Great Elm Capital Group Q2 Earnings Call Highlights

Key Points

• NAV and balance-sheet strength improved: Net asset value rose nearly 3% sequentially to $7.95 per share, while asset coverage increased to 166.4% and debt-to-equity declined to 1.51 times. GECC also extended its revolving-credit facility to 2029 and eliminated debt maturities before then.
• Dividend coverage remained intact amid stronger operating performance: Net investment income covered the $0.25-per-share quarterly distribution, while total investment income increased to $10.9 million. Pre-incentive-fee NII rose about 66%, although reported NII declined because incentive-fee waivers were smaller.
• GECC is emphasizing private credit while maintaining portfolio quality: The company deployed about $30 million across 14 investments and is shifting toward private-credit opportunities, where it sees better risk-adjusted returns. Portfolio nonaccruals remained below 1%, and GECC continued repurchasing shares at a significant discount to NAV.

Great Elm Capital Group NASDAQ: GECC reported second-quarter 2026 results marked by higher net asset value, dividend coverage and continued portfolio-quality improvements, as management said it remained selective in a competitive credit environment.

Net assets rose to $110.4 million, or $7.95 per share, as of June 30, from $107.5 million, or $7.74 per share, at the end of the first quarter. Chief Financial Officer Keri Davis said the increase was primarily driven by realized and unrealized investment gains, including gains related to the company’s CoreWeave-related equity investment.

Chairman and CEO Jason Reese said NAV increased nearly 3% sequentially, while net investment income fully covered the company’s quarterly distribution. The board declared a $0.25-per-share quarterly distribution, payable Sept. 30 to shareholders of record on Sept. 15.

Income and Portfolio Activity

Total investment income increased to $10.9 million in the second quarter from $9.5 million in the first quarter. Davis attributed the increase primarily to a $2 million dividend from an investment in insurance-related preference shares.

Net investment income was $4.5 million, or $0.32 per share, compared with $5 million, or $0.36 per share, in the prior quarter. The sequential decline reflected a smaller incentive-fee waiver in the second quarter. Pre-incentive-fee NII increased about 66% to $4.5 million from $2.7 million, driven by higher investment income and lower interest expense, Davis said.

The company’s investment manager, GECM, waived approximately $0.9 million, or $0.06 per share, of incentive fees during the quarter. That followed a $2.8 million waiver in the first quarter. Through June 30, cumulative waived incentive fees totaled about $3.7 million, or $0.26 per share, over three consecutive quarters, according to management.

GECC deployed approximately $30 million across 14 investments during the quarter, including three private-credit transactions totaling about $12 million that were sourced through its proprietary partner network. The company also expanded its broadly syndicated loan portfolio.

Reese said the company is shifting more of its origination mix toward private credit, where management sees better risk-return characteristics than in the broadly syndicated loan market. However, he said GECC remains conservative because it does not view the overall market’s risk-reward profile as especially attractive.

“We have a pretty strong backlog of private credit deals,” Reese said, adding that such transactions generally take longer to close and receive thorough underwriting review.

CoreWeave, CLOs and Portfolio Quality

The company received $2.6 million in second-quarter distributions from its CoreWeave-related equity investment, bringing cumulative distributions to approximately $9.5 million. GECC’s original investment was about $6 million.

Reese said the distribution resulted from the investment’s sponsor selectively selling underlying shares based on market prices. GECC does not control the timing of the investment’s liquidation, he said, and future distributions will depend on additional share sales. Management noted that the investment remains subject to market volatility.

Collateralized loan obligation investments represented about 16% of portfolio fair value at quarter-end and provided exposure to more than 300 senior secured loans, according to management. Reese said the company has not made a new CLO investment recently, which could make distribution timing less variable. He also cited potential opportunities to refinance CLO liabilities as investments age, which could support cash flow.

GECC ended the quarter with less than 1% of its portfolio on nonaccrual, Reese said. The company’s Great Elm Specialty Finance platform also generated cash distributions during the quarter, with its commercial finance, healthcare finance and invoice factoring businesses each profitable, according to management.

Balance Sheet and Capital Allocation

Asset coverage improved to 166.4% at June 30 from 161.8% at March 31, while debt-to-equity improved to 1.51 times from 1.62 times. Total debt outstanding was $166.4 million at quarter-end.

During the quarter, GECC extended the maturity of its revolving credit facility from 2027 to 2029 and retired all outstanding GECCO notes, leaving no debt maturities until 2029, Reese said. After the quarter ended, the company called $6.5 million of GECCI notes, which Reese described as its highest-cost debt. The notes carried an 8.5% coupon, with a total GAAP cost above 9% when amortized expenses were included.

At quarter-end, the company had approximately $6 million in cash and money market investments and $39 million of available revolving-credit-facility capacity.

Management also continued repurchasing shares below NAV. From Jan. 1 through Aug. 4, GECC repurchased about 1% of its outstanding shares at an average 37% discount to June 30 NAV, leaving $9.5 million under its $10 million repurchase authorization. Reese said capital allocation decisions balance potential share repurchases, debt retirement and new investments.

Looking ahead, Reese said the company’s priorities remain protecting and growing NAV, generating sustainable NII and maintaining disciplined capital allocation.

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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