Great Elm Capital Group Q4 Earnings Call Highlights

Great Elm Capital Group (NASDAQ:GECC) executives told investors that the company used the fourth quarter and the period following year-end to tighten governance, improve underwriting oversight, and further reposition the portfolio amid what management described as a more demanding credit environment. The company reported higher sequential income and a sharp increase in net investment income (NII), while net asset value (NAV) fell meaningfully due to market volatility and credit-related marks tied to restructurings and liability management exercises.

Leadership and governance changes

Newly appointed Executive Chairman Jason Reese said the board elevated his role to “enhance direct engagement with management and increase active oversight” as credit conditions became more challenging. Reese also thanked outgoing board member Matthew Drapkin for his service, noting Drapkin will continue as Vice Chairman of Great Elm Group, the parent company of GECC’s investment manager.

Reese outlined several actions management said were taken in response to recent performance and NAV pressure, including an incentive fee waiver, investment team additions, and portfolio repositioning.

• Incentive fee waiver: Great Elm Capital Management waived all accrued and unpaid incentive fees through March 31, 2026. Reese said that as of year-end this represented an approximate benefit of $2.3 million, or $0.16 per share, and was “immediately accretive” to NAV.
• Credit research hire: GECC added Chris Croteau as Head of Credit Research, with Reese and CEO Matt Kaplan citing his underwriting and surveillance experience as a reinforcement to risk management.
• Portfolio repositioning and liquidity: Reese said the portfolio ended the year with minimal non-accruals, greater diversification, reduced exposure to higher-risk investments, and improved liquidity.

Quarterly earnings and NAV movement

Kaplan said fourth-quarter results reflected a tough credit and market backdrop but also “meaningful progress in improving the earnings profile.” Total investment income increased sequentially, and NII rose more than 50% quarter-over-quarter to $0.31 per share, driven primarily by higher cash income and stronger distributions from the company’s CLO joint venture.

CFO Keri Davis reported NII of $0.31 per share for the quarter compared with $0.20 per share in the third quarter, attributing the increase primarily to higher CLO JV income and increased earnings from deployed capital.

NAV declined to $8.07 per share at December 31, 2025, from $10.01 per share at September 30, 2025. Management cited multiple drivers of the quarter-over-quarter decline, including:

• Approximately $0.40 per share of unrealized losses related to volatility in CoreWeave’s stock price.
• Approximately $0.30 per share of lower fair values on CLO investments, tied to spread tightening in CLO assets and increased credit dispersion.
• Approximately $0.80 per share of realized and unrealized losses associated with investments that underwent restructurings and liability management exercises.
• An additional $0.09 per share impact from First Brands investments, which the company said it materially reduced during the quarter and had become de minimis by year-end.

Kaplan said pro forma NAV, reflecting the incentive fee waiver, would have been $8.23 per share at quarter-end.

Portfolio actions: de-risking, credit rotation, and CLO commentary

Kaplan and Croteau emphasized actions taken to reduce risk, increase portfolio liquidity, and improve credit quality. Kaplan said the company ended the quarter with non-accruals at less than 1% of portfolio fair value and described the portfolio as “cleaner and more streamlined,” with a heavier focus on performing, more liquid, cash-generative investments.

On First Brands, Kaplan said GECC sold its entire allocation of the senior secured DIP loan at an average price of 107% of par after funding at approximately 95% of par, and fully exited roll-up DIP loans at an average price of 45% of par. He said the company’s reductions occurred at prices “much higher” than where those positions trade today.

Croteau described a framework focused on downside protection, portfolio granularity, and “durable underwriting edge.” He said GECC sold or reduced 18 credit positions during the quarter and began the quarter with 61 corporate credits, meaning nearly 30% of positions by number were actively repositioned. He also said second-lien exposure was reduced and now represents about 7% of the corporate portfolio. The company added 12 new broadly syndicated credit positions with an average size of about $2 million, which management said supported a more diversified and liquid posture.

Kaplan also addressed sector positioning, stating GECC has historically been underweight software-related businesses that could be more exposed to AI-driven disintermediation. He said software-related investments were about 7% of the portfolio at year-end and had been reduced to less than 4% by the end of February.

On CLOs, Kaplan said 2025 was challenging for CLO equity investors as loan spreads tightened and base interest rates fell, reducing income, while dispersion in the leveraged loan market increased later in the year. He said GECC’s CLO investments generated a positive return through 2025 and outperformed the broader CLO equity market, even though CLO marks contributed to the fourth-quarter NAV decline. Kaplan added that, inclusive of income from the CLO JV, the gross return of the JV was “roughly flat” in the quarter, while CLO equity-focused closed-end funds reported net asset plus cash distribution returns down 6% to 13% in the fourth quarter. He noted cash flows continue to be meaningful and that CLO structures have long-duration liabilities designed to be resilient through volatility.

Balance sheet, liquidity, and dividend

Davis said the company’s balance sheet “remains strong and liquid.” As of December 31, 2025, total debt outstanding at par value was $194.4 million, with no borrowings on the $50 million revolver. Cash and money market fund investments totaled approximately $5 million. The asset coverage ratio was 158.1% at quarter-end, compared to 168.2% at September 30, 2025; pro forma for the incentive fee waiver and the call of baby bonds, management cited an asset coverage ratio of 166%.

Kaplan said GECC opportunistically repurchased approximately $18.7 million of GECCO notes in the fourth quarter and through the end of the prior week at or below par plus accrued interest. He added that as of the end of last week, the company had $39 million of notes outstanding against $16 million of cash, $50 million of revolver capacity, and $14 million of liquid exchange-tradable assets, which he said provided sufficient liquidity to address upcoming maturities. He also noted the company called about half of its remaining GECCO bonds, bringing pro forma debt-to-equity to approximately 1.5x, consistent with historical average leverage.

The board approved a quarterly dividend of $0.30 per share for the first quarter of 2026, which Davis said equated to a 19.2% annualized yield based on the February 27, 2026 closing price cited on the call.

Outlook: cautious deployment and shareholder value focus

In the Q&A, Kaplan said the company took significant steps to de-risk and “clean up” the corporate credit portfolio and characterized it as “very clean” at present. On new investment opportunities, he said GECC is evaluating private credit opportunities but remains highly selective, emphasizing strong covenant packages and alignment with strategic partners, while also monitoring public and private markets in real time amid a dynamic environment.

Reese and Kaplan also addressed capital allocation considerations including stock repurchases, with Reese noting the board is evaluating ways to create shareholder value, including comparing buybacks to deploying cash into credits that carry risk. Kaplan said CLO cash flows may remain variable quarter to quarter, but he would expect them to be “less lumpy” than during 2024 and 2025.

Closing the call, Reese said GECC’s priorities are to protect capital, generate sustainable NII, and “methodically rebuild NAV over time through disciplined credit execution,” pointing to the incentive fee waiver, strengthened credit leadership, improved portfolio quality, and liquidity as steps taken to reinforce accountability and long-term value creation.

About Great Elm Capital Group (NASDAQ:GECC)

Great Elm Capital Group, Inc (NASDAQ: GECC) is a closed-end, externally managed business development company (BDC) that seeks to generate current income and capital appreciation by investing in private, middle-market companies. The firm targets senior secured loans, subordinated debt and equity securities of U.S. companies, with a focus on businesses offering stable cash flows and potential for growth. Industry sectors of interest include business services, consumer products, industrials and healthcare, among others.

GECC’s investment strategy emphasizes portfolio diversification and active management.