管理層發言
Greetings, and welcome to Great Elm Capital Corp.'s First Quarter 2026 Financial Results Conference Call. (Operator instructions were provided.) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Adam Yates, Managing Director. Thank you. Mr. Yates, you may begin.
Hello, and thank you, everyone, for joining us for Great Elm Capital Corp.'s First Quarter 2026 Earnings Conference Call. If you would like to be added to our distribution list, you can e-mail investorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmcap.com. The slide presentation accompanying today's conference call and webcast can be found on our website under Events and Presentations. On our website, you can also find our earnings release and SEC filings. I would like to call your attention to the customary safe harbor statement regarding forward-looking information. Also, please note that nothing in today's call constitutes an offer to sell or a solicitation of offers to purchase our securities. Today's conference call includes forward-looking statements, and we ask that you refer to Great Elm Capital Corp.'s filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Capital Corp. does not undertake to update its forward-looking statements unless required by law. To obtain copies of our SEC filings, please visit Great Elm Capital Corp.'s website under Financials, SEC filings or visit the SEC's website. Hosting the call today is Jason Reese, Great Elm Capital Corp.'s Chairman of the Board and newly appointed CEO. He'll be joined by Matt Kaplan, Portfolio Manager; Chris Croteau, Head of Research; Chief Financial Officer, Keri Davis; Chief Compliance Officer and General Counsel, Adam Kleinman; and Mike Keller, President of Great Elm Specialty Finance. I will now turn the call over to GECC's Chairman and CEO, Jason Reese.
Thanks, Adam, and thank you, everyone, for joining us today. In March, I assumed the role of Executive Chairman of GECC at an important inflection point for the company. On May 4, I was appointed CEO. The company was established to create income and protect and grow NAV. In the near term, I am reprioritizing. We will protect and grow NAV first and secondarily create income. We will accomplish this by strengthening oversight, protecting shareholder value and reinforcing accountability across the platform. We are well underway, making progress on these fronts. I noted last quarter that as Chairman and CEO of Great Elm Group, the parent company of GECC's investment manager, I bring deep familiarity with both the team and our investment process. That familiarity enables a seamless transition into my role as both GECC Chairman and CEO, and I'm working closely with management to reinforce disciplined underwriting and thoughtful capital allocation. Before turning to the quarter, I would like to thank Matt Kaplan for his leadership during his tenure as CEO. Matt will continue in his role as Portfolio Manager. Turning to results. Recent quarters have been challenging for the broader BDC sector, and GECC was not immune to the macro environment. Our NAV declined this quarter, driven primarily by unrealized losses in select investments, most notably our CLO joint venture and one private investment with an idiosyncratic event. Our CLO investments can exhibit volatility given their inherent leverage. Additionally, in the first quarter, the broader CLO equity market declined. Despite the volatility of the quarterly mark, CLO exposure provides additional diversification to GECC's portfolio of secured investments. Our CLO investments continue to generate meaningful cash flow, diversify our income streams and support the sustainability of our net investment income. In light of these unrealized losses, Great Elm Capital Management (GECM), the investment adviser, has waived all accrued and unpaid incentive fees through June 30, 2026, marking the third consecutive quarter of fee waivers. As of March 31, 2026, that waiver amounted to approximately $2.8 million or $0.20 per share of direct benefit to our shareholders. This action is immediately accretive to NAV and underscores our alignment with shareholders. We have also taken decisive action to deleverage the balance sheet. Recently, we called and repurchased all $57.5 million of GECC notes due later this year. Once these notes are fully retired, GECC will have no funded debt maturities until 2029. This eliminates near-term refinancing risk and enables our flexibility to deploy capital strategically. In addition, we continue to improve portfolio credit quality through active investment rotation. During the quarter, we deployed approximately $22 million across 12 investments while exiting investments we viewed as higher risk. As a result, first lien investments now comprise nearly 75% of the corporate portfolio, the highest level in the company's recent history. This reflects a deliberate shift towards senior secured investments with stronger downside protection and is a direct outcome of the underwriting discipline we have instilled across the platform. At the same time, we're expanding our proprietary sourcing efforts. During the quarter, we closed three transactions sourced through institutional partnerships, committing approximately $15 million to new private investments. We closed on one additional proprietary private investment in April, and we expect to close additional investments in the near future, building on this momentum as our sourcing network continues to deepen and differentiate our platform. At Great Elm Specialty Finance, or GESF, we continue to execute on the strategic transformation aimed at streamlining the platform for enhanced growth and profitability. Great Elm Commercial Finance is building a robust pipeline of asset-based lending opportunities, while Great Elm Healthcare Finance has successfully repositioned the business and recently closed on another transaction. Prestige, our invoice financing business, generates durable returns, but can exhibit quarter-to-quarter variability due to the spot nature of its business. I'm pleased to say all three of our core verticals under GESF are profitable and generate cash distributions. Collectively, GESF is poised for continued growth and represents an increasingly important source of diversification across both assets and income. Today, GECC's high-quality portfolio is strong, composed primarily of performing cash-generative investments. We closed the quarter with less than 1% of fair value of all investments on nonaccrual, a stark contrast to our peers. In addition, in the last quarter, we opportunistically purchased shares at a discount to NAV under our stock repurchase program. Through May 1, 2026, under our $10 million stock repurchase program authorized in October 2025, we have repurchased approximately 1% of all shares outstanding at an average 36% discount to our March 31 NAV, leaving approximately $9.5 million of remaining capacity under the program for future repurchases. Stepping back, GECC is well capitalized and supported by a strong balance sheet. At quarter end, we held approximately $10 million in cash, $4 million of liquid exchange-traded assets and had full availability under our $50 million revolving credit facility. With no near-term debt maturities, ample liquidity and a higher quality portfolio, we are well positioned to act decisively when compelling opportunities arise. Now I'd like to turn the call over to Keri Davis to walk through the financial details.
