Great Elm Capital Corporation (NASDAQ:GECC) Q1 2023 Earnings Conference Call May 4, 2023 8:30 AM ET Company Participants Garrett Edson - Investor Relations ICR Matt Kaplan - President and Chief Executive Officer Keri Davis - Chief Financial Officer and Treasurer Michael Keller - President, Great Elm Specialty Finance Adam Kleinman - Chief Compliance Officer Operator Greetings and welcome to the Great Elm Capital Corp. First Quarter 2023 Earnings Conference Call. [Operator Instructions] As a reminder, this c ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company's unaudited consolidated financial statements are incorporated by reference and begin on page F-17 - The unaudited consolidated financial statements for the period ended March 31, 2023, are incorporated by reference, **beginning on page F-17**[8](index=8&type=chunk)[13](index=13&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=4&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) The company details its Q1 2023 performance, highlighting investment income growth and portfolio expansion [Overview](index=4&type=section&id=Overview) GECC operates as a BDC investing in middle-market companies and specialty finance to generate income and appreciation - GECC's investment objective is to generate both **current income and capital appreciation** through debt and income-generating equity investments[14](index=14&type=chunk) - The company focuses on middle-market companies with enterprise values between **$100 million and $2 billion**[14](index=14&type=chunk) - A wholly-owned subsidiary, Great Elm Specialty Finance, LLC (GESF), oversees specialty finance investments[15](index=15&type=chunk) - The company is a Regulated Investment Company (RIC), requiring distribution of at least **90% of its taxable income** to stockholders[17](index=17&type-chunk) [Portfolio and Investment Activity](index=6&type=section&id=Portfolio%20and%20Investment%20Activity) The company's investment portfolio reached $226.9 million with a debt portfolio yield of 13.06% in Q1 2023 Investment Activity for Q1 2023 | Metric | Value (in thousands) | | :--- | :--- | | Acquisitions | $53,293 | | Dispositions | ($57,175) | | Weighted Average Yield (End of Period) | 13.06% | Portfolio Reconciliation for Q1 2023 | Metric | Value (in thousands) | | :--- | :--- | | Beginning Investment Portfolio, at fair value | $224,957 | | Net change in unrealized appreciation | $3,473 | | Net realized gain | $1,850 | | Ending Investment Portfolio, at fair value | $226,939 | Top 3 Portfolio Industries by Fair Value (March 31, 2023) | Industry | Fair Value (in thousands) | Percentage of Fair Value | | :--- | :--- | :--- | | Specialty Finance | $56,589 | 24.94% | | Chemicals | $26,204 | 11.55% | | Insurance | $14,591 | 6.43% | [Results of Operations](index=8&type=section&id=Results%20of%20Operations) Total investment income rose to $8.4 million in Q1 2023, driven by portfolio growth and higher interest rates Investment Income Comparison (Q1 2023 vs Q1 2022) | Income Category | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Interest income | $6,630 | $4,041 | | Dividend income | $934 | $1,267 | | Other income | $846 | $250 | | **Total Investment Income** | **$8,410** | **$5,558** | - The increase in interest income was driven by portfolio growth and rising rates, with the average debt coupon reaching **11.8%**[38](index=38&type=chunk) Key Expense and Gain/Loss Comparison (Q1 2023 vs Q1 2022) | Metric | Q1 2023 (in thousands) | Q1 2022 (in thousands) | | :--- | :--- | :--- | | Total Expenses | $5,543 | ($497) | | Incentive fees | $710 | $0 | | Incentive fee waiver | $0 | ($4,854) | | Net Realized Gain (Loss) | $1,845 | ($19,933) | | Net change in unrealized appreciation | $3,476 | $8,870 | [Liquidity and Capital Resources](index=11&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains sufficient liquidity with $12.4 million in cash and money market funds and a 159.8% asset coverage ratio - As of March 31, 2023, the company had approximately **$1.6 million in cash** and **$10.8 million in money market fund investments**[52](index=52&type=chunk) - The company had approximately **$21.0 million in unfunded loan commitments** as of March 31, 2023[53](index=53&type=chunk) Outstanding Debt as of March 31, 2023 | Debt Instrument | Principal Outstanding (in millions) | Maturity Date | | :--- | :--- | :--- | | Revolving Credit Facility | $5.0 | May 5, 2024 | | 6.75% Notes (GECCM) | $45.6 | January 31, 2025 | | 6.50% Notes (GECCN) | $42.8 | June 30, 2024 | | 5.875% Notes (GECCO) | $57.5 | June 30, 2026 | - The company's