Great Elm Capital Group Q1 Earnings Call Highlights

Key Points

• New CEO Jason Reese is reprioritizing the business to focus on protecting and rebuilding net asset value (NAV) after a quarter-on-quarter NAV decline driven mainly by unrealized losses in a CLO joint venture and one idiosyncratic private investment; the adviser waived all accrued and unpaid incentive fees through June 30, 2026 (about $2.8M, or $0.20/share) to be immediately accretive to NAV.
• Management has accelerated deleveraging and liquidity actions—calling and repurchasing $57.5M of notes and leaving the company with no funded debt maturities until 2029—while improving asset coverage to 161.8% and ending the quarter with roughly $10M cash, $4M liquid ETFs, and an unused $50M revolver.
• The portfolio is being rotated toward senior secured credit, with first-lien positions now near 75% of the corporate portfolio after deploying about $22M across 12 new investments; GECC also repurchased ~1% of shares at a ~36% discount and the board approved a $0.25 quarterly dividend (annualized ~18% based on the May 1 share price), with Q1 NII of $0.36/share largely boosted by the fee waiver.

Great Elm Capital Group NASDAQ: GECC used its fiscal first-quarter 2026 earnings call to outline a shift in priorities under newly appointed CEO Jason Reese, who said the business will focus first on protecting and rebuilding net asset value (NAV) and only secondarily on generating income. Reese, who became executive chairman in March and was appointed CEO on May 4, said the company is reinforcing “disciplined underwriting and thoughtful capital allocation” and increasing oversight and accountability across the platform.

Leadership transition and strategic priorities

Reese thanked Matt Kaplan for his leadership during his time as CEO, noting Kaplan will remain a portfolio manager. Reese said the company was established “to create income and protect and grow NAV,” but that in the near term he is “reprioritizing” with NAV protection and growth taking precedence.

He characterized the recent period as challenging for the broader business development company (BDC) sector and said GECC’s NAV declined during the quarter. Reese attributed the decline “primarily” to unrealized losses in select investments, most notably the company’s CLO joint venture and “one private investment with an idiosyncratic event.”

NAV decline, CLO volatility, and fee waivers

Reese said CLO investments can be volatile given their inherent leverage and noted that the broader CLO equity market declined during the first quarter. Even so, he said CLO exposure adds diversification to GECC’s portfolio of secured investments and continues to generate “meaningful cash flows,” diversify income streams, and support net investment income (NII).

In response to the unrealized losses, Reese said Great Elm Capital Management (GECM), the company’s investment adviser, waived “all accrued and unpaid incentive fees through June 30, 2026,” marking the third consecutive quarter of fee waivers. Reese said that as of March 31, 2026, the waiver amounted to approximately $2.8 million, or $0.20 per share, which he described as directly benefiting shareholders and being “immediately accretive to NAV.”

During the question-and-answer session, Reese said the company would “continue looking at what’s in the best interests of the shareholders” when asked whether incentive fee waivers could continue if earnings without the waiver were below the current dividend level. He added that GECC wants to cover its dividends and said the company has done “a pretty good job” generating income but has not done “as good job” protecting NAV, which he said will be the focus.

Deleveraging actions and liquidity

Reese highlighted balance sheet actions aimed at reducing refinancing risk, saying GECC called and repurchased all $57.5 million of GECCO notes due later this year. Once fully retired, he said the company will have no funded debt maturities until 2029, which he said removes near-term refinancing risk and improves flexibility.

On the call, Reese added that as of quarter-end there was still roughly $18 million of “2026 paper” outstanding that had been called but had not yet been paid off, which he said should occur within a few weeks. At that point, he said the company will have “probably completed our deleveraging for the moment,” while noting that another tranche (“our 8.5”) becomes callable at the end of the month.

CFO Keri Davis provided additional balance sheet metrics, saying the asset coverage ratio improved to 161.8% as of March 31, 2026, from 158.1% at the end of 2025. She said the debt-to-equity ratio improved to 1.62x from 1.72x in the prior quarter, reflecting the company’s continued deleveraging. Davis said total debt outstanding was $174 million and that GECC had no borrowings on its $50 million revolving credit facility.

Reese said GECC ended the quarter with approximately $10 million in cash, $4 million of liquid exchange-traded assets, and full availability under the revolver.

Portfolio positioning, investment rotation, and capital allocation

Reese said GECC continues to rotate the portfolio to improve credit quality. During the quarter, he said the company deployed approximately $22 million across 12 investments while exiting higher-risk positions. As a result, Reese said first-lien investments now represent nearly 75% of the corporate portfolio, which he described as the highest level in the company’s recent history and part of a deliberate shift toward senior secured investments with stronger downside protection.

He also said the company is expanding proprietary sourcing efforts, including closing three transactions sourced through institutional partnerships with approximately $15 million committed to new private investments. Reese said GECC closed one additional proprietary private investment in April and expects to close additional investments in the near future.

In discussing capital allocation tradeoffs, Reese told analysts GECC is “much more focused on more traditional private credit deals than broadly syndicated loans right now,” saying the company sees less risk in private credit at present. He said management weighs repurchases, debt paydown, and new investments based on risk-adjusted returns, adding that paying down debt is “riskless” and that GECC is “very serious about rebuilding NAV.”

Reese also highlighted activity under the stock repurchase program. Through May 1, 2026, he said GECC repurchased about 1% of shares outstanding at an average 36% discount to March 31 NAV, leaving roughly $9.5 million remaining under the $10 million authorization approved in October 2025.

Dividend, earnings, and outlook commentary

Davis said first-quarter 2026 NII was $5.0 million, or $0.36 per share, compared with $4.4 million, or $0.31 per share, in the fourth quarter of 2025. She attributed the roughly 13% quarter-over-quarter growth primarily to the incentive fee waiver, which she said accounted for approximately $0.20 per share.

Davis said net assets were $107.5 million, or $7.74 per share, as of March 31, 2026, compared with $112.9 million, or $8.07 per share, as of Dec. 31, 2025. She also said the board approved a quarterly dividend of $0.25 per share for the second quarter of 2026, which she said equated to an 18% annualized yield based on GECC’s May 1, 2026 closing price of $5.56.

On CLO cash flows, Reese said the company expects to receive cash flows “every quarter now,” noting that early-stage CLO investments can have a lag that created variability. He said GECC had already received $2.5 million in CLO cash flows in the current quarter, “kind of at the same rate as the first quarter,” and said that level was “probably a reasonable number” to consider going forward, while cautioning it will vary with CLO performance. Reese also said the company is not currently looking to make new CLO equity investments.

In closing remarks, Reese reiterated the company’s near-term priorities: “protect capital, methodically rebuild NAV, and generate sustainable net investment income.” He said GECC has increased first-lien exposure, retired near-term funded debt, and implemented greater rigor and transparency. Reese said the company’s liquidity and portfolio foundation position it to deliver “more consistent and durable returns over time.”

About Great Elm Capital Group NASDAQ: GECC

Great Elm Capital Group, Inc NASDAQ: GECC is a closed-end, externally managed business development company (BDC) that seeks to generate current income and capital appreciation by investing in private, middle-market companies. The firm targets senior secured loans, subordinated debt and equity securities of U.S. companies, with a focus on businesses offering stable cash flows and potential for growth. Industry sectors of interest include business services, consumer products, industrials and healthcare, among others.

GECC's investment strategy emphasizes portfolio diversification and active management.

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