Great Elm Capital (GECC) Q4 2024 Earnings Call March 11, 2025 02:34 PM ET Company Participants Peter Sceusa - Investor Relations Senior AssociateMatt Kaplan - CEO & PresidentKeri Davis - CFO & TreasurerMichael Keller - President - Specialty Finance BusinessMickey Schleien - MD - Equity ResearchErik Zwick - Managing Director, Equity Research Operator Greetings, and welcome to the Great Elm Capital Corporation Fourth Quarter twenty twenty four Financial Results Call. At this time, all participants are in a li ...

Market Share and Product Segments - First Brands, Inc. holds a 26% market share in the aftermarket brake components market, leading with its Centric, Raybestos, Specialty, and private label offerings[26] - The Filter Products segment of First Brands commands a 30% market share, driven by its FRAM and Champion Laboratory brands[26] - First Brands' Wiper Segment is the top supplier of aftermarket wiper blades, with a significant 37% market share through brands like Trico, ANCO, and Michelin[26] Investment Management and Fees - The base management fee for GECM is set at an annual rate of 1.50% of average adjusted gross assets, payable quarterly[49] - The Income Incentive Fee is based on pre-incentive fee net investment income, which includes interest and dividend income minus operating expenses[51] - The fixed hurdle rate for pre-incentive fee net investment income is 1.75% per quarter, equating to 7.00% annualized[53] - For the year ended December 31, 2024, the company incurred $4.5 million in base management fees and $2.6 million in income-based fees accrued during the period[66] - For the year ended December 31, 2023, the company incurred $3.5 million in base management fees and $3.1 million in income-based fees accrued during the period, with no capital gains incentive fees earned[67] - For the year ended December 31, 2022, the company incurred $3.2 million in base management fees and $0.6 million in income-based fees accrued during the period, with no capital gains incentive fees earned[68] - The Capital Gains Incentive Fee is calculated as 20% of the positive difference between cumulative realized capital gains and cumulative realized capital losses, minus any fees paid in prior years[57] - The pre-incentive fee net investment income must exceed a hurdle rate of 1.75% to earn an incentive fee, with a "catch up" provision applicable for income exceeding 2.1875%[60] - Aggregate realized capital gains for Year 2 in Assumption 1 were $30.0 million, leading to a Capital Gains Incentive Fee of $6.0 million[63] - Aggregate realized capital gains for Year 3 in Assumption 1 were $31.0 million, resulting in a Capital Gains Incentive Fee calculated as greater than zero[64] - The company deferred cash payment of any Income Incentive Fee exceeding 20% of the Cumulative Pre-Incentive Fee Net Return during the Trailing Twelve Quarters[56] - The cumulative aggregate realized capital gains are calculated as the sum of positive differences between net sales price and cost basis of investments[58] Compliance and Regulatory Requirements - The company intends to qualify as a regulated investment company (RIC) and must derive at least 90% of its gross income from qualifying sources each taxable year[92] - To maintain RIC status, the company must ensure that at least 50% of its total assets are represented by cash, U.S. Government securities, and other regulated investment companies, with no more than 25% in securities of any one issuer[92] - If the company fails to meet the 90% gross income requirement, it may be subject to corporate-level U.S. federal income tax[93] - The company must distribute at least 90% of its investment company taxable income to avoid U.S. federal income tax on that income[95] - A 4% federal excise tax is imposed if the company does not meet certain distribution requirements during the calendar year[97] - The company is prohibited from making cash distributions or repurchasing stock unless it meets applicable asset coverage ratios[87] - The company must maintain a bond issued by a reputable fidelity insurance company as part of its BDC requirements[77] - The company may not acquire assets unless at least 70% of its total assets are qualifying assets[80] - The Board must consist of a majority of directors who are not "interested persons" as defined by the Investment Company Act[77] - The company has adopted a code of business conduct and ethics applicable to its directors and officers[88] - The company maintains an insider trading policy to govern securities transactions by its directors and officers[90] - The company is required to meet various distribution, income, and asset-related requirements to qualify as a RIC, with no assurance of continued compliance[114] Financial Risks and Investment Strategies - The company is subject to financial risks, including changes in market interest rates, with approximately $179.8 million in principal amount of debt investments bearing variable interest rates as of December 31, 2024[386] - Interest rate increases could lead to higher gross investment income for the company, impacting net investment income positively if not offset by increased operating expenses[386] - The company may face challenges in making distributions necessary to satisfy tax requirements due to the nature of its investments[102] - If the company invests in foreign securities, it may be subject to withholding and other foreign taxes, which could affect stockholder tax credits[105] - The company may need to restructure investments in portfolio companies facing financial difficulties, potentially leading to non-qualifying income[103] - The company’s ability to pay dividends may be limited by loan covenants, which could jeopardize its RIC status[110] - The company may employ subsidiaries treated as U.S. corporations to manage income that could disqualify it from RIC status, leading to reduced yields for stockholders[113] Governance and Agreements - The Investment Management Agreement was renewed on July 23, 2024, and is effective until September 26, 2025[75] - The Board considered factors such as the quality of advisory services, investment performance, and economies of scale in approving the Investment Management Agreement[76] - GECM is indemnified for damages arising from its services under the Investment Management Agreement, except in cases of willful misconduct or gross negligence[73] - The Administration Agreement with GECM includes provisions for indemnification from the company for damages arising from GECM's services, absent willful misconduct[117] - The company bears all costs and expenses incurred in its operations and transactions not specifically assumed by GECM[116] - The company has a non-exclusive, royalty-free license to use the name "Great Elm Capital Corp." as long as GECM remains its investment adviser[118] - The Administration Agreement may be terminated by either party with 60 days' written notice[115] Distribution and Earnings - The Board set a distribution for the quarter ending March 31, 2025, at a rate of $0.37 per share, fully from distributable earnings[388] - The aggregate amount of brokerage commissions paid by the company during the three most recent fiscal years is approximately $129, with nearly 100% of these commissions paid to Imperial Capital, LLC[120] - GECM is responsible for selecting brokers and dealers for publicly traded securities transactions, aiming to obtain the best net results[119]