asset coverage ratio was **159.8%**, exceeding the required minimum of 150%[67](index=67&type=chunk) [Distributions and Share Price](index=13&type=section&id=Distributions%20and%20Share%20Price) The company declared a $0.35 per share distribution for Q1 2023, with its stock trading at a discount to NAV Q1 2023 Share Price and NAV Data | Metric | Value per Share | | :--- | :--- | | NAV (as of March 31, 2023) | $11.88 | | Closing Sales Price - High | $9.75 | | Closing Sales Price - Low | $8.50 | | Discount to NAV (High Price) | (17.9)% | | Discount to NAV (Low Price) | (28.5)% | - A distribution of **$0.35 per share** was declared for the first quarter ended March 31, 2023[71](index=71&type=chunk) - The board set the Q2 2023 distribution at **$0.35 per share**, payable in cash from distributable earnings[73](index=73&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=14&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to interest rate risk, with a 100 basis point rate change impacting net income by ~$1.2 million - As of March 31, 2023, the company held debt investments with a principal of **$117.3 million at variable rates** and **$112.8 million at fixed rates**[75](index=75&type=chunk) Interest Rate Sensitivity Analysis (as of March 31, 2023) | Reference Rate Change | Annual Increase (Decrease) in Net Investment Income (in thousands) | | :--- | :--- | | +3.00% | $3,670 | | +2.00% | $2,447 | | +1.00% | $1,223 | | -1.00% | ($1,224) | | -2.00% | ($2,448) | | -3.00% | ($3,664) | [Controls and Procedures](index=15&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes to internal controls - Management concluded that as of March 31, 2023, the company's **disclosure controls and procedures were effective**[81](index=81&type=chunk) - **No material changes** in internal control over financial reporting occurred during the quarter[82](index=82&type=chunk) [PART II. OTHER INFORMATION](index=15&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=15&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, including two specific lawsuits detailed in the notes - The company is a defendant in a lawsuit, *Intrepid Investments, LLC v. London Bay Capital*, related to its Speedwell Holdings investment[206](index=206&type=chunk) - The company is involved in legal proceedings with Willis Pumphrey related to a loan from its predecessor[207](index=207&type=chunk) [Risk Factors](index=15&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors disclosed in the company's 2022 Annual Report on Form 10-K were reported - **No material changes** in risk factors were reported for the period covered by this report[85](index=85&type=chunk) [Exhibits](index=16&type=section&id=Item%206.%20Exhibits) This section lists filed exhibits, including CEO/CFO certifications and financial statements in inline XBRL format - The exhibits include **CEO and CFO certifications** (Exhibits 31.1, 31.2, 32.1) and financial data in XBRL format (Exhibit 101)[87](index=87&type=chunk) [Consolidated Financial Statements](index=18&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Statements of Assets and Liabilities](index=19&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) Total net assets were $90.3 million as of March 31, 2023, with a Net Asset Value (NAV) per share of $11.88 Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total investments | $307,499 | $301,084 | | Total assets | $314,065 | $310,112 | | Total liabilities | $223,757 | $225,303 | | **Total net assets** | **$90,308** | **$84,809** | | **Net asset value per share** | **$11.88** | **$11.16** | [Consolidated Statements of Operations](index=20&type=section&id=Consolidated%20Statements%20of%20Operations) The company reported a net increase in net assets from operations of $8.2 million, or $1.07 per share, for Q1 2023 Statement of Operations Summary (For the three months ended March 31, 2023, in thousands) | Line Item | Amount | | :--- | :--- | | Total investment income | $8,410 | | Net expenses | $5,543 | | **Net investment income** | **$2,839** | | Net realized and unrealized gains | $5,321 | | **Net increase in net assets from operations** | **$8,160** | | **Earnings per share (basic and diluted)** | **$1.07** | [Consolidated Schedule of Investments](index=25&type=section&id=Consolidated%20Schedule%20of%20Investments) The investment portfolio's fair value was $307.5 million, primarily concentrated in U.S. specialty finance and chemicals Investment Composition as of March 31, 2023 | Investment Type | Fair Value (in thousands) | Percentage of Net Assets | | :--- | :--- | :--- | | Debt | $184,050 | 203.80% | | Equity/Other | $42,889 | 47.49% | | Short-Term Investments | $80,560 | 89.21% | | **Total** | **$307,499** | **340.50%** | - As of March 31, 2023, **24.91% of total assets were non-qualifying**, which is below the 30% regulatory limit[107](index=107&type=chunk) [Notes to the Unaudited Consolidated Financial Statements](index=47&type=section&id=Notes%20to%20the%20Unaudited%20Consolidated%20Financial%20Statements) The notes detail accounting policies, fair value measures, debt terms, and a 9.59% total return on NAV for the quarter - In March 2022, the investment manager waived **$4.9 million in accrued incentive fees**, which is not subject to recapture[164](index=164&type=chunk) Fair Value Hierarchy of Investments (March 31, 2023, in thousands) | Level | Fair Value | | :--- | :--- | | Level 1 | $87,109 | | Level 2 | $98,025 | | Level 3 | $119,149 | | Measured at NAV | $3,216 | | **Total Investments** | **$307,499** | - The company effected a **6-for-1 reverse stock split** on February 28, 2022, with all per-share data retroactively adjusted[202](index=202&type=chunk)[128](index=128&type=chunk) - As of March 31, 2023, the company had approximately **$21.0 million in unfunded loan commitments**[204](index=204&type=chunk)

Financial Data and Key Metrics Changes - In Q4 2022, the net investment income (NII) was $2.3 million or $0.30 per share, more than doubling from $1.1 million or $0.14 per share in Q3 2022 [10][15][24] - The net asset value (NAV) per share decreased to $11.16 as of December 31, 2022, down from $12.56 at the end of Q3 2022 [8][19] - The asset coverage ratio was approximately 154.5% as of December 31, 2022, compared to 165.5% as of September 30, 2022 [10] Business Line Data and Key Metrics Changes - The company deployed approximately $38 million into new investments at average yields of about 12% in Q4 2022, while monetizing about $20 million of assets at yields below 10% [7] - The average yield on the credit portfolio increased to 12.4% at year-end from 11.6% at September 30, 2022 [7] Market Data and Key Metrics Changes - The company noted a market difference in floating rate debt, which increased to 50% of the debt investment portfolio at year-end, up from 48% at the prior quarter-end [7] Company Strategy and Development Direction - The company aims to construct a high-quality diversified portfolio focused on cash-yielding investments, with a significant shift towards senior secured floating rate investments [5][15] - A strategic initiative includes scaling the specialty finance platform, with the formation of a healthcare finance platform in partnership with Berkadia [17][21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about covering the new distribution level of $0.35 per share for Q1 2023, citing momentum and a growing portfolio [6][30] - The management highlighted a focus on finding investments with limited risk of permanent capital impairment and durable returns in the current market environment [23] Other Important Information - The Board of Directors authorized a cash distribution of $0.35 per share for the quarter ending March 31, 2023, equating to a 12.5% annualized dividend yield based on the December 31 NAV [25] Q&A Session Summary Question: What is the outlook for the dividend? - Management is optimistic about covering the $0.35 dividend in the upcoming quarter, indicating solid progress in transforming the company [30] Question: How is the specialty finance platform performing? - The specialty finance platform is making significant progress, with a robust pipeline of potential investments and ongoing negotiations with financing partners [21][29]

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 814-01211 Great Elm Capital Corp. (Exact name of registrant as specified in its charter) Maryland 81-2621577 (State or other jurisdiction of incorporation or organization) (I.R.S. E ...

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Great Elm Capital Corp. NASDAQ: GECC Investor Presentation Quarter Ended June 30, 2022 August 4, 2022 Forward Looking Statement 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," "preliminary" and similar expressio ...

Great Elm Capital Corp (NASDAQ:GECC) Q1 2022 Earnings Conference Call May 11, 2022 11:00 AM ET Company Participants Garrett Edson - ICR Matt Kaplan - CEO Keri Davis - CFO Conference Call Participants Brian Alexitch - Greenwich Operator Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Great Elm Capital Corp. First Quarter 2022 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Garrett Edson of ICR. Sir, please ...