialogue. Please let us know if we can help with any follow up questions that you may have Thanksgiving.

Matt Kaplan: Please let us know if we can help with any follow-up questions that you may have. Thanks again. Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.

Thank you. This concludes today's conference. He may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.