Q1 2025 Great Elm Group Inc Earnings Call
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Speaker Change: Greetings and welcome to the Great Elm Group Fiscal 2025 First Quarter Conference Call.
At this time, all participants are in a listen-only mode.
Speaker Change: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Adam Yates, Managing Director. Thank you. You may begin.
Adam Yates: Good morning, everyone. Thank you for joining us for Great Elm Group's Fiscal First Quarter 2025 Earnings Conference Call. As a reminder, this conference call is being recorded on Tuesday, November 12, 2024.
Adam Yates: The slide presentation accompanying today's conference call and webcast can be found on our website under events and presentations.
Adam Yates: 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.
Adam Yates: Today's conference call includes four looking statements, and we ask that you refer to Great Elm Group's filings to the SEC for important factors that could cause actual results to differ materially from these statements.
Adam Yates: Great Elm Group does not undertake to update its forward-looking statements unless required by law.
Adam Yates: In addition, during today's call, management will refer to certain non-GAAP financial measures.
Adam Yates: Reconciliations to the most comparable financial measures are included in our earnings release.
Adam Yates: To obtain copies of our SEC filings, please visit Graydon Group's website under Financial Information and select SEC Filings.
Adam Yates: Today's comments do not constitute an offer to sell or a solicitation of an offer to buy interest in any investment vehicle managed by Gradom or its affiliates.
Adam Yates: Any such offer or solicitation will only be made pursuant to the applicable offering documents for such investment vehicle.
Speaker Change: On the call today, we have Jason Reese, CEO, Adam Kleinman, President and General Counsel, Nicole Mills, COO, and Keri Davis, CFO. I will now turn the call over to Jason Reese, CEO.
Jason Reese: Welcome everyone and thank you for joining us today. We delivered a solid start to fiscal 25 building on momentum from last fiscal year as we continue to evolve as a streamlined pure play asset management business.
Jason Reese: This quarter was marked by significant growth in both assets under management and revenue across our businesses. Our strong foundation enables us to actively grow our core credit and real estate platforms and execute on our long-term growth strategy.
Jason Reese: As we begin fiscal 25, our highlights are we continue to grow our assets under management, increasing our fee-paying assets under management by over 20% on a year-over-year basis in the quarter.
Jason Reese: We generate a total revenue of $4 million, growing 21% year over year.
Jason Reese: We proved out our real estate built-to-suit concept with Monomoy DPS, completing construction of its first property with a successful exit.
Jason Reese: We surpassed double-digit net returns in a recently seeded credit fund just prior to its one-year anniversary.
Jason Reese: Our buyback authorization was expanded to up to 20 million dollars and we continue to repurchase shares at a significant discount to book value.
Jason Reese: We ended the quarter in a strong financial position with over $50 million in cash and marketable securities available to facilitate continued growth across our asset management platforms.
Jason Reese: Diving into the quarter in more detail, fee-paying assets under management continued to grow and reached approximately 545 million dollars representing a 21% increase over the prior year period. The main driver of this growth is our BDC, Great Elm Capital Corp.
Jason Reese: Notably, from February through October 2024, GECC completed numerous equity and debt issuances exceeding $130 million.
Jason Reese: Importantly, GEG has demonstrated its commitment to scaling GECC by participating in two prior equity raises at the then current NAB.
Jason Reese: GECC also delivered a strong quarter, achieving record total investment income, with NII exceeding its quarterly distribution.
Jason Reese: This performance was primarily driven by increased cash flows from the early success of GECC's CLO joint venture.
Jason Reese: The portfolio remains solid, and I invite you to listen to the latest GECC conference call, available on its website for additional information on the computer transformation at the BBC.
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Jason Reese: Overall, these issuances and portfolio enhancements at GECC are integral to our business.
Jason Reese: They strengthen our ability to grow fee-paying assets under management, while also expanding GEG's fee-earning potential through both substantial recurring asset management fees and potential incentive fees from the incremental capital.
Jason Reese: Notable, Great Elm's base management fee from GECC increased by 34% year over year to $1.2 million and in the quarter we earned $900,000 of incentive fees from GECC.
Jason Reese: Our real estate platform also continues to expand as we are nearing completion of our second built-to-suit property.
