Great Elm Capital Corp. Announces Fourth Quarter and Full Year 2023 Financial Results
- Strong NII for Q4 and full year 2023 exceeding dividends
- NAV growth and improved asset coverage ratio
- Raised $24 million in equity and extended Revolver maturity
- Paid special distribution and declared $0.35 quarterly dividend for Q1 2024
- CEO highlights successful growth strategy and investment progress
- Portfolio valued at $230.6 million with a weighted average current yield of 13.8%
- Total investment income of $9.2 million in Q4 2023
- Liquidity remains strong with $11.8 million in cash
- None.
Insights
The recent announcement by Great Elm Capital Corp. regarding its financial results for Q4 and the full year ended December 31, 2023, presents a robust performance with net investment income (NII) covering the base dividend for the fourth consecutive quarter. This indicates a stable income-generating capability, which is crucial for business development companies (BDCs) like GECC that rely on lending and investment income. The increase in net assets to $98.7 million and the improvement in the asset coverage ratio to 169.0% are positive indicators of the company's financial health and risk management practices.
The equity raise of $24 million at Net Asset Value (NAV) through a special purchase vehicle, with a significant investment by Great Elm Group, may suggest strong confidence by management in the company's future prospects. This capital infusion can potentially facilitate further investments and growth strategies, which is promising for shareholders. The amendment of the existing revolving line of credit with reduced borrowing rates also reflects a favorable credit environment and can enhance the company's financial flexibility.
However, investors should be aware of the potential risks associated with BDCs, such as credit risk and market volatility. The portfolio's weighted average current yield of 13.8% and the shift towards floating rate instruments (67% of debt investments) could expose the company to interest rate risk, although this may also provide some protection against rising rates. The announced special distribution and the approved quarterly dividend suggest a commitment to returning value to shareholders, but the sustainability of such distributions should be monitored in relation to the company's earnings and cash flow stability.
Great Elm Capital Corp.'s strategic moves, such as harvesting lower-yielding investments and reinvesting into higher-yielding, higher-quality investments, suggest a proactive approach to portfolio management. The diversification within their investment portfolio, including corporate credit and specialty finance, along with equity investments, positions GECC to capitalize on different market segments and potentially mitigate sector-specific risks.
From a market perspective, GECC's performance and strategic decisions could have broader implications for the BDC sector, potentially signaling a favorable investment environment for similar firms. The company's focus on improving asset quality and yield may encourage other BDCs to follow suit, potentially leading to sector-wide improvements in performance metrics.
It is also important to note the company's annualized dividend yield, which is notably high compared to the broader market. This could attract income-focused investors, especially in a low-interest-rate environment. However, the market's reaction to these financial results and strategic initiatives will be crucial to observe, as it could influence the stock's performance and the perceived attractiveness of BDCs as an investment category.
The financial results of Great Elm Capital Corp. reflect underlying economic conditions that BDCs operate within. The amendment of the revolving line of credit and the reduction in borrowing rates could be indicative of a lower interest rate environment, which generally benefits firms like GECC that rely on debt financing. Furthermore, the company's ability to raise equity at NAV and the increased asset coverage ratio may be interpreted as signs of a healthy private credit market and investor confidence in BDCs.
The company's focus on higher-yielding investments could be a response to the broader economic climate of seeking higher returns amidst potentially rising inflation. The increased allocation to floating rate instruments aligns with a strategy to hedge against interest rate risk, which is a prudent approach in uncertain economic times. The overall performance and strategies employed by GECC might be seen as a microcosm of the BDC industry's adaptations to the current economic landscape.
Long-term implications for stakeholders include the potential for sustained income distributions and NAV growth, provided the company continues to manage credit risk effectively and the economic environment remains conducive to their business model. The company's strategic growth and prudent financial management could serve as a positive signal to the market about the health of the BDC sector.
Company to Host Conference Call and Webcast at 8:30 AM ET Today
PALM BEACH GARDENS, Fla., Feb. 29, 2024 (GLOBE NEWSWIRE) -- Great Elm Capital Corp. (“we,” “our,” the “Company” or “GECC,”) (NASDAQ: GECC), a business development company, today announced its financial results for the fourth quarter and full year ended December 31, 2023.
Fourth Quarter and Other Recent Highlights:
- In February 2024, the Company raised
$24 million of equity at Net Asset Value from a special purchase vehicle (“SPV”), supported by a$6 million investment by Great Elm Group (“GEG”) into the SPV. - Net investment income (“NII”) for the quarter ended December 31, 2023 was
$3.3 million , or$0.43 per share, as compared to$3.1 million , or$0.40 per share, for the quarter ended September 30, 2023.- Fourth consecutive quarter of NII more than covering the base dividend.
