Great Elm (GEG) Q3 2026 Earnings Transcript

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Date

May 7, 2026, 8:30 a.m. ET

Call participants

• Chief Executive Officer — Jason Reese
• President and General Counsel — Adam Kleinman
• Chief Operating Officer — Nichole Milz
• Chief Financial Officer — Keri Davis

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Takeaways

• Unrealized losses -- Approximately $9.8 million of unrealized losses reported, primarily related to Great Elm Capital Corp (NASDAQ:GECC) common stock and related SPVs.
• Net loss -- Net loss of $13.5 million, compared to $4.5 million net loss in the prior year period.
• Revenue -- $3.4 million, up 7%, driven mainly by Monomoy Construction Services (MCS) construction management fee growth.
• Adjusted EBITDA -- Negative $1.6 million, versus positive $0.5 million the prior year.
• Fee-paying AUM -- Estimated at $528 million, down 7%.
• Total AUM -- Estimated at $744 million, down 3%.
• Liquidity -- Cash and equivalents of $45.5 million available for deployment.
• GECC capital structure -- All near-term funded debt repaid or called; next debt maturity not until 2029.
• Portfolio positioning at GECC -- First lien investments make up nearly 75% of the corporate credit portfolio, representing a recent high.
• Private credit fund wind down -- Great Elm Credit Income Fund began winding down, with third-party investors fully redeemed; Great Elm Group retains about $7 million in the fund.
• Fund performance -- Great Elm Credit Income Fund delivered a net return above 20% from launch through March 31, 2026.
• Monomoy CRE fee growth -- Approximately $1 million in investment and property management fees, up more than 20%.
• Monomoy REIT acquisitions -- Five acquisitions totaling about $28 million, surpassing the prior full year's acquisition activity.
• Monomoy BTS delivery -- Third development property leased to investment-grade tenant with rent commenced; fourth project underway in Texas.
• MCS revenue contribution -- Monomoy Construction Services added $0.7 million in total revenue, now at its fourth full quarter of operations.
• CoreWeave investment -- Total distributions received of $6.8 million, exceeding the initial $5 million investment.
• Share repurchase authorization -- Buyback program increased by $15 million to a total of $40 million authorized.
• Quarterly share repurchases -- Roughly 1.4 million shares repurchased (over 4% of outstanding shares) at $2.04 average price.
• Total repurchases to date -- 7.8 million shares bought back at a $2 average price, totaling $15.6 million, leaving $24.4 million available under the program.

Summary

Great Elm Group (NASDAQ:GEG) reported earnings that reflect significant unrealized losses and lower AUM, while emphasizing ongoing portfolio repositioning and capital discipline. Management reprioritized protecting and growing net asset value above creating income and highlighted enhancements in portfolio quality and deleveraging at the GECC segment. The call underscored the full wind down of the private credit fund, fee and volume growth across Monomoy's real estate platform, and an expanded share repurchase authorization. Strategic statements referenced a focus on NAV protection, increased oversight, and maintaining liquidity to pursue opportunities in an uncertain environment.

• Jason Reese said, "We substantially delevered the capital structure by calling and repurchasing all near-term funded debt, and GECC will soon have no debt maturities until 2029."
• Keri Davis noted that fee-paying AUM and total AUM declined by 7% and 3%, respectively, indicating pressure on managed assets.
• Management stated, "Our Board recently approved a $15 million increase in our stock repurchase program, bringing the total authorization to $40 million."
• The call confirmed a sustained decrease in reported adjusted EBITDA and a shift in investment strategy toward senior secured positions within GECC's credit portfolio.

Industry glossary

• BDC (Business Development Company): A regulated investment company that invests primarily in small and mid-sized businesses, often through debt and equity positions.
• AUM (Assets Under Management): The total market value of assets an investment company manages on behalf of clients and investors.
• SPV (Special Purpose Vehicle): A subsidiary created to isolate financial risk, commonly used to hold specific assets or engage in specific transactions.
• BTS (Build-to-Suit): A real estate development approach where a property is designed and constructed to meet the specifications of a specific tenant.

Full Conference Call Transcript

On the call today, we have Jason Reese, CEO; Adam Kleinman, President and General Counsel; Nichole Milz, COO; and Keri Davis, CFO. I will now turn the call over to Jason Reese, CEO.

Jason Reese: Thank you, Adam. Good morning, and thank you for joining us today. This quarter, Great Elm made meaningful progress advancing our strategic initiatives, while operating against a challenging backdrop. Fiscal third quarter 2026 was marked by heightened volatility across the BDC sector, driven by broader concerns around private credit quality. GECC, our public BDC, was not insulated from that volatility. Our reported results reflect approximately $9.8 million of unrealized losses primarily related to our holdings in GECC common stock and related SPVs. Despite these noncash mark-to-market losses, our balance sheet remains strong with over $45 million of cash and equivalents. This liquidity provides us with significant flexibility to support our growth initiatives and pursue attractive opportunities as we move forward.

