Portfolio Repositioning and Investment Strategy - Great Elm Capital Corp(GECC) began repositioning its portfolio during the quarter ended June 30, 2020, to maximize shareholder value[6] - GECC intends to weight investments in specialty finance businesses more significantly in its future portfolio, like Prestige Capital Finance, LLC[6] - As of June 30, 2020, GECC's portfolio fair value was $1463 million, with debt investments carrying a weighted average current yield of 102%[24] - Throughout Q2 2020 and subsequent to quarter end, GECC actively deployed approximately $255 million into eight new investments at a weighted average current yield of 127%[13] Financial Performance - Net Investment Income(NII) for the quarter ended June 30, 2020, was approximately $09 million, or $009 per share, compared to $27 million, or $026 per share, for the quarter ended March 31, 2020[6] - During Q2 2020, GECC monetized $375 million across 17 investments at a weighted average current yield of 65% and a weighted average price of $098[28] - In 2019, Prestige's pretax income was approximately $28 million on average book equity of $31 million[18] - Through the first half of 2020, Prestige's pretax income was approximately $15 million on average book equity of $33 million[18] Capital Activity and Distributions - GECC's Board set monthly distributions of $0083 per share for the third and fourth quarters of 2020, with approximately 90% to be paid in shares of common stock[56, 57] - As of June 30, 2020, GECC's asset coverage ratio was approximately 1445%, up from 1411% as of March 31, 2020[53]

Great Elm Capital Group Inc (NASDAQ:GECC) Q1 2020 Results Conference Call May 11, 2020 10:00 AM ET Company Participants Adam Yates - Investor Relations Peter Reed - President and Chief Executive Officer Adam Kleinman - Chief Operating Officer Adam Yates - Portfolio Manager Keri Davis - Chief Financial Officer Conference Call Participants Operator Ladies and gentlemen, thank you for standing by, and welcome to the Great Elm Capital Corp., First Quarter Earnings Conference Call. At this time, all participants ...

| --- | --- | --- | |-------|-------|-------| | | | | | | | | Disclaimer Statements in this communication that are not historical facts are "forward-looking" statements within the meaning of the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as "expect," "anticipate," "should," "will," "estimate," "designed," "seek," "continue," "upside," "potential" and similar expressions. All such forward-looking statements involve estimates and assumpti ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) Consolidated financial statements and notes detail the company's financial position, performance, and investment portfolio Consolidated Statements of Assets and Liabilities (unaudited) | Metric | March 31, 2020 (in thousands) | December 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total investments | $240,490 | $283,348 | | Cash and cash equivalents | $22,837 | $4,606 | | Total assets | $273,609 | $291,039 | | Total liabilities | $222,764 | $204,150 | | Total net assets | $50,845 | $86,889 | | Net asset value per share | $5.05 | $8.63 | Consolidated Statements of Operations (unaudited) for the Three Months Ended March 31 | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Total investment income | $6,429 | $6,313 | | Total expenses | $3,777 | $3,529 | | Net investment income | $2,652 | $2,784 | | Net realized gain (loss) | $(11,313) | $608 | | Net change in unrealized appreciation (depreciation) | $(24,877) | $4,676 | | Net increase (decrease) in net assets from operations | $(33,538) | $8,068 | | Net investment income per share | $0.26 | $0.26 | | Earnings per share | $(3.33) | $0.76 | Consolidated Statements of Changes in Net Assets (unaudited) for the Three Months Ended March 31 | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- |\n| Net assets at beginning of period | $86,889 | $110,116 | | Net increase (decrease) in net assets from operations | $(33,538) | $8,068 | | Distributions to stockholders | $(2,506) | $(2,637) | | Purchases of common stock | $- | $(1,593) | | Net assets at end of period | $50,845 | $113,954 | | Shares outstanding at end of period | 10,062,682 | 10,460,401 | Consolidated Statements of Cash Flows (unaudited) for the Three Months Ended March 31 | Metric | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used for) operating activities | $21,372 | $6,043 | | Net cash provided by (used for) financing activities | $(3,141) | $(6,803) | | Net increase (decrease) in cash | $18,231 | $(760) | | Cash, end of period | $22,837 | $3,407 | | Cash paid for interest | $2,044 | $1,313 | Investment Portfolio Composition (Fair Value) | Investment Type | March 31, 2020 (in thousands) | Percentage of Net Assets (March 31, 2020) | December 31, 2019 (in thousands) | Percentage of Net Assets (December 31, 2019) | | :--- | :--- | :--- | :--- | :--- | | Debt | $146,708 | **288.55%** | $174,066 | **200.33%** | | Equity/Other | $18,804 | **36.98%** | $23,549 | **27.10%** | | Short-Term Investments | $74,978 | **147.46%** | $85,733 | **98.67%** | | **Total Investments** | **$240,490** | **472.99%** | **$283,348** | **326.10%** | Top 5 Industry Classifications (Fair Value) as of March 31, 2020 | Industry | Fair Value (in thousands) | Percentage of Net Assets | | :--- | :--- | :--- | | Wireless Telecommunications Services | $35,986 | **70.78%** | | Internet Media | $18,978 | **37.33%** | | Software Services | $15,824 | **31.11%** | | Food & Staples | $13,133 | **25.83%** | | Retail | $9,904 | **19.48%** | Geographic Composition (Fair Value) as of March 31, 2020 | Geography | Fair Value (in thousands) | Percentage of Net Assets | | :--- | :--- | :--- | | United States | $204,475 | **402.16%** | | United Kingdom | $36,015 | **70.83%** | | **Total** | **$240,490** | **472.99%** | Notes to the Unaudited Consolidated Financial Statements 1. ORGANIZATION - **Great Elm Capital Corp. (GECC)** is a Maryland corporation, externally managed, non-diversified closed-end management investment company, regulated as a **Business Development Company (BDC)**[138](index=138&type=chunk) - The company aims to generate **current income and capital appreciation** primarily through **secured and senior unsecured debt investments** in secondary markets[139](index=139&type=chunk) 2. SIGNIFICANT ACCOUNTING POLICIES - The financial statements are prepared in accordance with **GAAP** and reflect all necessary adjustments for interim periods[140](index=140&type=chunk) - Revenue recognition includes accrual of interest and dividend income (including **PIK**), amortization of upfront fees and **OID**, and recognition of other fees as earned[143](index=143&type=chunk) - Investments are valued at fair value based on Board-adopted policies, prioritizing observable market data (Level 1, 2) and using valuation techniques like market and income approaches for unobservable inputs (Level 3)[149](index=149&type=chunk)[151](index=151&type=chunk)[154](index=154&type=chunk) - The company has elected to be taxed as a **Regulated Investment Company (RIC)** and intends to distribute at least **90%** of its investment company taxable income to avoid corporate-level taxes[157](index=157&type=chunk) - The company adopted ASU 2018-13 (Fair Value Measurement) and ASU 2020-04 (Reference Rate Reform) with **no material impact** on financial statements[163](index=163&type=chunk)[165](index=165&type=chunk) 3. SIGNIFICANT AGREEMENTS and RELATED PARTIES - The company has an Investment Management Agreement with **Great Elm Capital Management, Inc. (GECM)** for advisory services, incurring a base management fee and an incentive fee[167](index=167&type=chunk) Management Fees | Period | Amount (in thousands) | | :--- | :--- | | Three months ended March 31, 2020 | $698 | | Three months ended March 31, 2019 | $706 | Incentive Fees (Income Incentive Fee) | Period | Amount (in thousands) | | :--- | :--- | | Three months ended March 31, 2020 | $100 | | Three months ended March 31, 2019 | $696 | *Note: As of March 31, 2020, **$8,257 thousand** of Income Incentive Fees remained payable, deferred due to total return requirement.* - An Administration Agreement with **GECM** covers office facilities, equipment, clerical, bookkeeping, and record-keeping services, with reimbursement for allocable overhead and expenses[180](index=180&type=chunk) 4. FAIR VALUE MEASUREMENT - Fair value is determined using a hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable market inputs other than Level 1), and Level 3 (significant unobservable inputs)[185](index=185&type=chunk)[189](index=189&type=chunk) Summary of Investment Assets by Fair Value Hierarchy (March 31, 2020) | Assets | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Debt | $- | $27,209 | $119,499 | $146,708 | | Equity/Other | $- | $- | $18,804 | $18,804 | | Short Term Investments | $74,978 | $- | $- | $74,978 | | **Total investment assets** | **$74,978** | **$27,209** | **$138,303** | **$240,490** | - During Q1 2020, one investment (**$6,917k** fair value) transferred from Level 3 to Level 2 due to increased pricing transparency, while three investments (**$16,965k** aggregate fair value) transferred from Level 2 to Level 3 due to decreased pricing transparency[194](index=194&type=chunk) 5. DEBT - The company has three series of unsecured notes outstanding: **6.50% Notes due 2022 (GECCL Notes)**, **6.75% Notes due 2025 (GECCM Notes)**, and **6.50% Notes due 2024 (GECCN Notes)**[72](index=72&type=chunk)[74](index=74&type=chunk

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 Maryland 81-2621577 800 South Street, Suite 230, Waltham, MA 02453 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (617) 375-3006 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by S ...

