GECC - Earnings call transcript Q1 2022

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Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Great Elm Capital Corp.

First Quarter 2022 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Garrett Edson of ICR. begin. please Sir,

Garrett Edson

thank Elm and call. for us joining Good Corp.'s you, first Great Capital conference quarter for morning, everyone, XXXX earnings

conference that to Executive for morning Capital visit this obtain is of forward-looking To Hosting Today's visit Matt I that also or not law. can If to website Financial your securities. from you our the does that or Great website, now call call. by be Officer. customary of required Matt. our nothing be Information, On you SEC filings Results. you call our an I'd accompanying cause website, for will information. projections, to call today's call over our call important statements Quarterly to and and like Capital on Great in SEC Kaplan, Great under projections. unless release Capital posted would to list, to filings, copies safe Corp.'s found please forward-looking Elm SEC under constitutes on I'd distribution solicitation turn these update filings. Corp.'s offers that website offer attention materially website. with Chief find note undertake to alerts added directly Corp.'s SEC please website regarding can can the the Corp. presentation Capital can Information, on Slide the you Elm earnings to investorrelations@greatelmcap.com the SEC's Financial results actual note presentation www.greatelmcc.com. to purchase our refer statements our Also, Elm could today's you to sign a slide up harbor sell we like filings forward-looking ask statement differ factors includes e-mail Elm and like Great to or our

Matt Kaplan

for take us and for us Officer; call, CFO, Keri today. and On quarter will highlights answer our I'll Davis, join quarter. morning, President Kleinman, of Chief for We'll and will our our Keller, some Specialty Great financials Finance, through joining to open first questions. Adam thank the of Compliance today's Q&A Elm through us up Mike you some Good walk and then

two ensure months to legacy largely taken behind issues Over have success. and certain the future the actions CEO, seek as company I our past us to position to for are

our remaining first we once quarter, our reversal excluding again strategy these portfolio over quarter excited clean net legacy prior from the NII, Also, fees, about at value past the in Despite the Board a of I'm of Looking was through below achieve declined can asset we legacy saw as Directors time. portfolio. we expect headwinds, our what from items. with work incentive support refreshed

to the needed also We will offering is support pending our that believe provide successfully our capital growth. completed, rights

incentive of This NII. fees benefited quarter, waiver the past

Going on strategy. intend our core operational March, new GECC, our aligned grow On we transform forward, beginning that with were strategy. we objectives to last out with three our our called NII to in by in executing concert call

to constitute finance of companies, direct as in finance The specialty investments half participation. specialty allocation first well portfolio GECC's increase in to the was to through as

maintain and performing on investments. to diversified Secondly, yielding portfolio high-quality, cash a focused

we use this have If I and Group XXX% and from point indicated executing the their our and and grow is been we the capital. has raising final highlight the in morning, that raising increase pursue certain statement capital offering. $XX.X intend debt before To to the to forth subscription affiliates and participation. the Great intend into for I offering $XX.XX they one-for-one and rights to pipeline a an diving to or rights GECC. would our offering that end, by rights to like share that at On exercise oversubscribed that Finally, making scale report assuming proceeds robust team progress. equity that up filed registration pleased Elm amended per to our to strategy quarter, completed, am set million, we

by as GECC, strategic Board Chad the with Great incentive successful also the take part non-independent continues the be our other negotiating directors to In appointment of first Drapkin past quarter, I two items. Matthew Richard Group we to Board shareholder-friendly the with weigh Perry, fees in declining With Moving compensated refreshed of Cohen. to Elm of was to reset. and actions. the Board

which to quarter, As fees and in per NAV were able incentive additional by benefited we accrued previously of over a an NII result, the $X reverse million first $X.X share.

