Great Elm Capital Group, Inc. (NASDAQ:GEC) (“Great Elm,” or the
“Company”) today announced its financial results for the quarter
ended March 31, 2018 and filed its quarterly report on Form 10-Q
with the U.S. Securities and Exchange Commission. Great Elm will
host a conference call and webcast on Wednesday, May 16, 2018 at
9:00 a.m., Eastern Daylight time, to discuss its third quarter
financial results. Please see page [6] below for details.
Select highlights from the third fiscal quarter
of 2018 include:
- During the quarter ending March 31, 2018, Great Elm Capital
Corp. (NASDAQ:GECC), a publicly-traded business development company
(“BDC”) that is externally managed by GECM, grew its investment
portfolio by 18% quarter-over-quarter. This asset growth was
primarily driven by the proceeds from a baby bond offering
(NASDAQ:GECCM) that was completed in January and February of 2018.
The proceeds from this debt issuance were deployed into what GECM
views as attractive risk-adjusted credit opportunities, resulting
in portfolio growth and increased diversification of assets during
the quarter.
- In May 2018, an overwhelming majority of GECC’s stockholders
approved a reduction in the asset coverage ratio from 200% to 150%,
in accordance with the Small Business Credit Availability Act. The
approval to reduce the asset coverage ratio allows for GECC to
issue, based on its portfolio valuations as of March 31, 2018, up
to an additional $172 million in debt. The deployment of such
proceeds into income-producing assets enhances the fee and earning
potential for GECM.
- Since GECC’s merger with Full Circle Capital Corporation (“Full
Circle”) closed in November 2016, the GECM team has extracted
significant value from a portfolio that the equity market had
viewed as “challenged.” In the year and a half since, we have
exited approximately 70% of the initial cost basis of this
portfolio across 22 positions and 15 portfolio companies, realizing
an aggregate total return of $4.2 million to date, a significant
achievement given the market’s previous assessment of its
value.
- In March 2018, Great Elm announced the closing of its first
transaction for its Real Estate platform by partnering with a
leading investor in the Credit Tenant Lease (“CTL”) space to
recapitalize the Gartner I and Gartner II Class A office buildings
and associated property in Fort Myers, Florida for an initial
capital outlay of approximately $3 million on a transaction value
of approximately $61 million.
BUSINESS OVERVIEW
Great Elm is a publicly-traded holding company
that is seeking to create long-term shareholder value by building a
business across three verticals: Investment Management, Real
Estate, and Operating Companies.
Alignment of Interest
We believe in creating a strong and long-term
alignment of interest with our shareholders and in investing
alongside them. The employees of GEC and GECM own over 1.6 million
shares of GEC, representing approximately 6.3% of the shares
outstanding.1 Additionally, the directors of GEC own or manage
approximately 10.5% of GEC’s shares.1 Between the employees and
directors, insiders collectively own or manage approximately 16.8%
of the Company’s shares outstanding, which we believe demonstrates
the extent of our conviction in what we are seeking to build here
at Great Elm.
Investment Management
We view the Investment Management vertical as
providing an attractive platform with high margins and a highly
scalable business model which, coupled with growth in assets under
management, provides significant operating leverage and thus the
potential for substantial growth in adjusted EBITDA. We intend to
focus on growing the assets of the BDC through additional debt
issuances and equity raises.
Additionally, we intend to opportunistically
pursue potential M&A activity within the BDC space, leveraging
our core skill set as value investors with significant work-out
experience. Our team’s success to-date in extracting value from the
legacy Full Circle portfolio, largely deemed by the market to be
“challenged,” is a testament to this team’s significant experience
in rehabilitating companies in financial distress. As referenced
above, in the year and half since the merger closed, we have
monetized nearly 70% of the day one portfolio across 22 positions
and 15 companies, realizing an aggregate total return of $4.2
million.
Lastly, we intend to leverage the team’s
experience and long track record of success with co-investment
opportunities as we seek to grow the GECM platform more
broadly.
“We continue to be enthusiastic about the
attractiveness of the Investment Management business,” remarked Mr.
Peter Reed, the Chief Executive Officer of Great Elm.
“During the quarter, we successfully completed
an additional baby bond financing, resulting in an increased asset
base for GECC to deploy into attractive total return investment
opportunities. Furthermore, we received significant shareholder
support for incurring additional leverage at GECC, permitting us to
add leverage up to the new statutory limit of two to one debt to
equity. As previously stated, we intend to use this additional
leverage prudently, in amounts and at times that GECM believes can
best deliver attractive risk-adjusted returns.”
