Great Elm Capital Group, Inc. (NASDAQ: GEC, “Great Elm”) announced
its financial results for the quarter ended December 31, 2019.
Great Elm will host a conference call and webcast on Monday,
February 10, 2020 at 8:00 a.m. Eastern Time to discuss its second
quarter 2020 financial results. Please see below for details.
Select highlights from the second quarter 2020
include:
- Operating Companies:
- For the three months ended December 31, 2019, $14.4 million of
revenue, $0.7 million of net loss and $3.5 million of adjusted
EBITDA1
- Invested heavily in people, processes and technology to enhance
our scalable infrastructure, capable of supporting multiple
acquisitions per year
- Management team has identified a large number of potential
acquisition targets with strong product fit
- Outlook for continued growth in fiscal year 2020 underpinned by
revenue growth in PAP category
- Investment Management:
- For the three months ended December 31, 2019, $0.9 million of
revenue, net income of $0.005 million and $0.3 million of adjusted
EBITDA
- For the six months ended December 31, 2019, $0.7 million of
adjusted EBITDA up 273% vs. $0.2 million during the same period in
the prior year
- For the three months ended December 31, 2019, management fees
of approximately $0.76 million roughly unchanged,
year-over-year
- Outlook for continued free cash flow growth in fiscal year 2020
based on an increase in management fee revenue
“At Great Elm DME, we are pleased with both the
sequential and year-over-year revenue growth. Profitability grew
meaningfully this quarter, as compared to the prior two quarters
during which we began significant infrastructure investments
necessary to enhance our scalable platform,” remarked Peter A.
Reed, Great Elm’s Chief Executive Officer. “Furthermore, we believe
our Investment Management business is poised for continued free
cash flow growth.”
Alignment of Interest
The employees of Great Elm and Great Elm Capital
Management, Inc. (“GECM”) collectively own approximately 2.0
million shares of GEC stock, representing approximately 8% of its
outstanding shares. Additionally, the directors of Great Elm
collectively own or manage greater than 11% of Great Elm’s shares.
Altogether, insiders collectively own or manage approximately 19%
of the company’s outstanding shares, which Great Elm believes
fosters a strong alignment of interest between employees, directors
and the company’s shareholders.
BUSINESS OVERVIEW
Great Elm is a diversified, publicly-traded
holding company that seeks to build long-term shareholder value
across three verticals: Operating Companies, Investment Management
and Real Estate.
Operating Companies
In the three months ended December 31, 2019, DME
generated $3.5 million of adjusted EBITDA. During the quarter, DME
experienced meaningful growth in major product categories.
Management anticipates continued growth in fiscal year 2020,
supported by encouraging key performance indicators, including
approximately 8.8% quarter-over-quarter growth in PAP supply
orders.
The team continues to pursue M&A
opportunities with complementary product profiles that increase
market penetration and extend existing geographic
markets.
Investment Management
In the three months ended December 31, 2019,
Investment Management generated $0.3 million of adjusted EBITDA1,
up approximately 53% year over year. In the six months ended
December 31, 2019, Investment Management generated $0.7 million of
adjusted EBITDA, also up significantly year over year. Adjusted
EBITDA growth was driven by a significant reduction in operating
expenses, as management continues to focus on operational
efficiency.
Great Elm’s management team believes the
Investment Management business is scalable, offers attractive
margins and, when coupled with growth in assets under management,
provides for the potential to generate incremental EBITDA.
Great Elm seeks to grow assets under management
through capital raises and M&A. If successful, growth in assets
under management should result in increased management fee revenue
for GECM. This increase in management fee revenue should drive
future free cash flow generation, aided by a reduction of
overhead.
Alongside Great Elm Capital Corp., Great Elm
Opportunities Fund I, LP and existing separately managed accounts,
Great Elm continues to seek avenues for growth, potentially
launching additional private funds and pursuing opportunistic
acquisitions in the business development company space.
Real Estate
In the three months ended December 31, 2019,
Real Estate generated $1.3 million in rental revenue and $1.1
million of adjusted EBITDA.
Great Elm continues to focus on credit tenant
lease financings and ground lease structures across a variety of
commercial, government and other properties. Great Elm’s
substantial tax assets can make it a value-added partner or lessor.