of portfolio, our working reorg investments our million, also restructuring. value debt assets Tru we and Credit, recent largely solutions Avanti-related approximately businesses with continued between investment. of comprise acquired monetize securities our typically our $XX of Sterling sales investments and March write-down in XX, specialty X% Crucially, X% finance fair Commercial Taj million portfolio. legacy of in NAV only the now XX% or million. below saw with further a quarter, investments provides and the $X positions the are In Entering terms that comprised Avanti's as CPK of finance Avanti $X by to first Furthering equity short-term legacy of asset-based specialty quarter to the legacy and leading XXXX asset-based we and opportunities annual driven related of ended such our At our now February, of strategy lender second we capital in assets. cash-generating a to loans small increase

in total During we the XX% specialty finance-related the dollars deployed quarter, into deployed million $XX of period. or investments

of one-third up approximately one enabling significant on investments, at XX% result, us to make are key finance-related our a progress from specialty March objectives. of year-end our now of composed XXXX, end of the assets at As

small investments. sourcing credit the investments equity These focused private think bespoke income to a to Lenders in to is companies, understand within are strategic Sterling, in investments On including of we proprietary these for Combined, for equities a specialty the unique specialty Funding I businesses. investors GECC. just offer our Prestige of finance credit businesses finance it very companies that front, American not are generating investments important finance create are and specialty engine shop solutions on one-stop growing passive

Over I these Mike dive begun businesses have industry into to two veteran the Keller. months, with past

practices improvement driving are on platform. across We and the best operational laser-focused

We various are implementing and initiatives various KPIs. optimize to businesses these across streamline, monitor

a building value improve on interest early funding grow we increase and grow drive as of at look the of the To I've flexibility days, our still will While in targets. returns portfolios and cost only equity. for the helm value, been to margins, expand we process of long-term book are net loan months, capital, out businesses, these of couple

the some Turning of back to numbers. financial

reversal quarter million NII previously of per share, fees. or the which was For first XXXX, of inclusive $X.X approximately million is the accrued incentive of $X $X.XX

NII the Excluding have been reversal, per about million $X.X or would $X.XX share.

and to goal Our basis. cover on distribution our investment portfolio ahead income in our quarterly a the grow our is to quarters regular

of to our stood offering, would XXX% complete net As the at successfully are our positively threshold. just ratio. we ratio announced XX, asset March rights is asset able our coverage If XXX.X%, which coverage below the impact proceeds

by made. GECC, we're challenging not environment macro encouraged are we transforming remains progress have the the and we done While

Keri any performance and and our remain to brought quarter on that, like strong With together discuss hand address our further XXXX challenges I'd the our repositioned confident in head to first helm a have team's add to our over on. to We transformation color team portfolio. to ability call

Keri Davis

I'll accompanying Matt. review all over but go release, for highlights, Thanks, our to invite of and SEC our I filings financial you press detail. presentation greater

yield repositioning GECC profile. step to noted, of was an XXXX the in book first quarter portfolio first our important Matt As a diversified into stable a with reshaping

Net as reduction our of down reversal decrease positively quarter, XX, The result positively $XX.X recent first GECC XX in impacted as NII March previously $X of million of of quarter debt by the incentive waiver the million was $X.X from impacted were $XX.X by largely investments, of $X.X quarter XXXX a Avanti prior million fourth March of XXXX. driven fees. million Current of while versus XXXX. $X.X year in was a $X.X million was December XX accrued Avanti's quarter fourth fees, fair of $XX.X value and million, the NII During million which process. the the in of generated quarter and at million restructuring by the assets was such

share share the as can per XX, per XXXX, $XX.XX March as split from on $XX.XX, and adjusted Our in found be XXXX, Details asset March end presentation. February for value of share net the NAV down XX, $XX.XX was quarter of Slide of as in as of quarter-over-quarter investor change reverse per XXXX. the X stock our prior for

GECC's XX, ratio March XXXX, to XX, XXXX. of compared as December As XXX.X% [XXX.X%] was approximately coverage of asset

