Great Elm Group Inc

Previous wording

GEG is a publicly-traded alternative asset management company 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. GEG and its subsidiaries currently manage GECC, a publicly-traded business development company, and Monomoy UpREIT, an industrial-focused real estate investment trust, in addition to other investments. The combined assets under management of these entities at March 31, 2024 was approximately $688.0 million.

Current wording

GEG is a publicly-traded alternative asset management company 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. GEG and its subsidiaries currently manage GECC, a publicly-traded business development company, and Monomoy UpREIT, an industrial-focused real estate investment trust, in addition to other investment vehicles. The combined assets under management of these entities at September 30, 2024 was approximately $781.6 million.

Previous wording

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are monitored and analyzed by our management for changes in facts and circumstances, and material changes in these estimates could occur in the future. During the three and nine months ended March 31, 2024 we did not make material changes in our critical accounting policies or underlying assumptions as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2023 as it relates to normal and recurring transactions.

Current wording

The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. These items are monitored and analyzed by our management for changes in facts and circumstances, and material changes in these estimates could occur in the future. During the three months ended September 30, 2024 we did not make material changes in our critical accounting policies or underlying assumptions as disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2024 as it relates to normal and recurring transactions.

Previous wording

Other income (expense), net includes dividend and interest income and net realized and unrealized gains and losses. For the three and nine months ended March 31, 2024, dividend and interest income was $2.4 million and $6.4 million, respectively, as compared to $1.5 million and $4.4 million, respectively for the three and nine months ended March 31, 2023. The increases in dividend and interest income are primarily attributable to new investments in private funds and marketable securities. Net realized and unrealized gains and losses generally consist of unrealized mark-to-market adjustments on investments and the gain or loss realized on the sale of investments. In addition, during the three and nine months ended March 31, 2023, the Company recognized a gain on the sale of its controlling interest in Forest in December 2022 of $10.5 million and gain on the January 2023 sale of its remaining non-controlling interest in Forest of $24.4 million.

Current wording

Other income (expense), net includes dividend and interest income and net realized and unrealized gains and losses. For the three months ended September 30, 2024, dividend and interest income was $1.6 million, as compared to $2.0 million for the three months ended September 30, 2023. The $0.4 million decrease in interest income in the current period compared to prior year is due to a reduction in investment in Treasury bills. Net realized and unrealized gains and losses generally consist of unrealized mark-to-market adjustments on investments and the gain or loss realized on the sale of investments. For the three months ended September 30, 2024, realized and unrealized gain increased by $0.5 million from the same prior year period. This increase was primarily due to $3.5 million of unrealized gains recorded in the current period on GESP and PPH due to the valuation technique change for these entities. These were offset by a significant GECC share price increase in the prior year period, which did not occur in the current corresponding period.

Previous wording

Cash used in operating activities of our continuing operations for the nine months ended March 31, 2024 were $18.5 million. The adjustments to reconcile our net income from continuing operations of -$0.4 million to net cash used in operating activities included add-backs for various non-cash charges, such as $1.8 million of stock-based compensation expense, $1.7 million of non-cash interest and amortization of capitalized issuance costs, and $0.8 million of depreciation and amortization, which was offset by deduction of $1.8 million of unrealized gain on our investments, and the net negative change in our operating assets and liabilities of $11.6 million, including the impact of changes related to consolidated funds.

Current wording

Cash used in operating activities of our continuing operations for the three months ended September 30, 2024 were $5.8 million. The adjustments to reconcile our net income from continuing operations of $3.0 million to net cash used in operating activities included add-backs for various non-cash charges, such as $0.7 million of stock-based compensation expense, $0.5 million of non-cash interest and amortization of capitalized issuance costs, $0.6 million realized gain on investments and $0.3 million of depreciation and amortization, which was offset by a deduction of $4.4 million of unrealized gain on our investments, and the net negative change in our operating assets and liabilities of $7.2 million, including the impact of changes related to consolidated funds.

