Great Elm Group Reports Fiscal 2023 Third Quarter Financial Results
Company to Host Conference Call at 9:00 a.m., ET Today
WALTHAM, Mass., May 05, 2023 (GLOBE NEWSWIRE) — Great Elm Group, Inc. (“we,” “our,” “GEG,” “Great Elm,” or “the Company”), (NASDAQ: GEG), an alternative asset manager, today announced financial results for its fiscal third quarter ended March 31, 2023.
Leadership Update and Transactions Overview
- Today, we announced the following leadership change as detailed in our separate press release:
- The Board of GEG appointed Jason Reese, the Executive Chairman of GEG’s Board of Directors since 2020, to the additional role of Chief Executive Officer, effective immediately following Mr. Reed’s resignation.
- Peter Reed resigned as GEG’s Chief Executive Officer, effective immediately following the filing of GEG’s Form 10-Q for the fiscal quarter ended March 31, 2023.
- On January 3, 2023, GEG sold its Durable Medical Equipment (“DME”) business for $80 million. After settling all obligations, the transaction resulted in approximately $26 million in net cash proceeds and 346,028 shares of Quipt Home Medical Corp. (“Quipt”) common stock.
- On January 17, 2023, GEG exercised a put right for the remaining 19% of the equity interests in Forest Investments, Inc. (“Forest”), following its sale of 61% of the equity interests in Forest on December 30, 2022, resulting in combined cash proceeds from the Forest sales of approximately $45 million.
- As of March 31, 2023, GEG had over $84 million of cash and cash equivalents on its balance sheet to deploy across its growing alternative asset management platform.
Financial and Operational Highlights
- Assets under management totaled $630.7 million as of March 31, 2023, representing approximately 2% sequential growth from December 31, 2022, and up approximately 4% fiscal year-to-date.
- Fee paying assets under management totaled $438.3 million as of March 31, 2023, approximately unchanged from December 31, 2022, and up approximately 7% fiscal year-to-date.
- GEG total revenue grew for the third quarter by 92% to $1.9 million, compared to $1.0 million for the same period in the prior year, primarily attributable to the acquisition of the management agreement for Monomoy Properties REIT, LLC and its subsidiaries (collectively, “Monomoy REIT”).
- GEG reported net loss from continuing operations for the third quarter of $0.5 million, compared to a net loss from continuing operations of $6.5 million in the prior-year period, primarily driven by improved net realized and unrealized gains on investments.
- GEG recorded Adjusted EBITDA of ($1.2) million for the third quarter, compared to an Adjusted EBITDA of ($1.6) million from the same period in the prior fiscal year.
Management Commentary
Jason Reese, Chief Executive Officer of the Company, stated, “In the third quarter of fiscal 2023, we completed the transformation of Great Elm Group to a simplified business focused on alternative asset management. During the quarter, we developed actionable plans to scale our existing businesses and cultivated a pipeline of potential investments, including opportunities to acquire the management rights to new, long-duration permanent capital vehicles. We remain committed in our efforts to grow a scalable and diversified portfolio of long-duration and permanent capital vehicles across credit, real estate, specialty finance and other alternative strategies.”
Discussion of Financial Results for the Fiscal Quarter ended March 31, 2023
During the three months ended March 31, 2023, GEG reported total revenue of $1.9 million, a 92% increase compared to $1.0 million during the same period in the prior year. The increase primarily related to the May 2022 acquisition of the Monomoy REIT management agreement.
During the three months ended March 31, 2023, GEG recorded a net loss from continuing operations of $0.5 million, compared to a net loss from continuing operations of $6.5 million during the same period in the prior year. The change was driven by $2.0 million in net realized and unrealized gain on investments in the third quarter of fiscal 2023 compared to a net realized and unrealized loss on investments of $3.5 million in the prior-year quarter. The gain was partially offset by higher investment management expenses from the prior-year period.
During the three months ended March 31, 2023, GEG recorded Adjusted EBITDA of ($1.2) million, compared to Adjusted EBITDA of ($1.6) million from the same period in the prior year.