- Full Year 2023 NII of
$12.5 million , or$1.65 per share, exceeded$1.50 per share of total declared dividends in 2023.
- Net assets increased to
$98.7 million , or$12.99 per share, on December 31, 2023, as compared to$97.9 million , or$12.88 per share, on September 30, 2023. - GECC’s asset coverage ratio improved to
169.0% as of December 31, 2023, as compared to168.4% as of September 30, 2023, and154.4% as of December 31, 2022. - Amended existing
$25 million revolving line of credit (the “Revolver”), extending the maturity to May 2027.- In addition, the rate in effect for any future Company borrowings was reduced by 50 basis points to SOFR plus 300 bps.
- Paid
$0.10 per common share special distribution in January 2024, attributable to the Company’s strong performance throughout 2023. - The Board of Directors approved a quarterly dividend of
$0.35 per share for the first quarter of 2024, equating to a13.1% annualized yield on the Company’s closing market price on February 28, 2024 of$10.66 .
Management Commentary
“We capped 2023 with another quarter of strong NII that exceeded our quarterly dividend, and finished with the highest cash income year in the Company’s history. Our NAV also continued to grow as we harvested lower-yielding investments and reinvested the capital into higher-yielding, higher-quality investments,” said Matt Kaplan, GECC’s Chief Executive Officer. “Additionally, 2024 is off to a great start as we recently raised
Financial Highlights – Per Share Data
| Q4/2022 | Q1/2023 | Q2/2023 | Q3/2023 | Q4/2023 | ||||||
| Earnings Per Share (“EPS”) | ( | |||||||||
| Net Investment Income (“NII”) Per Share | ||||||||||
| Pre-Incentive Net Investment Income Per Share | ||||||||||
| Net Realized and Unrealized Gains / (Losses) Per Share | ( | |||||||||
| Net Asset Value Per Share at Period End | ||||||||||
| Distributions Paid / Declared Per Share | ||||||||||
Portfolio and Investment Activity
As of December 31, 2023, GECC held total investments of
- 35 debt investments in corporate credit, totaling approximately
$164.5 million and representing71.3% of the fair market value of the Company’s total investments. Secured debt investments comprised a substantial majority of the fair market value of the Company’s debt investments. - 2 debt investments in specialty finance, totaling approximately
$34.7 million and representing15.1% of the fair market value of the Company’s total investments. - 1 equity investment in a specialty finance company, totaling approximately
$17.5 million , representing7.6% of the fair market value of the Company’s total investments. - 2 dividend paying equity investments, totaling approximately
$6.8 million , representing2.9% of the fair market value of the Company’s total investments. - Other equity investments, totaling approximately
$7.1 million , representing3.1% of the fair market value of the Company’s total investments.
As of December 31, 2023, the weighted average current yield on the Company’s debt portfolio was
During the quarter ended December 31, 2023, we deployed approximately
During the quarter ended December 31, 2023, we monetized, in part or in full, 32 investments for approximately
Financial Review
Total investment income for the quarter ended December 31, 2023 was
Net realized and unrealized gains for the quarter ended December 31, 2023 were approximately
Liquidity and Capital Resources
As of December 31, 2023, cash and money market securities totaled approximately
As of December 31, 2023, total debt outstanding (par value) was
Distributions
The Company’s Board of Directors has approved a quarterly cash distribution of
The distribution equates to a
Conference Call and Webcast
GECC will discuss these results in a conference call today at 8:30 a.m. ET.
| Conference Call Details | |
| Date/Time: | Thursday, February 29, 2024 – 8:30 a.m. ET |
| Participant Dial-In Numbers: | |
| (United States): | 877-407-0789 |
| (International): | 201-689-8562 |
To access the call, please dial-in approximately five minutes before the start time and, when asked, provide the operator with passcode “GECC”. An accompanying slide presentation will be available in pdf format via the “Investor Relations” section of Great Elm Capital Corp.’s website here after the issuance of the earnings release.
Webcast
The call and presentation will also be simultaneously webcast over the internet via the “News & Events” section of GECC’s website or by clicking on the conference call link here.
About Great Elm Capital Corp.
GECC is an externally managed business development company that seeks to generate current income and capital appreciation by investing in debt and income generating equity securities, including investments in specialty finance businesses.
