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Great Elm Group Reports Fiscal 2022 Second Quarter Financial Results

February 10, 2022
Company to Host Conference Call at 9:00 a.m. ET on February 11, 2022

WALTHAM, Mass., Feb. 10, 2022 (GLOBE NEWSWIRE) -- Great Elm Group, Inc. (“we,” “us,” “our,” “GEG,” or “Great Elm”), (NASDAQ: GEG), a diversified holding company, today announced financial results for its fiscal second quarter ended December 31, 2021.

Fiscal 2022 Second Quarter Operating and Financial Highlights
(All comparisons versus the prior-year period unless otherwise noted)

Consolidated:

  • Consolidated revenue for the second quarter was $16.7 million, compared to $15.3 million.
  • Consolidated net loss from continuing operations for the second quarter was $4.2 million, compared to net loss from continuing operations of $0.9 million.
  • Consolidated Adjusted EBITDA for the second quarter was $1.4 million, compared to $0.9 million.
  • As of June 30, 2021, we had approximately $952 million of net operating loss (NOL) carryforwards for federal income tax purposes.

Operating Companies:

  • Durable Medical Equipment (DME) grew total revenue for the second quarter by 8.1% to $15.7 million, compared to $14.5 million, driven by strong resupply sales despite challenging pandemic-related conditions.
  • DME net income for the second quarter was $0.9 million, compared to a net loss of $2.9 million.
  • DME Adjusted EBITDA for the second quarter was $2.6 million, compared to $1.9 million.
  • DME total revenue, net income and Adjusted EBITDA for the trailing 12 month period ended December 31, 2021 were $59.8 million, $3.9 million and $15.5 million, respectively, compared to $57.2 million, ($1.9) million and $14.1 million.
  • DME continued to report strong PAP resupply sales and significant improvements in revenue reserves.

Investment Management (IM):

  • IM grew total revenue for the second quarter by 34.3% to $1.0 million, compared to $0.8 million.
  • IM net loss for the second quarter was $2.6 million, compared to net income of $3.6 million.
  • IM reported no Adjusted EBITDA for the second quarter, approximately unchanged from the prior-year period.
  • On February 3, 2022, Great Elm Capital Corp. (GECC) announced that it purchased a majority ownership interest in Sterling Commercial Credit (SCC), a provider of asset-based loans to middle market companies throughout the United States, for total consideration of approximately $7.5 million.
    • $7.5 million total consideration consists of $4.9 million of cash and $2.6 million of GECC common stock issued at net asset value.
    • In connection with the acquisition, GECC also provided subordinated debt to SCC to fund growth initiatives.

Management Commentary

Peter A. Reed, Chief Executive Officer, stated, “In our IM segment, Great Elm Capital Corp. continues to make progress building its specialty finance platform. Its recent acquisition of Sterling Commercial Credit, coupled with portfolio companies Prestige Capital and Lenders Funding, broadens GECC’s product offerings to its customers and provides a proprietary source of attractive, risk adjusted returns for its investors. GECC remains focused on growing its specialty finance platform organically as well as through acquisitions. In addition, our DME business grew revenue and expanded profitability despite challenging conditions from the pandemic and supply chain disruptions.”

Alignment of Interest

A distinct attribute of Great Elm is the particularly strong alignment of interest among shareholders and the employees, directors, and other insiders of Great Elm. As of December 31, 2021, Great Elm’s employees and directors (including funds under their management) collectively own or manage approximately 30% of GEG’s total outstanding shares.

Financial Review

Discussion of Financial Results by Segment for the Fiscal Quarter ended December 31, 2021

Great Elm is a holding company with two operating segments: Operating Companies and Investment Management, with General Corporate representing unallocated costs and activity to arrive at consolidated operations.

Operating Companies

During the three months ended December 31, 2021, DME reported $15.7 million in total revenue, compared to $14.5 million during the same period in the prior year. The increase in revenue was due to organic growth in resupply sales, a significant reduction in bad debt expense and the impact of previously announced acquisitions.

During the three months ended December 31, 2021, DME reported net income of $0.9 million, compared to net loss of $2.9 million for the same period in the prior year. Net income increased largely due to revenue growth combined with expense management.

During the three months ended December 31, 2021, DME Adjusted EBITDA was $2.6 million, compared to $1.9 million in the prior-year period.

Investment Management

During the three months ended December 31, 2021, IM reported total revenue of $1.0 million, compared to $0.8 million during the same period in the prior year. Revenue for the quarter was higher due to an increase in the average assets on which such fees are calculated.

