Release Date: August 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Great Elm Group Inc (GEG, Financial) raised over $90 million in fresh capital, significantly growing fee-paying assets under management by nearly 30% year-over-year.
- GEG's GECC completed an underwritten public offering of $34.5 million of five-year notes at improved financing rates.
- The company generated total revenue of $9 million, tripling revenue from the prior year period.
- GEG ended the quarter with nearly $60 million in cash and marketable securities, providing a strong financial position.
- Monomoy BTS had a milestone fourth quarter, nearing completion on two inaugural properties and realizing a gain on sale of over $1 million.
Negative Points
- GEG reported an overall net loss of $0.9 million for the year, partly due to $3.8 million in unrealized losses.
- The financial accounting rules required GEG to mark its $9 million investment in SPVs to a lesser value, creating unrealized losses.
- Despite the capital raises, GEG's net loss from continuing operations was $0.6 million for the quarter.
- The company faced a $1.1 million unrealized loss on investments in Prosper Peak Holdings LLC.
- GEG's adjusted EBITDA for the quarter was $1.2 million, which, although an improvement, still indicates modest profitability.
Q & A Highlights
Q: Can you provide more details on the capital raises and their impact on Great Elm Group's financials?
A: Jason Reese, CEO: GECC raised over $90 million in fresh capital through a series of capital raises, significantly growing fee-paying assets under management by nearly 30% year-over-year. These capital raises were integral to our business, expanding GEG's ability to earn fee revenue from GECC, providing both substantial recurring asset management fee revenue and potential incentive fee revenue from incremental capital.
Q: What are the future growth prospects for the Monomoy BTS business?
A: Jason Reese, CEO: Monomoy BTS had a milestone fourth quarter, nearing completion on two inaugural properties and closing its first property sale with a significant IRR. We expect continued profitability in fiscal 2025 as we focus on selling the second property and begin development on the third contracted design-build project. The build-to-suit pipeline remains robust with approximately 30 specifications entering 2025.
Q: How did the Great Elm Credit Income Fund (GECIF) perform in its initial months?
A: Jason Reese, CEO: Launched in November '23, GECIF has had a solid start, building a strong marketable performance track record. We plan to release capital conducive in fiscal '25, expanding our alternative credit platform offerings.
Q: Can you elaborate on the investment in the cloud AI startup, Korea?
A: Jason Reese, CEO: GEG invested $5 million in a 10% preferred financing for Korea, a revolutionary cloud AI startup. This investment is a testament to our sourcing capabilities and our Board of Directors' sophisticated networks, giving us access to cutting-edge investment opportunities.
Q: What were the key financial highlights for the fiscal fourth quarter?
A: Keri Davis, CFO: Fiscal fourth-quarter revenues tripled year-over-year to $9 million, driven by the Monomoy BTS property sale. AUM was up 6% from the prior quarter end and 14% from the prior year end, while fee-paying AUM grew to $524 million, up 6% quarter-to-date and 17% from the prior year end. Adjusted EBITDA for the quarter was $1.2 million compared to $0.4 million in the prior year period.
Q: How did GECC's performance impact GEG's financials?
A: Jason Reese, CEO: GECC's performance supported the payment of incentive fees to GEG totaling $2.7 million over the last 12 months. GECC remains well-positioned to continue delivering fee revenue synergy, given the successful portfolio repositioning and recent expansion into CLO products.
Q: What strategic initiatives are being evaluated for future growth?
A: Jason Reese, CEO: We are actively evaluating multiple strategic initiatives to expand our businesses and allocate capital to promising new platform opportunities offering attractive risk-adjusted returns. We remain steadfast in pursuing opportunities to enhance our financial performance, expand our platform, and grow our assets under management.
Q: How did the recent capital structure improvements benefit GEG?
A: Jason Reese, CEO: We improved our capital structure by opportunistically repurchasing over $4 million principal of our 5% convertible notes at 47% of face value and repurchasing $1.2 million shares of GEG common stock in the market for $2.1 million as part of our stock repurchase program. These actions have strengthened our financial position and enhanced shareholder value.
Q: What are the expectations for GECC's joint venture in CLO investments?
A: Jason Reese, CEO: GECC formed a strategic joint venture with an institutional partner to make investments in CLOs and related warehouse facilities. The JV is beginning to receive sizable distributions from our CLO investments, and we expect this to be a source of increasing income at GECC in the coming quarters.
Q: What are the key goals for Great Elm Group moving forward?
A: Jason Reese, CEO: Our key goals are to enhance our financial performance, expand our platform, and grow our assets under management. We are committed to repositioning Great Elm in the alternative asset management space by growing our core alternative credit and real estate businesses and adding accretive differentiated products.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
