WALTHAM, Mass., Feb. 13, 2023 (GLOBE NEWSWIRE) -- Great Elm Group, Inc. ("we," "our," "GEG," or "Great Elm"), (NASDAQ: GEG), an alternative asset manager, today announced financial results for its fiscal second quarter ended December 31, 2022.
Transformational Transactions
- 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 common stock.
- On December 30, 2022, GEG entered into an agreement to sell 61% of the equity interests in Forest Investments, Inc. ("Forest") and on January 17, 2023 it exercised a put right for the remaining 19% of the equity interests in Forest for aggregate cash proceeds of approximately $45 million.
- GEG had approximately $90 million of cash on its balance sheet to deploy across its growing alternative asset management platform pro forma for the DME and Forest transactions.
- GEG retained approximately $154 million of net operating loss (NOL) carryforwards for federal income tax purposes, approximately $131 million of which can be used for certain taxable income in fiscal year 2023 but expire on June 30, 2023.
Financial and Operational Highlights
- Assets under management totaled $619 million as of December 31, 2022, approximately consistent with September 30, 2022 and up approximately 2% year-to-date. Fee paying assets under management totaled $437 million as of December 31, 2022, representing approximately 2% sequential growth from September 30, 2022 and up approximately 7% year-to-date.
- GEG total revenue grew for the second quarter by 84% 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 income for the second quarter of $29.7 million, compared to a net loss of $4.2 million in the prior-year period, primarily driven by $22.2 million in net realized and unrealized gain on investments and a gain on sale of controlling interest in subsidiary of $10.5 million.
- GEG recognized Adjusted EBITDA of ($1.2) million for the second quarter, approximately unchanged from the same period in the prior fiscal year.
Management Commentary
"We have taken transformative actions to simplify our business and strengthen our balance sheet through the successful sale of our DME business and our ownership interest in Forest," stated Peter A. Reed, Chief Executive Officer. "As a result, our cash balance increased by over $70 million, and we can now focus our resources on scaling our alternative asset management business. We are well-positioned to make additional investments in our existing funds or acquire the management rights to new, long-duration and permanent capital vehicles across alternative strategies."
Discussion of Financial Results for the Fiscal Quarter ended December 31, 2022
During the three months ended December 31, 2022, GEG reported total revenue of $1.9 million, 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 December 31, 2022, GEG recognized net income of $29.7 million, compared to a net loss of $4.2 million during the same period in the prior year. The increase in net income was driven by $22.2 million in net realized and unrealized gain on investments and a gain on sale of controlling interest in subsidiary of $10.5 million.
During the three months ended December 31, 2022, GEG recognized Adjusted EBITDA of ($1.2) million, approximately unchanged from the same period in the prior year.
Sale of Interest in Forest
On December 30, 2022, GEG sold 61% of the direct and indirect common equity in Forest to J.P. Morgan Broker-Dealer Holdings Inc. ("JPM") for approximately $18 million in cash. On January 17, 2023, GEG put its remaining 19% ownership interest in Forest to JPM for cash proceeds of approximately $27 million, raising approximately $45 million of cash in the aggregate from the sale of its ownership interest in Forest.
Sale of DME Business
On January 3, 2023, GEG sold its DME business to QHM Holdings, Inc., a wholly-owned subsidiary of Quipt Home Medical Corp. ("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.
The sale of the DME Business, together with the Forest transaction, adds significant cash to GEG's balance sheet to fund strategic growth initiatives and allows it to focus on scaling its alternative asset management platform.
