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Operator: Greetings, and welcome to the Great Elm Capital Corporation Fourth Quarter 2024 Financial Results Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Peter Sousa with ICR. Thanks. You may begin.

Unidentified Company Representative: Hello, and thank you, everyone, for joining us for Great Elm Capital Corp.’s Fourth Quarter and Full Year 2024 Earnings Conference Call. If you would like to be added to our distribution list, you can e-mail investorrelations@greatelmcap.com or you can sign up for alerts directly on our website, www.greatelmcc.com. I’d like to note the slide presentation posted on our website accompanying today’s call. The slide presentation can be found on our website under Events and Presentations. On our website, you could also find our earnings release and SEC filings. I’d like to call your attention to the customary safe harbor statement regarding forward-looking information. Also, please note that nothing in today’s call constitutes an offer to sell or solicitation of offers to purchase our securities.

Today’s conference call includes forward-looking statements, and we ask that you refer to Great Elm Capital Corp.’s filings with the SEC for important factors that could cause actual results to differ materially from these statements. Great Elm Capital Corp. does not undertake to update its forward-looking statements unless required by law. To obtain copies of SEC filings, please visit Great Elm Capital Corp.’s website under Financials, SEC filings or visit the SEC’s website. Hosting the call today is Matt Kaplan, Great Elm Capital Corp.’s Chief Executive Officer; who will be joined by Chief Financial Officer, Keri Davis; Chief Compliance Officer and General Counsel, Adam Kleinman; and Mike Keller, President of Great Elm Specialty Finance. I will now turn the call over to GECC’s CEO, Matt Kaplan.

Matt Kaplan: Thanks, Peter, and thank you all for joining us today. This call marks the 3-year anniversary of my appointment as CEO of Great Elm Capital Corp. Today, I will highlight our fourth quarter earnings, but I would also like to take a step back and review what we have accomplished over the past few years and then provide an overview of how GECC is positioned for growth in 2025 and beyond. Starting with Slide 3, our fourth quarter earnings. Our investment portfolio was generally stable in the quarter with the step down in NAV per share driven substantially by our dividend exceeding NII in the period. Our total investment income and therefore, NII was impacted by temporary items that we believe are going to reverse in 2025.

While our fourth quarter reflects the general step down we communicated during our previous earnings call, the impact was somewhat more pronounced this quarter due to 2 main factors: First, the uneven distribution patterns typical of CLOs in their early stages; and second, the short-term impact we see to NII following our equity raises through SPVs, including the December equity issuance at NAV. In addition, charges related to the refinancing of our January 2025 debt maturity and the shelf led to a further $0.03 impact on NII per share. While the level of rapid growth we experienced resulted in some anticipated short-term noise in our numbers in 2024, it has set us up for a strong 2025. Given the confidence in our portfolio and overall outlook, in December, our Board declared a 6% increase to our quarterly base dividend to $0.37 per share for the first quarter of 2025, up from $0.35 per share last quarter, showcasing our commitment to delivering meaningful value to our shareholders.

I am confident that we are well positioned to cover the increased dividend in the first quarter and over 2025. However, before going into where we stand today, it is important to review what we have accomplished over the past few years at GECC. In March 2022, I took over as CEO, and we can break down the last 3 years into 3 phases: year 1, clean up and reposition the business; year 2, upgrade the portfolio and execute on the revamped strategy; Year 3, optimize our portfolio and grow. Quite frankly, I walked into a challenging situation in year 1. In 2022, we had to take some pain to reduce our exposure to noncash-generating investments and reduce portfolio concentration. Great Elm Group provided significant support in 2022, waiving previously accrued incentive fees and providing equity capital to ensure GECC was properly capitalized.

After we made significant strides on cleaning up the portfolio in 2022 and on the back of a rotation into higher-quality credit, — our performance over the last 2 years is quite impressive in my view. If you look at Slide 5, you can see how our focus on cash generation and the increase in scale has literally paid dividends to our shareholders. Over 2023 and 2024, GECC’s market capitalization doubled from around $60 million to over $120 million. We returned $2.95 per share to shareholders in cash distributions. NAV per share has increased by over $0.60 per share. We’ve generated over $2.90 of NII per share and reported net earnings in excess of $3.60 per share, outearning our distributions. And total return on our stock was nearly 80% over the period, outperforming the Cliffwater and S&P BDC indices.

We believe this return is largely driven by our fundamentals with the 2-year cumulative return on net asset value per share in excess of 30%, coupled with the narrowing of our discount to NAV from approximately 25% to less than 10% at the end of 2024. Moving to Slide 6. You can see the progression of our asset base with large asset losses in the legacy and cleanup years compared to a strong up and to the right showing over 2023 and 2024 on our net assets. Turning to Slide 7. This is where you can see our significant growth in investable assets focused in 2024. In 2024, we have executed on 2 incredible initiatives: one, raising equity at net asset value; and two, forming a distinctive joint venture with a high-quality partner to invest in CLOs. However, on a short-term basis, each time we raise equity or expand the CLO JV, it is disruptive to our income generation temporarily, but we believe it improves GECC’s ability to generate strong long-term returns for its shareholders over time.