While Great Elm selectively pursues compelling real estate
opportunities from time to time, it does not currently see an
abundance of attractive potential acquisitions in what appears to
be a relatively overheated market.
FINANCIAL REVIEW: SEGMENT
FINANCIALS
As of December 31, 2019, Great Elm had four
operating segments: Durable Medical Equipment, Investment
Management, Real Estate and General Corporate.
Durable Medical Equipment
Three Months Ended December 31, 2019:
Revenue:
- During the three months ended December 31, 2019, Great Elm
recognized $14.4 million in total revenue vs. $13.2 million during
the same period in the prior year.
Net Income (Loss):
- During the three months ended December 31, 2019, Great Elm
recognized a net loss of $0.7 million vs. $0.4 million of net
income during the same period in the prior year.
Adjusted EBITDA:
- During the three months ended December 31, 2019, Great Elm
recognized $3.5 million in adjusted EBITDA vs. $3.6 million during
the same period in the prior year.
Investment Management
Three Months Ended December 31, 2019:
Revenue:
- During the three months ended December 31, 2019, Great Elm
recognized total investment management revenue of $0.89 million vs.
$0.92 million during the same period in the prior year.
- During the three months ended December 31, 2019, Great Elm
recognized management fee revenue of $0.76 million, approximately
flat year-over-year.
Net Income (Loss):
- During the three months ended December 31, 2019, Great Elm
recognized no net income vs. no net income during the same period
in the prior year.
Adjusted EBITDA1:
- During the three months ended December 31, 2019, Great Elm
recognized adjusted EBITDA of $0.3 million vs. $0.2 million during
the same period in the prior year.
Real Estate
Three Months Ended December 31, 2019:
Revenue:
- During the three months ended December 31, 2019, Great Elm
recognized $1.3 million in rental revenue vs. $1.5 million during
the same period in the prior year.
Net Income (Loss):
- During the three months ended December 31, 2019, Great Elm
recognized $0.06 million in net income vs. $0.04 million in net
income during the same period in the prior year.
Adjusted EBITDA:
- During the three months ended December 31, 2019, Great Elm
recognized $1.1 million in adjusted EBITDA vs. $1.1 million during
the same period in the prior year.
General Corporate
Three Months Ended December 31, 2019:
Revenue:
- During the three months ended December 31, 2019, Great Elm
recognized $0.06 million in revenue vs. $0.05 million in revenue
during the same period in the prior year.
Net Income (Loss):
- During the three months ended December 31, 2019, Great Elm
recognized $1.4 million in net loss vs. net loss of $4.7 million
during the same period in the prior year.
Adjusted EBITDA:
- During the three months ended December 31, 2019, Great Elm
recognized $(1.6) million in adjusted EBITDA vs. $(1.8) million
during the same period in the prior year.
Conference Call &
Webcast
Great Elm will host a conference call and
webcast on Monday, February 10, 2020 at 8:00 a.m. Eastern Time to
discuss its second quarter 2020 financial results.
All interested parties are invited to
participate in the conference call by dialing +1 (844) 559-0750;
international callers should dial +1 (647)
689-5386. Participants should enter the Conference
ID 6463167 when asked. For a copy of the slide presentation that
will be referenced during the course of our conference call, please
visit:
https://www.greatelmcap.com/events-and-presentations/default.aspx.
The conference call will be webcast simultaneously at:
https://event.on24.com/wcc/r/2152588/FB6CE9E9B21B84BD3AF43376EB1DC7DB.
About Great Elm Capital Group,
Inc.
Great Elm is a publicly-traded holding company
that seeks to build a business across three operating verticals:
Operating Companies, Investment Management and Real Estate. Great
Elm’s website can be found at www.greatelmcap.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
revenue, adjusted EBITDA, expected growth, profitability, free cash
flow 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
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.greatelmcap.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.
