Great Elm Group (NASDAQ:GEG) reported fourth-quarter financial results on Thursday. The transcript from the company's fourth-quarter earnings call has been provided below.

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View the webcast at https://viavid.webcasts.com/starthere.jsp?ei=1746026&tp_key=86c68fc7c7

Summary

Great Elm Group's fiscal 2026 was impacted by significant mark-to-market losses in GECC investments, with GECC's stock price dropping nearly 50%, affecting financial results negatively.

The company raised nearly $400 million in gross capital, and fee-paying AUM increased by 7% to approximately $590 million, showing growth in financial management.

GECC's net assets grew 3% sequentially, and it strengthened its capital structure by retiring debt and extending credit facilities, with no maturities until 2029.

Great Elm's real estate operations saw substantial growth, with Monomoy REIT completing acquisitions worth $34 million and generating increased investment and property management fees.

The company repurchased 265,000 shares in Q4, maintaining its repurchase program, and enters fiscal 2027 with $53.5 million in cash, focusing on growing AUM and fee-related earnings.

Full Transcript

OPERATOR

Greetings. Welcome to the Great Elm Group fiscal 2026 fourth quarter and full year conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Adam Yates, Managing Director.

Thank you. You may begin.

Adam Yates, Managing Director

Good morning, everyone. Thank you for joining us for Great Elm Group's fiscal fourth quarter and full year 2026 earnings conference call. As a reminder, this conference call is being recorded on Thursday, August 27, 2026. If you would like to be added to our distribution list, you can email GEG investor relations at ehmcap.com, or sign up for alerts directly on our website at www.greatelmgroup.com. The slide presentation accompanying today's conference call and webcast can be found on our website under Events and Presentations.

A link to the webcast is also available on our website as well as in the press release announcing our results. Today's conference call includes forward-looking statements and we ask that you refer to Great Elm Group's filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Group does not undertake to update its forward-looking statements unless required by law. In addition, during today's call, management will refer to certain non-GAAP financial measures.

Reconciliations to the most comparable financial measures are included in our earnings release. To obtain copies of our SEC filings, please visit Great Elm Group's website under Financial Information and select SEC Filings. Today's comments do not constitute an offer to sell or a solicitation of an offer to buy interests in any investment vehicle managed by Great Elm or its affiliates. Any such offer or solicitation will only be made pursuant to the applicable offering documents for such investment vehicle.

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

Jason Reese, CEO

Good morning and thank you for joining us today. Fiscal 2026 was a year of meaningful progress across Great Elm's platform, although that progress was overshadowed by significant mark-to-market losses primarily associated with our investments in GECC and GECC-related vehicles. Over the course of the year, GECC's stock price declined from $10.67 to $5.45, a decrease of nearly 50%. Over the same period, the stock's discount to NAV widened from approximately 12% to approximately — GECC's NAV at June 30, 2026 was $7.95 per share.

These losses had a significant impact on our reported financial results, and we are not satisfied with the resulting fiscal year loss. At the same time, we made substantial progress building the underlying earnings power and scale of Great Elm. During fiscal '26, GEG and its managed vehicles raised nearly $400 million of gross capital, fee-paying AUM increased 7% to approximately $590 million, and we exited the year with improving momentum across both our real estate and alternative credit businesses.

I'll start with alternative credit. During the second half of the fiscal year, I assumed a more active leadership role at GECC, becoming Executive Chairman of GECC's board on March 2 and CEO on May 4. My priorities at GECC remain straightforward: first, protect and grow NAV; second, generate sustainable income; and throughout the process maintain disciplined capital allocation, rigorous underwriting, and clear accountability. We saw tangible progress against those objectives.

During the fourth quarter, GECC's net assets increased approximately 3% sequentially, portfolio performance improved, and less than 1% of investments were non-accrual at quarter end. We also sourced and selectively deployed capital into new private investments that we believe offer attractive risk-adjusted returns. We also took important steps to strengthen GECC's capital structure and liquidity. During the year, GECC retired all $18.6 million of its notes maturing in 2026 and extended the maturity of its revolving credit facility, leaving no debt maturities until 2029.

Subsequent to the quarter end, GECC called an additional $6.5 million of its highest-cost debt at June 30. GECC also maintained substantial liquidity, including approximately $39 million of availability under its revolving credit facility. These actions are part of a broader effort to reposition GECC for more consistent long-term performance. We believe a strong portfolio, improved capital structure, and disciplined investment approach should ultimately benefit both GECC shareholders and Great Elm, through the value of our investments and fee-related earnings generated by our asset management business.

We are exploring opportunities to expand our investment strategy and enhance the value proposition for GECC shareholders. Importantly, our interests remain aligned with GECC shareholders. Great Elm Capital Management waived approximately $0.9 million of incentive fees in the fourth quarter, bringing total incentive fees waived during fiscal 2026 to approximately $3.7 million, or $0.26 per GECC share. Turning to real estate, this was a particular area of strength during fiscal '26.

Our partnership with Kennedy Lewis provided substantial growth capital and helped accelerate the expansion of the Monomoy platform across Monomoy REIT, Monomoy CRE, Monomoy BTS, and Monomoy Construction Services. We are building an integrated real estate platform spanning acquisitions and asset management, development, and construction. Monomoy REIT had a record fourth quarter for capital deployments, completing six acquisitions representing approximately $34 million of committed capital, including estimated future capital expenditures and tenant improvement commitments.