Cautionary Statement Regarding Forward-Looking Statements
Statements in this communication that are not historical facts are “forward-looking” statements within the meaning of the federal securities laws. These statements are often, but not always, made through the use of words or phrases such as “expect,” “anticipate,” “should,” “will,” “estimate,” “designed,” “seek,” “continue,” “upside,” “potential” and similar expressions. All such forward-looking statements involve estimates and assumptions that are subject to risks, uncertainties and other factors that could cause actual results to differ materially from the results expressed in the statements. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking statements are: conditions in the credit markets, rising interest rates, inflationary pressure, the price of GECC common stock and the performance of GECC’s portfolio and investment manager. Information concerning these and other factors can be found in GECC’s Annual Report on Form 10-K and other reports filed with the Securities and Exchange Commission. GECC assumes no obligation to, and expressly disclaims any duty to, update any forward-looking statements contained in this communication or to conform prior statements to actual results or revised expectations except as required by law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.
This press release does not constitute an offer of any securities for sale.
Endnotes:
(1) This includes new deals, additional fundings (inclusive of those on revolving credit facilities), refinancings and capitalized PIK income. Amounts included herein do not include investments in short-term securities, including United States Treasury Bills.
(2) This includes scheduled principal payments, prepayments, sales and repayments (inclusive of those on revolving credit facilities). Amounts included herein do not include investments in short-term securities, including United States Treasury Bills.
Media & Investor Contact:
Investor Relations
investorrelations@greatelmcap.com
GREAT ELM CAPITAL CORP.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
Dollar amounts in thousands (except per share amounts)
| December 31, 2023 | December 31, 2022 | |||||||
| Assets | ||||||||
| Investments | ||||||||
| Non-affiliated, non-controlled investments, at fair value (amortized cost of | $ | 183,335 | $ | 171,743 | ||||
| Non-affiliated, non-controlled short-term investments, at fair value (amortized cost of | 10,807 | 76,127 | ||||||
| Affiliated investments, at fair value (amortized cost of | 1,067 | 1,304 | ||||||
| Controlled investments, at fair value (amortized cost of | 46,210 | 51,910 | ||||||
| Total investments | 241,419 | 301,084 | ||||||
| Cash and cash equivalents | 953 | 587 | ||||||
| Receivable for investments sold | 840 | 396 | ||||||
| Interest receivable | 2,105 | 3,090 | ||||||
| Dividends receivable | 1,001 | 1,440 | ||||||
| Due from portfolio company | 37 | 1 | ||||||
| Deferred financing costs | 335 | 226 | ||||||
| Prepaid expenses and other assets | 135 | 3,288 | ||||||
| Total assets | $ | 246,825 | $ | 310,112 | ||||
| Liabilities | ||||||||
| Notes payable (including unamortized discount of | $ | 140,214 | $ | 143,152 | ||||
| Revolving credit facility | - | 10,000 | ||||||
| Payable for investments purchased | 3,327 | 70,022 | ||||||
| Interest payable | 32 | 42 | ||||||
| Accrued incentive fees payable | 1,431 | 565 | ||||||
| Distributions payable | 760 | - | ||||||
| Due to affiliates | 1,195 | 1,042 | ||||||
| Accrued expenses and other liabilities | 1,127 | 480 | ||||||
| Total liabilities | $ | 148,086 | $ | 225,303 | ||||
| Commitments and contingencies | $ | - | $ | - | ||||
| Net Assets | ||||||||
| Common stock, par value | $ | 76 | $ | 76 | ||||
| Additional paid-in capital | 283,795 | 284,107 | ||||||
| Accumulated losses | (185,132 | ) | (199,374 | ) | ||||
| Total net assets | $ | 98,739 | $ | 84,809 | ||||
| Total liabilities and net assets | $ | 246,825 | $ | 310,112 | ||||
| Net asset value per share | $ | 12.99 | $ | 11.16 | ||||
GREAT ELM CAPITAL CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollar amounts in thousands (except per share amounts)
| For the Year Ended December 31, | |||||||||||||
| 2023 | 2022 | 2021 | |||||||||||