Previous wording

Cash used in operating activities of our continuing operations for the nine months ended March 31, 2023 were $3.6 million. The adjustments to reconcile our net income from continuing operations of $19.7 million to net cash used in operating activities included add-backs for various non-cash charges, such as $2.0 million of stock-based compensation expense, $1.7 million of non-cash interest and amortization of capitalized issuance costs, and $0.9 million of depreciation and amortization, which was offset by deduction of $12.8 million of unrealized gain on our investments, $4.7 million of realized gain on our investments, $10.5 million of gain on Sale of Controlling Interest in Forest in December 2022, and the net negative change in our operating assets and liabilities of $2.0 million. During the nine months ended March 31, 2023 we also received $1.6 million attributed to sales of investments by Great Elm SPAC Opportunity Fund, LLC (GESOF). Cash flows provided by operating activities of our discontinued operations for the nine months ended March 31, 2023 were $0.8 million.

Current wording

Cash flows used in operating activities of our continuing operations for the three months ended September 30, 2023 were $6.1 million. The adjustments to reconcile our net income from continuing operations of $2.8 million to net cash used in operating activities included add-backs for various non-cash charges, such as $0.7 million of stock-based compensation expense, $0.6 million of non-cash interest and amortization of capitalized issuance costs, $0.3 million of depreciation and amortization, and $0.1 million of realized loss on our investments, which was offset by deduction of $3.4 million of unrealized gain on our investments, and the net negative change in our operating assets and liabilities of $7.0 million.

Previous wording

Cash used in investing activities of our continuing operations for the nine months ended March 31, 2024 were $3.7 million, which includes investment purchases of $59.8 million partially offset by the proceeds from sale of investments of $56.8 million. Cash flows used in investing activities of our discontinued operations for the nine months ended March 31, 2024 were $0.9 million, which represents the payments made to the buyer and former minority interest holders of our durable medical equipment business in connection with working capital adjustment and escrow payments.

Current wording

Cash flows used in investing activities of our continuing operations for the three months ended September 30, 2023 were $12.6 million which is attributed to purchases on investments of $14.3 million, partially offset by the proceeds from sale of investments of $1.8 million. Cash flows used in investing activities of our discontinued operations for the three months ended September 30, 2023 were $0.4 million, which represents the payment made to the buyer of our DME business in September 2023 following finalization of the working capital adjustment.

Previous wording

As of March 31, 2024, we had an unrestricted cash balance of $44.1 million and $24.8 million in marketable securities. We also held 1,518,162 shares of GECC common stock with an estimated fair value of $16.8 million as of March 31, 2024. We believe we have sufficient liquidity available to meet our short-term and long-term obligations for at least the next 12 months.

Current wording

As of September 30, 2024, we had an unrestricted cash balance of $44.2 million and $7.5 million in marketable securities. We also held 1,440,722 shares of GECC common stock with an estimated fair value of $14.7 million as of September 30, 2024. We believe we have sufficient liquidity available to meet our short-term and long-term obligations for at least the next 12 months.

Previous wording

As of March 31, 2024, the Company had $38.9 million principal balance in convertible notes outstanding (including cumulative interest paid in-kind). The convertible notes are held by a consortium of investors, including related parties. The convertible notes accrue interest at 5.0% per annum, payable semiannually in arrears on June 30 and December 31, in cash or in kind at the option of the Company. The convertible notes are due on February 26, 2030, but are convertible at the option of the holders, subject to the terms therein, prior to maturity into shares of our common stock. Upon conversion of any note, the Company will pay or deliver, as the case may be, to the noteholder, in respect of each $1,000 principal amount of notes being converted, shares of common stock equal to the conversion rate in effect on the conversion date, together with cash, if applicable, in lieu of delivering any fractional share of common stock. To date, all interest on these instruments has been paid in-kind.

Current wording

As of September 30, 2024, the Company had $35.5 million principal balance in convertible notes outstanding (including cumulative interest paid in-kind). The convertible notes are held by a consortium of investors, including related parties. The convertible notes accrue interest at 5.0% per annum, payable semiannually in arrears on June 30 and December 31, in cash or in kind at the option of the Company. The convertible notes are due on February 26, 2030, but are convertible at the option of the holders, subject to the terms therein, prior to maturity into shares of our common stock. Upon conversion of any note, the Company will pay or deliver, as the case may be, to the noteholder, in respect of each $1,000 principal amount of notes being converted, shares of common stock equal to the conversion rate in effect on the conversion date, together with cash, if applicable, in lieu of delivering any fractional share of common stock. To date, all interest on these instruments has been paid in-kind.