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GE

Great Elm Capital Corp. (GECC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 total investment income was $9.1M and NII per share fell to $0.20 from $0.39 in Q3; management attributed the step-down to uneven early-stage CLO JV distributions ($0.5M in Q4 vs $3.2M in Q3) and isolated financing-related expenses including shelf write-off .
  • Versus S&P Global consensus, GECC materially missed on Primary EPS/NII per share ($0.20 vs $0.353*) and revenue/TII ($9.23M vs $11.46M*); Q3 was a modest beat on both and Q2 a slight miss (see Estimates Context) .
  • The Board raised the quarterly dividend 5.7% to $0.37 for Q1 2025 and paid a $0.05 special distribution; asset coverage improved to 169.7% and net assets rose to $136.1M despite NAV/share declining to $11.79 .
  • Management guided confidence in dividend coverage in Q1 and FY 2025, with CLO JV distributions of $3.8M received through March 7, 2025 and an expectation that Q2 2025 distributions will exceed Q1 .

What Went Well and What Went Wrong

What Went Well

  • Scale and balance sheet: Net assets increased to $136.1M QoQ; asset coverage ratio improved to 169.7%, with $25M revolver undrawn and cash/money market ~$8.4M .
  • Portfolio quality: First-lien secured exposure increased; first-lien loans rose to 71% of the corporate portfolio by year-end and nonaccruals remained <1% of fair value .
  • Shareholder returns: Dividend increased to $0.37 for Q1 2025 and a $0.05 special distribution declared in December; management expressed confidence in covering the higher dividend in Q1 and through 2025 .

Quoted: “I am confident that we are well positioned to cover the increased dividend in the first quarter and over 2025.”

What Went Wrong

  • Earnings cadence: NII was adversely impacted by uneven CLO JV cash distributions ($0.5M in Q4 vs $3.2M in Q3), typical in early-stage CLO investments .
  • Financing charges: NII per share absorbed ~$0.03 impact from charges related to refinancing January 2025 debt maturity and the new shelf registration; the prior shelf deferred expense write-off also hit NII .
  • NAV/share compression and revenue shortfall: NAV/share declined to $11.79 from $12.04 QoQ and total investment income of $9.1M missed consensus, reflecting timing drag from equity raises and CLO JV ramp .

Financial Results

Core Financials (USD, per quarter; older → newer)

MetricQ2 2024Q3 2024Q4 2024
Total Investment Income ($USD)$9.548M $11.727M $9.100M
Net Expenses ($USD)$6.490M $7.580M ~$7.000M
Net Investment Income ($USD)$3.058M $4.072M $2.100M
NII per Share ($USD)$0.32 $0.39 $0.20
GAAP EPS ($USD)($0.14) $0.33 $0.17
Net Realized & Unrealized Gains/Losses ($USD)($4.384M) ($0.598M) ($0.300M)
Net Assets ($USD)$126.009M $125.826M $136.113M
NAV per Share ($)$12.06 $12.04 $11.79
Distributions Paid/Declared per Share ($)$0.35 $0.35 $0.40

Actuals vs Consensus (S&P Global; Primary EPS maps to NII/share for BDCs)

MetricQ2 2024Q3 2024Q4 2024
Primary EPS/NII per Share – Actual ($)0.32 0.39 0.20
Primary EPS Consensus Mean ($)0.34*0.3567*0.3533*
Surprise ($)-0.02*+0.0333*-0.1533*
Revenue/TII – Actual ($)$9.548M $11.727M $9.231M
Revenue Consensus Mean ($)$9.684M*$11.021M*$11.457M*
Surprise ($)-$0.136M*+$0.706M*-$2.226M*

Values retrieved from S&P Global. Primary EPS reflects NII per share for BDCs.*

Segment/Investment Mix (fair value; Q3 vs Q4)

CategoryQ3 2024 AmountQ3 2024 % of TotalQ4 2024 AmountQ4 2024 % of Total
Corporate Credit – Debt$204.8M 61.4% ~$207.0M 63.8%
Great Elm Specialty Finance – Debt$29.7M 8.9% $29.7M 9.2%
Great Elm Specialty Finance – Equity$13.9M 4.2% $13.5M 4.2%
CLO JV$32.9M 9.9% $40.1M 12.4%
Dividend-Paying Equities$36.3M 10.9% $10.7M 3.3%
Other Equity Investments$15.7M 4.7% $23.3M 7.2%
Total Investments (FV)$333.3M 100%$324.3M 100%

Note: In Q2 2024, the CLO JV was included among “dividend paying equity investments” totaling ~$43.7M (14.7% of total); corporate credit was $190.0M (63.8%) and GESF debt/equity were $29.7M/ $15.0M (10.0%/5.0%) .

KPIs and Balance Sheet

KPIQ2 2024Q3 2024Q4 2024
Asset Coverage Ratio (%)171.0% 166.2% 169.7%
Weighted Avg Yield on Debt Portfolio (%)13.1% 12.8% 12.4%
% Floating-Rate Debt Instruments69% 72% 72%
Fixed-Rate Debt WAM (years)2.1 2.0 1.8
Cash & Money Market ($USD)~$3.0M ~$26.0M ~$8.4M
Total Debt Outstanding, par ($USD)$177.6M $235.3M $195.4M
CLO JV Cash Distributions ($USD)first received in July $3.2M $0.5M