Fiscal 2023 Second Quarter Conference Call & Webcast Information
| When: | Tuesday, February 14, 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/150622973. 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 revenue, Adjusted EBITDA, 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 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 | December 31, 2022 | June 30, 2022 | ||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 18,971 | $ | 22,281 | ||||
| Receivables from managed funds | 2,318 | 2,445 | ||||||
| Investments, at fair value (cost $40,103 and $68,766, respectively) | 54,536 | 48,042 | ||||||
| Prepaid and other current assets | 3,715 | 665 | ||||||
| Assets of Consolidated Fund: | ||||||||
| Investments, at fair value (cost $2,432) | - | 1,797 | ||||||
| Prepaid expenses | - | 746 | ||||||
| Current assets held for sale | 76,629 | 8,464 | ||||||
| Total current assets | 156,169 | 84,440 | ||||||
| Property and equipment, net | 46 | 17 | ||||||
| Identifiable intangible assets, net | 12,668 | 13,250 | ||||||
| Right of use assets | 664 | 733 | ||||||
| Other assets | 143 | 86 | ||||||
| Non-current assets held for sale | - | 69,561 | ||||||
| Total assets | $ | 169,690 | $ | 168,087 | ||||
| LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 80 | $ | 8 | ||||
| Accrued expenses and other liabilities | 1,743 | 3,845 | ||||||
| Current portion of related party payables | 888 | 486 | ||||||
| Current portion of lease liabilities | 334 | 341 | ||||||
| Current portion of related party notes payable | 23,361 | - | ||||||
| Liabilities of Consolidated Fund - accrued expenses and other | - | 11 | ||||||
| Current liabilities held for sale | 18,047 | 15,003 | ||||||
| Total current liabilities | 44,453 | 19,694 | ||||||
| Lease liabilities, net of current portion | 345 | 472 | ||||||
| Long term debt (face value $26,945) | 25,667 | 25,532 | ||||||
| Related party payables | 452 | 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) | 36,147 | 35,187 | ||||||
| Redeemable preferred stock of subsidiaries (held by related parties, face value $35,010) | - | 34,099 | ||||||
| Other liabilities | 527 | 908 | ||||||
| Non-current liabilities held for sale | - | 2,551 | ||||||
| Total liabilities | 107,591 | 125,833 | ||||||
| Contingently redeemable non-controlling interest | 2,977 | 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 30,028,319 shares issued and 28,976,454 outstanding at December 31, 2022; and 28,932,444 shares issued and 28,507,490 outstanding at June 30, 2022 | 29 | 29 | ||||||
| Additional paid-in-capital | 3,314,173 | 3,312,763 | ||||||
| Accumulated deficit | (3,258,057 | ) | (3,279,296 | ) | ||||
| Total Great Elm Group, Inc. stockholders' equity | 56,145 | 33,496 | ||||||
| Non-controlling interest | 2,977 | 6,533 | ||||||
| Total stockholders' equity | 59,122 | 40,029 | ||||||
| Total liabilities, non-controlling interest and stockholders' equity | $ | 169,690 | $ | 168,087 | ||||
Great Elm Group, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Amounts in thousands (except per share data)
| For the three months ended December 31, | For the six months ended December 31, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenues | $ | 1,879 | $ | 1,021 | $ | 3,739 | $ | 2,004 | ||||||||
| Operating costs and expenses: | ||||||||||||||||
| Investment management expenses | 2,311 | 1,969 | 4,300 | 3,156 | ||||||||||||
| Depreciation and amortization | 295 | 109 | 589 | 218 | ||||||||||||
| Selling, general and administrative | 2,061 | 1,465 | 3,548 | 3,038 | ||||||||||||
| Expenses of Consolidated Fund | - | 45 | 46 | 97 | ||||||||||||