Real Estate
Following the announcement of the Fort Myers
transaction in March, our Real Estate team has received in excess
of 50 opportunities to review in two months, with deal sizes
ranging from a few million dollars to over $100 million. We are
primarily seeing transactions with a price greater than $20 million
which are generally single tenant leaseholds or ground leases
across commercial, government and healthcare properties.
“We are pleased to report that our already
robust deal flow has significantly increased since the announcement
of the Fort Myers transaction in March. As we pursue due diligence
on a select number of these opportunities, we continue to focus on
building a diversified portfolio of high-quality, income-producing
real estate assets that we believe will create long-term
shareholder value,” stated Mr. Reed.
Operating Companies
The GEC team continues to focus on sourcing and
conducting due diligence on what it views to be attractive
acquisition candidates for its Operating Company vertical. For this
vertical, we are focusing on the acquisition of growing businesses
with demonstrated histories of generating meaningful earnings that
are high returns on the capital employed by the business. We hope
to acquire controlling interests in these businesses at what we
view as reasonable multiples of earnings while utilizing prudent
amounts of non-recourse leverage.
“Operating companies continue to be an area of
keen focus for us as we seek to build and diversify the Great Elm
platform, yet we believe our discipline with respect to business
diligence and purchase price, among other factors, will benefit our
shareholders in the long run. We continue to focus on not just
getting a deal done, but the right deal done,” remarked Mr.
Reed.
CONSOLIDATED FINANCIAL REVIEW &
SEGMENT FINANCIALS
As of March 31, 2018, Great Elm had three
operating segments: Investment Management, Real Estate and General
Corporate.
Investment Management
In March 2018, Great Elm reversed approximately
$2.1 million of incentive fees earned by GECM under the investment
management agreement and recognized in revenue in prior periods.
Generally speaking, GECM earns 20% of GECC’s pre incentive fee net
investment income (“NII”) in excess of a 7% hurdle
under its investment management agreement with GECC. Payment of
this fee is also subject to a total return hurdle as set forth in
the investment management agreement. To the extent that any of such
NII is composed of non-cash income, then payment of the incentive
fees owed to GECM in respect of such NII is deferred until received
by GECC in cash. GECC’s largest investment, Avanti Communications
Group plc (“Avanti”), has generated significant non-cash income in
the form of payment-in-kind (“PIK”) interest. In connection with
the recent restructuring of Avanti completed on April 26, 2018,
GECC’s investment in Avanti’s third lien notes was converted into
Avanti common equity. As a result of this debt-for-equity
conversion, we have determined that the accrued incentives fees
associated with the portion of such PIK interest generated by the
third lien notes cannot at this time be recognized in revenue and
must be reversed for prior periods. Notwithstanding this reversal,
such incentives fees remain payable under the investment management
agreement (subject to achievement of return hurdles) and will be
recognized in revenue to the extent a hypothetical sale of the new
common equity at the market price would result in gross proceeds to
GECC in excess of its initial cost basis in the third lien notes.
We can make no assurances that such incentive fees will ultimately
be recognized in revenue or as to the timing of any such
recognition.
Three Months Ended March 31, 2018:
- Revenue:
- During the quarter ended March 31, 2018, Great Elm recognized
and earned management fee revenue of $693,000 vs. $582,000 during
the same period in the prior year.
- During the quarter ended March 31, 2018, Great Elm recognized
and earned administration fee revenue of $283,000 vs. $384,000
during the same period in the prior year.
- During the quarter ended March 31, 2018, Great Elm earned, but
deferred incentive fee revenue of $966,000 vs. $1.000 million
during the same period in the prior year. During the quarter ended
March 31, 2018, Great Elm recognized incentive fee revenue of
($1.766) million vs. $1.000 million during the same period in the
prior year.
- During the quarter ended March 31, 2018, Great Elm earned, but
deferred total investment management revenue of $1.942 million vs.
$1.966 million during the same period in the prior year. During the
quarter ended March 31, 2018, Great Elm recognized total investment
management revenue of ($791,000) vs. $1.966 million during the same
period in the prior year.
- Net Income (Loss):
- During the quarter ended March 31, 2018, Great Elm recognized a
net loss of ($2.056) million vs. ($1.346) million during the same
period in the prior year.