During the three months ended December 31, 2021, IM recognized a net loss of $2.6 million, compared to net income of $3.6 million during the same period in the prior year. Net income decreased primarily due to unrealized losses on our investment in GECC common shares during the period.

During the three months ended December 31, 2021, IM reported no Adjusted EBITDA, approximately unchanged from the same period in the prior year. Increased revenue was largely offset by increased compensation expenses due to additions to the investment team.

General Corporate

During the three months ended December 31, 2021, General Corporate recognized $0.2 million in revenue compared to no revenue during the same period in the prior year. Revenue increased slightly as a result of Forest management fees which commenced in December 2020 in connection with our holding company reorganization.

During the three months ended December 31, 2021, General Corporate recognized a net loss from continuing operations of $2.5 million, compared to a net loss from continuing operations of $1.6 million during the same period in the prior year.

During the three months ended December 31, 2021, General Corporate recognized ($1.2) million of Adjusted EBITDA, compared to Adjusted EBITDA of ($1.0) million during the same period in the prior year.

Fiscal 2022 Second Quarter Conference Call & Webcast Information
    
When:   Friday, February 11, 2022, 9:00 a.m. Eastern Time (ET)
     
Call:   All interested parties are invited to participate in the conference call by dialing +1 (888) 440-4537; international callers should dial +1 (646) 960-0669. Participants should enter the Conference ID 2595129 when asked.
     
Webcast:   The conference call will be webcast simultaneously and can be accessed at the following link: https://events.q4inc.com/attendee/572823991=. For a copy of the slide presentation accompanying the conference call, please visit: https://www.greatelmgroup.com/events-and-presentations.
     

About Great Elm Group, Inc.

Great Elm Group, Inc. (NASDAQ: GEG) is a publicly-traded holding company that is building a business across two operating verticals: Operating Companies and Investment Management. Great Elm Group, Inc.’s website can be found at www.greatelmgroup.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 revenue, Adjusted EBITDA, expected growth, profitability, acquisition opportunities 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. 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.greatelmgroup.com or at the SEC website www.sec.gov.

Please note that previously reported amounts below have been recast to 1) reflect the operations of our real estate business as discontinued operations; 2) reflect the full retrospective adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity; and 3) conform with current segment organization.

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.

Included in the financial tables below is a reconciliation of Adjusted EBITDA to the most directly comparable US GAAP financial measure, net income.

Media & Investor Contact:

Investor Relations
(617) 375-3006
investorrelations@greatelmcap.com



Great Elm Group, Inc.
Condensed Consolidated Balance Sheets (Unaudited)
Dollar amounts in thousands (except per share data)

ASSETS   December 31, 2021   June 30, 2021
Current assets:        
Cash and cash equivalents   $ 24,956     $ 24,382  
Accounts receivable     5,271       6,518  
Related party receivables     1,345       1,665  
Investments, at fair value (cost $4,46,47 and $4,53,26, respectively)     22,286       24,044  
Inventories     913       1,066  
Prepaid and other current assets     1,634       3,791  
Assets of consolidated funds        
Investments, at fair value (cost $26,758 and $26,814, respectively)     26,447       26,490  
Prepaid expenses and other assets     89       578  
Total current assets     82,941       88,534  
Property and equipment, net     738       981  
Equipment held for rental, net     6,893       7,391  
Identifiable intangible assets, net     8,110       8,928  
Goodwill     52,463       50,536  
Right of use assets     4,737       5,241  
Other assets     255       258  
Total assets   $ 156,137     $ 161,869  
LIABILITIES, NON-CONTROLLING INTEREST AND STOCKHOLDERS' EQUITY        
Current liabilities:        
Accounts payable   $ 5,405     $ 5,521  
Accrued expenses and other liabilities     5,841       6,955  
Deferred revenue     2,155       4,438  
Current portion of lease liabilities     1,986       1,920  
Current portion of capitalized equipment financing     2,571       1,974  
Liabilities of consolidated funds- accrued expenses and other     12,265       12,197  
Total current liabilities     30,223       33,005  
Lease liabilities, net of current portion     3,011       3,596  
Convertible notes (face value $35,205 and $34,346, respectively, including $16,637 and $16,231, respectively, held by related parties)     34,249       33,333  
Equipment financing debt, net of current portion     17       67  
Redeemable preferred stock of subsidiaries (held by related parties, face value $37,018)     35,639       35,529  
Other liabilities     348       915  
Total liabilities     103,487       106,445  
Commitments and Contingencies (Note 18)        
Contingently redeemable non-controlling interest     2,948       2,639  
Stockholders' equity        
Preferred stock, $0.001 par value; 5,000,000 authorized and zero outstanding     -       -  
Common stock, $0.001 par value; 350,000,000 shares authorized and 26,96,86,32 shares issued and 26,81,51,81 outstanding at December 31, 2021; and 26,61,39,13 shares issued and 25,94,81,00 outstanding at June 30, 2021     27       26  
Additional paid-in-capital     3,309,325       3,307,613  
Accumulated deficit     (3,268,841 )     (3,264,403 )
Total Great Elm Group, Inc. stockholders' equity     40,511       43,236  
Non-controlling interests     9,191       9,549  
Total stockholders' equity     49,702       52,785  
Total liabilities, non-controlling interest and stockholders' equity   $ 156,137     $ 161,869  
         