NII was in prior $X.XX on weighted share XX, adjusted share the All for effective February the stock per XXXX. per a Our $X.XX asset for reported quarter. prior have average net in decline per coverage that the on share been of to that per amounts value quarter. the of to reverse first was in loss ratio a in X-for-X compared net share split by the are $X.XX became shares impacted GECC quarter compared based loss quarter. fair the $X.XX

line As XXXX, with $XX of undrawn. December March our remains comparable million and XX, our XX, approximately of was total debt $XXX.X outstanding credit million fully

cash XXXX, U.S. of million, was approximately Bills. of our exclusive XX, balance in Treasury As holdings March $X.X

June approved per Board has of share for that two $X.XX Directors authorized quarter our upcoming ending quarterly distribution We XXXX. XX, of Board distribution. the Our previously has announced Directors a

The distribution on XX of will second to XX. quarter be of June as stockholders payable June record

distribution distribution $XX.XX over quarter, has XX% be Directors dates the on of the price a call X, Matt a to Directors. XXXX. are share our review per yield on to Annualized, ending the a March September third portfolio. XXXX, authority I'll pursuant equates closing granted NAV yield also and for the cash the of our for market XX, $X.XX distribution on turn back approved record and share to The XX, by quarter $XX.XX XX.X% share. per dividend payment expected Board Our per Board set in to the dividend May of to of XXXX,

Matt Kaplan

Keri. Thanks,

dividends This which to nonaccrual paying equity pay and debt Slide X, only income-generating If cash noncash our excludes includes investments. you all show carry turn or or coupons investments portfolio. cash and

generating income as and I focused ago profile. like improvement less paying our is from our noted XX% today. here performing earlier, XX% of What transitioning our I yield one on investments year As This I is would stable that, portfolio been book quarter become we of a just on with significant cash out than a point is have call, XX% to to last ago. a mentioned diversified portfolio

on Moving to Slide XX.

maturity You are in of XX% approximately floating a average investments, invested rate are million and $XXX XX% current yield of the instruments weighted approximately see of with in XX% debt can average invested of average years. instruments our weighted for It yield with weighted is important fixed X.X is around current only portfolio, a rate fixed debt that note XX.X%. to rate the

while rate to income-generating GECC finance of investments the Specialty our from like floating XX mix of lower our to up should other be highlight across rate XX I'd are we the BDCs, our comprise than fixed benefit quarter, environment. investments, duration and XX, diversification driven a our rate invested ability rising may in of now So acquisition total industries. prior short GECC's XX% afford believe portfolio back and Flipping to the Slides our as relatively from Sterling. industry separate XX% largely is by largest portfolio

portfolio leveraged largely potential we invested Ultimately, the and finance further credit balanced in the our syndicated specialty creating finance can of expect than credit a these We progressing offer as greater portfolio credit uncorrelated from investments. broader are capital investments are and to relatively unique leverage specialty markets. traditional on returns growth

on continuum, returns credit on We specialty types, economic via across subordinated Lenders time. By our small lending continuum regrow laid and companies its lending a of of that a business creating to our the As customers are of GECC the platform participation different finance offer to offering we and debt, number prior groundwork interest, notable investment any Funding, to including one-stop attractive call, expect and midst cycle. risk-adjusted we generate in are noted our Sterling Prestige shop period and we of the a hold partnered solutions in and longer for of portfolio clients we can examples multiple debt equity solution utilize secured transactions. majority with existing in

or will are if management, term example, a financing working and of loan business that a company client million both. position ABL funding For for continuum lenders' ABL our financing illustrates our directly with U.S. possibly component completed, secured portion in secured holistic would provide was be our fit and sub-$XXX how be or an by held may this through business. held financial transaction strengthen relationships of our monitor cash the cash-generating its proprietary servicing can originations the for currently various investments. for for revenue both lending deploying solution by a GECC In GECC relationship drive performance robust through This deal Sterling on and capabilities. industry platforms. and into to to we higher-yielding deep diversify a by investments we capital in The which, continue and close of incorporate paying sourced summary, solution our actively loan portfolio

that, excited Operator? We improvements specialty finance for the we make optimistic we building call of turn about will the to foundation about are we to the the our as a both. as platform future questions. are With and significant over portfolio operator