Capital Raising and Financial Position - Great Elm Capital Corp. raised nearly $150 million in capital during 2024, including $50 million of equity at net asset value[3] - Net assets increased to $136.1 million, or $11.79 per share, as of December 31, 2024, compared to $125.8 million, or $12.04 per share, at the end of Q3 2024[4] - Cash and money market fund investments totaled approximately $8.4 million, with an undrawn revolving line of credit availability of $25.0 million[9] Investment Income and Expenses - Net investment income (NII) for Q4 2024 was $2.1 million, or $0.20 per share, down from $4.1 million, or $0.39 per share in Q3 2024[4] - Total investment income for Q4 2024 was $9.1 million, or $0.85 per share, while net expenses were approximately $7.0 million, or $0.66 per share[8] - Total investment income for 2024 was $39,323,000, an increase of 9.2% from $35,825,000 in 2023[21] - Net investment income for 2024 was $12,453,000, slightly down from $12,542,000 in 2023[21] - Total expenses increased to $26,522,000 in 2024, up 15.0% from $22,996,000 in 2023[21] Investment Performance - Net realized gain on investment transactions was $1,871,000 in 2024, compared to a loss of $4,707,000 in 2023[21] - Net change in unrealized depreciation on investments was $(10,771,000) in 2024, contrasting with an appreciation of $17,498,000 in 2023[21] - Interest income from non-affiliated, non-controlled investments rose to $24,619,000 in 2024, up from $23,582,000 in 2023[21] - Total dividend income increased to $6,925,000 in 2024, compared to $3,478,000 in 2023[21] Shareholder Returns - A special cash distribution of $0.05 per common share was declared in December 2024, reflecting strong performance throughout the year[4] - The quarterly dividend was increased by 5.7% to $0.37 per share for Q1 2025, representing a 13.7% annualized yield based on the closing market price of $10.78 on March 7, 2025[4] Share Statistics - Earnings per share (basic and diluted) for 2024 was $0.36, a significant decrease from $3.33 in 2023[21] - Weighted average shares outstanding increased to 9,844,014 in 2024 from 7,601,958 in 2023[21] Asset Coverage and Cash Flow - The asset coverage ratio improved to 169.7% as of December 31, 2024, from 166.2% at the end of Q3 2024[4] - Cash distributions from the CLO JV decreased to $0.5 million in Q4 2024 from $3.2 million in Q3 2024[4]

