Great Elm Capital Group, Inc. (NASDAQ: GEC, “Great Elm”) announced
its financial results for the quarter ended March 31, 2020. Great
Elm will host a conference call and webcast on Tuesday, May 12,
2020 at 8:00 a.m. Eastern Time to discuss its fiscal third quarter
2020 financial results. Please see below for details.
BUSINESS OVERVIEW
Great Elm is a diversified, publicly-traded
holding company that seeks to build long-term shareholder value
across three verticals: Operating Companies, Investment Management
and Real Estate.
During the quarter ended March 31, 2020, we
issued $30 million in aggregate principal amount of unsecured
convertible notes, bringing our cash balance to approximately $39
million. This capital raise enhances our ability to pursue new
investment opportunities.
Select highlights from the fiscal third quarter
2020 include:
- Operating Companies:
- DME’s investments in people, process and technology have been
critical in adapting to uncertain business conditions caused by the
COVID-19 pandemic. DME continues to operate and serve patients in
all markets
- Continued to invest heavily in building a scalable
infrastructure capable of supporting multiple acquisitions per
year. Completed consolidation of multiple billing databases,
implemented mobile delivery technology and upgraded payment
processing technology
- Towards the end of the quarter ended March 31, 2020, physician
referrals started to decline in response to shelter-in-place
orders. The decline in referrals continued post quarter end
- For the three months ended March 31, 2020, generated $14.1
million of revenue, $1.4 million of net loss and $2.5 million of
adjusted EBITDA
- Revenue and profitability were negatively impacted by revenue
reserves of $1.1 million, approximately $0.8 million of which is
associated with receivables older than nine months
- Investment Management:
- For the three months ended March 31, 2020, generated $0.8
million of revenue, net income of $0.5 million and $0.3 million of
adjusted EBITDA
- For the three months ended March 31, 2020, generated management
fees of approximately $0.7 million, roughly unchanged
year-over-year
“Our DME business has been meaningfully impacted
by the COVID-19 pandemic. Nevertheless, DME’s scalable platform has
enabled it to adapt to challenging market conditions,” remarked
Peter A. Reed, Great Elm’s Chief Executive Officer. “Our Investment
Management business had a challenging quarter. In managing Great
Elm Capital Corp. (“GECC”), we are focused on preserving liquidity,
strengthening its balance sheet and positioning the portfolio to
capitalize on attractive potential investment opportunities amid
credit market dislocations.”
Alignment of Interest
The employees of Great Elm and Great Elm Capital
Management, Inc. (“GECM”) collectively own approximately 2.0
million shares of GEC stock, representing approximately 7% of its
outstanding shares. Additionally, the directors of Great Elm
collectively own or manage approximately 20% of Great Elm’s shares.
Altogether, insiders collectively own or manage approximately 27%
of the company’s outstanding shares, which Great Elm believes
fosters a strong alignment of interest between employees, directors
and the company’s shareholders.
Operating Companies
In the three months ended March 31, 2020, DME
generated $2.5 million of adjusted EBITDA. During the quarter, DME
experienced meaningful growth in new patient setups in major
product categories, including 19.0% in the key PAP segment,
year-over-year.
Toward the end of the quarter ended March 31,
2020, local government measures taken to curb the spread of
COVID-19 negatively impacted the referral pipeline for sleep
studies and new equipment setups.
To date, the investments we’ve made to enhance
our scalable platform have helped DME adjust to difficult market
conditions and should help position it for further growth in a more
normalized environment.
Investment Management
In the three months ended March 31, 2020,
Investment Management generated $0.3 million of adjusted EBITDA1,
approximately flat year over year. We continue to focus on
operational efficiency to drive free cash flow generation.
