Great Elm Group, Inc. · NASDAQ:GEG
Great Elm — Great Elm Capital Group — Q3 FY2018 Earnings Presentation
34 slides from Great Elm's earnings presentation, May 15, 2018
Slide 1: Great Elm Capital Group Investor Presentation – Quarter Ended March 31, 2018
Great Elm Capital Group, Inc. Investor Presentation – Quarter Ended March 31, 2018 May 15, 2018 © 2018 Great Elm Capital Group, Inc.
Slide 2: Disclaimer
Disclaimer Statements in this presentation that are “forward-looking” statements, including, but not limited to, statements regarding potential or expected IRRs, cash-on-cash returns and net operating loss utilization, involve risks and uncertainties that may individually or collectively impact the
Slide 3: Table of Contents
Table of Contents Agenda Item: Pages: I. Organizational Overview 4–7 II. Investment Management 8 - 16 III. Real Estate 17 - 20 IV. Operating Companies 21 - 23 V. Financial Review 24 - 28 VI. Summary 28 - 30 VII. Q&A 31 VIII. Appendix 32 - 34 © 2018 Great Elm Capital Group, Inc. 3
Slide 4: Organizational Overview
Organizational Overview © 2018 Great Elm Capital Group, Inc. 4
Slide 5: Organizational Overview
Organizational Overview *All debt of subsidiaries is non-recourse to GEC Investment Management Real Estate Operating Companies Great Elm Capital Management, Inc. (“GECM”) Great Elm FM Acquisition, Inc. Operating Company 1 SEC Registered Investment Advisor Great Elm FM Acquisition, Inc. indirectl
Slide 6: Organizational Overview: Drivers of Shareholder Value
Organizational Overview: Drivers of Shareholder Value Grow GECC through additional debt issuances and equity raises, as well Investment as by acquiring other BDCs via M&A Management Increase assets under management (“AUM”) via new fund launches, SMAs and co-investments Seek opportunities, such
Slide 7: Organizational Overview: Alignment of Interest
Organizational Overview: Alignment of Interest Employee Share Employees of GEC/GECM collectively own over 1.6 million shares in Ownership GEC, representing approximately 6.3% of the shares outstanding1 Director Share The directors of GEC collectively own approximately 10.5% of GEC’s Ownership ou
Slide 8: Investment Management
Investment Management © 2018 Great Elm Capital Group, Inc. 8
Slide 9: Investment Management: A Scalable, High Margin Business
Investment Management: A Scalable, High Margin Business AUM GROWTH HIGH MARGINS AUM Growth Grow GECC’s AUM through the issuance Our Q3 and YTD Adjusted EBITDA of additional debt and equity, margins on earned but not recognized complemented with accretive revenues were 31.7% and 34.5% acquisition
Slide 10: Investment Management: Revenue Generation
Investment Management: Revenue Generation GECM charges management fees of 1.50% on GECC’s gross assets under Management & management, excluding cash Administration Fees GECM receives reimbursement of certain expenses per its administration agreement with GECC Incentive Fees: Subject to a quart
Slide 11: Investment Management: AUM by Vehicle and Revenue Growth
Investment Management: AUM by Vehicle and Revenue Growth1 ($ in M) $250 $3.0 GECC grew its investment $2.8 portfolio1 by approximately 18% $2.4 $2.5 quarter-over-quarter from the $200 $15 quarter ended 12/31/2017 to $2.3 3/31/2018 through utilizing the $2.0 Investment Management Revenue1 proceeds
Slide 12: Investment Management: BDC Growth Initiatives
Investment Management: BDC Growth Initiatives GECM intends to continue growing its Investment Management platform by focusing on growing GECC both organically and inorganically Addition of a credit facility and / or raise additional debt GECC has raised approximately $79 million in two baby bond
Slide 13: Investment Management: BDC Growth Initiatives
Investment Management: BDC Growth Initiatives GECM intends to continue growing its Investment Management platform by focusing on growing GECC both organically and inorganically Consider raising equity at times when common shares trade at or above net asset value (“NAV”); GECC requires that a major
Slide 14: Investment Management: BDC Growth Initiatives
Investment Management: BDC Growth Initiatives GECM intends to continue growing its Investment Management platform by focusing on growing GECC both organically and inorganically GECC can utilize its shares as acquisition currency to acquire other BDCs, increasing assets under management and potenti
Slide 15: Investment Management: Other Growth Initiatives
Investment Management: Other Growth Initiatives GECM intends to continue growing its Investment Management platform by focusing on fund launches, SMAs and co-investment opportunities Building on the team’s track record of success with co-investments, GECM has been in dialogue with institutional an
Slide 16: Investment Management: Avanti Update