Great Elm Group, Inc.
Condensed Consolidated Statements of Operations (Unaudited)
Dollar amounts in thousands (except per share data)

    For the three months ended
December 31,
  For the six months ended
December 31,
    2021   2020   2021   2020
Revenues:                
Durable medical equipment sales and services revenue   $ 10,277     $ 9,544     $ 20,353     $ 18,757  
Durable medical equipment rental income     5,451       4,999       10,930       10,396  
Investment management revenues     1,021       760       2,004       1,533  
Total revenues     16,749       15,303       33,287       30,686  
                 
Operating costs and expenses:                
Cost of durable medical equipment sold and services     4,309       4,703       8,369       8,910  
Cost of durable medical equipment rentals(1)     1,734       1,621       3,584       3,536  
Durable medical equipment other operating expenses(2)     8,540       8,070       14,793       15,750  
Investment management expenses     1,969       916       3,156       1,642  
Depreciation and amortization     552       591       1,114       1,181  
Selling, general and administrative(3)     1,465       1,315       3,038       2,728  
Expenses of consolidated funds     45       8       97       8  
Total operating costs and expenses     18,614       17,224       34,151       33,755  
Operating loss     (1,865 )     (1,921 )     (864 )     (3,069 )
Dividends and interest income     644       1,325       1,297       1,854  
Net realized and unrealized (loss) gain on investments     (1,821 )     2,560       (1,835 )     658  
Net realized and unrealized gain on investments of consolidated funds     194       66       5       66  
Interest expense     (1,362 )     (1,102 )     (2,724 )     (2,246 )
Loss on extinguishment of debt     -       (1,866 )     -       (1,866 )
Other income, net     (14 )     33       2       30  
Loss from continuing operations, before income taxes     (4,224 )     (905 )     (4,119 )     (4,573 )
Income tax benefit (expense)     65       50       66       (49 )
Loss from continuing operations     (4,159 )     (855 )     (4,053 )     (4,622 )
Discontinued operations:                
Income from discontinued operations, net of tax     -       72       -       138  
Net loss   $ (4,159 )   $ (783 )   $ (4,053 )   $ (4,484 )
Less: net income (loss) attributable to non-controlling interest, continuing operations     79       (614 )     385       (734 )
Less: net income attributable to non-controlling interest, discontinued operations     -       17       -       30  
Net loss attributable to Great Elm Group, Inc.   $ (4,238 )   $ (186 )   $ (4,438 )   $ (3,780 )
Basic and diluted income (loss) per share from:                
Continuing operations   $ (0.16 )   $ (0.01 )   $ (0.17 )   $ (0.15 )
Discontinued operations     -       0.00       -       0.00  
Net loss   $ (0.16 )   $ (0.01 )   $ (0.17 )   $ (0.15 )
Weighted average shares outstanding                
Basic     26,462       25,678       26,222       25,626  
Diluted     26,462       25,678       26,222       25,626  
(1) Includes depreciation expense of:     1,597       1,457       3,285       3,205  
(2) Net of CARES Act Stimulus of:     -       -       2,321       -  
(3) Net of CARES Act Stimulus of:     -       -       84       -  
                 


Great Elm Group, Inc.
Reconciliation from EBITDA to Adjusted EBITDA - Quarterly
Dollar amounts in thousands (except per share data)