The first half of 2020 has been characterized by
remarkable volatility in the leveraged credit markets, driven by
the impact of the COVID-19 pandemic and violent swings in asset
prices. The fair value of managed portfolio investments, primarily
at GECC, was negatively impacted by this volatility. All GECC
portfolio companies are operating in a highly uncertain
environment. Nevertheless, a majority of these portfolio companies
are weathering the difficult economic environment with resilient
business models and sustainable cash flows.
We believe that prudent cash management is
paramount during bouts of market volatility. As such, in managing
GECC, we remain focused on maintaining significant liquidity and
strengthening its balance sheet.
Real Estate
In the three months ended March 31, 2020, Real
Estate generated $1.3 million in rental revenue and $1.2 million of
adjusted EBITDA.
FINANCIAL REVIEW: SEGMENT
FINANCIALS
As of March 31, 2020, Great Elm had four
operating segments: Durable Medical Equipment, Investment
Management, Real Estate and General Corporate.
Durable Medical Equipment
Three Months Ended March 31, 2020:
Revenue:
- During the three months ended March 31, 2020, Great Elm
recognized $14.1 million in total revenue vs. $11.8 million during
the same period in the prior year.
Net Income (Loss):
- During the three months ended March 31, 2020, Great Elm
recognized a net loss of $1.4 million vs. a net loss of $0.5
million during the same period in the prior year.
Adjusted EBITDA:
- During the three months ended March 31, 2020, Great Elm
recognized $2.5 million of adjusted EBITDA vs. $3.2 million during
the same period in the prior year.
Investment Management
Three Months Ended March 31, 2020:
Revenue:
- During the three months ended March 31, 2020, Great Elm
recognized total investment management revenue of $0.8 million vs.
$1.1 million during the same period in the prior year.
- During the three months ended March 31, 2020, Great Elm
recognized management fee revenue of $0.7 million, approximately
flat year-over-year.
Net Income (Loss):
- During the three months ended March 31, 2020, Great Elm
recognized net income of $0.5 million vs. a net loss of $0.2
million during the same period in the prior year.
Adjusted EBITDA1:
- During the three months ended March 31, 2020, Great Elm
recognized adjusted EBITDA of $0.3 million vs. $0.3 million during
the same period in the prior year.
Real Estate
Three Months Ended March 31, 2020:
Revenue:
- During the three months ended March 31, 2020, Great Elm
recognized $1.3 million in rental revenue vs. $1.3 million during
the same period in the prior year.
Net Income (Loss):
- During the three months ended March 31, 2020, Great Elm
recognized $0.07 million in net income vs. $0.04 million in net
income during the same period in the prior year.
Adjusted EBITDA:
- During the three months ended March 31, 2020, Great Elm
recognized $1.2 million in adjusted EBITDA vs. $1.1 million during
the same period in the prior year.
General Corporate
Three Months Ended March 31, 2020:
Revenue:
- During the three months ended March 31, 2020, Great Elm
recognized $0.03 million in revenue vs. approximately no revenue
during the same period in the prior year.
Net Income (Loss):
- During the three months ended March 31, 2020, Great Elm
recognized $11.1 million in net loss vs. $4.8 million in net income
during the same period in the prior year.
- $9.8 million of the $11.1 million net loss during the quarter
derived from an unrealized loss on our investment in GECC stock,
partially driven by market volatility related to COVID-19
Adjusted EBITDA:
- During the three months ended March 31, 2020, Great Elm
recognized $(1.4) million in adjusted EBITDA vs. $(1.5) million
during the same period in the prior year.
Conference Call &
Webcast
Great Elm will host a conference call and
webcast on Tuesday, May 12, 2020 at 8:00 a.m. Eastern Time to
discuss its third quarter 2020 financial results.
All interested parties are invited to
participate in the conference call by dialing +1 (833) 921-1653;
international callers should dial +1 (778)
560-2576. Participants should enter the Conference
ID 3197590 when asked. For a copy of the slide presentation that
will be referenced during the course of our conference call, please
visit:
https://www.greatelmcap.com/events-and-presentations/default.aspx.