Sale of DME Business
On January 3, 2023, GEG sold its DME business to QHM Holdings, Inc., a wholly-owned subsidiary of Quipt, a U.S.-based leader in the home medical equipment industry, focused on end-to-end respiratory care. After payment of all obligations in connection with the transaction, GEG received approximately $26 million in net cash proceeds and 346,028 shares of Quipt common stock.
Sale of Interest in Forest
On January 17, 2023, GEG put its remaining 19% ownership interest in Forest to J.P. Morgan Broker-Dealer Holdings Inc. (“JPM”) for cash proceeds of approximately $27 million. This transaction followed its December 30, 2022 sale of 61% of the direct and indirect common equity in Forest to JPM for approximately $18 million in cash. GEG raised approximately $45 million in aggregate from the combined sales of its ownership interest in Forest in the second and third quarters of fiscal 2023.
The sale of the DME Business, together with the Forest transaction, added significant cash to GEG’s balance sheet to fund strategic growth initiatives and enables it to focus on scaling its alternative asset management platform.
Fiscal 2023 Third Quarter Conference Call & Webcast Information
| When: | Friday, May 5, 2023, 9:00 a.m. Eastern Time (ET) |
| Call: | All interested parties are invited to participate in the conference call by dialing +1 (888) 440-4537; international callers should dial +1 (646) 960-0669. Participants should enter the Conference ID 2595129 when asked. |
| Webcast: | The conference call will be webcast simultaneously and can be accessed at the following link: https://events.q4inc.com/attendee/141685606. For a copy of the slide presentation accompanying the conference call, please visit: https://www.greatelmgroup.com/events-and-presentations. |
About Great Elm Group, Inc.
Great Elm Group, Inc. (NASDAQ: GEG) is a publicly-traded, alternative asset manager focused on growing a scalable and diversified portfolio of long-duration and permanent capital vehicles across credit, real estate, specialty finance, and other alternative strategies. Great Elm Group, Inc. and its subsidiaries currently manage Great Elm Capital Corp., a publicly-traded business development company, and Monomoy Properties REIT, LLC, an industrial-focused real estate investment trust, in addition to other investments. Great Elm Group, Inc.’s website can be found at www.greatelmgroup.com.
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
Statements in this press release that are “forward-looking” statements, including statements regarding expected growth, profitability, acquisition opportunities and outlook involve risks and uncertainties that may individually or collectively impact the matters described herein. Investors are cautioned not to place undue reliance on any such forward-looking statements, which speak only as of the date they are made and represent Great Elm’s assumptions and expectations in light of currently available information. These statements involve risks, variables and uncertainties, and Great Elm’s actual performance results may differ from those projected, and any such differences may be material. For information on certain factors that could cause actual events or results to differ materially from Great Elm’s expectations, please see Great Elm’s filings with the Securities and Exchange Commission (“SEC”), including its most recent annual report on Form 10-K and subsequent reports on Forms 10-Q and 8-K. Additional information relating to Great Elm’s financial position and results of operations is also contained in Great Elm’s annual and quarterly reports filed with the SEC and available for download at its website www.greatelmgroup.com or at the SEC website www.sec.gov.
Non-GAAP Financial Measures
The SEC has adopted rules to regulate the use in filings with the SEC, and in public disclosures, of financial measures that are not in accordance with US GAAP, such as adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”). Adjusted EBITDA is derived from methodologies other than in accordance with US GAAP. Great Elm believes that Adjusted EBITDA is an important measure for investors to use in evaluating Great Elm’s businesses. In addition, Great Elm’s management reviews Adjusted EBITDA as they evaluate acquisition opportunities.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it either in isolation from, or as a substitute for, analyzing Great Elm’s results as reported under US GAAP. Non-GAAP financial measures reported by Great Elm may not be comparable to similarly titled amounts reported by other companies.
Included in the financial tables below is a reconciliation of Adjusted EBITDA to the most directly comparable US GAAP financial measure, net income.
