Great Elm Group, Inc. (GEG) Q2 2026 Earnings Call Prepared Remarks Transcript

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Overview

Despite a focus on growth initiatives and a significant share repurchase program, the company faces challenges. Revenue declined, and there were substantial unrealized losses due to market volatility, particularly affecting investments in GECC and CoreWeave. The net loss and adjusted EBITDA loss further highlight financial struggles. While the share repurchase program is positive, the overall financial health and market conditions suggest a negative sentiment, likely leading to a stock price decrease in the coming weeks.

Key Financial Performance

Revenue $3 million compared to $3.5 million for the prior year period, a decrease of $0.5 million (-14.3%). The decrease was primarily driven by $0.6 million in property sales and $0.5 million of incentive fees in the prior year period that were not recognized in the current quarter, offset by $0.4 million in new construction management revenue from MCS acquired in February 2025.

Net Loss $16.5 million for the quarter versus net income of $1.4 million a year ago. The loss was primarily driven by unrealized losses of $14.4 million and realized gains of $2.2 million from GEG's investments, including the company's investments in consolidated funds. Unrealized losses were largely attributable to market-based valuation movements, including $4 million related to GECC common stock, $3 million related to special purpose vehicles invested in GECC common stock, and $6.7 million related to CoreWeave-related investments.

Adjusted EBITDA A loss of $1.6 million compared to a gain of $1 million in the prior year period, reflecting a year-over-year decline of $2.6 million. This was influenced by unrealized losses and reduced revenue streams.

Fee-paying Assets Under Management (AUM) $561 million, up 4% year-over-year. The increase was driven by growth in fee-paying AUM and higher gross rents.

Cash Position $51.2 million as of December 31, 2025, providing flexibility to support growth initiatives and investment opportunities.

CoreWeave-related Investment Unrealized losses of $6.7 million due to a nearly 50% decline in CoreWeave's common stock during the quarter, offset by $2.2 million of realized gains from distributions. Despite the volatility, distributions have totaled approximately 115% of the original $5 million investment, and the stock price has rebounded significantly since December 31, reinforcing long-term value potential.

Share Repurchase Program Approximately 1.1 million shares of GEG stock repurchased during the quarter at an average price of $2.47 per share. Since inception, 6.4 million shares have been repurchased at an average price of $1.99 per share, totaling $12.7 million and equating to nearly 20% of shares outstanding, enhancing per-share value.

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Operating Highlights

Monomoy BTS design build property: Completed its third design build property in Florida and began marketing it for sale, with an expected exit in the second half of fiscal 2026.

Monomoy Construction Services (MCS): Completed its third full quarter of operations, contributing approximately $400,000 in revenue. Construction capabilities are now fully integrated in-house, enabling comprehensive turnkey solutions for tenants.

Fee-paying assets under management (AUM): Grew 4% year-over-year to approximately $561 million as of December 2025.

Monomoy REIT acquisitions: Acquired 3 properties for approximately $8.9 million, including development costs, during the quarter.

Portfolio optimization in alternative credit business: Reunderwrote the entire portfolio, diversified investments, and shifted focus to senior secured opportunities to improve credit quality.

Share repurchase program: Repurchased approximately 1.1 million shares at an average price of $2.47 per share during the quarter, enhancing per share value for shareholders.

Private credit strategy wind down: The Great Elm Credit Income Fund began an orderly wind down due to market conditions, recording a net return of over 20% since inception.

CoreWeave-related investment: Despite significant market volatility, the investment has returned approximately 115% of the original $5 million investment, with potential for further upside.

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Risk or Challenges

Market Volatility: The company faced heightened volatility in the BDC market, leading to significant unrealized losses, particularly in investments like GECC common stock, related SPVs, and CoreWeave-related investments.

Private Credit Quality Deterioration: Concerns over private credit quality deterioration impacted the company's financial performance, contributing to unrealized losses.

CoreWeave Stock Decline: CoreWeave's stock declined nearly 50% during the quarter, resulting in $6.7 million in unrealized losses, despite some realized gains.