Set forth below is a reconciliation of Adjusted
EBITDA to the most directly comparable US GAAP financial measure,
net income. The information in the table below represents Great
Elm’s assumptions and expectations in light of currently available
information. Great Elm’s actual performance results may differ from
those projected in the table below, and any such differences may be
material.
|
For the three months ended December 31, 2019 |
$ in
thousands |
Durable Medical Equipment |
|
Investment Management 1 |
|
Real Estate |
|
General Corporate |
|
Consolidated |
EBITDA: |
|
|
|
|
|
|
|
|
|
Net income (loss) - GAAP |
$ |
(676 |
) |
|
$ |
5 |
|
|
$ |
60 |
|
$ |
(1,416 |
) |
|
$ |
(2,027 |
) |
Interest
expense |
|
937 |
|
|
|
41 |
|
|
|
655 |
|
|
- |
|
|
|
1,633 |
|
Depreciation
& amortization |
|
2,483 |
|
|
|
179 |
|
|
|
430 |
|
|
1 |
|
|
|
3,093 |
|
Income tax
expense (benefit) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
(99 |
) |
|
|
(99 |
) |
EBITDA |
$ |
2,744 |
|
|
$ |
225 |
|
|
$ |
1,145 |
|
$ |
(1,514 |
) |
|
$ |
2,600 |
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
Stock based
compensation |
|
- |
|
|
|
98 |
|
|
|
- |
|
|
110 |
|
|
|
208 |
|
Change in
contingent consideration 2 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
(940 |
) |
|
|
(940 |
) |
GECC
Unrealized (gains) / losses |
|
- |
|
|
|
- |
|
|
|
- |
|
|
826 |
|
|
|
826 |
|
Dividend
income from GECC |
|
- |
|
|
|
- |
|
|
|
- |
|
|
(588 |
) |
|
|
(588 |
) |
Transaction
and integration costs 2 |
|
586 |
|
|
|
- |
|
|
|
- |
|
|
515 |
|
|
|
1,101 |
|
Pharmacy
buildout |
|
120 |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
120 |
|
DME
management and Monitoring fees |
|
82 |
|
|
|
- |
|
|
|
- |
|
|
(57 |
) |
|
|
25 |
|
Adjusted EBITDA |
$ |
3,532 |
|
|
$ |
323 |
|
|
$ |
1,145 |
|
$ |
(1,648 |
) |
|
$ |
3,352 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended December 31, 2019 |
$ in
thousands |
Durable Medical Equipment |
|
Investment Management 1 |
|
Real Estate |
|
General Corporate |
|
Consolidated |
EBITDA: |
|
|
|
|
|
|
|
|
|
Net
income (loss) - GAAP |
$ |
(1,495 |
) |
|
$ |
(40 |
) |
|
$ |
120 |
|
$ |
(3,890 |
) |
|
$ |
(5,305 |
) |
Interest
expense |
|
1,933 |
|
|
|
83 |
|
|
|
1,313 |
|
|
- |
|
|
|
3,329 |
|
Depreciation
& amortization |
|
4,991 |
|
|
|
358 |
|
|
|
862 |
|
|
1 |
|
|
|
6,212 |
|
Income tax
expense (benefit) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
143 |
|
|
|
143 |
|
EBITDA |
$ |
5,429 |
|
|
$ |
401 |
|
|
$ |
2,295 |
|
$ |
(3,746 |
) |
|
$ |
4,379 |
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
Stock based
compensation |
|
- |
|
|
|
274 |
|
|
|
- |
|
|
228 |
|
|
|
502 |
|
Change in
contingent consideration 2 |
|
- |
|
|
|
- |
|
|
|
- |
|
|
(1,135 |
) |
|
|
(1,135 |
) |
GECC
Unrealized (gains) / losses |
|
- |
|
|
|
- |
|
|
|
- |
|
|
1,809 |
|
|
|
1,809 |
|
Dividend
income from GECC |
|
- |
|
|
|
- |
|
|
|
- |
|
|
(1,078 |
) |
|
|
(1,078 |
) |
Other
(income) expense |
|
(3 |
) |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
(3 |
) |
Transaction
and integration costs 2 |
|
736 |
|
|
|
- |
|
|
|
- |
|
|
635 |
|
|
|
1,371 |
|
Pharmacy
buildout |
|
254 |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
254 |
|
DME
management and Monitoring fees |
|
130 |
|
|
|
- |
|
|
|
- |
|
|
(80 |
) |
|
|
50 |
|
Adjusted EBITDA |
$ |
6,546 |
|
|
$ |
674 |
|
|
$ |
