Great Elm Capital Corp.

Greetings and welcome to the Great Elm Capital Corporation fourth quarter 2024 financial results call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Peter Sousa with ICR. Thanks. You may begin.

Hello, and thank you, everyone, for joining us for Great Elm Capital Corp's fourth quarter and full year 2024 earnings conference call. If you'd like to be added to our distribution list, you can email investorrelations at greatelmcap.com, or you can sign up for alerts directly on our website, www.greatelmcc.com. I'd like to note the slide presentation posted on our website accompanying today's call. The slide presentation can be found on our website under Events and Presentations. On our website, you can also find our earnings release and FCC filings. I'd like to call your attention to the customary safe harbor statement regarding forward-looking information. Also, please note that nothing in today's call constitutes an offer to sell or a solicitation of offers to purchase our securities. Today's conference call includes forward-looking statements, and we ask that you refer to Great Elm Capital Corp's filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Capital Corp does not undertake to update its forward-looking statements unless required by law. To obtain copies of SEC filings, please visit Great Elm Capital Corp's website under Financials, SEC Filings, or visit the SEC's website. Hosting the call today is Matt Kaplan, Great Elm Capital Corp's Chief Executive Officer. We'll be joined by Chief Financial Officer, Kerry Davis, Chief Compliance Officer and General Counsel, Adam Kleinman, and Mike Teller, President of Great Elm Specialty Finance. I'll now turn the call over to GCC CEO, Matt Kaplan.

Thanks, Peter, and thank you all for joining us today. This call marks the three-year anniversary of my appointment as CEO of Great Elm Capital Corp. Today, I will highlight our fourth quarter earnings, but I would also like to take a step back and review what we have accomplished over the past few years, and then provide an overview of how GECC is positioned for growth in 2025 and beyond. Starting with slide three, our fourth quarter earnings. Our investment portfolio was generally stable in the quarter. with the step down in NAV per share driven substantially by our dividend exceeding NII in the period. Our total investment income, and therefore NII, was impacted by temporary items that we believe are going to reverse in 2025. While our fourth quarter reflects the general step down we communicated during our previous earnings call, the impact was somewhat more pronounced this quarter due to two main factors. the uneven distribution patterns typical of CLOs in their early stages, and second, the short-term impact we see to NII following our equity raises through SPVs, including the December equity issuance at NAV. In addition, charges related to the refinancing of our January 2025 debt maturity and the shelf led to a further three-cent impact on NII per share. While the level of rapid growth we experienced resulted in some anticipated short-term noise in our numbers in 2024, it has set us up for a strong 2025. Given the confidence in our portfolio and overall outlook, in December, our Board declared a 6% increase to our quarterly base dividend to $0.37 per share for the first quarter of 2025. up from $0.35 per share last quarter, showcasing our commitment to delivering meaningful value to our shareholders. I am confident that we are well positioned to cover the increased dividend in the first quarter and over 2025. However, before going into where we stand today, it is important to review what we have accomplished over the past few years at GECC. In March 2022, I took over as CEO and we can break down the last three years into three phases. Year one, clean up and reposition the business. Year two, upgrade the portfolio and execute on the revamp strategy. Year three, optimize our portfolio and grow. Quite frankly, I walked into a challenging situation in year one. In 2022, we had to take some pain to reduce our exposure to non-cash generating investments and reduce portfolio concentration. Great Elm Group provided significant support in 2022, waiving previously accrued incentive fees and providing equity capital to ensure GECC was properly capitalized. After we made significant strides on cleaning up the portfolio in 2022 and on the back of a rotation into higher quality credits, Our performance over the last few years is quite impressive in my view. If you look at slide five, you can see how our focus on cash generation and the increase in scale has literally paid dividends to our shareholders. Over 2023 and 2024, GECC's market capitalization doubled from around $60 million to over $120 million. We returned $2.95 per share to shareholders in cash distributions. NAV per share has increased by over $0.60 per share. We've generated over $2.90 of NII per share and reported net earnings in excess of $3.60 per share out-earning our distributions. And total return on our stock was nearly 80% over the period. outperforming the Cliffwater and S&P BDC indices. We believe this return is largely driven by our fundamentals with the two-year cumulative return on net asset value per share in excess of 30%, coupled with the narrowing of our discount to NAV from approximately 25% to less than 10% at the end of 2024. Moving to slide six, you can see the progression of our asset base. with large asset losses in the legacy and cleanup years compared to a strong up and to the right showing over 2023 and 2024 on our net assets. Turning to slide seven, this is where you can see our significant growth in investable assets focused in 2024. In 2024, we have executed on two incredible initiatives. One, raising equity at net asset value, and two, forming a distinctive joint venture with a high-quality partner to invest in CLOs. However, on a short-term basis, each time we raise equity or expand the CLOJV, it is disrupted to our income generation temporarily, but we believe it improves GECC's ability to generate strong, long-term returns for its shareholders over time. This uneven cadence of our earnings from equity raises is driven by the cash deployment drag on an immediate step change in share count, as well as from a delay in leveraging the equity raises and the further cash drag from that. When coupling this with the fact that cash distributions from CLOs as they get formed are uneven at the beginning of their life, the magnitude of these actions can be amplified depending on the timing of each. Unfortunately, This lumpiness to our earnings was exacerbated in the fourth quarter of 2024 with the equity raise and timing of closing our second CLO in the JV. This shows up in the TII yield chart on the right of slide seven, which shows a modest step down in overall portfolio yield in 2024. To further illustrate this point, GECC received cash distributions from the CLO JV of $3.2 million in 3Q24. half a million in 4Q24, and to date in the first quarter of 2025, we have received $3.8 million of distributions. And based on our current expectations, the JV is poised to see second quarter 2025 distributions in excess of the first quarter. We expect these fluctuations will begin to dampen as we add CLO investments and continue to leverage our scale. Going from the first to the second CLO, expectedly, we'll have more short-term oscillation in aggregate cash flows for the JV than when we go from the fifth to the sixth CLO investment. For these reasons, and considering our capital raising and deployment initiatives, we think it is better to review GECC on a four-quarter basis rather than benchmarking it quarter to quarter. As we look into the first quarter, I believe we are well positioned to cover our increased distribution level. And while still early, Based on our expectations of timing for certain items, I expect our second quarter income will exceed that of our first quarter. Clearly, future equity raises and CLOs could change the cadence. But as we grow, the lumpiness from each new CLO should have less of an impact on our financials. Nonetheless, over 2025, we are set up to cover the dividend and our portfolio is well positioned. We enter the next chapter of Great Elm with momentum. scale, and a roadmap for continued success, confident in our ability to generate sustainable returns and deliver increasing value to our shareholders in 2025 and beyond. With that, I'd like to hand the call over to Carrie Davis to discuss our fourth quarter 2024 performance.