The conference call will be webcast simultaneously at:
https://event.on24.com/wcc/r/2161471/C93C040DDE499685608275DC51E73996.
About Great Elm Capital Group,
Inc.
Great Elm is a publicly-traded holding company
that seeks to build a business across three operating verticals:
Operating Companies, Investment Management and Real Estate. Great
Elm’s website can be found at www.greatelmcap.com.
Safe Harbor Statement under the Private
Securities Litigation Reform Act of 1995
Statements in this press release that are
“forward-looking” statements, including statements regarding
expected growth, profitability and outlook involve risks and
uncertainties that may individually or collectively impact the
matters described herein. Investors are cautioned not to place
undue reliance on any such forward-looking statements, which speak
only as of the date they are made and represent Great Elm’s
assumptions and expectations in light of currently available
information. These statements involve risks, variables and
uncertainties, and Great Elm’s actual performance results may
differ from those projected, and any such differences may be
material. Among the key factors that could cause actual results to
differ materially from those projected in the forward-looking
statements are risks associated with the economic impact of the
COVID-19 pandemic on Great Elm’s businesses, including DME as well
as GECC and its portfolio investments. For information on certain
factors that could cause actual events or results to differ
materially from Great Elm’s expectations, please see Great Elm’s
filings with the SEC, including its most recent annual report on
Form 10-K and subsequent reports on Forms 10-Q and 8-K. Additional
information relating to Great Elm’s financial position and results
of operations is also contained in Great Elm’s annual and quarterly
reports filed with the SEC and available for download at its
website www.greatelmcap.com or at the SEC website www.sec.gov.
Non-GAAP Financial Measures
The SEC has adopted rules to regulate the use in
filings with the SEC, and in public disclosures, of financial
measures that are not in accordance with US GAAP, such as adjusted
earnings before interest, taxes, depreciation and amortization
(“Adjusted EBITDA”). Adjusted EBITDA is derived from methodologies
other than in accordance with US GAAP. Great Elm believes that
Adjusted EBITDA is an important measure for investors to use in
evaluating Great Elm’s businesses. In addition, Great Elm’s
management reviews Adjusted EBITDA as they evaluate acquisition
opportunities.
Adjusted EBITDA has limitations as an analytical
tool, and you should not consider it either in isolation from, or
as a substitute for, analyzing Great Elm’s results as reported
under US GAAP. Non-GAAP financial measures reported by Great Elm
may not be comparable to similarly titled amounts reported by other
companies.
Set forth below is a reconciliation of Adjusted
EBITDA to the most directly comparable US GAAP financial measure,
net income. The information in the table below represents Great
Elm’s assumptions and expectations in light of currently available
information. Great Elm’s actual performance results may differ from
those projected in the table below, and any such differences may be
material.