Jason Reese: Moreover, we expect continued profitability in fiscal 25 as the team focuses on selling its second property and begins development on its third contracted design-build project.
Jason Reese: The build-to-suit pipeline remains robust. We will continue to execute on these development opportunities to further enhance profits at GEJ and create value for both our tenants and shareholders.
Jason Reese: Monomoy BTS Construction Management, which offers consulting and owner representative services for in-house construction projects, also continued to ramp up.
Jason Reese: Additionally, Monomoy Reef, after solid performance over fiscal 24, continues to execute. We have several value-added acquisitions in the contract that we expect to close in the first half of our fiscal year. We are excited about Monomoy's performance and growth prospects as fiscal 25 progresses.
Jason Reese: Also, as you may recall, we launched the Great Elm Credit Income Fund, or G-SIF, in November of 23.
Jason Reese: I am pleased to report that the Fund has delivered a solid return of over 11% net of fees and expenses through its first 11 months.
Jason Reese: With these strong returns and newly established track record, we are well situated to attract new capital and further scale the platform.
Jason Reese: Outside of our core businesses, GEG's Board of Directors authorized an additional $10 million of stock repurchases this quarter, expanding the program's total capacity up to $20 million.
Jason Reese: GEG continues to maintain a strong balance sheet and capital position with over 50 million dollars of cash in marketable securities.
Jason Reese: This strong liquidity position enables us to support further growth initiatives across our alternative asset management platform.
Jason Reese: In sum, we are pleased with the continued performance of our credit and real estate segments in the fiscal first quarter. We are focused on accelerating this momentum as we continue repositioning Greydown in the alternative asset management space.
Jason Reese: Further, we remain committed to our three core objectives, enhancing financial performance, expanding our platform, and growing assets under management.
Jason Reese: Additionally, we continue to actively evaluate multiple strategic initiatives alongside other opportunities to add accretive differentiated products.
Jason Reese: Moving ahead, we maintain our steadfast commitment to pursuing opportunities to expand our businesses and allocate capital to promising new platforms offering attractive risk-adjusted returns.
Jason Reese: Before turning the call over to Keri to review our financial details, I would like to address our net income for the quarter.
Jason Reese: Net income benefited from the reversal of approximately three and a half million dollars in previously recorded unrealized losses related to GE's investment in special purpose vehicles.
Jason Reese: On our last call, we highlighted that these STDs were marked to a material lesser value.
Jason Reese: As we continue to execute, we expect these investments will begin to deliver positive returns for shareholders over time.
With that, I'll turn it over to Keri.
Keri Davis: Thank you, Jason. I will provide a brief overview of the quarter and of course welcome all of you to review our filings in greater detail or reach out to our team with any questions.
Keri Davis: Fiscal first quarter revenues grew 21% to $4 million from the prior year period, primarily driven by additional proceeds related to our June 2024 property sale along with a pickup in management fees.
Keri Davis: Pro Forma AUM and Fee Paying AUM, reflecting GECC's refinancing and extinguishment of its GECC M notes, totaled approximately 741 million dollars and 545 million dollars, up 16 percent and 21 percent respectively from the prior year quarter end.
Keri Davis: Great Arm Group generated net income from continuing operations of $3 million for the quarter as compared to $2.8 million for the prior year period.
Keri Davis: As previously mentioned, this quarter's gain was driven by the reversal of approximately $3.5 million in previously recorded, unrealized losses related to the company's investments in special purpose vehicles.
Keri Davis: Adjusted EBITDA for the quarter was $1.3 million compared to $1.7 million in the prior year period.
Keri Davis: As of September 30th, we had approximately $52 million of combined cash and marketable securities on our balance sheet to deploy across our growing alternative asset management platform.
Keri Davis: Please refer to slide 7 that provides an overview of our financial position and highlights our book value per share of approximately $2.22.
Speaker Change: This concludes my financial review of the quarter. With that, we will turn the call over to the operator to open for questions.
Speaker Change: Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: Once again, that's star one to ask a question at this time. One moment while we post our first question.
Speaker Change: At this time, I would like to turn the call back to Jason Reese for closing comments.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day
Featuring Mark Theremit Produced by Keri Davis