Great Elm Group 2027 Q1 Earnings Call

Good morning, everyone. Thank you for joining us for Great Elm Group's fiscal first quarter 2027 earnings conference call. As a reminder, this conference call is being recorded on Thursday, November 5, 2026. If you would like to be added to our distribution list, you can email geginvestorrelations@greatelmcap.com or sign up for alerts directly on our website at www.greatelmgroup.com. The slide presentation accompanying today's conference call and webcast can be found on our website under Events and Presentations. A link to the webcast is also available on our website, as well as in the press release announcing our results. Today's conference call includes forward-looking statements, and we ask that you refer to Great Elm Group's filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Group does not undertake to update its forward-looking statements unless required by law.

In addition, during today's call, management will refer to certain non-GAAP financial measures. Reconciliations to the most comparable financial measures are included in our earnings release. To obtain copies of our SEC filings, please visit Great Elm Group's website under Financial Information and select SEC Filings. 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 Great Elm or its affiliates. Any such offer or solicitation will only be made pursuant to the applicable offering documents for such investment vehicle. On the call today, we have Jason Reese, Chairman of the Board and CEO, Adam Kleinman, President and General Counsel, Nichole Milz, COO, and Keri Davis, CFO. I will now turn the call over to Jason Reese, CEO.

Good morning, and thank you for joining us today. We made meaningful progress during the quarter on strategic initiatives designed to drive growth across our alternative asset management platform, expand fee-paying assets under management, and build a more durable earnings base. In particular, we continue to pursue capital-raising initiatives for Monomoy REIT to support the growth of our real estate business. Our first quarter financial results fell short of expectations, reflecting the timing of certain real estate investment sales and headwinds in alternative credit. Nevertheless, we remain encouraged by the underlying momentum across our businesses and confident in our strategic direction. I will start with alternative credit. At GECC, our priorities continue to be rebuilding net asset value, generating sustainable investment income, and maintaining disciplined capital deployment.

During the quarter, GECC's NAV declined by $0.55 per share to $7.40, including a $3.3 million reduction in the fair value of its CLO JV investment. We're not satisfied with these results and remain committed to strengthening portfolio quality, preserving liquidity, and improving investment performance. Our investment approach emphasizes diversification, disciplined underwriting, and credit quality over incremental yield. With credit spreads tight and valuations elevated across the broadly syndicated market, we continue to deploy capital selectively. We are leveraging our institutional relationships and differentiated sourcing capabilities to identify attractive risk-adjusted opportunities. GECC's lower leverage and strong liquidity provide flexibility to capitalize on these opportunities as they arise. At quarter end, GECC had approximately $50 million of liquidity, including $6 million of cash and money market investments and $44 million of revolving credit facility availability.

During the quarter, GECC also retired $6.5 million of its highest-cost debt, bringing total debt reduction to nearly $40 million calendar year to date, with no debt maturities until 2029. Together, these efforts are intended to strengthen GECC's financial position, support more consistent investment performance, and benefit Great Elm through its direct investments and recurring management fees. Turning to real estate, we continue to see strong momentum across the Monomoy platform, supported by the growth of Monomoy REIT's industrial outdoor storage portfolio and our vertically integrated operating capabilities. Our strategic partnership with Kennedy Lewis has provided significant capital to support acquisitions and development across the business. During the first quarter, Monomoy REIT completed four property acquisitions, deploying approximately $8 million of committed capital, including estimated future capital expenditures and tenant improvements.

The REIT also built its largest acquisition pipeline to date, representing nearly $90 million of potential investments. We continue to pursue capital-raising initiatives to support the next phase of Monomoy REIT's growth and the broader real estate platform. If successful, we believe these efforts have the potential to expand our access to capital, accelerate acquisitions, and increase fee-paying assets under management and recurring fee revenue. Monomoy CRE generated approximately $1.1 million of investment and property management fees during the quarter, an increase of approximately 18% from the prior year period. As the REIT scales, we expect recurring fee revenue to become an increasingly important contributor to Great Elm's earnings. Our build-to-suit development business also continued to expand. Monomoy BTS is nearing completion of its fourth development project and acquired two new properties during the quarter for approximately $4 million.

After quarter end, we acquired a third property for approximately $5 million. These projects strengthen tenant relationships, create new customer opportunities, and offer the potential to generate attractive investment returns. Monomoy Construction Services generated approximately $700,000 of revenue during the quarter and continues to develop its pipeline of construction, consulting, and pre-construction opportunities, including third-party engagements. Together, these businesses provide a differentiated, integrated platform spanning acquisitions, development, construction, and asset management. While the timing of individual development sales can create variability in quarterly results, we believe the underlying momentum positions the business for continued growth. Turning to our direct investments, we received approximately $700,000 in distributions from our CoreWeave-related investment during the quarter. This brings cumulative distributions to approximately $8.6 million against our original $5 million investment, with additional upside potential.

With respect to capital allocation, Great Elm ended the quarter with approximately $43 million of cash and cash equivalents, providing substantial flexibility to pursue our strategic priorities. We also repurchased common stock for the 12th consecutive quarter, acquiring approximately 266,000 shares at an average price of $2.20 per share. As of October 30th, we have repurchased approximately 8.4 million shares for nearly $17 million at an average price of $2.01 per share. That leaves approximately $23 million available under our $40 million repurchase authorization. We will continue to evaluate share repurchases alongside other investment opportunities to maximize shareholder returns. Looking ahead, our priorities are clear: grow assets under management and recurring fee revenue, improve investment performance, and scale our credit and real estate businesses.

We believe executing on these priorities will translate into stronger financial results and sustainable long-term value for shareholders. With that, I'll turn the call over to Carrie for a review of our financial results.

Thank you, Jason. I'll provide a brief overview of our fiscal first quarter results, and as always, encourage everyone to review our earnings release and accompanying filings for additional detail. For the first quarter, total revenue was approximately $3.3 million compared to $10.8 million in the prior year period. The decrease reflects the timing of real estate sales, as the prior year quarter included approximately $7.4 million of revenue from the sale of a build-to-suit property. Net loss for the quarter was approximately $4.1 million compared to $7 million in the prior year period. The smaller net loss primarily reflected lower net realized and unrealized investment losses. As of September 30th, fee-paying assets under management totaled approximately $564 million, a decrease of 5% year-over-year. Total assets under management were approximately $760 million, a decrease of 3% from the prior year period.

We ended the quarter with $43.2 million of cash and cash equivalents. Our strong liquidity position provides flexibility to support our strategic initiatives and ongoing operations. For additional information regarding our financial position and operating results, please refer to our earnings release, investor presentation, and Form 10-Q. This concludes my financial review. Operator, please open the line for questions.

Thank you again for joining us today. While our first quarter financial results were below expectations, we are encouraged by the progress made across our businesses and the opportunities ahead. We continue to see strong growth in real estate while taking meaningful steps to strengthen investment performance and alternative credit. Our objective is to translate this progress into growth in assets under management, more consistent earnings, and a long-term shareholder value. We look forward to keeping you updated. Thank you for your time and continued support.