Core Viewpoint - Great Elm Capital Corp. reported strong financial results for 2024, raising nearly $150 million in capital and enhancing its cash-generating capabilities through a CLO joint venture, while also increasing its dividend by 5.7% for the first quarter of 2025 [3][4]. Financial Highlights - For Q4 2024, the company reported earnings per share (EPS) of $0.17 and net investment income (NII) per share of $0.20, down from $0.39 in Q3 2024 [4][7]. - Total investment income for Q4 2024 was $9.1 million, with net expenses of approximately $7.0 million, resulting in net realized and unrealized losses of about $0.3 million [7]. - The net asset value (NAV) per share decreased to $11.79 as of December 31, 2024, from $12.99 at the end of Q4 2023 [4][20]. Portfolio and Investment Activity - As of December 31, 2024, GECC held total investments valued at $324.3 million, with a weighted average current yield on the debt portfolio of 12.4% [5][6]. - The company deployed approximately $47.2 million into 18 investments during Q4 2024, achieving a weighted average current yield of 12.9% [6]. - GECC monetized 48 investments for approximately $57.5 million during the same quarter, with a weighted average current yield of 9.9% [6]. Liquidity and Capital Resources - As of December 31, 2024, GECC had cash and money market fund investments totaling approximately $8.4 million, with an undrawn revolving line of credit of $25.0 million [8]. - Total debt outstanding was $195.4 million, with various senior notes maturing between 2026 and 2029 [9]. Distributions - The Board of Directors approved a quarterly cash distribution of $0.37 per share for Q1 2025, reflecting a 13.7% annualized yield based on the closing market price of $10.78 on March 7, 2025 [10].

PALM BEACH GARDENS, Fla., March 04, 2025 (GLOBE NEWSWIRE) -- Great Elm Capital Corp. (the "Company" or "GECC"), (NASDAQ:GECC), a business development company, today announced it will release its financial results for the fourth quarter and full year ended December 31, 2024 after the close of market trading on Monday, March 10, 2025, and discuss these results in a conference call on Tuesday, March 11, 2025 at 8:30 a.m. ET. Date/Time:Tuesday, March 11, 2025 – 8:30 a.m. ET   Participant Dial-In Numbers: (Unite ...

Core Points - Great Elm Capital Corp. (GECC) will release its financial results for Q4 and the full year ended December 31, 2024, after market close on March 10, 2025 [1] - A conference call to discuss these results is scheduled for March 11, 2025, at 8:30 a.m. ET [2] - The call will be accessible via dial-in numbers for both the United States and international participants, with a passcode required for access [2] - An accompanying slide presentation will be available on GECC's website after the earnings release [2][3] - GECC is an externally managed business development company focused on generating current income and capital appreciation through investments in debt and income-generating equity securities [4]

PALM BEACH GARDENS, Fla., Dec. 16, 2024 (GLOBE NEWSWIRE) -- Great Elm Capital Corp. (the "Company" or "GECC"), (NASDAQ:GECC), a business development company, today is pleased to declare a special cash distribution of $0.05 per common share (the "Special Distribution"). The Special Distribution will be payable on January 15, 2025 to stockholders of record as of December 31, 2024. In addition, the Company's Board of Directors has approved a quarterly cash distribution of $0.37 per share for the first quarter ...

Core Points - Great Elm Capital Corp. (GECC) has declared a special cash distribution of $0.05 per common share, payable on January 15, 2025, to stockholders of record as of December 31, 2024 [1] - The Board of Directors has approved a quarterly cash distribution of $0.37 per share for the first quarter of 2025, representing a 14.5% annualized yield based on the closing market price of $10.24 on December 16, 2024 [2] - The base quarterly distribution has increased by 5.7% from $0.35 to $0.37 per share, reflecting the company's strong income generation throughout the year [3] Company Overview - Great Elm Capital Corp. is an externally managed business development company focused on generating current income and capital appreciation through investments in debt and income-generating equity securities, including specialty finance businesses and CLOs [4]

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PALM BEACH GARDENS, Fla., Dec. 12, 2024 (GLOBE NEWSWIRE) -- Great Elm Capital Corp. (the “Company” or “GECC”), (NASDAQ: GECC), a business development company, announced it issued approximately 1.1 million shares of the Company’s common stock at a current net asset value of $12.06 per share, for an aggregate gross purchase price of $13.2 million, to Summit Grove Partners, LLC (“SGP”). Great Elm Group, Inc. (“GEG”) made a $3.3 million investment in SGP, further aligning the Company’s investment manager with s ...