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2020 |
$ in
thousands |
|
Durable Medical Equipment |
|
Investment Management |
|
Real Estate |
|
General Corporate |
|
Consolidated |
EBITDA: |
|
|
|
|
|
|
|
|
|
|
Net income (loss) - GAAP |
|
$ |
(1,398 |
) |
|
$ |
491 |
|
|
$ |
67 |
|
$ |
(11,078 |
) |
|
$ |
(11,918 |
) |
Interest
expense |
|
|
906 |
|
|
|
39 |
|
|
|
654 |
|
|
155 |
|
|
|
1,754 |
|
Depreciation
& amortization |
|
|
2,354 |
|
|
|
150 |
|
|
|
430 |
|
|
1 |
|
|
|
2,935 |
|
Income tax
expense (benefit) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(148 |
) |
|
|
(148 |
) |
EBITDA |
|
$ |
1,862 |
|
|
$ |
680 |
|
|
$ |
1,151 |
|
$ |
(11,070 |
) |
|
$ |
(7,377 |
) |
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
Stock based
compensation |
|
|
- |
|
|
|
(373 |
) |
|
|
- |
|
|
106 |
|
|
|
(267 |
) |
Change in
contingent consideration |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
- |
|
GECC
Unrealized (gains) / losses |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
9,794 |
|
|
|
9,794 |
|
Dividend
income from GECC |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(490 |
) |
|
|
(490 |
) |
Transaction
and integration costs |
|
|
540 |
|
|
|
- |
|
|
|
- |
|
|
291 |
|
|
|
831 |
|
Pharmacy
buildout |
|
|
65 |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
65 |
|
DME
management and Monitoring fees |
|
|
59 |
|
|
|
- |
|
|
|
- |
|
|
(34 |
) |
|
|
25 |
|
Adjusted EBITDA |
|
$ |
2,526 |
|
|
$ |
307 |
|
|
$ |
1,151 |
|
$ |
(1,403 |
) |
|
$ |
2,581 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended March 31, 2020 |
$ in
thousands |
|
Durable Medical Equipment |
|
Investment Management |
|
Real Estate |
|
General Corporate |
|
Consolidated |
EBITDA: |
|
|
|
|
|
|
|
|
|
|
Net
income (loss) - GAAP |
|
$ |
(2,893 |
) |
|
$ |
451 |
|
|
$ |
187 |
|
$ |
(14,968 |
) |
|
$ |
(17,223 |
) |
Interest
expense |
|
|
2,839 |
|
|
|
122 |
|
|
|
1,967 |
|
|
155 |
|
|
|
5,083 |
|
Depreciation
& amortization |
|
|
7,344 |
|
|
|
508 |
|
|
|
1,291 |
|
|
2 |
|
|
|
9,145 |
|
Income tax
expense (benefit) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(5 |
) |
|
|
(5 |
) |
EBITDA |
|
$ |
7,290 |
|
|
$ |
1,081 |
|
|
$ |
3,445 |
|
$ |
(14,816 |
) |
|
$ |
(3,000 |
) |
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
Stock based
compensation |
|
|
- |
|
|
|
(100 |
) |
|
|
- |
|
|
334 |
|
|
|
234 |
|
Change in
contingent consideration |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(1,135 |
) |
|
|
(1,135 |
) |
GECC
Unrealized (gains) / losses |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
11,603 |
|
|
|
11,603 |
|
Dividend
income from GECC |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(1,567 |
) |
|
|
(1,567 |
) |
Other
(income) expense |
|
|
(3 |
) |
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
(3 |
) |
Transaction
and integration costs |
|
|
1,276 |
|
|
|
- |
|
|
|
- |
|
|
926 |
|
|
|
2,201 |
|
Pharmacy
buildout |
|
|
320 |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
320 |
|
DME
management and Monitoring fees |
|
|
189 |
|
|
|
- |
|
|
|
- |
|
|
(114 |
) |
|
|
75 |
|
Adjusted EBITDA |
|
$ |
9,071 |
|
|
$ |
981 |
|
|
$ |
3,445 |
|
$ |
(4,768 |
) |
|
$ |
8,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2019 |
$ in
thousands |
|
Durable Medical Equipment |
|
Investment Management |
|
Real Estate |
|
General Corporate |
