Q3 2024 Great Elm Group Inc Earnings Call

Participants

Adam Yates; MD; Great Elm Group Inc

Jason Reese; Chairman of the Board, Chief Executive Officer; Great Elm Group Inc

Keri Davis; Chief Financial Officer, Chief Accounting Officer; Great Elm Group Inc

Presentation

Operator

Thank you for standing by. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Great Elm Group's fiscal third quarter 2024 earnings conference call. (Operator Instructions)
I would now like to turn the call over to Adam Yates, Managing Director. Please go ahead.

Adam Yates

Hello, everyone. Thank you for joining us for Great Elm Group's fiscal third quarter 2024 earnings conference call. As a reminder, this conference call is being recorded on Thursday, May 9, 2024. If you would like to be added to our distribution list. You can email GEG Investor Relations at Great Elm cap.com, where 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 site under Financial Info and select SEC filings.
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

Welcome, everyone, and thank you for joining us today. For discussing third quarter results, I want to highlight several milestone achievements in our alternative credit and real estate platform businesses where we're growing assets and driving increased profitability.
First Elm’s BDC Great Elm Capital Corp., accomplished two capital raising initiatives. In February, GECC raised $24 million of equity capital at net asset value from an SPV. GEG supporting this capital raised by investing $6 million in conjunction with an institutional investors $18 million investment in a special purpose vehicle, which includes invested $24 million of new GECC common shares.
We are working with our SPV partner to broaden their relationship with Great Elm, which we believe will provide strategic benefits over time for both parties. As I've noted before, accomplishing this capital raise at NAV was a huge success for Great Elm Group and clear evidence of our commitment to further scale GECC. In April, GECC completed an underwritten public offering of $34.5 million of five-year notes at a more than 50 basis points spread improvement as compared to GECC's August 2023 note issuance.
Overall, these actions have resulted in our BDC raising nearly $60 million of fresh capital contributing to significant growth in our assets under management. Importantly, these capital raises increased GEG's basis for earning fees from GECC and enable us to receive both significant recurring asset management fee revenue as well as potential incentive fee revenue on this incremental capital.
Further, the innovative investment structure embedded in this transaction, specifically utilizing an SPV to purchase equity in the BDC also provides us with a template for future capital raising endeavors and investment opportunities. It should be noted that the financial accounting rules have guided us to mark our $6 million investment in the SPV to material lesser value.
This unrealized loss is the source of the vast majority of our net loss this quarter. We believe this unrealized loss is temporary and will reverse over time as the SPV receives distributions from the BDC. Subsequent to quarter end, our real estate platform business Monomoy BTS signed a contract to sell its first built-to-suit property.
This sale is expected to close in the fiscal fourth quarter and will create value for our shareholders. We believe the Monomoy BTS will be able to generate additional shareholder value over time through our anticipated sale of our second build-to-suit property in the fiscal first quarter of 2025 and by executing on our considerable BTS pipeline.
Also in April in response to tenant demand we launched Monomoy BTS construction management, a consulting business that allows our customers to leverage our seasoned team to oversee in-house construction projects to owner representative services. This new business provides an accretive revenue stream to Great Elm without adding significantly to our operating costs.
We are encouraged by the initial demand and growth opportunities for this new venture. In addition to these key strategic developments, Great Elm Group had a solid fiscal third quarter of 2024. We continue to grow our fee-paying assets under management on both the sequential quarter and year over year basis, including the net proceeds from GECC's April capital raising initiatives, fee-paying AUM, and AUM increased 19% and 14% from the prior year quarter, respectively.
We generated total revenues of $2.8 million, a 47% increase from the prior year period and adjusted EBITDA of $1.2 million compared to an adjusted EBITDA loss of $0.3 million for the prior year period. We ended the quarter with nearly $70 million in cash and marketable securities to deploy across our growing alternative asset management platform.
Moving to our two anchor fee-paying vehicles, GECC and Monomoy, we have increased AUM and sustained fee revenue across both platforms. We are pleased with the continued performance of both during the quarter and seek to further accelerate the momentum at these key businesses.
GECC had another strong quarter with NII exceeding the regular quarterly dividend. GECC will pay a $700,000 of incentive fees to GEG the fourth consecutive quarter incentive fees, bringing GEG's cash incentive fees from GECC to approximately $3.7 million over the last 12 months. Total fees earned by GEG from GECC in the quarter were $1.6 million.
GECC remains well positioned to continue delivering fee revenues to GEG on the back of its capital raising initiatives successful portfolio repositioning and the recent expansion into CLO product. Combined, these initiatives should drive increased fee revenue as the BDC continues to grow and perform.
Monomoy REIT also continues to make significant progress calendar year to date to redeployed $11.6 million of capital to acquire six properties with in-place leases, amending two existing tenant leases for meaningful term extensions and expansion projects and execute a renewal options at six properties with key tenants.
Lastly, Monomoy we successfully refinanced a sizable debt facility without any material impact these annual debt service and freed up an additional $10 million of capital for portfolio growth. As referenced earlier, our build-to-suit business continues to make meaningful progress on its two construction projects in Florida and Mississippi.
With inaugural to BTS projects nearing completion, we have developed a considerable pipeline of future BTS project. We're extremely encouraged by Great Elm's future growth. BTS and construction management and its potential for creating shareholder value in fiscal 2025 and beyond.
I'd like to conclude my comments by tying back to the three for driving goals we've consistently outlined in prior quarters. Enhance our fiscal performance, expand our platform and grow our AUM. I am extremely pleased with our continued progress towards these goals. Our accomplishments underscore our commitment to reposition Great Elm in the alternative asset management space by growing our core businesses and adding accretive products.
Additionally, we continue to actively evaluate multiple strategic initiatives. Moving ahead, we remain steadfast in pursuing opportunities to expand our businesses and allocate capital to promising new platform opportunities offering attractive risk-adjusted returns. We remain very excited to the future Great Elm.
With that, I'll turn it over to Keri.

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 in greater detail or reach out to our team with any questions.
Fiscal third quarter revenues grew by 47% year over year to $2.8 million, driven by income fee-paying assets under management related to GECC and Monomoy in recognition of incentive fees from GECC for the fourth consecutive quarter, generating approximately $0.7 million during the fiscal third quarter. AUM of $688 million as of March 31, was up 5% from the prior quarter and up 9% from the prior year quarter end.
While fee-paying AUM grew to $493 million, up 7% quarter to date and up 13% from the prior year quarter end, inclusive of the net proceeds from GECC April capital raising initiatives. AUM was $716 million, up 9% from December 31, and 14% from the prior year quarter end and fee-paying AUM was $521 million, up 13% from December 31, and 19% from prior year quarter end.
Great Elm Group generated a net loss from continuing operations of $2.9 million for the quarter as compared to $0.5 million for the prior year period. As previously mentioned, this quarter's loss was primarily due to unrealized loss of Great Elm's investment and Great Elm strategic partnership.
Adjusted EBITDA for the quarter was $1.2 million compared to an adjusted EBITDA loss of $0.3 million in the prior year period. As of March 31, we had approximately $69 million of combined cash and marketable securities 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 $2.15. This concludes my financial review of the quarter.
With that, we will turn the call over to the operator to open up for questions.

Question and Answer Session

Operator

(Operator Instructions)
It seems that we don't have any questions from the line. I will now turn the conference back over to Jason Reese, CEO for the closing remarks.

Jason Reese

Thank you again for joining us today. We remain extremely excited about Great Elm's future and look forward to speaking with you.

Operator

Thank you. That concludes today's conference call. Thank you all for joining. You may now.