2,295 |
|
$ |
(3,367 |
) |
|
$ |
6,149 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended December 31, 2018 |
$ in
thousands |
Durable Medical Equipment |
|
Investment Management 1 |
|
Real Estate |
|
General Corporate 4 |
|
Consolidated |
EBITDA: |
|
|
|
|
|
|
|
|
|
Net
income (loss) - GAAP |
$ |
399 |
|
|
$ |
(7 |
) |
|
$ |
38 |
|
$ |
(4,706 |
) |
|
$ |
(4,276 |
) |
Interest
expense |
|
1,081 |
|
|
|
44 |
|
|
|
663 |
|
|
- |
|
|
|
1,788 |
|
Depreciation
& amortization |
|
2,142 |
|
|
|
137 |
|
|
|
431 |
|
|
- |
|
|
|
2,710 |
|
Income tax
expense (benefit) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
EBITDA |
$ |
3,622 |
|
|
$ |
174 |
|
|
$ |
1,132 |
|
$ |
(4,706 |
) |
|
$ |
222 |
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
Stock based
compensation |
|
- |
|
|
|
37 |
|
|
|
- |
|
|
132 |
|
|
|
169 |
|
GECC
Unrealized (gains) / losses |
|
331 |
|
|
|
- |
|
|
|
- |
|
|
3,308 |
|
|
|
3,639 |
|
Dividend
income from GECC |
|
(375 |
) |
|
|
- |
|
|
|
- |
|
|
(586 |
) |
|
|
(961 |
) |
Transaction
and integration costs 2 |
|
2 |
|
|
|
- |
|
|
|
- |
|
|
135 |
|
|
|
137 |
|
DME
management and monitoring fees |
|
52 |
|
|
|
- |
|
|
|
- |
|
|
(52 |
) |
|
|
- |
|
Adjusted EBITDA |
$ |
3,632 |
|
|
$ |
211 |
|
|
$ |
1,132 |
|
$ |
(1,769 |
) |
|
$ |
3,206 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended December 31, 2018 |
$ in
thousands |
Durable Medical Equipment 3 |
|
Investment Management 1 |
|
Real Estate |
|
General Corporate 4 |
|
Consolidated |
EBITDA: |
|
|
|
|
|
|
|
|
|
Net
income (loss) - GAAP |
$ |
426 |
|
|
$ |
(696 |
) |
|
$ |
89 |
|
$ |
(6,104 |
) |
|
$ |
(6,285 |
) |
Interest
expense |
|
1,367 |
|
|
|
88 |
|
|
|
1,328 |
|
|
- |
|
|
|
2,783 |
|
Depreciation
& amortization |
|
2,565 |
|
|
|
273 |
|
|
|
862 |
|
|
- |
|
|
|
3,700 |
|
Income tax
expense (benefit) |
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
EBITDA |
$ |
4,358 |
|
|
$ |
(335 |
) |
|
$ |
2,279 |
|
$ |
(6,104 |
) |
|
$ |
198 |
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
Stock based
compensation |
|
- |
|
|
|
582 |
|
|
|
- |
|
|
260 |
|
|
|
842 |
|
GECC
Unrealized (gains) / losses |
|
411 |
|
|
|
- |
|
|
|
- |
|
|
2,323 |
|
|
|
2,734 |
|
Dividend
income from GECC |
|
(431 |
) |
|
|
- |
|
|
|
- |
|
|
(1,020 |
) |
|
|
(1,451 |
) |
Transaction
and integration costs 2 |
|
544 |
|
|
|
- |
|
|
|
- |
|
|
1,459 |
|
|
|
2,003 |
|
DME
management and Monitoring fees |
|
70 |
|
|
|
- |
|
|
|
- |
|
|
(70 |
) |
|
|
- |
|
Adjusted EBITDA |
$ |
4,952 |
|
|
$ |
247 |
|
|
$ |
2,279 |
|
$ |
(3,152 |
) |
|
$ |
4,326 |
|
(1) |
Prior year non-GAAP adjustments have been updated to conform to
current year presentation by removing adjustments associated with
the adoption of ASC 606 Contracts with Customers. |
(2) |
Acquisition and integration related costs include transaction
costs, costs to integrate acquired businesses and changes in the
fair value of the contingent consideration liability since the
initial valuation at the acquisition date. |
(3) |
Our durable medical equipment business began in September 2018 and
there was no related activity prior to that date. |
(4) |
General Corporate net loss includes net loss attributable to
discontinued operations. |
Media & Investor
Contact:
Investor Relations+1 (617)
375-3006investorrelations@greatelmcap.com
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