Great Elm Group, Inc.

Good morning. My name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Great Elm Group Fiscal 2023 First Quarter Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you.

Adam Yates, Managing Director. You may begin. Thank you, and good morning, everyone.

Thank you for joining us for Great Elm Group's Fiscal First Quarter 2023 Earnings Conference Call. As a reminder, this conference call is being recorded on Tuesday, November 15, 2022. If you would 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.greatelmgroup.com. The slide presentation accompanying today's conference call and webcast can be found on our website under Events and Presentations. A link to the webcast is also available on our website, as well as in the press release that was disseminated to announce the quarterly results. Today's conference call includes four looking statements, and we ask that you refer to Great Elm Group's filings with the SEC for important factors that could cause actual results to differ materially from those statements. Great Elm Group does not undertake to update its forward-looking statements unless required by law. In addition, during today's call, management will refer to certain non-GAAP financial measures. Reconciliations to the most comparable financial measures are included in our earnings release. To obtain copies of our SEC filings, please visit Great Elm Group's website under Financial Information and select SEC Filing. Great Elm Group is a diversified holding company. that is building a business across two operating verticals, investment management and operating companies. In investment management, we seek to drive sustainable growth in assets under management across Great Elm Capital Corp., a publicly traded BDC, Monomoy REIT, and other investment vehicles. In operating companies, we manage Great Elm Durable Medical Equipment, DME, a distributor of respiratory care equipment and sleep study services. Hosting the call today is Peter Reed, Great Elm Group's Chief Executive Officer. I will now turn the call over to Peter. Welcome, everyone, and thank you for joining us today. I am joined this afternoon by our President, Adam Kleinman, and our CFO, Brent Pearson. In the first quarter of fiscal 2023, we generated strong growth across both of our operating segments. Investment management revenues were up nearly 90% year over year, Assets under management were up 3% during the quarter to $624 million as of September 30, 2022. Fee paying AUM grew by 5% during the fiscal first quarter to $428 million. At Monomoy, we maintain a strong backlog of transactions that have the potential to provide further growth, and at GECC, we are focused on prudently deploying rights offering proceeds. both of which are expected to lead to increased AUM and related fees. Yesterday, GECC announced that it launched Great Elm Healthcare Finance with an affiliate of Circadia Commercial Mortgage, its strategic minority partner, to offer a wide range of capital solutions to U.S.-based healthcare operators. We believe ongoing initiatives to further diversify GECC's portfolio to generate attractive returns across cycles will enhance growth, and as a result, GEG's management fees. Stepping back, we remain focused on our long-term strategy of managing a scalable and diversified portfolio of long-duration, permanent capital vehicles that generate fee revenue, and we continue to invest in the business to drive sustainable growth. Our diverse investment vehicles are well positioned to deploy capital into attractive credit, specialty finance, and real estate investments in dislocated markets. As our investment management business continues to scale, growth in AUM will drive increasing management fees and profits, reflecting high incremental margins. A higher interest rate backdrop also bodes well for performance fees. which are typically based on excess returns above a fixed rate hurdle. In addition, we maintain a strong and liquid balance sheet enhanced by our recent fixed rate long duration bond offering in June 2022. We intend to continue to make strategic growth investments into existing funds and acquire management rights to long duration asset management businesses that utilize the expertise of our board of directors and management team. Turning to our results for the quarter ended September 30, 2022, we posted strong financial performance, highlighted by consolidated revenue growth of 12% on a year-over-year basis. Investment management revenue grew by approximately 90% versus prior year quarter, driven by higher AUM and management fees related to GECC and Monomoy. Next, our durable medical equipment business continued to deliver strong growth in revenue and profitability. For the fiscal first quarter of 2023, revenues were up 7% year over year with adjusted EBITDA up 19%, excluding benefits from government stimulus payments. Beyond our strong fundamentals and constructive growth outlook, we maintain two important differentiating factors from a financial and shareholder alignment perspective. As of June 30, 2022, We have approximately $821 million of net operating loss carry forward, which shield future earnings from federal income taxes and enhance the financial attractiveness of potential acquisitions of other long-duration capital vehicles. In addition, Great Elm employees and directors, including funds under their management, collectively own or manage approximately 42% of GEG's outstanding shares, which reinforces the strong alignment of interests between management and shareholders.