| Investment Income: | |||||||||||||
| Interest income from: | |||||||||||||
| Non-affiliated, non-controlled investments | $ | 23,582 | $ | 15,325 | $ | 13,100 | |||||||
| Non-affiliated, non-controlled investments (PIK) | 2,281 | 1,220 | 387 | ||||||||||
| Affiliated investments | 128 | 97 | 910 | ||||||||||
| Affiliated investments (PIK) | - | 58 | 4,874 | ||||||||||
| Controlled investments | 2,677 | 1,984 | 646 | ||||||||||
| Controlled investments (PIK) | 233 | - | - | ||||||||||
| Total interest income | 28,901 | 18,684 | 19,917 | ||||||||||
| Dividend income from: | |||||||||||||
| Non-affiliated, non-controlled investments | 1,147 | 1,815 | 1,713 | ||||||||||
| Controlled investments | 2,331 | 2,539 | 2,634 | ||||||||||
| Total dividend income | 3,478 | 4,354 | 4,347 | ||||||||||
| Other commitment fees from non-affiliated, non-controlled investments | 3,075 | 1,155 | - | ||||||||||
| Other income from: | |||||||||||||
| Non-affiliated, non-controlled investments | 264 | 236 | 683 | ||||||||||
| Non-affiliated, non-controlled investments (PIK) | 107 | - | - | ||||||||||
| Affiliated investments (PIK) | - | - | 282 | ||||||||||
| Controlled investments | - | - | 25 | ||||||||||
| Total other income | 371 | 236 | 990 | ||||||||||
| Total investment income | $ | 35,825 | $ | 24,429 | $ | 25,254 | |||||||
| Expenses: | |||||||||||||
| Management fees | $ | 3,539 | $ | 3,205 | $ | 3,182 | |||||||
| Incentive fees | 3,132 | 565 | (4,323 | ) | |||||||||
| Administration fees | 1,522 | 938 | 673 | ||||||||||
| Custody fees | 81 | 53 | 54 | ||||||||||
| Directors’ fees | 205 | 215 | 233 | ||||||||||
| Professional services | 1,772 | 1,967 | 1,937 | ||||||||||
| Interest expense | 11,742 | 10,690 | 10,428 | ||||||||||
| Other expenses | 1,003 | 937 | 737 | ||||||||||
| Total expenses | $ | 22,996 | $ | 18,570 | $ | 12,921 | |||||||
| Incentive fee waiver | - | (4,854 | ) | - | |||||||||
| Net expenses | $ | 22,996 | $ | 13,716 | $ | 12,921 | |||||||
| Net investment income before taxes | $ | 12,829 | $ | 10,713 | $ | 12,333 | |||||||
| Excise tax | $ | 287 | $ | 252 | $ | 48 | |||||||
| Net investment income | $ | 12,542 | $ | 10,461 | $ | 12,285 | |||||||
| Net realized and unrealized gains (losses): | |||||||||||||
| Net realized gain (loss) on investment transactions from: | |||||||||||||
| Non-affiliated, non-controlled investments | $ | (1,246 | ) | $ | (15,262 | ) | $ | (5,770 | ) | ||||
| Affiliated investments | - | (110,784 | ) | (4,162 | ) | ||||||||
| Controlled investments | (3,461 | ) | - | 293 | |||||||||
| Total net realized gain (loss) | (4,707 | ) | (126,046 | ) | (9,639 | ) | |||||||
| Net change in unrealized appreciation (depreciation) on investment transactions from: | |||||||||||||
| Non-affiliated, non-controlled investments | 15,040 | 267 | 19,019 | ||||||||||
| Affiliated investments | (226 | ) | 106,945 | (33,763 | ) | ||||||||
| Controlled investments | 2,684 | (7,210 | ) | 1,823 | |||||||||
| Total net change in unrealized appreciation (depreciation) | 17,498 | 100,002 | (12,921 | ) | |||||||||
| Net realized and unrealized gains (losses) | $ | 12,791 | $ | (26,044 | ) | $ | (22,560 | ) | |||||
| Net increase (decrease) in net assets resulting from operations | $ | 25,333 | $ | (15,583 | ) | $ | (10,275 | ) | |||||
| Net investment income per share (basic and diluted): | (1 | ) | $ | 1.65 | $ | 1.67 | $ | 3.02 | |||||
| Earnings per share (basic and diluted): | (1 | ) | $ | 3.33 | $ | (2.49 | ) | $ | (2.52 | ) | |||
| Weighted average shares outstanding (basic and diluted): | (1 | ) | 7,601,958 | 6,251,391 | 4,073,454 | ||||||||
(1) Weighted average shares outstanding and per share amounts have been adjusted for the periods shown to reflect the six-for-one reverse stock split effected on February 28, 2022 on a retroactive basis.
FAQ
What are Great Elm Capital Corp.'s (GECC) financial highlights for Q4 and full year 2023?
What equity was raised by GECC recently?
What was the total investment income for GECC in Q4 2023?
What was the quarterly dividend declared by GECC for Q1 2024?
What is the current value of GECC's portfolio?
What is the CEO's commentary on GECC's performance?
When is the conference call scheduled for GECC's financial results discussion?
