Great Elm Group Inc (GEG) 2025 Q4 法說會逐字稿

Greetings, and welcome to the Great Elm Group fiscal 2025 earnings and strategic investment call. (Operator Instructions) I'd now like to turn the conference over to your host, Adam Yates, Managing Director. Thank you. You may begin.

Good morning, everyone. Thank you for joining us for Great Elm Group's fiscal 2025 earnings and strategic investment conference Call. As a reminder, this conference call is being recorded on Wednesday, September 3, 2025. If you would like to be added to our distribution list, you can e-mail geginvestorrelations@gatelmcap.com or you can sign up for alerts directly on our website, 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 that was disseminated to announce the quarterly 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 interest in any investment vehicle managed by Great Elm or its affiliates. Any such offer 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 Milz, COO; and Keri Davis, CFO. I will now turn the call over to Jason Reese, CEO.

Good morning, and thank you for joining us. Fiscal '25 was a record year for Great Elm, the strongest in our history. We delivered a record $15.7 million of net income from continuing operations in the final quarter and increased book value per share 24% year over year, driving momentum into fiscal '26 with over $100 million of capital raises completed in July and August across our credit and real estate platforms.

In credit, GECC generated record investment income and incentive fees, raised over $75 million of new capital, upsized and reduced the cost of its revolving credit facility and increased its dividend, highlighting the sustainability of its performance.

Our Great Elm Credit Income Fund also delivered top-tier returns. In real estate, we launched Monomoy Construction Services, rounding out our fully integrated platform. MCS is already contributing meaningful revenue, expanding its pipeline, and positioning us to scale rapidly while serving our industrial outside storage tenants and customers.

Finally, just after year-end, we executed on three value-creating initiatives. First, in July, we entered a strategic partnership with Kennedy Lewis Investment Management, who invested in both GEG and Monomoy REIT, committing up to $150 million to accelerate our real estate platform growth. And in August, we completed two significant capital raises at GEG and GECC that provide meaningful new growth capital and expertise across our core businesses.

We believe fiscal '25 was an inflection point, as we delivered record results, scaled both credit and real estate and secured new capital and partnerships to fuel our next phase of growth. With momentum in both businesses and the strongest foundation in our history, we are well positioned to drive meaningful growth and create lasting value for our shareholders.

Let me now walk through the details of our performance and strategy. Net income from continuing operations was $15.7 million in the fourth quarter, a significant improvement over last year. Excluding onetime property sales, revenue in the quarter grew over 140% over the prior year period, led by record management and incentive fees at GECC and new contributions from Monomoy Construction Services.

Book value per share rose approximately 24% year over year to $2.65 as of June 30. Book value as of June 30, pro forma for the two GEG issuances in July and August remained solid at $2.58 per share. We also closed the year with strong balance sheet, including $31 million of cash to support our expanding businesses or over $40 million on a pro forma basis after the two issuances.

In addition, our Board expanded our stock purchase program by $5 million in July, bringing the total program size to $25 million. Through August, we have repurchased 5.1 million shares for $9.3 million at an average of $1.85 per share, leaving $15.7 million in remaining program capacity.

Repurchasing shares at a discount to book value has been directly accretive, contributing to the step-up in book value we delivered over the past year. We view these repurchases as an attractive use of capital, underscoring our confidence in long-term shareholder value.

A key driver of profitability this year was the unrealized gains from our CoreWeave-related investment, which added more than $11 million to earnings. This $5 million investment made in May '24, sourced through a strategic relationship is a notable example of how we can use Great Elm's balance sheet and extensive network to capture unique opportunities that are not broadly available in the market.

Our returns in CoreWeave have translated to significant gains for our shareholders. And while these are currently unrealized gains, they highlight our ability to create value by selectively deploying capital into high-conviction investments. Importantly, we view these types of investments as complementary to our recurring fee revenue business in credit and real estate. Strategic, high conviction opportunities such as the CoreWeave investment, not only enhance our return profile, but also give us a differentiated engine of growth and value creation for shareholders.

Turning now to credit. This business was our biggest driver of growth in '25. GECC delivered the best year in its history, generating record management and incentive fees for GEG as well as its highest ever total investment income with more than 90% coming from cash income. Net investment income exceeded its quarterly distribution, supporting a 6% increase in GECC's dividend to $0.37 per share. Over the fiscal year, GECC also completed four capital raises totaling over $75 million and launched a $100 million at-the-market equity program, providing capital for growth.

Just after year-end, GECC upsized its revolving credit facility from $25 million to $50 million with room to expand further, while also reducing its borrowing cost by 50 basis points. These capital raises, combined with enhancing financial flexibility and record performance, position us to drive fee revenue growth from GECC, scale our credit platform and increase contributions to Great Elm's overall earnings trajectory.

Meanwhile, our Great Elm Credit Income Fund continued its outstanding performance, posting net returns of 21% for the six months ended June 30, driven by unrealized appreciation in its core REIT-related investments following 12% net returns in calendar '24.

Taken together, our credit business is scaling rapidly, generating recurring cash flow, enhancing profitability and positioning Great Elm for sustained long-term fee growth. Now to real estate, where we achieved a major milestone this year with the launch of Monomoy Construction Services, or MCS, in February. We created MCS by acquiring our long-term partner, Greenfield CRE and combining it with our existing construction management business.

The launch of MCS added in-house construction and predevelopment capabilities to our existing asset management and development businesses to complete a fully integrated end-to-end real estate platform to serve our IOS tenants and customers.

The integration brings three clear advantages: accelerating development time lines, capturing construction margins in-house and providing turnkey solutions that deepen tenant relationships. In its first few months, MCS contributed nearly $1 million in revenue and has already grown its project pipeline by more than 50%. Looking ahead, we expect MCS to more than double its revenue in fiscal '26, and we believe it will be a central driver of our long-term goal of scaling real estate revenues. Beyond MCS growth, our broader Monomoy platform advanced significantly during the quarter.