|
Consolidated |
EBITDA: |
|
|
|
|
|
|
|
|
|
|
Net
income (loss) - GAAP |
|
$ |
(517 |
) |
|
$ |
(163 |
) |
|
$ |
38 |
|
$ |
4,843 |
|
|
$ |
4,201 |
|
Net income
from discontinued operations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(3,879 |
) |
|
|
(3,879 |
) |
Interest
expense |
|
|
998 |
|
|
|
47 |
|
|
|
667 |
|
|
- |
|
|
|
1,712 |
|
Depreciation
& amortization |
|
|
2,275 |
|
|
|
180 |
|
|
|
436 |
|
|
- |
|
|
|
2,891 |
|
Income tax
expense (benefit) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(1,229 |
) |
|
|
(1,229 |
) |
EBITDA |
|
$ |
2,756 |
|
|
$ |
64 |
|
|
$ |
1,141 |
|
$ |
(265 |
) |
|
$ |
3,696 |
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
Stock based
compensation |
|
|
- |
|
|
|
19 |
|
|
|
- |
|
|
83 |
|
|
|
102 |
|
GECC
Unrealized (gains) / losses |
|
|
599 |
|
|
|
- |
|
|
|
- |
|
|
(1,406 |
) |
|
|
(807 |
) |
Dividend
income from GECC |
|
|
(198 |
) |
|
|
- |
|
|
|
- |
|
|
(292 |
) |
|
|
(490 |
) |
Transaction
and integration costs |
|
|
7 |
|
|
|
219 |
|
|
|
- |
|
|
396 |
|
|
|
622 |
|
Pharmacy
buildout |
|
|
58 |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
58 |
|
DME
management and monitoring fees |
|
|
(5 |
) |
|
|
- |
|
|
|
- |
|
|
5 |
|
|
|
- |
|
Adjusted EBITDA |
|
$ |
3,217 |
|
|
$ |
302 |
|
|
$ |
1,141 |
|
$ |
(1,479 |
) |
|
$ |
3,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the nine months ended March 31, 2019 |
$ in
thousands |
|
Durable Medical Equipment |
|
Investment Management |
|
Real Estate |
|
General Corporate |
|
Consolidated |
EBITDA: |
|
|
|
|
|
|
|
|
|
|
Net
income (loss) - GAAP |
|
$ |
(91 |
) |
|
$ |
(859 |
) |
|
$ |
127 |
|
$ |
(1,261 |
) |
|
$ |
(2,084 |
) |
Net income
from discontinued operations |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(3,786 |
) |
|
|
(3,786 |
) |
Interest
expense |
|
|
2,365 |
|
|
|
135 |
|
|
|
1,995 |
|
|
- |
|
|
|
4,495 |
|
Depreciation
& amortization |
|
|
4,840 |
|
|
|
453 |
|
|
|
1,298 |
|
|
- |
|
|
|
6,591 |
|
Income tax
expense (benefit) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(1,229 |
) |
|
|
(1,229 |
) |
EBITDA |
|
$ |
7,114 |
|
|
$ |
(271 |
) |
|
$ |
3,420 |
|
$ |
(6,276 |
) |
|
$ |
3,987 |
|
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
Stock based
compensation |
|
|
- |
|
|
|
601 |
|
|
|
- |
|
|
343 |
|
|
|
944 |
|
GECC
Unrealized (gains) / losses |
|
|
1,010 |
|
|
|
- |
|
|
|
- |
|
|
917 |
|
|
|
1,927 |
|
Dividend
income from GECC |
|
|
(629 |
) |
|
|
- |
|
|
|
- |
|
|
(1,312 |
) |
|
|
(1,941 |
) |
Transaction
and integration costs |
|
|
551 |
|
|
|
219 |
|
|
|
- |
|
|
1,855 |
|
|
|
2,625 |
|
Pharmacy
buildout |
|
|
58 |
|
|
|
- |
|
|
|
- |
|
|
- |
|
|
|
58 |
|
DME
management and Monitoring fees |
|
|
65 |
|
|
|
- |
|
|
|
- |
|
|
(65 |
) |
|
|
- |
|
Adjusted EBITDA |
|
$ |
8,169 |
|
|
$ |
549 |
|
|
$ |
3,420 |
|
$ |
(4,538 |
) |
|
$ |
7,600 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) Prior year non-GAAP adjustments have been
updated to conform to current year presentation by removing
adjustments associated with the adoption of ASC 606 Contracts with
Customers.
Media & Investor
Contact:
Investor Relations+1 (617)
375-3006investorrelations@greatelmcap.com
Great Elm Capital (NASDAQ:GEC)
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Great Elm Capital (NASDAQ:GEC)
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