Great Elm Capital Group Q3 Earnings Call Highlights

Key Points

• Third-quarter performance weakened: Net investment income fell to $2.4 million, or $0.17 per share, while NAV declined 7% to $7.40 per share, primarily due to $6.6 million in investment losses and lower CLO valuations.
• Management is emphasizing private credit and specialty finance: Great Elm deployed about $20 million across 10 investments and reported a stronger private-loan pipeline, citing more attractive risk-adjusted returns than broadly syndicated loans.
• Balance-sheet actions continued: Debt fell to approximately $154.9 million, liquidity stood near $50 million, and the company declared a $0.25 quarterly distribution. Great Elm also repurchased roughly 350,000 shares at an average 33% discount to NAV, although third-quarter income did not fully cover the dividend.

Great Elm Capital Group NASDAQ: GECC reported lower third-quarter net investment income and a decline in net asset value, while management said it is expanding its private-credit pipeline, reducing debt and continuing share repurchases at a discount to NAV.

Net investment income was $2.4 million, or $0.17 per share, in the third quarter of 2026, down from $4.5 million, or $0.32 per share, in the preceding quarter. Total investment income declined to $8.7 million from $10.9 million.

Chairman and Chief Executive Officer Jason Reese said the sequential decline largely reflected a $2 million dividend from an insurance-related investment received in the second quarter that did not recur in the third quarter. The company also resumed accruing incentive fees after prior fee waivers ended.

Reese told analysts that $0.17 per share was a more representative measure of the portfolio’s earnings power than the prior quarter’s $0.32, though he described it as likely “a lower end” level. He said management’s goal is to build earnings from that point through capital deployment, portfolio rotation and growth in private investments and specialty finance.

NAV Falls on Investment Losses and CLO Valuation

Net assets totaled $102.7 million, or $7.40 per share, as of Sept. 30, compared with $110.4 million, or $7.95 per share, at June 30. The approximately 7% quarterly decline in NAV was driven primarily by $6.6 million in net realized and unrealized investment losses.

The losses included a $3.3 million reduction in the fair value of the company’s CLO Formation joint venture investment. Reese said one of the underlying collateralized loan obligations had significant exposure to triple-C-rated credits and that third-party valuation experts had applied materially different discount rates in their discounted cash flow analyses.

Management said the CLO joint venture remains a core part of its strategy despite valuation pressure. The investment holds majority ownership positions in three CLOs with exposure to about $1.1 billion of first-lien loans and has generated approximately $25 million of cumulative distributions since inception, according to Reese.

Reese said the company remains comfortable with the credit quality of its existing borrowers and has reduced or exited positions where it saw potential concerns related to higher rates. He said the company has been cautious about deploying excess capital as it anticipated market disruption and could use its liquidity to pursue opportunities if spreads widen.

Private Credit and Specialty Finance in Focus

During the quarter, Great Elm deployed approximately $20 million across 10 investments, including three private transactions totaling nearly $9 million. Reese said the company’s private-loan pipeline is as strong as it has been and has expanded meaningfully from 90 days earlier.

Management said it currently sees better risk-adjusted returns in private credit than in broadly syndicated loans. Reese said the company is finding higher spreads, stronger documentation and opportunities to invest higher in the capital structure as fewer investors compete for private-credit deals. He added that the company is not currently pursuing CLO opportunities because new CLO equity returns are not compelling.

The company also highlighted its Great Elm Specialty Finance platform, which includes Great Elm Commercial Finance, Great Elm Healthcare Finance and Prestige. Cash distributions from the platform increased by more than tenfold from the prior quarter, management said.

Reese said distribution levels can vary, particularly in Prestige’s spot-factoring business, where purchased receivables generally turn over in 60 to 90 days. He said the business’s balance sheet had declined substantially through the end of the second quarter before growing back, and that margins can rise sharply as its portfolio expands because it has a fixed-cost component.

The company also received approximately $800,000 in distributions during the quarter from its CoreWeave-related equity investment. Cumulative distributions from that investment reached approximately $10.3 million, compared with its original $6 million investment, management said.

Debt Reduction, Liquidity and Dividend

Great Elm reduced total debt by nearly $40 million year to date, including the redemption of $6.5 million of its 8.5% GECCI notes during the third quarter. Total debt outstanding was approximately $154.9 million at Sept. 30, down from $166.4 million at June 30 and $194.4 million at the end of 2025.

• Asset coverage was 166.3% at Sept. 30, compared with 166.4% at the end of the prior quarter.
• Debt-to-equity remained 1.51x.
• Liquidity totaled about $50 million, including $6 million in cash and money market investments and $44 million of revolver availability.
• The company said it has no scheduled debt maturities until 2029.

The board declared a $0.25-per-share quarterly distribution, payable Dec. 31 to shareholders of record on Dec. 15. Chief Financial Officer Keri Davis said the distribution represented an annualized yield of about 13.5% based on Sept. 30 NAV.

Reese said management expects the $0.25 quarterly dividend to be sustainable, though third-quarter NII did not fully cover it. He also said the company has significant undistributed, or spillover, taxable income, though it does not disclose a specific amount.

Through Oct. 30, the company had repurchased approximately 350,000 shares at an average price of about $4.96 per share, a roughly 33% discount to Sept. 30 NAV. Reese said continued repurchases would be a reasonable expectation if the stock continues to trade at similar discounts, though capital allocation decisions will also consider investment opportunities.

About Great Elm Capital Group (NASDAQ:GECC)

Great Elm Capital Corp. NASDAQ: GECC is a closed-end, externally managed business development company that provides financing to middle-market companies. The company seeks to generate income and capital appreciation by investing primarily in privately negotiated debt securities, including senior secured loans, subordinated debt and other credit instruments.

In addition to debt investments, Great Elm Capital may invest in equity securities and other interests when appropriate. Its portfolio companies generally operate in a range of industries, and the company focuses primarily on businesses in the United States.

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