Great Elm Capital Corp. - 8.125 Q4 FY2024 earnings call

• 3-Year Phases: Year 1 (2022): Clean up and reposition business, reducing noncash-generating investments and concentration; Great Elm Group provided support. Year 2 (2023): Upgrade portfolio and execute strategy, leading to market cap doubling, NAV increase, etc. Year 3 (2024): Optimize portfolio and grow, forming CLO joint venture, raising ~$150 million in capital, expanding corporate portfolio. - Fourth Quarter: NII impacted by CLO cash flow unevenness and deferred expense write-off; Board increased dividend to $0.37 per share for Q1 2025; enhanced portfolio strength by increasing secured debt positions; CLO joint venture expected to be significant income source.

Investment Portfolio: In the fourth quarter, NII was $2.1 million or $0.20 per share, down from $4.1 million or $0.39 per share in the third quarter of 2024, primarily due to uneven CLO cash flows. Net assets as of December 31, 2024, were $136 million compared to $126 million on September 30. NAV per share was $11.79 as of December 31 versus $12.04 on December 30. The asset coverage ratio was 169.7% as of December 31, compared to 166.2% in September. Total debt outstanding was approximately $195 million, with a $25 million revolver undrawn. Cash and money market securities totaled ~$8 million. Specialty Finance: Revenue and net income at GESF increased, driven by Prestige invoice financing. ABL businesses were consolidated under Great Elm Commercial Finance, with legacy Great Elm Healthcare Finance repositioned for healthcare real estate financing.

• Board declared a 6% increase in quarterly base dividend to $0.37 per share for Q1 2025. - Expect second quarter income to exceed first quarter. - CLO JV poised for increasing distributions, with income oscillation expected to dampen as scale increases. - Well positioned to cover dividend in 2025 and deliver attractive risk-adjusted returns.

• Volatile macro environment, uncertainties around rate cuts and tariff policy. - Lumpiness in earnings from equity raises and CLOs affecting short-term financials. - Credit deterioration concerns in the space, though nonaccruals were stable.

Q: Have you and your partners fully funded the CLO JV?

A: The JV commitment is not fully funded; we expect to continue growing it over time, with $8 million of cash and equivalents on the balance sheet and a $25 million unfunded revolver available.

Q: Why are you only investing in Apex CLOs instead of diversifying?

A: That is the current investment mix, but we may diversify CLO exposure over time.

Q: How will spread compression impact CLO's cash flows?

A: Confident in CLO cash flow generation, expecting high teens to 20% IRRs; trailing 12-month NII expected to steadily improve.

Q: Outlook for Maverick Gaming?

A: Evaluated quarterly by third-party valuation specialists; company is regional specific (Washington, Nevada, Colorado) and private, so limited details can be shared.

Q: How do you think about the appropriate size of the JV to Great Elm's total results?

A: Over time, target CLO exposure to around 20% of asset base as scaled, with income mix increasing as asset base grows.

Q: Outlook for corporate portfolio pipeline?

A: Mixed opportunities in secondary loans, stable direct lending pipeline; some M&A discussions paused due to tax uncertainty.