Operator

from or from Our Instructions] Greenwich. comment first question [Operator Brian of line Alexitch comes the

open. is line Your

Brian Alexitch

Good morning .

question quick coverage. a on Just dividend

'XX, two has for dividend even investment at big quarters. you and away? first quarter the net next reversal you As the two have the pretty trend cover the to be to coverage between the and 'XX accrued short declared income in fallen quarter would speak looking reversal of Can well of fees of quarter because to far fourth been kind dividend of this looks pretty need quarter, NII incentive a would the $X.XX that

Matt Kaplan

something note question, On of have is, dividend fee that benefit to is therefore, and for to incentive distribute. the NII it that our for coverage Brian. the will year, we Thanks does the important the reversal

reposition year, will believe our portfolio year, operationally we over our into NII that our cover the we dividend. So then as higher-yielding will we approximately or the assets. going dividend forward grow for the And NII cover

I SPAC proceeds quarter. on monetized those and positions, two including legacy our call, Tru and of reorg Taj, in there, As the we amount are we equities noted CPK the to material positions, redeploy working

the is lag, we can the timing further finance, over but year. portfolio. get is proceeds and there allocate rights yield specialty as So our believe we And offering amount to goal the that generate ramp additional to some from we have

Brian Alexitch

have been is that required not expense component NII? quarters I The have retain of course was it. mean distributed. mean there Because, from back like getting I over reversal. Yes, several the been any the to mean out already. I had you manager it the Got I mean, several I that? like seems of money do NII that we're ability a essentially, paid think of where quarters over

Matt Kaplan

will with to if income? understand Are required of NII your distribute the you that just make to I So sure question. amount asking this year we reversal, be

Brian Alexitch

in you over Not distribute I'm too to? you essentially, exactly, I almost we're has mean quarters question -- it's but what and getting required are million. a over now where right, I find been like would required that's down the mean answer back that's interesting. just $X.X I it prior distributed, saying NII are to boils that to to

Matt Kaplan

you. Got

less we excise fee XX% of than company, year. reversal So of And we subject XX% incentive the the registered -- benefits investment distribute sorry, tax. a percent, then distribute the to over to If we're NII. course change the are our are as required income we and

be of amount to that is to going distributed. reversal So have

So we an a But say, an would would I this I what need be investment as going to to year, standpoint, over operational on our we're operationally, basis, all with are, distributing distributing. company we're we RIC. from to, maintain status agree

Brian Alexitch

I see.

on So up just that. following

-- all whatever and capital million distribution. back year no go way You of there that payments is kind to credit prior the current is It's like and anything for of $X.X over against in occurs adjust just all can't don't that essentially? out or -- it you

Matt Kaplan

speak additional to technical a to it can like that? be to that's to answer see. over but And Keri, before off-line. questions would turning you let's happy think question I I Keri,

Keri Davis

Yes.

out tax current into there's a might the requirements that calculations differences will credit lot them. that every years calculate year, factors standalone us take wash opportunity of year each We on for go book for if a tax course, prior So of basis. our we, the have any to tax assess in any year. in But

think our completed in XX-K. for disclosed question we I filing current that about also involved recent the offline. as most our not talk we probably But more a tax year could have it's

Brian Alexitch

Okay. And for Thanks That's that's the great. for taking all me. questions.

Operator

showing [Operator the closing in for turn queue Kaplan Instructions] like at you. Mr. any additional I'd I'm conference Matt no questions to the back over Thank time. remarks. to this

Matt Kaplan

we for about help today. follow-up. joining progress GECC, you. we with made thus Thank you dialogue. transform Thank know again us us the forward have if excited let to far I'm can to continued any we look investor and Please

Operator

participating for you thank gentlemen, today's program. conference. and This concludes in Ladies the

You wonderful may day. Everyone, now disconnect. have a

Great Elm Capital (GECC) 12 May 222022 Q1 Earnings call transcript