Great Elm (US:GEG)2022-11-14 22:15PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Great Elm Group, Inc.'s unaudited condensed consolidated financial statements for the three months ended September 30, 2022, including balance sheets, statements of operations, and cash flows Unaudited Condensed Consolidated Balance Sheets Total assets decreased from $168.1 million to $158.3 million, primarily due to investments, while total stockholders' equity declined from $40.0 million to $31.0 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Total Assets | $158,278 | $168,087 | | Cash and cash equivalents | $23,265 | $23,595 | | Investments, at fair value | $40,624 | $48,042 | | Goodwill | $52,463 | $52,463 | | Total Liabilities | $124,363 | $125,833 | | Convertible notes | $35,216 | $35,187 | | Long term debt | $25,597 | $25,532 | | Total Stockholders' Equity | $31,028 | $40,029 | Unaudited Condensed Consolidated Statements of Operations The company reported a net loss of $8.5 million for Q3 2022, a significant shift from net income of $0.1 million in Q3 2021, despite a 12.3% increase in total revenues Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Account | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Total Revenues | $18,579 | $16,538 | | Operating (loss) income | $(985) | $1,001 | | Net realized and unrealized loss on investments | $(6,797) | $(14) | | Net (loss) income | $(8,539) | $106 | | Net loss attributable to Great Elm Group, Inc. | $(8,291) | $(200) | | Basic and diluted loss per share | $(0.29) | $(0.01) | Unaudited Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $2.0 million for Q3 2022, while cash and cash equivalents slightly decreased to $23.3 million Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Three months ended Sep 30, 2022 | Three months ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $2,024 | $(1,034) | | Net cash used in investing activities | $(2,270) | $(3,171) | | Net cash (used in) provided by financing activities | $(84) | $1,614 | | Net decrease in cash and cash equivalents | $(330) | $(2,591) | Unaudited Notes to Condensed Consolidated Financial Statements These notes detail the company's two operating segments, revenue sources, significant related-party transactions, substantial debt obligations, and $821 million in federal NOL carryforwards - The company operates through two main segments: Durable Medical Equipment (DME) and Investment Management, managing respiratory care equipment distribution and various private funds respectively2134 Revenue by Source (Three months ended Sep 30, in thousands) | Revenue Source | 2022 | 2021 | | :--- | :--- | :--- | | Investment Management | | | | Management fees | $1,302 | $876 | | Property management fees | $274 | - | | Administration and service fees | $284 | $107 | | Durable Medical Equipment | | | | Equipment sales | $9,634 | $8,730 | | Service revenue | $1,394 | $1,346 | | Medical equipment rental income | $5,691 | $5,479 | | Total | $18,579 | $16,538 | - The company holds significant borrowings, including $26.9 million in 7.25% GEGGL Notes, $36.1 million in 5.0% Convertible Notes, and a $5.7 million Seller Note113120123125 - As of June 30, 2022, the company had substantial Net Operating Loss (NOL) carryforwards of approximately $821 million for federal and $211 million for state income tax purposes159 Segment Income (Loss) Before Taxes (Three months ended Sep 30, 2022, in thousands) | Segment | Income (Loss) Before Taxes | | :--- | :--- | | Durable Medical Equipment | $6,758 | | Investment Management | $(6,031) | | General Corporate | $(9,070) | | Consolidated Total | $(8,343) | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's Q3 2022 performance, highlighting 12% revenue growth to $18.6 million despite a $8.3 million pre-tax loss driven by investment losses and increased operating costs - The company operates in two segments: Durable Medical Equipment and Investment Management, with combined assets under management of approximately $623.9 million as of September 30, 2022168170 - The DME business faced suppressed referral pipelines and PAP device procurement issues due to global supply chain challenges, leading to patient backlogs and missed revenue175 - Total revenue for Q3 2022 increased by $2.0 million year-over-year, driven by $1.2 million in DME revenues and $0.9 million from the Monomoy UpREIT management agreement178 - Operating costs increased by $4.0 million year-over-year, partly due to revenue growth, Monomoy UpREIT costs, and the absence of $2.4 million in Employee Retention Credits179 - As of September 30, 2022, the company held an unrestricted cash balance of $23.3 million and GECC common stock with a fair value of $16.2 million218 Results of Operations Consolidated revenue increased to $18.6 million in Q3 2022, driven by growth in both DME and Investment Management segments, despite a $8.3 million pre-tax loss due to investment losses Consolidated Operations Summary (in thousands) | Account | Q3 2022 | Q3 2021 | | :--- | :--- | :--- | | Total revenue | $18,579 | $16,538 | | Operating (loss) income | $(985) | $1,001 | | (Loss) income before income taxes | $(8,343) | $105 | - DME revenue increased 7% year-over-year to $16.7 million, driven by organic resupply growth and the MedOne acquisition, despite PAP equipment shortages182183185 - Investment Management revenue surged 89% year-over-year to $1.9 million, primarily from Monomoy UpREIT management and property management fees acquired in May 2022194195 - General Corporate interest expense increased by $0.6 million year-over-year, primarily due to interest on the GEGGL Notes issued in June 2022208 Liquidity and Capital Resources As of September 30, 2022, the company held $23.3 million in unrestricted cash, with $2.0 million from operations, while maintaining significant debt obligations and an intent to pursue acquisitions - Cash flow from operations was a positive $2.0 million for the quarter, a significant improvement from a negative $1.0 million in the prior year, driven by non-cash charges211212 - The company has significant outstanding debt, including $26.9 million GEGGL Notes, $36.1 million convertible notes, a $5.7 million seller note, and $35.0 million in preferred stock, plus an undrawn $10 million DME Revolver220221222223226 - The company intends to use liquid financial resources for acquisitions and investments, acknowledging that failure to raise additional capital may hinder its strategic growth plan219 Quantitative and Qualitative Disclosures About Market Risk No material changes in market risks have occurred since the Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - No material changes in market risks have occurred since the Annual Report on Form 10-K for the fiscal year ended June 30, 2022229 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2022230 - No material changes in internal control over financial reporting occurred during the quarter231 PART II. OTHER INFORMATION Legal Proceedings No changes regarding legal proceedings were required to be disclosed - No changes regarding legal proceedings were required to be disclosed234 Risk Factors No material changes from previously disclosed risk factors in the Annual Report on Form 10-K for the fiscal year ended June 30, 2022 - No material changes from the risk factors previously disclosed in the Annual Report on Form 10-K for the fiscal year ended June 30, 2022235 Exhibits This section provides an index of exhibits filed with the report, including CEO and CFO certifications and XBRL data files - The exhibit index lists required filings, including Sarbanes-Oxley Act certifications (Exhibits 31.1, 31.2, 32.1) and XBRL data (Exhibit 101)238