In this environment, we continue to build momentum across our alternative asset management platform. In March, I assumed the role of Executive Chairman of GECC at an important inflection point for the company. On May 4, I was appointed CEO. The company was established to create income and protect and grow NAV. In the near term, I'm reprioritizing. We will protect and grow NAV first and secondarily create income. We will accomplish this by strengthening oversight, protecting shareholder value and reinforcing accountability across the platform. We are already making tangible progress across each of these efforts. At GECC, we took decisive steps during the quarter to strengthen the balance sheet and improve overall portfolio quality.

We substantially delevered the capital structure by calling and repurchasing all near-term funded debt, and GECC will soon have no debt maturities until 2029. This eliminates near-term refinancing risk and enhances our ability to deploy capital in a disciplined and opportunistic manner. We also advanced our portfolio rotation strategy, exiting select investments and increasing portfolio quality by redeploying capital into predominantly senior secured positions. As a result, first lien investments now comprise nearly 75% of GECC's corporate credit portfolio, the highest level in recent history. Additionally, we are expanding our proprietary sourcing effort. During the quarter, we closed 3 transactions sourced through institutional partners.

We closed another proprietary private investment in April and expect to close on an additional investment in the near future. Our focus remains on rigorous underwriting, enhanced portfolio diversification and increasing cash-generative secured credit investments. We believe these actions position GECC for an improved trajectory with durable performance. Within our private credit strategy, the Great Elm Credit Income Fund, which we launched in November '23, began an orderly wind down last quarter. We offered third-party investors an early redemption option and all have since exited the fund, leaving Great Elm Group's approximately $7 million investment at quarter end. The fund generated a net return of over 20% from inception through March 31, '26.

In real estate, Great Elm Real Estate Ventures delivered another strong quarter driven by continued execution across the Monomoy platform. Monomoy CRE generated approximately $1 million of investment and property management fees in the quarter, growing more than 20% from the prior year period. Monomoy REIT closed on 5 acquisitions in the quarter, deploying approximately $28 million and surpassing its full year 2025 acquisition activity. Monomoy BTS delivered a third development property in Florida to an investment-grade tenant with rent commencing in March. During the quarter, the team also advanced its fourth design-build project in Texas following the land acquisition.

The real estate platform continues to build a robust pipeline of additional build-to-suit opportunities, spurred by its strong execution track record and high tenant satisfaction. Lastly, Monomoy Construction Services completed its fourth full quarter of operations, adding $0.7 million in total revenue. Outside of our core platform, our CoreWeave-related investment continues to perform well with cumulative distributions of $6.8 million to date, exceeding our initial $5 million investment. We continue to see upside potential based on current trading levels, and we are encouraged by CoreWeave's recent stock price rebound and successful capital raises. Turning to capital allocation. We believe our shares remain materially undervalued and continue to prioritize share repurchases accordingly.

Our Board recently approved a $15 million increase in our stock repurchase program, bringing the total authorization to $40 million. This marks our 10th consecutive quarter of share repurchases, underscoring both our conviction in the business and our commitment to enhancing shareholder value. During the quarter, we repurchased approximately 1.4 million shares or over 4% of shares outstanding at an average price of $2.04 per share. Through May 4, we have repurchased approximately 7.8 million shares at an average price of $2 per share, representing $15.6 million deployed since inception. This leaves approximately $24.4 million of remaining capacity, and we intend to remain active under the program at current valuation levels.

As we enter the fourth quarter of our fiscal year, we remain focused on growing fee-paying AUM, scaling our alternative credit and real estate businesses and sourcing new investment opportunities. Looking ahead, we seek to expand our platform and add accretive differentiated investment solutions with attractive risk-adjusted return profiles. With that, I'll now turn the call over to our CFO, Keri Davis.

Keri Davis: Thank you, Jason. I'll provide a brief overview of the quarter and, of course, welcome all of you to review our filings for additional detail or reach out to our team with any questions. Fiscal third quarter revenue was $3.4 million compared to $3.2 million in the prior year period, a 7% increase, driven primarily by growth in MCS construction management fees. Estimated fee-paying AUM and AUM were $528 million and $744 million, respectively, as of March 31, 2026. These figures represent a decrease of 7% and 3%, respectively, compared to the prior year period. We reported a net loss of $13.5 million for the quarter compared to a net loss of $4.5 million a year ago.

The change was primarily driven by $9.8 million of unrealized losses, including consolidated funds, the majority of which were associated with the company's investments in GECC common stock and related SPVs. Adjusted EBITDA for the quarter was negative $1.6 million compared to positive $0.5 million in the prior year period. As of March 31, 2026, we held approximately $45.5 million of cash and cash equivalents on our balance sheet to deploy across our growing alternative asset management platform. Please refer to the earnings release and our Form 10-Q for a more detailed summary of our financial position. This concludes my financial review of the quarter. With that, we will turn the call over to the operator to open for questions.

Operator: [Operator Instructions] There are no questions at this time. At this point, I'd like to turn the call back over to Jason Reese for closing comments.

Jason Reese: Thank you again for joining us today. We remain confident in the strategic direction of our business. Our credit and real estate platforms continue to execute, and with the strength of our balance sheet. We are taking disciplined actions to position the platform for long-term success. We look forward to keeping you updated on our progress. Thank you for your time and continued support.

Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.

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