- Adjusted EBITDA:
- During the quarter ended March 31, 2018, Great Elm recognized
and earned adjusted EBITDA of $616,000 vs. $796,000 during the same
period in the prior year.2
Nine Months Ended March 31, 20183:
- Revenue:
- During the nine months ended March 31, 2018, Great Elm
recognized and earned management fee revenue of $1.849 million vs.
$982,000 during the same period in the prior year.
- During the nine months ended March 31, 2018, Great Elm
recognized and earned administration fee revenue of $916,000 vs.
$446,000 during the same period in the prior year.
- During the nine months ended March 31, 2018, Great Elm earned
incentive fee revenue of $3.467 million vs. $1.880 million during
the same period in the prior year. During the nine months ended
March 31, 2018, Great Elm recognized incentive fee revenue of
$735,000 vs. $1.880 million during the same period in the prior
year.
- During the nine months ended March 31, 2018, Great Elm
recognized total investment management revenue of $3.501 million
vs. $3.308 million during the same period in the prior year. During
the nine months ended March 31, 2018, Great Elm earned total
investment management revenue of $6.233 million vs. $3.308 million
during the same period in the prior year.
- Net Income (Loss):
- During the nine months ended March 31, 2018, Great Elm
recognized a net loss of ($3.532) million vs. ($2.178) million
during the same period in the prior year.
- Adjusted EBITDA:
- During the nine months ended March 31, 2018, Great Elm
recognized and earned adjusted EBITDA of $2.148 million vs. $1.366
million during the same period in the prior year.
Real Estate
Three Months Ended March 31, 2018:
- Revenue:
- During the three months ended March 31, 2018, Great Elm earned
and recognized $343,000 in rental revenue.
- Net Income (Loss):
- During the three months ended March 31, 2018, Great Elm earned
and recognized $23,000 in net income.
- Adjusted EBITDA:
- During the three months ended March 31, 2018, Great Elm earned
and recognized $322,000 in adjusted EBITDA.
Conference Call &
Webcast
Great Elm will host a conference call and
webcast on Wednesday, May 16, 2018 at 9:00 a.m., Eastern Daylight
time, to discuss its third quarter financial results.
All interested parties are invited to
participate in the conference call by dialing +1 (866) 393-4306;
international callers should dial +1 (734)
385-2616. Participants should enter the Conference
ID 8884509 when asked.
For a copy of the slide presentation that will
be referenced during the course of our conference call, please
visit:
https://www.greatelmcap.com/events-and-presentations/default.aspx
or email investorrelations@greatelmcap.com.
Additionally, the conference call will be
webcast simultaneously at:
https://event.on24.com/eventRegistration/EventLobbyServlet?target=reg20.jsp&referrer=&eventid=1678884&sessionid=1&key=831F053A9598B4C068BD887B05BE334C®Tag=&sourcepage=register.
1 This includes restricted shares that are
subject to both performance and service vesting and is based on the
share count pro forma for the vesting of said restricted shares.2
Operating expenses during the three month period ended March 31,
2017 were depressed due to an allocation of such expenses under the
cost-sharing agreement, resulting in increased adjusted EBITDA for
such period.3 The nine months ended March 31, 2017 spanned from
November 3, 2016 to March 31, 2017, with the closing of the Full
Circle merger on November 3, 2016.
About Great Elm Capital Group,
Inc.
Great Elm Capital Group, Inc. (NASDAQ:GEC) is a
publicly-traded holding company that is seeking to build a business
across three operating verticals: investment management, real
estate and operating companies. Great Elm Capital Group’s website
can be found at www.greatelmcap.com.
Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995
Statements in this press release that are
“forward-looking” statements, including statements regarding
expected revenue, taxable income and net income, involve risks and
uncertainties that may individually or collectively impact the
matters described herein. Investors are cautioned not to place
undue reliance on any such forward-looking statements, which speak
only as of the date they are made and represent Great Elm’s
assumptions and expectations in light of currently available
information. These statements involve risks, variables and
uncertainties, and Great Elm’s actual performance results may
differ from those projected, and any such differences may be
material. For information on certain factors that could cause
actual events or results to differ materially from Great Elm’s
expectations, please see Great Elm’s filings with the SEC,
including its most recent annual report on Form 10-K and subsequent
reports on Forms 10-Q and 8-K. Additional information relating to
Great Elm’s financial position and results of operations is also
contained in Great Elm’s annual and quarterly reports filed with
the SEC and available for download at its website
www.greatelmcap.com or at the SEC website www.sec.gov.