    For the three months ended December 31, 2021
$ in thousands   Durable Medical
Equipment
  Investment
Management
  General
Corporate
  Consolidated
EBITDA:                
Net income (loss) from continuing operations - GAAP   $ 937     $ (2,631 )   $ (2,465 )   $ (4,159 )
Interest expense     1,289       24       1,269       2,582  
Interest income from preferred stock     -       -       (1,220 )     (1,220 )
Depreciation & amortization     2,040       108       1       2,149  
Tax expense (benefit)     -       -       (65 )     (65 )
EBITDA     4,266       (2,499 )     (2,480 )     (713 )
Adjusted EBITDA                
Non-cash compensation     -       946       280       1,226  
Change in contingent consideration     (285 )     -       -       (285 )
Dividend income     -       (549 )     (95 )     (644 )
(Gains) / losses on investments     -       2,055       (428 )     1,627  
Other (income) expense     (1,584 )     -       1,598       14  
Transaction and integration related costs (2)     176       -       35       211  
DME management and monitoring fees     60       -       (60 )     -  
Adjusted EBITDA   $ 2,633     $ (47 )   $ (1,150 )   $ 1,436  

 

    For the three months ended December 31, 2020
$ in thousands   Durable Medical
Equipment
  Investment
Management
(1)
  General
Corporate
(1)
  Consolidated
EBITDA:                
Net income (loss) from continuing operations - GAAP   $ (2,878 )   $ 3,631     $ (1,608 )   $ (855 )
Interest expense     687       25       390       1,102  
Interest income from preferred stock     -       -       0       0  
Depreciation & amortization     1,919       127       1       2,047  
Tax expense (benefit)     -       -       (50 )     (50 )
EBITDA     (272 )     3,783       (1,267 )     2,244  
Adjusted EBITDA                
Non-cash compensation     -       197       88       285  
GECC dividend income     -       (1,322 )     -       (1,322 )
GECC unrealized (gains) / losses     -       (2,626 )     -       (2,626 )
Other (income) expense     (33 )     -       -       (33 )
Transaction and integration related costs (2)     2,127       -       229       2,356  
DME management and monitoring fees     62       -       (45 )     17  
Adjusted EBITDA   $ 1,884     $ 32     $ (995 )   $ 921  

 

    For the six months ended December 31, 2021
$ in thousands   Durable Medical
Equipment
  Investment
Management
  General
Corporate
  Consolidated
EBITDA:                
Net income (loss) from continuing operations - GAAP   $ 3,019     $ (2,771 )   $ (4,301 )   $ (4,053 )
Interest expense     2,576       48       2,538       5,162  
Interest income on preferred stock     -       -       (2,438 )     (2,438 )
Depreciation & amortization     4,182       217       1       4,400  
Tax expense (benefit)     -       -       (66 )     (66 )
EBITDA   $ 9,777     $ (2,506 )   $ (4,266 )   $ 3,005  
Adjusted EBITDA                
Non-cash compensation     -       1,342       652       1,994  
Change in contingent consideration     (448 )     -       -       (448 )
Dividend income     -       (1,103 )     (194 )     (1,297 )
(Gains) / Losses on investments     -       2,360       (530 )     1,830  
Other (income) expense     (2,144 )     -       2,142       (2 )
Transaction and integration costs (2)     395       -       219       614  
DME management and monitoring fees     190       -       (190 )     -  
Adjusted EBITDA   $ 7,770     $ 93     $ (2,167 )   $ 5,696  

 

    For the six months ended December 31, 2020
$ in thousands   Durable Medical
Equipment
  Investment
Management
(1)
  General
Corporate
(1)
  Consolidated
EBITDA:                
Net income (loss) from continuing operations - GAAP   $ (3,336 )   $ 2,147     $ (3,433 )   $ (4,622 )
Interest expense     1,396       51       799       2,246  
Interest income on preferred stock     -       -       0       0  
Depreciation & amortization     4,130       255       1       4,386  
Tax expense (benefit)     -       -       49       49  
EBITDA     2,190       2,453       (2,584 )     2,058  
Adjusted EBITDA                
Non-cash compensation     -       391       323       714  
Dividend income     -       (1,846 )     -       (1,846 )
(Gains) / losses on investments     -       (724 )     -       (724 )
Other (income) expense     (30 )     -       -       (30 )
Transaction and integration related costs (2)     2,266       -       261       2,527  
Location closure     54       -           54  
DME management and monitoring fees     178       -       (136 )     42  
Adjusted EBITDA   $ 4,658     $ 274     $ (2,136 )   $ 2,795  

(1) Previously reported prior year amounts have been recast to reflect the full retrospective adoption of ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity's Own Equity; and to conform with current segment organization.
(2) Transaction and integration related costs include costs to acquire and integrate acquired businesses.


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Source: Great Elm Group, Inc.

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