Great Elm Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended March 31, 2024. Although the request metadata says “2023 Q3,” this filing covers Great Elm’s fiscal third quarter of 2024. Amounts below are in U.S. dollars; financial statement amounts are generally shown in millions.
Business context
Great Elm is an alternative asset manager focused on credit, real estate, specialty finance and other strategies. It manages Great Elm Capital Corp. (GECC), Monomoy UpREIT and other investment vehicles. Combined assets under management were approximately $688 million at March 31, 2024. Results are presented as continuing operations unless noted; the durable medical equipment business sold in January 2023 is reported as discontinued operations in the comparative periods.
Financial performance and position
| Metric | Three months ended March 31 | Nine months ended March 31 |
|---|---|---|
| Revenue, 2024 | $2.8 million | $8.9 million |
| Revenue, 2023 | $1.9 million | $5.6 million |
| Operating loss, 2024 | $(1.9) million | $(6.0) million |
| Operating loss, 2023 | $(2.9) million | $(7.6) million |
| Net income (loss) attributable to Great Elm, 2024 | $(3.1) million | $(0.7) million |
| Net income attributable to Great Elm, 2023 | $11.7 million | $33.0 million |
| Basic earnings (loss) per share, 2024 | $(0.10) | $(0.02) |
- Quarterly revenue increased 47%; nine-month revenue increased 58%. Incentive fees from GECC contributed $0.7 million for the quarter and $2.7 million year to date, with none recognized in the comparable 2023 periods.
- Operating losses narrowed year over year, but the company remained loss-making from continuing operations: net loss was $2.9 million for the quarter and $0.4 million for the nine months, before non-controlling interests.
- Dividends and interest income were $2.4 million for the quarter and $6.4 million year to date, versus $1.5 million and $4.4 million, respectively, in 2023. Quarterly net investment gains and losses were $(2.8) million; nine-month net investment gains were $1.7 million.
- Cash used in continuing operating activities was $18.5 million for the nine months, versus $3.6 million in 2023. The filing cites working-capital movements, including $6.4 million invested in real estate development, as important uses of cash.
- At March 31, 2024, cash and cash equivalents were $44.1 million, marketable securities were $24.8 million, and total assets were $148.4 million. Great Elm reported $44.1 million of unrestricted cash. Consolidated funds also held $5.4 million of cash, subject to fund-level obligations.
- Debt included $26.9 million principal of 7.25% notes due June 2027 and $38.9 million principal of 5.0% convertible notes due February 2030. The notes are unsecured; convertible-note interest has been paid in kind to date. Reported net consolidated debt-to-equity ratio was 0.33:1, versus a 2:1 covenant threshold.
- Stockholders’ equity was $72.5 million, including $7.5 million of non-controlling interests. Real estate under development was $8.1 million. The company invested $6.0 million for a 25% interest in Great Elm Strategic Partnership I; that investment’s reported fair value was $3.1 million at quarter end.
Material changes versus the comparable period
- Revenue growth reflected incentive fees and higher administration and service fees, while investment management expenses excluding non-cash compensation increased $1.2 million for the nine-month period, primarily due to compensation-related costs.
- Interest expense declined to $3.2 million for the nine months from $5.0 million, partly because prior-year-related debt and other obligations had been repaid.
- Prior-year results included gains from Forest subsidiary sales and discontinued DME operations, including $10.5 million from the sale of a controlling interest in Forest. These items contributed to the much higher 2023 comparative net income and make headline earnings comparisons less representative of ongoing operations.
- Cash declined by $16.1 million from June 30, 2023. Investments and real estate development activity affected cash flows during the period.
Outlook, commentary and risks
- Management stated that available liquidity should be sufficient to meet short- and long-term obligations for at least the next 12 months. The filing gives no specific earnings or revenue guidance.
- The company had no unfunded binding commitments to make additional investments as of the report date. It continues to explore investment-management and other investment opportunities.
- Two build-to-suit real estate projects were expected to be substantially complete no later than the second calendar quarter of 2024; the company intended to sell the properties with leases at or near lease commencement.
- Key stated risks include fund performance and distributions, raising capital, real estate development and sale outcomes, market and interest-rate conditions, competition, personnel retention, regulatory compliance, cybersecurity, litigation and maintaining third-party relationships. Management reported no material changes to previously disclosed risk factors and no material expected litigation impact.
- Management assessed disclosure controls as effective at March 31, 2024, and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether incentive fees and investment income are repeatable, and how fund performance affects future fee revenue and distributions.
- The valuation, liquidity and concentration of Great Elm’s investments, including its GECC exposure and the $2.9 million decline in the reported value of its GESP investment from cost.
- Cash burn, working-capital requirements, development spending and expected timing and proceeds from planned real estate sales.
- Debt service and refinancing or conversion implications of the 2027 notes and 2030 convertible notes, including related-party holdings and potential share dilution.
- Whether management’s 12-month liquidity assessment remains supportable as cash is deployed and operating results evolve.