PART I [Business](index=4&type=section&id=Item%201.%20Business) GECC is an externally managed BDC investing in middle-market debt to generate current income and capital appreciation, managed by GECM and operating as a RIC - GECC is an externally managed **BDC** focused on generating **current income and capital appreciation** by investing mainly in the debt of middle-market companies with enterprise values of **$100 million to $2.0 billion**[16](index=16&type=chunk) - The company's investment strategy primarily targets **secured and senior unsecured debt instruments** purchased in the secondary markets, but may also include originating investments directly and investing in subordinated debt, mezzanine debt, and equity instruments[17](index=17&type=chunk) - To maintain its status as a **Regulated Investment Company (RIC)**, GECC must derive at least **90%** of its gross income from specific sources (like dividends and interest) and meet certain asset diversification tests quarterly[93](index=93&type=chunk) Key Portfolio Holdings (as of Dec 31, 2018) | Company | Description | | :--- | :--- | | **Avanti Communications Group plc** | A leading provider of satellite-enabled data communications services in Europe, the Middle East, and Africa | | **Commercial Barge Line Company** | One of the largest providers of barge transportation in the United States | | **Finastra Group Holdings, Ltd.** | The world's third-largest financial technology company, providing financial software solutions | | **Full House Resorts, Inc.** | An owner, operator, and developer of regional casinos in the United States | | **International Wire Group, Inc.** | The largest bare copper wire and copper wire products manufacturer in the United States | | **Michael Baker International, LLC** | A leading provider of engineering and consulting services in the United States | | **PE Facility Solutions, LLC** | Provides facilities maintenance services for commercial real estate owners across North America | | **SESAC Holdco II LLC** | A performance rights organization in the United States | | **TRU Taj LLC** | A leading global retailer of toys and juvenile products, operating under the "Toys R Us" and "Babies R Us" banners internationally | Management & Incentive Fee Structure | Fee Type | Rate/Structure | | :--- | :--- | | **Base Management Fee** | 1.50% annually on average total assets (excluding cash), payable quarterly | | **Income Incentive Fee** | 20% of pre-incentive fee net investment income over a 7.0% annualized hurdle rate, with a catch-up provision | | **Capital Gains Incentive Fee** | 20% of cumulative realized capital gains, net of cumulative realized losses and unrealized depreciation | [Risk Factors](index=22&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant investment and business risks, including a concentrated, highly leveraged portfolio, market volatility, and potential conflicts of interest - A significant risk is the investment in Avanti, which represented approximately **19%** of the investment portfolio as of December 31, 2018; Avanti is highly leveraged, and a default could lead to a total loss of the investment[125](index=125&type=chunk)[127](index=127&type=chunk) - The company's portfolio is **concentrated** in a limited number of companies and industries, making it more susceptible to significant losses if a single investment fails or a specific industry experiences a downturn[136](index=136&type=chunk)[137](index=137&type=chunk) - Investing in companies experiencing **financial distress**, such as TRU Taj LLC which underwent **Chapter 11 restructuring**, exposes the company to significant risks, including the potential loss of the entire investment[144](index=144&type=chunk)[145](index=145&type=chunk) - The company uses **leverage**, which magnifies the potential for loss; upon stockholder approval, the minimum asset coverage ratio was reduced from **200% to 150%**, permitting the company to incur additional debt and potentially increasing investment risk[179](index=179&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk) - The recognition of **non-cash income**, such as **Payment-In-Kind (PIK) interest**, may create difficulty in meeting the cash distribution requirements to maintain **RIC status**, potentially forcing the company to sell assets at inopportune times[214](index=214&type=chunk)[215](index=215&type=chunk) - Potential **conflicts of interest** exist with the investment adviser, GECM; the management fee is based on **gross assets** (incentivizing leverage), and the incentive fee structure may encourage **riskier investments** to generate higher returns[231](index=231&type=chunk)[267](index=267&type=chunk) [Unresolved Staff Comments](index=49&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - None[291](index=291&type=chunk) [Properties](index=49&type=section&id=Item%202.