Monomoy CRE delivered stable fee revenue, contributing approximately $800,000 for the fourth quarter. Monomoy REIT executed on both acquisitions and dispositions, acquiring a $1.3 million property at an attractive cap rate and realizing on a $15.3 million sale versus a $9.2 million purchase price. We also strengthened the REIT's capital position by expanding its warehouse facility from $25 million to $50 million at an improved interest rate.

Meanwhile, Monomoy BTS advanced its development pipeline, placing a second property under contract for sale, continuing construction on a third, gathering specifications on a fourth and capturing new tenant-driven opportunities nationwide.

Finally, I would like to provide a detailed overview of the important strategic capital raises and partnerships we closed over the last few weeks. Our partnership with Kennedy Lewis Investment Management and our August transactions with Woodstead Value Fund and Booker Smith.

In July 25, we entered a strategic partnership with Kennedy Lewis, an institutional alternative investment firm managing over $30 billion in assets. As part of the partnership, Kennedy Lewis purchased 4.9% of Great Elm's common stock and will invest up to $150 million in Monomoy Properties REIT to accelerate the expansion of our real estate platform under the Monomoy brand.

In addition to these investments, Kennedy Lewis appointed representatives to the Boards of both GEG and Monomoy REIT. The structure of this transaction included a $100 million term loan to Monomoy Properties REIT with an option for an additional $50 million in the future, a 15% profits interest with the potential to increase up to 20% based on additional capital investment in our newly formed Great Elm Real Estate Venture subsidiary, which now houses Monomoy CRE, our investment manager; Monomoy BTS, our developer and Monomoy Construction Services, our construction manager and as mentioned, a strategic equity investment in Great Elm itself.

This partnership is a game changer. Kennedy Lewis brings not only capital, but also a proven track record of scaling institutional real estate platforms. Their success with the launch and IPO of Millrose Properties, a $5 billion REIT spun out from Lennar Corporation serves as a powerful example of their ability to transform institutional platforms into market-leading public companies.

With their support and the current favorable economic backdrop, we are well positioned to supercharge Monomoy REIT growth toward our target of $1 billion in assets and a potential future IPO as well as to accelerate the expansion of our broader real estate platform under the Monomoy brand.

In August 25, we announced two additional strategic investments, providing a significant new growth capital to expand our assets under management and improve profitability. At GEG, Woodstead Value Fund purchased 4 million newly issued shares of GEG common stock at $2.25 per share, raising $9 million in equity capital. Alongside the investment, Booker Smith, a seasoned credit, and real estate investor, joined the Great Elm Board to support our core verticals. Great Elm also issued Woodstead 10-year warrants for an additional 1 million shares of GEG common stock struck at $3.50 and 1 million shares of GEG common stock struck at $5.

These warrants serve to further align Woodstead with GEG's shareholders. In a separate transaction, GECC sold 9.9% of its outstanding common stock or 1.3 million newly issued shares at $11.65 per share to an affiliate of Booker Smith. This issuance provides GECC with $15 million of equity capital to be levered to pursue attractive investment opportunities.

The fresh capital investments from Woodstead and Booker Smith not only strengthen our balance sheet but also position us to scale our credit and real estate platforms. The addition of Booker Smith as a GEG Director further deepens the experience and strategic relationships of our Board.

In summary, fiscal '25 was transformative. We delivered record financial results, scaled both our credit and real estate platforms, and further strengthened our balance sheet. We also launched Monomoy Construction Services and forged strategic partnerships that position us for continued growth. We enter fiscal '26 with strong momentum, a solid balance sheet and confidence in our ability to deliver sustained long-term value to our shareholders. With that, I'll turn it over to Keri.

Thank you, Jason. I will provide a brief overview of the quarter and of course, welcome all of you to review our filings in greater detail or reach out to our team with any questions. Fiscal fourth quarter revenue was $5.6 million compared to $8.9 million for the prior year period. Revenue in the prior year period benefited from Monomoy BTS' first build-to-suit property sale, which generated approximately $6.6 million.

Excluding this sale, revenue growth over the prior year period was over 140% or $3.3 million, primarily driven by record management incentive fees paid by GECC and revenue contributed from MCS launched in February of this year.

AUM and fee-paying AUM totaled approximately $759 million and $553 million, up 4% and 5%, respectively, from the prior year quarter end. Great Elm Group generated net income from continuing operations of $15.7 million for the quarter as compared to net loss from continuing operations of $0.6 million for the prior year period. The increase in net income was primarily driven by the unrealized gains on GEG's CoreWeave-related investment that Jason previously reviewed as well as strong GECC investment performance. Adjusted EBITDA for the quarter was $1.5 million compared to $1.2 million in the prior year period.

As of June 30, we had approximately $31 million of cash on our balance sheet to deploy across our growing alternative asset management platform. Please refer to slide 6 that provides an overview of our financial position and highlights our book value per share of approximately $2.65, more than a 24% increase from March 31, 2025.

As Jason mentioned previously, incorporating the two share issuances in July and August, book value per share as of June 30 is $2.58 per share and cash exceeds $40 million on a pro forma basis. This concludes my financial review of the quarter. With that, we will turn the call over to the operator to open for questions.

(Operator Instructions) Mr. Reese, there are no questions at this time. I'll turn the floor back to you for any final comments.

Thank you again for joining us today. Fiscal '25 was a landmark year for Great Elm with continued growth across all facets of our businesses, and we have positioned the company to drive growth in fiscal '26 and beyond. We look forward to keeping you updated on our progress. Thank you for your time and continued support.

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.