Media & Investor Contact:
Investor Relations
geginvestorrelations@greatelmcap.com
Great Elm Group, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
Dollar amounts in thousands (except per share data)
| ASSETS | March 31, 2023 | June 30, 2022 | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 84,118 | $ | 22,281 | ||||
| Receivables from managed funds | 2,421 | 2,445 | ||||||
| Investments, at fair value (cost $41,079 and $68,766, respectively) | 35,104 | 48,042 | ||||||
| Prepaid and other current assets | 946 | 665 | ||||||
| Assets of Consolidated Fund: | ||||||||
| Investments, at fair value (cost $2,432) | – | 1,797 | ||||||
| Prepaid expenses | – | 746 | ||||||
| Real estate under development | 1,683 | – | ||||||
| Current assets held for sale | – | 8,464 | ||||||
| Total current assets | 124,272 | 84,440 | ||||||
| Identifiable intangible assets, net | 12,391 | 13,250 | ||||||
| Right of use assets | 582 | 733 | ||||||
| Other assets | 137 | 103 | ||||||
| Non-current assets held for sale | – | 69,561 | ||||||
| Total assets | $ | 137,382 | $ | 168,087 | ||||
| LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 307 | $ | 8 | ||||
| Accrued expenses and other liabilities | 4,122 | 3,845 | ||||||
| Current portion of related party payables | 855 | 486 | ||||||
| Current portion of lease liabilities | 347 | 341 | ||||||
| Liabilities of Consolidated Fund – accrued expenses and other | – | 11 | ||||||
| Current liabilities held for sale | – | 15,003 | ||||||
| Total current liabilities | 5,631 | 19,694 | ||||||
| Lease liabilities, net of current portion | 245 | 472 | ||||||
| Long term debt (face value $26,945) | 25,737 | 25,532 | ||||||
| Related party payables | 445 | 1,120 | ||||||
| Related party notes payable, net of current portion | – | 6,270 | ||||||
| Convertible notes (face value $36,987 and $36,085, including $15,019 and $15,133 held by related parties, respectively) | 36,176 | 35,187 | ||||||
| Redeemable preferred stock of subsidiaries (held by related parties, face value $35,010) | – | 34,099 | ||||||
| Other liabilities | 691 | 908 | ||||||
| Non-current liabilities held for sale | – | 2,551 | ||||||
| Total liabilities | 68,925 | 125,833 | ||||||
| Contingently redeemable non-controlling interest | – | 2,225 | ||||||
| Stockholders’ equity | ||||||||
| Preferred stock, $0.001 par value; 5,000,000 authorized and zero outstanding | – | – | ||||||
| Common stock, $0.001 par value; 350,000,000 shares authorized and 30,598,911 shares issued and 29,146,053 outstanding at March 31, 2023; and 28,932,444 shares issued and 28,507,490 outstanding at June 30, 2022 | 29 | 29 | ||||||
| Additional paid-in-capital | 3,314,737 | 3,312,763 | ||||||
| Accumulated deficit | (3,246,309 | ) | (3,279,296 | ) | ||||
| Total Great Elm Group, Inc. stockholders’ equity | 68,457 | 33,496 | ||||||
| Non-controlling interest | – | 6,533 | ||||||
| Total stockholders’ equity | 68,457 | 40,029 | ||||||
| Total liabilities, non-controlling interest and stockholders’ equity | $ | 137,382 | $ | 168,087 | ||||
Great Elm Group, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Amounts in thousands (except per share data)
| For the three months ended March 31, | For the nine months ended March 31, | ||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||
| Revenues | $ | 1,898 | $ | 988 | $ | 5,637 | $ | 2,992 | |||||||||||
| Operating costs and expenses: | |||||||||||||||||||
| Investment management expenses | 2,593 | 1,592 | 6,893 | 4,748 | |||||||||||||||
| Depreciation and amortization | 281 | 89 | 870 | 307 | |||||||||||||||
| Selling, general and administrative | 1,893 | 1,582 | 5,441 | 4,620 | |||||||||||||||
| Expenses of Consolidated Fund | – | 42 | 46 | 139 | |||||||||||||||
