Great Elm Capital (GECC) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - In Q1 2024, the company generated net investment income (NII) of $3.2 million or$0.37 per share, compared to $3.3 million or$0.43 per share in Q4 2023, reflecting a sequential decline attributed to cash drag and increased share count from equity issuance [7][55] - The net asset value (NAV) per share declined to $12.57 as of March 31, 2024, down from$12.99 at the end of 2023, primarily due to write-downs of inherited investments [18][20] - Total debt outstanding was approximately $148 million as of March 31, with cash and money market securities totaling around$9 million [9] Business Line Data and Key Metrics Changes - The company continued to rotate into higher-yielding investments, deploying approximately $64 million into new investments at average yields of about 13$29 million of assets at average yields of approximately 11% [68] - The rotation into floating rate investments increased, with 69% of the debt investment portfolio comprised of floating rate debt, up from 67% in the previous quarter [10] Market Data and Key Metrics Changes - The asset coverage ratio improved to approximately 180.2% as of March 31, compared to 169% at the end of 2023 [67] - The company raised nearly $60 million in fresh capital through various initiatives, including a successful public offering of$34.5 million in notes [6][17] Company Strategy and Development Direction - The company is focused on strategic refinements in its healthcare finance platform, despite a slow start to the year, and aims to execute on its investment pipeline in the coming months [12] - A new joint venture was formed to invest in CLO entities and related warehouse facilities, expected to generate significant distributions starting in the second half of the year [32][53] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the opportunities ahead, anticipating that NII in the second half of the year will significantly outpace the first half due to expected distributions from recent investments [19] - The company remains disciplined in capital deployment, focusing on investments that perform well in the current elevated rate environment and through economic cycles [36] Other Important Information - The company announced a cash distribution of $0.35 per share for the quarter ending June 30, 2024, equating to an 11$10.8 million in CLO subordinated notes [25] Question: How is the CLO initiative structured? - It is a joint venture where the company holds a 75% stake and the partner holds 25%, focusing on CLO securities and warehouse facilities [26] Question: How will the company access attractive investment opportunities in CLO equity? - The initial investment was about $10.8 million, with a total asset mix of approximately$300 million post-bond deal [27] Question: What is the role of the joint venture partner? - The partner is involved in the CLO business and has developed a strategic relationship with the company [41] Question: Are there pressures in the healthcare finance area? - The company focuses on asset-based loans and is keenly aware of cash flows, monitoring them closely to avoid risks [46]