We also continued value-add construction across the existing portfolio. Our focus remains on disciplined acquisitions where we believe active asset management can generate attractive risk-adjusted returns. During the fourth quarter, we drew the remaining $50 million under our $150 million strategic financing with Kennedy Lewis, providing additional capital to fund the REIT's record acquisition activity and future growth. Combined with additional property-level financings completed during the year, we believe Monomoy REIT is well positioned to continue scaling its IOS portfolio while maintaining a disciplined approach to capital deployment.

Monomoy CRE continued to benefit from that growth, generating approximately $1.1 million of investment and property management fees during the fourth quarter, up approximately 29% from the prior-year period. For the full fiscal year, those fees totaled approximately $3.9 million, an increase of 19%. We're actively pursuing additional institutional capital to support continued growth and scale of the platform. Our build-to-suit business also continued to demonstrate its ability to create value.

Monomoy BTS sold its third development property in June for approximately a $0.9 million gain, following the profitable sale of its second project earlier in the fiscal year. During the fourth quarter, we commenced development on our fourth project in Texas and, subsequent to year end, acquired our fifth property for approximately $3 million. Monomoy Construction Services had a slower ramp than we initially anticipated, generating approximately $0.4 million of revenue during the fourth quarter.

However, we are encouraged by its developing pipeline with core tenants, IOS prospects, and expanding consulting and pre-development relationships. Taken together, we believe these businesses provide Great Elm with a differentiated, fully integrated real estate platform and substantial opportunity for additional scale beyond our core operating businesses. Our core-related investment continued to create value during the quarter. Since April 1st, we received approximately $3 million of distributions, bringing cumulative distributions since inception to approximately $8.6 million compared with our original $5 million investment.

We also recognized approximately a $2.1 million net gain on the investment during the fourth quarter and continue to retain meaningful upside potential. Capital allocation remains another key priority. We repurchased shares for the 11th consecutive quarter, reflecting our view that our shares continue to represent an attractive use of capital at current valuation levels. During the fourth quarter, we repurchased approximately 265,000 shares at an average price of $2.18 per share, representing roughly 1% of the shares outstanding at June 30th.

Since the inception of the repurchase program in 2023 through August 24th, we have repurchased approximately 8.1 million shares for $16.1 million at an average price of approximately $2.00 per share. Our board has authorized up to $40 million of total repurchases, leaving nearly $24 million of remaining capacity. We intend to continue evaluating repurchases alongside our other investment opportunities based on where we believe we can generate the best risk-adjusted return for shareholders.

As we enter fiscal 2027, Great Elm has growing fee-paying assets, improving operating momentum, and substantial financial flexibility. We ended June with approximately $53.5 million of cash and equivalents, providing meaningful capacity to invest in our existing businesses, pursue new opportunities, and continue disciplined capital allocation. Our priorities for fiscal '27 are clear: continue growing AUM and fee-related earnings, scale our real estate and alternative credit platforms, improve the performance and value of our existing investments, and selectively pursue new opportunities where our capital, relationships, and operating capabilities provide an advantage. Fiscal '26 demonstrated both the volatility that can result from our balance sheet investments and the progress occurring across our underlying businesses. Our focus is squarely on converting the operational progress into stronger, more consistent financial performance and long-term value for Great Elm shareholders. With that, I'll turn the call over to Kerry for a review of our financial results.

Kerry Davis, CFO

Thank you, Jason. I'll provide a brief overview of the fourth 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 fourth quarter revenue was $10.6 million compared to $5.6 million in the prior-year period, representing an 88% increase year over year. For the fourth quarter, net income was approximately $1.1 million compared to net income of $13.6 million in the prior-year period.

The change in net income primarily reflected lower net unrealized gains on the Company's investments compared with the prior-year period. Adjusted EBITDA for the quarter was approximately $0.3 million compared to $1.5 million in the prior-year period. Fee-paying AUM and AUM were approximately $590 million and $771 million, respectively, as of June 30, 2026, representing an increase of 7% and 2% from the prior-year period. We ended the fiscal year with approximately $53.5 million of cash and cash equivalents.

This strong liquidity position provides substantial financial flexibility to support growth initiatives across our platform. Please refer to the earnings release, accompanying investor presentation, and our Form 10-K for a more detailed summary of our financial position. This concludes my financial review. With that, we will turn the call over to the operator to open the line for questions.

OPERATOR

Thank you. We will now conduct a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star 1 to ask a question at this time.

One moment while we poll for questions. At this time there are no questions. I would like to turn the floor back over to Jason Reese for closing comments.

Jason Reese, CEO

Thank you again for joining us today. Before we conclude, I wanted to reiterate that fiscal '26 included challenges, and our reported results were not where we would like them to be. We enter fiscal '27 from a position of strength. We have growing fee-paying assets under management, substantial liquidity, improving momentum across both real estate and alternative credit, and significant capacity to invest in our businesses and repurchase shares when we believe doing so creates attractive value for shareholders.

Our focus is execution. We intend to continue scaling our existing platforms, growing fee-related earnings, improving the performance and value of our investments, and selectively deploying our capital into opportunities where we believe our relationships and capabilities provide a differentiated advantage. Ultimately, our objective is straightforward: translate the progress we have made across the platform into stronger and more consistent financial performance and long-term value for Great Elm shareholders.

We look forward to keeping you updated on our progress. Thank you for your time and continued support.

OPERATOR

Thank you, ladies and gentlemen. Thank you for your participation. This does conclude today's teleconference. Please disconnect your lines and have a great day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.