Non-GAAP Financial Measures
The SEC has adopted rules to regulate the use in
filings with the SEC, and in public disclosures, of financial
measures that are not in accordance with US GAAP, such as adjusted
earnings before interest, taxes, depreciation and amortization
(“Adjusted EBITDA”). Adjusted EBITDA is derived from methodologies
other than in accordance with US GAAP. Great Elm believes that
Adjusted EBITDA is an important measure for investors to use in
evaluating Great Elm’s businesses. In addition, Great Elm’s
management reviews Adjusted EBITDA as they evaluate acquisition
opportunities.
Adjusted EBITDA has limitations as an analytical
tool, and you should not consider it either in isolation from, or
as a substitute for, analyzing Great Elm’s results as reported
under US GAAP. Non-GAAP financial measures reported by Great Elm
may not be comparable to similarly titled amounts reported by other
companies.
Set forth below is a reconciliation of Adjusted
EBITDA to the most directly comparable GAAP financial measure, net
income. The information in the table below includes forecasts,
projections and other predictive statements that represent Great
Elm’s assumptions and expectations in light of currently available
information. These forecasts, projections and other predictive
statements involve risks, variables and uncertainties. Great Elm’s
actual performance results may differ from those projected in in
the table below, and any such differences may be material.
|
|
|
|
|
|
|
|
|
For the Three Months
EndedMarch 31, 2018 |
|
|
For the Three Months
EndedMarch 31, 2017 |
|
Dollar amounts
in thousands |
|
InvestmentManagement |
|
|
RealEstate |
|
|
GeneralCorporate |
|
|
Total |
|
|
InvestmentManagement |
|
|
RealEstate |
|
|
GeneralCorporate |
|
|
Total |
|
Net income
(loss) - US GAAP |
|
$ |
(2,056 |
) |
|
$ |
23 |
|
|
$ |
(2,356 |
) |
|
$ |
(4,389 |
) |
|
$ |
(1,346 |
) |
|
$ |
— |
|
|
$ |
(1,451 |
) |
|
$ |
(2,797 |
) |
EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) - US
GAAP |
|
$ |
(2,056 |
) |
|
$ |
23 |
|
|
$ |
(2,356 |
) |
|
$ |
(4,389 |
) |
|
$ |
(1,346 |
) |
|
$ |
— |
|
|
$ |
(1,451 |
) |
|
$ |
(2,797 |
) |
Interest |
|
|
39 |
|
|
|
186 |
|
|
|
— |
|
|
|
225 |
|
|
|
108 |
|
|
|
— |
|
|
|
— |
|
|
|
108 |
|
Taxes |
|
|
— |
|
|
|
— |
|
|
|
(182 |
) |
|
|
(182 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Depreciation and
amortization |
|
|
136 |
|
|
|
113 |
|
|
|
— |
|
|
|
249 |
|
|
|
1,546 |
|
|
|
— |
|
|
|
— |
|
|
|
1,546 |
|
EBITDA: |
|
$ |
(1,881 |
) |
|
$ |
322 |
|
|
$ |
(2,538 |
) |
|
$ |
(4,097 |
) |
|
$ |
308 |
|
|
$ |
— |
|
|
$ |
(1,451 |
) |
|
$ |
(1,143 |
) |
Adjusted
EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
(1,881 |
) |
|
$ |
322 |
|
|
$ |
(2,538 |
) |
|
$ |
(4,097 |
) |
|
$ |
308 |
|
|
$ |
— |
|
|
$ |
(1,451 |
) |
|
$ |
(1,143 |
) |
Stock based
compensation |
|
|
618 |
|
|
|
— |
|
|
|
300 |
|
|
|
918 |
|
|
|
488 |
|
|
|
— |
|
|
|
85 |
|
|
|
573 |
|
Unrealized loss on
investment inGECC |
|
|
— |
|
|
|
— |
|
|
|
1,219 |
|
|
|
1,219 |
|
|
|
— |
|
|
|
— |
|
|
|
570 |
|
|
|
570 |
|
Unrecognized incentive
feesearned, net of related costadjustments (1) |
|
|
1,879 |
|
|
|
— |
|
|
|
— |
|
|
|
1,879 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-reimbursable