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Quarterly Dividend per ShareQ1 2025$0.35 (Q4 2024) $0.37 Raised
Special Cash DistributionDec 2024/Jan 2025N/A$0.05 per share payable Jan 15, 2025 New
Dividend Coverage (NII)1Q25 and FY2025N/A (qualitative)Management expects to cover increased dividend Q1 and over 2025 Affirmed qualitative
CLO JV Distributions OutlookQ2 2025N/AExpect Q2 2025 distributions > Q1 2025 Positive outlook
Dividend Yield (market/NAV reference)Q1 2025N/A13.7% on $10.78 price; 12.6% on $11.79 NAV Informational

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
CLO JV distributions & returnsFirst CLO distribution received in July; JV ramp expected to boost NII in H2 CLO JV at ~$32.9M FV (9.9% of total); record TII; dividend coverage maintained Distributions $0.5M in Q4; $3.8M received through Mar 7, 2025; IRR target high-teens to ~20%; Q2 2025 expected > Q1 Growing contribution but lumpy; improving through 2025
Capital raising & leverageIssued $34.5M GECCI notes; +$22M July; $12M equity at NAV Issued $36M GECCH notes (+$5.4M OA); redeemed GECCM; pro forma par debt $195.4M Raised $13.2M at NAV via SGP in Dec; asset coverage 169.7%; under-levered with revolver undrawn Increased scale; flexibility in 2025
Dividend policy$0.35 quarterly declared (Q3) $0.35 quarterly declared (Q4) Raised to $0.37 for Q1 2025; confidence in coverage Positive for yield; coverage expected
Portfolio quality & nonaccrualsResidual write-downs in illiquid nonaccrual; NAV impact Stable portfolio; record TII; refinancing improved maturity profile Nonaccruals unchanged at <1% of FV; increased first-lien exposure Stable/strengthening credit posture
Macro (rates/tariffs)Positioning for strong yields; laddered maturities Extended maturities; stable asset coverage Measured deployment given rate-cut uncertainty and tariff implications Cautious deployment stance
Specialty Finance (GESF)Ongoing contributions Continued portfolio activity Rebrand/consolidation to Great Elm Commercial Finance; healthcare finance pivots to real estate financing Streamlining; expected profitability lift

Management Commentary

  • “During the fourth quarter, NII was primarily impacted by the uneven cadence of cash flows from our CLO JV… As the CLO JV grows and matures, we believe the magnitude of this impact should decline in future quarters.” — Matt Kaplan, CEO .
  • “We wrote off the deferred expense of our prior shelf registration after filing a new $500 million shelf… should increase our flexibility and reduce our cost of raising debt.” — Keri Davis, CFO .
  • “We are encouraged by the early success of our CLO joint venture strategy… targeting high teens to 20% returns over time.” — Matt Kaplan, CEO .
  • “We made the decision to consolidate all ABL operations under one roof, rebranding as Great Elm Commercial Finance… repositioning [legacy] Healthcare Finance to focus solely on health care real estate financing.” — Michael Keller, President GESF .

Q&A Highlights

  • CLO JV concentration and diversification: Currently invested with Apex; majority positions via JV; potential diversification over time .
  • CLO arbitrage amid spread compression: Liability costs also compressed; modeled IRRs high teens to ~20%; emphasize uneven initial distributions but improving on a trailing-12-month basis .
  • Credit monitoring: Maverick Gaming mark discussed; position evaluated quarterly with third-party valuation specialists; limited disclosure due to private status .
  • JV scale target: CLO exposure could reach ~20% of asset base over time as platform scales .
  • Deployment outlook: Seeing secondary loan opportunities as spreads widen; steady direct lending pipeline; limited near-term repayments; M&A timing uncertain due to tax policy clarity .

Estimates Context

  • Q4 2024 misses: Primary EPS/NII per share actual $0.20 vs $0.3533 consensus*; revenue/TII actual $9.231M vs $11.4567M consensus* .
  • Q3 2024 beats: NII/share $0.39 vs $0.3567*; revenue/TII $11.727M vs $11.021M* .
  • Q2 2024 slight misses: NII/share $0.32 vs $0.34*; revenue/TII $9.548M vs $9.6837M* .

Values retrieved from S&P Global. Primary EPS reflects NII per share for BDCs.*

Where estimates may adjust: Analysts likely lift forward NII assumptions for Q1–Q2 2025 given $3.8M CLO JV distributions received through March 7, 2025 and management’s expectation for higher Q2 distributions; however, early-stage CLO lumpiness and financing costs warrant conservative near-term cadence assumptions .

Key Takeaways for Investors

  • Q4 was a reset quarter driven by CLO JV distribution timing and financing charges; the structural drivers (scale, CLO growth) remain intact and supportive of higher NII in 2025 .
  • The 5.7% dividend increase to $0.37 signals confidence; management explicitly guides to coverage in Q1 and through FY 2025, supported by stronger CLO JV cash flows .
  • Asset coverage improved and liquidity is solid (undrawn $25M revolver), providing capacity to fund JV commitments and measured deployment into secondary and direct lending opportunities .
  • Portfolio quality strengthened with higher first-lien exposure and nonaccruals <1% of FV; credit monitoring remains vigilant amid macro uncertainty .
  • Expect estimate revisions to reflect lumpy but rising CLO distributions (Q2 > Q1 per management), with potential upward bias to NII run-rate beyond Q1 .
  • Near-term trading: Stock may be sensitive to reported misses vs Q4 consensus and NAV/share compression; catalysts include confirmation of Q1 dividend coverage and disclosure of Q2 distribution trajectory .
  • Medium-term: As CLO JV scales and equity-raise deployment drag fades, TII/NII cadence should smooth, supporting valuation re-rating closer to NAV contingent on sustained coverage and credit performance .