CLO Equity Underperformance: CLO equity underperformed the broader credit markets, adding to the challenges in the alternative credit business.

Leveraged Credit Dispersion: Continued dispersion in leveraged credit markets, including first grant impacts, posed challenges to the company's credit portfolio.

Fund Wind Down: The Great Elm Credit Income Fund began an orderly wind down due to recent portfolio events and market conditions, as it had not reached scale.

Unrealized Losses in GECC Investments: The company recorded $4 million and $3 million in unrealized losses in GECC common stock and related SPV investments, respectively, reflecting broader market trading levels for BDCs.

Decline in Revenue: Revenue decreased from $3.5 million to $3 million compared to the prior year period, driven by the absence of property sales and incentive fees recognized in the prior year.

Net Loss: The company reported a net loss of $16.5 million for the quarter, primarily driven by unrealized losses in investments.

Adjusted EBITDA Loss: Adjusted EBITDA for the quarter was a loss of $1.6 million compared to a gain of $1 million in the prior year period.

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Guidance & Outlook

Real Estate Ventures: Monomoy BTS completed its third design build property in Florida and is actively marketing it for sale, with an expected exit in the second half of fiscal 2026. A fourth design build project is in progress, supported by a robust pipeline of development opportunities.

Alternative Credit Business: The BDC is positioned for success in 2026 with a stronger foundation, significant liquidity, and a focus on private transactions offering stronger lender protections and tighter covenants. The portfolio is being optimized to improve credit quality and diversify investments.

CoreWeave Investment: Despite market volatility, CoreWeave stock has rebounded significantly since December 31, reinforcing long-term value potential. The company expects recovery in time as GECC rebuilds its NAV.

Share Repurchase Program: The company repurchased approximately 1.1 million shares in the quarter, enhancing per share value. Total repurchases equate to nearly 20% of shares outstanding, with a long-term outlook for shareholder value enhancement.

Growth Initiatives: The company is focused on growing fee-paying AUM, scaling alternative credit and real estate businesses, and sourcing new investment opportunities. Plans include expanding the platform and adding differentiated product offerings with attractive risk-adjusted returns.

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Shareholder Return Plan

Share Repurchase Program: During the quarter, Great Elm repurchased approximately 1.1 million shares of GEG stock at an average price of $2.47 per share. Since the inception of the program, the company has repurchased approximately 6.4 million shares at an average price of $1.99 per share, representing a total capital deployment of $12.7 million. These repurchases equate to nearly 20% of the company's shares outstanding, enhancing per share value for shareholders.

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Key Q&A

Q:Review of Unclear Management Responses

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

GEG Transcript

Great Elm Group, Inc. (GEG) Q2 2026 Earnings Call Prepared Remarks Transcript

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Great Elm Group, Inc. (GEG) Q1 2026 Earnings Call Transcript

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The earnings call reveals several negative indicators: a net loss of $7.9 million, unrealized losses in investments, and an adjusted EBITDA loss. Despite revenue growth and a stock repurchase program, the debt refinancing increases overall debt. The Q&A session highlights concerns about unclear management responses and lack of guidance on Monomoy REIT. These factors suggest a negative market reaction, likely between -2% to -8%.

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The earnings call highlights several positive developments: a strong increase in net income, a 140% revenue growth excluding one-time sales, increased dividends, and a robust stock repurchase program. The strategic partnership and credit business expansion further boost prospects. Despite potential market risks, the absence of Q&A concerns suggests confidence in management. The positive financial performance and strategic initiatives suggest a likely stock price increase of 2% to 8% over the next two weeks.

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The company's earnings report shows mixed signals: a 15% revenue growth and increased AUM are positive, but a net loss of $4.5M and reduced EBITDA are concerning. The share buyback at a discount and strategic acquisitions are positive, yet market volatility and investment risks pose challenges. The absence of Q&A insights and unclear future profitability amidst unrealized losses suggest a neutral outlook for the stock price in the short term.

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