| Total operating costs and expenses | 4,767 | 3,305 | 13,250 | 9,814 | |||||||||||||||
| Operating loss | (2,869 | ) | (2,317 | ) | (7,613 | ) | (6,822 | ) | |||||||||||
| Dividends and interest income | 1,520 | 642 | 4,432 | 1,939 | |||||||||||||||
| Net realized and unrealized gain (loss) on investments | 1,989 | (3,220 | ) | 17,434 | (5,055 | ) | |||||||||||||
| Net realized and unrealized loss on investments of Consolidated Fund | – | (284 | ) | (16 | ) | (279 | ) | ||||||||||||
| Gain on sale of controlling interest in subsidiary | – | – | 10,524 | – | |||||||||||||||
| Interest expense | (1,095 | ) | (1,286 | ) | (5,024 | ) | (3,872 | ) | |||||||||||
| (Loss) income before income taxes from continuing operations | (455 | ) | (6,465 | ) | 19,737 | (14,089 | ) | ||||||||||||
| Income tax (expense) benefit | – | (2 | ) | (2 | ) | 83 | |||||||||||||
| Net (loss) income from continuing operations | (455 | ) | (6,467 | ) | 19,735 | (14,006 | ) | ||||||||||||
| Discontinued operations: | |||||||||||||||||||
| Net income from discontinued operations | 12,203 | 332 | 13,202 | 3,818 | |||||||||||||||
| Net income (loss) | $ | 11,748 | $ | (6,135 | ) | $ | 32,937 | $ | (10,188 | ) | |||||||||
| Less: net income (loss) attributable to non-controlling interest, continuing operations | – | 1,146 | (1,554 | ) | 913 | ||||||||||||||
| Less: net (loss) income attributable to non-controlling interest, discontinued operations | – | (1,372 | ) | 1,504 | (754 | ) | |||||||||||||
| Net income (loss) attributable to Great Elm Group, Inc. | $ | 11,748 | $ | (5,909 | ) | $ | 32,987 | $ | (10,347 | ) | |||||||||
| Basic income (loss) per share from: | |||||||||||||||||||
| Continuing operations | $ | (0.02 | ) | $ | (0.28 | ) | $ | 0.74 | $ | (0.55 | ) | ||||||||
| Discontinued operations | 0.42 | 0.06 | 0.41 | 0.17 | |||||||||||||||
| Basic net income (loss) per share | $ | 0.40 | $ | (0.22 | ) | $ | 1.15 | $ | (0.38 | ) | |||||||||
| Diluted income (loss) per share from: | |||||||||||||||||||
| Continuing operations | $ | (0.02 | ) | $ | (0.28 | ) | $ | 0.56 | $ | (0.55 | ) | ||||||||
| Discontinued operations | 0.42 | 0.06 | 0.29 | 0.17 | |||||||||||||||
| Diluted net income (loss) per share | $ | 0.40 | $ | (0.22 | ) | $ | 0.85 | $ | (0.38 | ) | |||||||||
| Weighted average shares outstanding | |||||||||||||||||||
| Basic | 28,997 | 26,842 | 28,779 | 26,963 | |||||||||||||||
| Diluted | 28,997 | 26,842 | 40,673 | 26,963 | |||||||||||||||
Great Elm Group, Inc.
Reconciliation from EBITDA to Adjusted EBITDA – Quarterly
Dollar amounts in thousands
| For the three months ended March 31, | For the nine months ended March 31, | ||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||
| Net income (loss) from continuing operations – GAAP | $ | (455 | ) | $ | (6,467 | ) | $ | 19,735 | $ | (14,006 | ) | ||||||
| Interest Expense | 1,095 | 1,286 | 5,024 | 3,872 | |||||||||||||
| Dividend income on investments | (941 | ) | (642 | ) | (3,672 | ) | (1,939 | ) | |||||||||
| Income tax expense (benefit) | – | 2 | 2 | (83 | ) | ||||||||||||
| Depreciation and amortization | 281 | 89 | 870 | 307 | |||||||||||||
| Non-cash compensation | 660 | 578 | 2,246 | 2,572 | |||||||||||||
| (Gain) loss on investments, excluding investment in Forest | (1,964 | ) | 3,504 | 6,980 | 5,334 | ||||||||||||
| Gains related to sale of Forest | (25 | ) | – | (34,922 | ) | – | |||||||||||
| Transaction and integration related costs(1) | – | 92 | 471 | 311 | |||||||||||||
| Change in contingent consideration | 120 | – | 180 | – | |||||||||||||
| Adjusted EBITDA | $ | (1,229 | ) | $ | (1,558 | ) | $ | (3,086 | ) | $ | (3,632 | ) | |||||
(1) Transaction and integration related costs include costs to sell, acquire and integrate acquired businesses.