Investment Management: Avanti Update Avanti is a leading provider of satellite-enabled data communications services in Europe, the Middle East and Africa. Avanti’s satellites utilize Ka-band frequencies, enabling higher speed and volume at lower cost. GECC’s debt investment in Avanti is secured by
Slide 17: Real Estate
Real Estate © 2018 Great Elm Capital Group, Inc. 17
Slide 18: Real Estate: A Refresher
Real Estate: A Refresher We view Credit Tenant Lease financings in Real Estate to High-Quality Tenants as an attractive business for GEC for the following reasons: Limited Equity High Level of Monetization Capital Non-Recourse of Significant Deployed Leverage NOLs We believe we are uniquely position
Slide 19: Real Estate: Fort Myers Transaction Cash Flows
Real Estate: Fort Myers Transaction Cash Flows CRIC IT Fort Myers LLC Summary of Cash Rent, Amortization and Mortgage Balances Senior Note Senior Note Sub. Note Sub. Note Remaining Mortgage Remaining Mortgage Over the course of Cash Rent Amortization Interest Amortization Interest Balance (Sr. Note)
Slide 20: Real Estate: Deal Pipeline Post-Fort Myers Transaction
Real Estate: Deal Pipeline Post-Fort Myers Transaction 50+ Opportunities Since announcing the Fort Myers Transaction in March 2018, our Real Estate Since Early team has received in excess of 50 opportunities to review March Approximately 75% of the deals we have reviewed have prices greater than $
Slide 21: Operating Companies
Operating Companies © 2018 Great Elm Capital Group, Inc. 21
Slide 22: Operating Companies: A Refresher
Operating Companies: A Refresher We are seeking to acquire controlling interests in Operating Companies that meet the following characteristics: Attractive Proven History High-Quality, Returns on of Generating Growing Capital Meaningful Businesses Employed By Earnings The Business Further, we are fo
Slide 23: Operating Companies: Deal Pipeline
Operating Companies: Deal Pipeline Significant During the past 18 months, we have seen a significant number of possible acquisition candidates, with enterprise values (“EV”) ranging from $5 to $200 Deal Flow million The bulk of the transactions we have been evaluating have an EV between $10 and $70
Slide 24: Financial Review
Financial Review © 2018 Great Elm Capital Group, Inc. 24
Slide 25: Financial Review: Quarterly Financial Results
Financial Review: Quarterly Financial Results Great Elm Capital Group, Inc. Quarterly Financial Review Three Months Ended March 31, 2018 Three Months Ended December 31, 2017 Three Months Ended March 31, 2017 Investment Investment Investment $ in K Management Real Estate Corporate Consolidated Manage
Slide 26: Financial Review: Year to Date Financial Review
Financial Review: Year to Date Financial Review Great Elm Capital Group, Inc. Year To Date Financial Review Nine Months Ended March 31, 2018 Nine Months Ended March 31, 2017 Investment Investment $ in K Management Real Estate Corporate Consolidated Management Real Estate Corporate Consolidated Renta
Slide 27: Financial Results: Earned vs. Recognized Fee Income
Financial Results: Earned vs. Recognized Fee Income Great Elm Capital Management, Inc. Earned vs. Recognized Fee Income Three Months Ended Nine Months Ended Inception to Date1 $ in K March 31, 2018 March 31, 2018 March 31, 2018 Management and Administration Fees: Management and Administration Fees -
Slide 28: Financial Results: Path to Cash Flow Break-Even
Financial Results: Path to Cash Flow Break-Even Including the dividend income generated from our holdings in GECC shares, Great Elm Capital is close to “cash flow” break-even for Corporate overhead Great Elm Capital Group, Inc. Cash Flow Break-Even Analysis Pro Forma Pro Forma $ in K Quarterly Annua
Slide 29: Summary
Summary © 2018 Great Elm Capital Group, Inc. 29
Slide 30: Summary: Drivers of Shareholder Value
Summary: Drivers of Shareholder Value Investment Focus on driving asset growth in GECC coupled with raising capital for SMAs / other investment vehicles. Through leveraging the existing team and infrastructure, we anticipate Management this growth could result in an improvement in cash flow genera
Slide 31: Q&A
Q&A © 2018 Great Elm Capital Group, Inc. 31
Slide 32: Appendix
Appendix © 2018 Great Elm Capital Group, Inc. 32
Slide 33: Appendix: Incentive Fee Reversal
Appendix: Incentive Fee Reversal In March 2018, the Company reversed approximately $2.1 million of incentive fees earned by GECM under the investment management agreement and recognized in revenue in prior periods. Generally speaking, GECM earns 20% of GECC’s pre-incentive fee net investment income
Slide 34: Appendix: Contact Information
Appendix: Contact Information Investor Relations Meaghan K. Mahoney Senior Vice President 800 South Street, Suite 230 Waltham, MA 02453 Phone: +1 (617) 375-3006 investorrelations@greatelmcap.com © 2018 Great Elm Capital Group, Inc. 34
Great Elm Capital Group — Q3 FY2018 Earnings Presentation on 6ix