%20Properties) The company's executive offices are located in Waltham, MA, and are provided by its administrator, GECM, under the Administration Agreement - Executive offices are located at 800 South Street, Suite 230, Waltham, MA 02453, and are provided by GECM[292](index=292&type=chunk) [Legal Proceedings](index=49&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in several legal proceedings, including a lawsuit related to a portfolio investment, a counterclaim from a loan guarantor, and a claim related to a bankruptcy - GECC is a defendant in a lawsuit, *Intrepid Investments, LLC v. London Bay Capital*, related to its portfolio investment in Speedwell Holdings, with claims of aiding and abetting breaches of fiduciary duty[294](index=294&type=chunk) - The company is defending against counterclaims from Willis Pumphrey seeking $2 million to $6 million in damages related to a loan transaction originated by its predecessor, Full Circle[295](index=295&type=chunk) - GECC is named as a defendant in a claim brought by the Chapter 7 trustee in the ITT Educational Services bankruptcy, related to a senior secured facility purchased by its predecessor[296](index=296&type=chunk) [Mine Safety Disclosures](index=49&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[297](index=297&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=50&type=section&id=Item%205.%20Market%20for%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) GECC common stock trades on NASDAQ, with 2018 distributions from net investment income, and a performance graph is included - The company's common stock trades on the NASDAQ Global Market under the symbol "**GECC**"[300](index=300&type=chunk) - For the year ended December 31, 2018, distributions were made from **undistributed net investment income**; the company cautions that future distributions may be a **tax-free return of capital** if they exceed taxable earnings[301](index=301&type=chunk)[302](index=302&type=chunk) [Selected Financial Data](index=52&type=section&id=Item%206.%20Selected%20Financial%20Data) This section provides a summary of key financial data for the fiscal years ended December 31, 2018 and 2017, and for the period from inception through December 31, 2016 Selected Financial Data (in thousands, except per share amounts) | | For the year ended Dec 31, 2018 | For the year ended Dec 31, 2017 | For the period ended Dec 31, 2016 | | :--- | :--- | :--- | :--- | | **Total Investment Income** | $27,754 | $29,728 | $5,831 | | **Net Investment Income** | $15,334 | $17,575 | $5 | | **Net Decrease in Net Assets from Operations** | $(9,005) | $(2,754) | $(17,874) | | **Total Assets** | $281,563 | $239,913 | $236,544 | | **Total Net Assets** | $110,116 | $132,287 | $172,984 | | **Net Investment Income Per Share** | $1.44 | $1.52 | $0.28 | | **Dividends Declared Per Share** | $1.24 | $1.20 | $0.17 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=53&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, investment activities, and operational results, noting decreased investment income, Avanti restructuring impacts, and increased interest expense Portfolio Investment Activity (in thousands) | Time Period | Acquisitions | Dispositions | | :--- | :--- | :--- | | **For the year ended Dec 31, 2018** | $174,965 | $(134,817) | | **For the year ended Dec 31, 2017** | $199,877 | $(174,984) | | **For the period ended Dec 31, 2016** | $207,158 | $(41,738) | - As of December 31, 2018, the portfolio's largest industry concentrations by fair value were **Wireless Telecommunications Services (19.35%)**, **Building Cleaning and Maintenance Services (10.01%)**, and **Software Services (8.66%)**[342](index=342&type=chunk) - Incentive fees decreased significantly in 2018 to **$0.2 million** from **$4.4 million** in 2017, primarily due to a **$2.6 million** reversal of previously accrued fees related to the restructuring of the Avanti investment[350](index=350&type=chunk) - The company recorded net unrealized depreciation of **$26.8 million** in 2018, largely driven by a **$16.8 million** decrease related to the Avanti restructuring and a **$5.8 million** decrease on the TRU Taj investment[362](index=362&type=chunk) - In January 2018, the company issued **$46.4 million** of **6.75% notes** due 2025 (the "GECCM