| Total operating costs and expenses | 4,667 | 3,588 | 8,483 | 6,509 | ||||||||||||
| Operating loss | (2,788 | ) | (2,567 | ) | (4,744 | ) | (4,505 | ) | ||||||||
| Dividends and interest income | 1,439 | 644 | 2,912 | 1,297 | ||||||||||||
| Net realized and unrealized gain (loss) on investments | 22,242 | (1,821 | ) | 15,445 | (1,835 | ) | ||||||||||
| Net realized and unrealized gain (loss) on investments of Consolidated Fund | - | 194 | (16 | ) | 5 | |||||||||||
| Gain on sale of controlling interest in subsidiary | 10,524 | - | 10,524 | - | ||||||||||||
| Interest expense | (1,955 | ) | (1,293 | ) | (3,929 | ) | (2,586 | ) | ||||||||
| Income (loss) before income taxes from continuing operations | 29,462 | (4,843 | ) | 20,192 | (7,624 | ) | ||||||||||
| Income tax benefit (expense) | 231 | 53 | (2 | ) | 85 | |||||||||||
| Net income (loss) from continuing operations | 29,693 | (4,790 | ) | 20,190 | (7,539 | ) | ||||||||||
| Discontinued operations: | ||||||||||||||||
| Net income from discontinued operations | 35 | 631 | 999 | 3,486 | ||||||||||||
| Net income (loss) | $ | 29,728 | $ | (4,159 | ) | $ | 21,189 | $ | (4,053 | ) | ||||||
| Less: net income (loss) attributable to non-controlling interest, continuing operations | 18 | (129 | ) | (1,554 | ) | (233 | ) | |||||||||
| Less: net income attributable to non-controlling interest, discontinued operations | 180 | 208 | 1,504 | 618 | ||||||||||||
| Net income (loss) attributable to Great Elm Group, Inc. | $ | 29,530 | $ | (4,238 | ) | $ | 21,239 | $ | (4,438 | ) | ||||||
| Basic income (loss) per share from: | ||||||||||||||||
| Continuing operations | $ | 1.03 | $ | (0.18 | ) | $ | 0.76 | $ | (0.28 | ) | ||||||
| Discontinued operations | (0.01 | ) | 0.02 | (0.02 | ) | 0.11 | ||||||||||
| Basic net income (loss) per share | $ | 1.02 | $ | (0.16 | ) | $ | 0.74 | $ | (0.17 | ) | ||||||
| Diluted income (loss) per share from: | ||||||||||||||||
| Continuing operations | $ | 0.74 | $ | (0.18 | ) | $ | 0.56 | $ | (0.28 | ) | ||||||
| Discontinued operations | - | 0.02 | (0.01 | ) | 0.11 | |||||||||||
| Diluted net income (loss) per share | $ | 0.74 | $ | (0.16 | ) | $ | 0.55 | $ | (0.17 | ) | ||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic | 28,803 | 26,462 | 28,672 | 26,222 | ||||||||||||
| Diluted | 40,586 | 26,462 | 40,455 | 26,222 | ||||||||||||
Great Elm Group, Inc.
Reconciliation from EBITDA to Adjusted EBITDA - Quarterly
Dollar amounts in thousands
| For the three months ended December 31, | For the six months ended December 31, | |||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||||||
| Net income (loss) from continuing operations - GAAP | $ | 29,693 | $ | (4,790 | ) | $ | 20,190 | $ | (7,539 | ) | ||||||||||
| Interest Expense | 1,955 | 1,293 | 3,929 | 2,586 | ||||||||||||||||
| Dividend income on investments | (1,345 | ) | (644 | ) | (2,731 | ) | (1,297 | ) | ||||||||||||
| Income tax expense (benefit) | (231 | ) | (53 | ) | 2 | (85 | ) | |||||||||||||
| Depreciation and amortization | 295 | 109 | 589 | 218 | ||||||||||||||||
| Non-cash compensation | 645 | 1,226 | 1,586 | 1,994 | ||||||||||||||||
| Loss (gain) on investments, excluding investment in Forest | 2,131 | 1,627 | 8,944 | 1,830 | ||||||||||||||||
| Gains related to sale of Forest | (34,897 | ) | - | (34,897 | ) | - | ||||||||||||||
| Transaction and integration related costs(1) | 425 | 35 | 471 | 219 | ||||||||||||||||
| Change in contingent consideration | 130 | - | 60 | - | ||||||||||||||||
| Adjusted EBITDA | $ | (1,199 | ) | $ | (1,197 | ) | $ | (1,857 | ) | $ | (2,074 | ) | ||||||||
(1) Transaction and integration related costs include costs to sell, acquire and integrate acquired businesses.