MASTCapital expenses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Re-measurement of
warrantliability |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25 |
) |
|
|
(25 |
) |
Adjusted
EBITDA |
|
$ |
616 |
|
|
$ |
322 |
|
|
$ |
(1,019 |
) |
|
$ |
(81 |
) |
|
$ |
796 |
|
|
$ |
— |
|
|
$ |
(821 |
) |
|
$ |
(25 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amount
represents $2.7 million of unrecognized incentive fees earned, net
of $0.8 million of unrecognized related bonus compensation
expense. |
|
|
|
For the Nine Months
EndedMarch 31, 2018 |
|
|
For the Nine Months
EndedMarch 31, 2017 |
|
Dollar amounts
in thousands |
|
InvestmentManagement |
|
|
RealEstate |
|
|
GeneralCorporate |
|
|
Total |
|
|
InvestmentManagement |
|
|
RealEstate |
|
|
GeneralCorporate |
|
|
Total |
|
Net income
(loss) - US GAAP |
|
$ |
(3,532 |
) |
|
$ |
23 |
|
|
$ |
(5,465 |
) |
|
$ |
(8,974 |
) |
|
$ |
(2,178 |
) |
|
$ |
— |
|
|
$ |
(12,168 |
) |
|
$ |
(14,346 |
) |
EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) - US
GAAP |
|
$ |
(3,532 |
) |
|
$ |
23 |
|
|
$ |
(5,465 |
) |
|
$ |
(8,974 |
) |
|
$ |
(2,178 |
) |
|
$ |
— |
|
|
$ |
(12,168 |
) |
|
$ |
(14,346 |
) |
Interest |
|
|
174 |
|
|
|
186 |
|
|
|
— |
|
|
|
360 |
|
|
|
175 |
|
|
|
— |
|
|
|
6,036 |
|
|
|
6,211 |
|
Taxes |
|
|
— |
|
|
|
— |
|
|
|
(182 |
) |
|
|
(182 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Depreciation and
amortization |
|
|
449 |
|
|
|
113 |
|
|
|
— |
|
|
|
562 |
|
|
|
2,564 |
|
|
|
— |
|
|
|
— |
|
|
|
2,564 |
|
EBITDA: |
|
$ |
(2,909 |
) |
|
$ |
322 |
|
|
$ |
(5,647 |
) |
|
$ |
(8,234 |
) |
|
$ |
561 |
|
|
$ |
— |
|
|
$ |
(6,132 |
) |
|
$ |
(5,571 |
) |
Adjusted
EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA |
|
$ |
(2,909 |
) |
|
$ |
322 |
|
|
$ |
(5,647 |
) |
|
$ |
(8,234 |
) |
|
$ |
561 |
|
|
$ |
— |
|
|
$ |
(6,132 |
) |
|
$ |
(5,571 |
) |
Stock based
compensation |
|
|
2,889 |
|
|
|
— |
|
|
|
713 |
|
|
|
3,602 |
|
|
|
805 |
|
|
|
— |
|
|
|
414 |
|
|
|
1,219 |
|
Unrealized loss on
investmentin GECC |
|
|
— |
|
|
|
— |
|
|
|
2,753 |
|
|
|
2,753 |
|
|
|
— |
|
|
|
— |
|
|
|
7,619 |
|
|
|
7,619 |
|
Unrecognized incentive
feesearned, net of related costadjustments (1) |
|
|
1,879 |
|
|
|
— |
|
|
|
— |
|
|
|
1,879 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Non-reimbursable
MASTCapital expenses |
|
|
281 |
|
|
|
— |
|
|
|
128 |
|
|
|
409 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Re-measurement of
warrantliability |
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
(36 |
) |
|
|
(36 |
) |
Adjusted
EBITDA |
|
$ |
2,148 |
|
|
$ |
322 |
|
|
$ |
(2,053 |
) |
|
$ |
417 |
|
|
$ |
1,366 |
|
|
$ |
— |
|
|
$ |
1,865 |
|
|
$ |
3,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Amount
represents $2.7 million of unrecognized incentive fees earned, net
of $0.8 million of unrecognized related bonus compensation
expense. |
|
|
|
Media & Investor
Contact:
Great Elm Capital GroupMeaghan
K. MahoneySenior Vice President+1 617
375-3006mmahoney@greatelmcap.com or
investorrelations@greatelmcap.com
Grafico Azioni Great Elm Capital (NASDAQ:GECCM)
Storico
Da Ago 2024 a Set 2024
Grafico Azioni Great Elm Capital (NASDAQ:GECCM)
Storico
Da Set 2023 a Set 2024