Notes"), which increased liquidity but also raised interest expense for the year[379](index=379&type=chunk) Results of Operations Comparison (in thousands) | Metric | 2018 | 2017 | | :--- | :--- | :--- | | **Total Investment Income** | $27,754 | $29,728 | | *PIK Income Component* | *$8,200* | *$11,700* | | **Net Operating Expenses** | $12,240 | $12,029 | | **Net Investment Income** | $15,334 | $17,575 | | **Net Realized Gain (Loss)** | $2,419 | $3,633 | | **Net Change in Unrealized Depreciation** | $(26,758) | $(23,962) | [Quantitative and Qualitative Disclosures About Market Risk](index=65&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk, with a significant portion of its debt portfolio tied to variable LIBOR rates - As of December 31, 2018, the company's debt portfolio consisted of approximately **$103.2 million** in variable-rate investments and **$74.8 million** in fixed-rate investments[389](index=389&type=chunk) Interest Rate Sensitivity Analysis (as of Dec 31, 2018) | LIBOR Change | Impact on Net Investment Income | | :--- | :--- | | +3.00% | $3,453,000 | | +2.00% | $2,302,000 | | +1.00% | $1,151,000 | | -1.00% | $(1,145,000) | | -2.00% | $(2,094,000) | | -3.00% | $(2,626,000) | [Financial Statements and Supplementary Data](index=65&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section incorporates the company's audited consolidated financial statements for the fiscal year ended December 31, 2018 - The company's audited consolidated financial statements and supplementary data are included in the report, as indexed on page F-1[393](index=393&type=chunk)[425](index=425&type=chunk) [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=65&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) This item is not applicable to the company - Not applicable[394](index=394&type=chunk) [Controls and Procedures](index=66&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018 - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2018[396](index=396&type=chunk) - Management concluded that the company's internal control over financial reporting was effective as of December 31, 2018, based on the framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)[400](index=400&type=chunk) - No material changes in the company's internal control over financial reporting occurred during the fourth quarter of 2018[404](index=404&type=chunk) [Other Information](index=67&type=section&id=Item%209B.%20Other%20Information) This item is not applicable to the company - Not applicable[405](index=405&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=67&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The information required for this item is incorporated by reference from the company's 2019 Proxy Statement - Information is incorporated by reference from the 2019 Proxy Statement[407](index=407&type=chunk) [Executive Compensation](index=67&type=section&id=Item%2011.%20Executive%20Compensation) The information required for this item is incorporated by reference from the company's 2019 Proxy Statement - Information is incorporated by reference from the 2019 Proxy Statement[408](index=408&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=67&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) The information required for this item is incorporated by reference from the company's 2019 Proxy Statement - Information is incorporated by reference from the 2019 Proxy Statement[409](index=409&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=67&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The information required for this item is incorporated by reference from the company's 2019 Proxy Statement - Information is incorporated by reference from the 2019 Proxy Statement[410](index=410&type=chunk) [Principal Accounting Fees and Services](index=67&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) The information required for this item is incorporated by reference from the company's 2019 Proxy Statement - Information is incorporated by reference from the 2019 Proxy Statement[411](index=411&type=chunk) PART IV [Exhibits, Financial Statement Schedules](index=67&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists financial statements and exhibits filed as part of the Form 10-K, with financial statements incorporated by reference - The financial statements are incorporated by reference, and an exhibit index is included in the filing[413](index=413&type=chunk)[414](index=414&type=chunk) [Form 10-K Summary](index=67&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - Not applicable[416](index=416&type=chunk)