Thanks, Jason. I'll go over our financial highlights now, but we invite all of you to review our press release, accompanying presentation and SEC filings for greater detail. Net investment income for the first quarter of 2026 was $5 million or $0.36 per share compared to $4.4 million or $0.31 per share in the fourth quarter of 2025. The approximate 13% growth quarter-over-quarter in net investment income was driven primarily by the benefit of the incentive fee waiver, accounting for approximately $0.20 per share. Net assets were $107.5 million or $7.74 per share as of March 31, 2026, compared to $112.9 million or $8.07 per share as of December 31, 2025. Details for the quarter-over-quarter change in NAV can be found on Slide 11 of the investor presentation. Our balance sheet remains strong and liquid. GECC's asset coverage ratio was 161.8% as of March 31, 2026, compared to 158.1% as of December 31, 2025. Our debt-to-equity ratio also improved to 1.62x from 1.72x in the prior quarter, reflecting the continued deleveraging Jason noted. As of March 31, 2026, total debt outstanding was $174 million, and we had no borrowings on our $50 million revolver. Cash and money market fund investments totaled approximately $10 million. Importantly, our Board of Directors approved a quarterly dividend of $0.25 per share for the second quarter of 2026, equating to an 18% annualized yield on GECC's May 1, 2026, closing price of $5.56. I'll now hand it over to the operator for questions.
分析師問答
(Operator instructions were provided.) The first question comes from the line of Erik Zwick with Lucid Capital Markets LLC.
Jason, if I could start with a question for you. You mentioned in your prepared comments some efforts to deleverage the balance sheet. I know there's no additional maturities until 2029. At this point, have you completed those deleveraging efforts, or are there still more actions you could take to further deleverage?
At the end of the quarter, there was still $18 million of our 2026 paper outstanding. We called that paper; it hasn't been paid off yet, but it will be in the next few weeks. At that point, we've probably completed our deleveraging for the moment, although our 8.5% notes do become callable at the end of this month.
Okay. That could potentially be something you would look at. That's helpful. Maybe switching gears a bit on the pipeline: as you look at today's opportunities, how do you evaluate them on a risk-adjusted basis? And how do you weigh deploying capital into new investments versus continuing to use the share repurchase authorization given where the shares are trading today?
We balance and evaluate all opportunities and look for the best risk-adjusted returns. Right now, we are much more focused on traditional private credit deals than broadly syndicated loans. We think there are better yields with less risk in private credit currently, and we've closed a number of those transactions already this year, and we're working on a number more. As for repurchases or debt paydown versus investments, we're constantly comparing expected returns. Paying down debt is riskless for us, and that's important. But we're very serious about rebuilding NAV. As you've seen, we've waived our incentive fee for three quarters, and we have been buying back shares, which many BDCs do not do. We're focused on rebuilding NAV.
That helps. As I think about future earnings run rate and the incentive fee waiver, you emphasized that priority number one is protecting and growing NAV. Is it safe to assume you would consider continuing to waive the incentive fee if the run rate of earnings without the waiver is less than the dividend level of $0.25 per share?
We will continue looking at what's in the best interest of shareholders. Yes, we want to be covering our dividend. I'm changing emphasis: we've done a good job generating income and covering dividends, but we haven't done as well protecting NAV. We're going to really focus on that. There are times to take more risk and times to take less, and the last couple of quarters have been a time to take less risk.
Understood. A follow-up on CLO cash flow timing: depending on when you made the investments and scheduled payments, cash flow can be bumpy quarter-to-quarter. To the extent you have visibility over the next few quarters, can you describe the expected timing of CLO cash flows?
We expect to receive cash flows every quarter going forward. When you first make CLO investments, there's a lag that creates variability, but the timing also depends on CLO performance. We're comfortable with the cash flows over the life of those equities. In the first quarter, the broadly syndicated loan market declined, which affected marks. We've already received $2.5 million this quarter, which is similar to the first quarter; that's a reasonable number to use going forward, though they will vary.
So, correct me if I'm wrong, you didn't make any new CLO investments in the last quarter or two. Much of the initial variability from the warehouse period and first distributions should now be in the past, barring any new investments you might make?
Correct. There should be less volatility going forward unless we decide to make new CLO equity investments, which at the current moment we are not looking to do. We're pretty happy with our current position.
(Operator instructions were provided.) Ladies and gentlemen, we have reached the end of the question-and-answer session. I would now like to turn the floor over to Jason Reese for closing comments.
Thank you again for joining us today. Our priorities remain clear: protect capital, methodically rebuild NAV and generate sustainable net investment income. During the quarter, we advanced each of these objectives. GECM again waived incentive fees to the direct benefit of GECC shareholders. We took action to retire all near-term funded debt, and we increased first lien exposure to its highest level in recent periods. We have instilled greater rigor, transparency and accountability across the platform, and I am encouraged by both the trajectory of the portfolio and the strength of the team executing on our strategy. As we move through the second quarter, GECC's solid foundation and strong liquidity positions us to deliver more consistent and durable returns over time. We remain focused on disciplined execution and long-term value creation. We appreciate your continued support and look forward to updating you next quarter. Thank you.
Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.