This uneven cadence of our earnings from equity raises is driven by the cash deployment drag on an immediate step change in share count as well as from a delay in leveraging the equity raises and the further cash drag from that. When coupling this with the fact that cash distributions from CLOs as they get formed are uneven at the beginning of their life, the magnitude of these actions can be amplified depending on the timing of each. Unfortunately, this lumpiness to our earnings was exacerbated in the fourth quarter of 2024 with the equity raise and timing of closing our second CLO in the JV. This shows up in the TII yield chart on the right of Slide 7, which shows a modest step down in overall portfolio yield in 2024. To further illustrate this point, GECC received cash distributions from the CLO JV of $3.2 million in 3Q ’24, $0.5 million in 4Q ’24.

And to date in the first quarter of 2025, we have received $3.8 million of distributions. And based on our current expectations, the JV is poised to see second quarter 2025 distributions in excess of the first quarter. We expect these fluctuations will begin to dampen as we add CLO investments and continue to leverage our scale. Going from the first to the second CLO expectedly will have more short-term oscillation in aggregate cash flows for the JV than when we go from the fifth to the sixth CLO investment. For these reasons and considering our capital raising and deployment initiatives, we think it is better to review GECC on a 4-quarter basis rather than benchmarking it quarter-to-quarter. As we look into the first quarter, I believe we are well positioned to cover our increased distribution level.

And while still early, based on our expectations of timing for certain items, I expect our second quarter income will exceed that of our first quarter. Clearly, future equity raises and CLOs could change the cadence. But as we grow, the lumpiness from each new CLO should have less of an impact on our financials. Nonetheless, over 2025, we are set up to cover the dividend and our portfolio is well positioned. We enter the next chapter of Great Elm with momentum, scale and a road map for continued success, confident in our ability to generate sustainable returns and deliver increasing value to our shareholders in 2025 and beyond. With that, I’d like to hand the call over to Keri Davis to discuss our fourth quarter 2024 performance.

Keri Davis: Thanks, Matt. I’ll go over our financial highlights now, but we invite all of you to review our press release, accompanying presentation and SEC filings for greater detail. During the fourth quarter, GECC generated NII of $2.1 million or $0.20 per share as compared to $4.1 million or $0.39 per share in the third quarter of 2024. The decline in NII was predominantly driven by the uneven cadence of our initial CLO cash flows. In addition, we took a hit to NII in the fourth quarter as we wrote off the deferred expense of our prior shelf registration after filing a new $500 million shelf. Importantly, this new shelf allows us to bypass the stand-alone entry process going forward and should increase our flexibility and reduce our cost of raising debt.

Our net assets as of December 31, 2024, were $136 million as compared to $126 million as of September 30. Our NAV per share was $11.79 as of December 31 versus $12.04 as of December 30. Details for the quarter-over-quarter change in NAV can be found on Slide 12 of the investor presentation. As of December 31, GECC’s asset coverage ratio was 169.7% compared to 166.2% as of September 30. As of December 31, total debt outstanding was approximately $195 million, and our $25 million revolver remains undrawn, fully available to us. Cash and money market securities totaled approximately $8 million. Our Board of Directors authorized a $0.37 per share cash distribution for the first quarter, an increase of 5.7% from the prior quarter, which will be payable on March 31 to stockholders of record as of March 17.

The distribution equates to a 12.6% annualized dividend yield on our December 31 net asset value. With that, I’ll turn the call back over to Matt.

Matt Kaplan: Thanks, Keri. In the quarter, we enhanced our portfolio strength by steadily increasing our secured debt positions. Moreover, we continue to believe that our CLO joint venture will become an increasingly significant source of income for GECC as we expand the vertical, targeting high teens to 20% returns over time. The shift in our portfolio composition reflects this strategy. Last year, first lien loans made up 67% of our $178 million corporate portfolio. In 2024, we grew our corporate portfolio by 34%, holding $240 million of investments and also increasing our exposure to first lien loans, which comprised 71% of the corporate portfolio at year-end, demonstrating our commitment to enhancing portfolio quality while maintaining a focus on secured income-generating assets.

Notably, this past year marked a major step as we formed a distinctive JV with a high-quality partner to invest in CLO equity and related warehouse facilities. Our JV, which holds majority CLO positions, increases GECC’s exposure to a diverse portfolio of broadly syndicated first lien loans. We are encouraged by the early success of our CLO joint venture strategy, where we have deployed approximately $40 million through December 31. By way of reminder, we hold our CLO exposure a bit differently than other BDCs or closed-end funds that many may be familiar with. These other entities typically hold their investments directly, which allows the income to be recognized utilizing the effective yield methodology, while GECC only recognizes income from the CLO JV when it makes distributions.

This leads to a more uneven nature to our income reporting. While we may hold minority positions in CLOs directly, the JV affords us the ability to have exposure to majority interests in CLOs, which we believe can provide enhanced economics. We are comfortable with this quarter-to-quarter income oscillation, which we expect will dampen over time, as I previously highlighted. Further, our investment portfolio was generally stable in the quarter. We continue to actively monitor our investments and had no change in nonaccruals, which totaled $1.3 million or less than 1% of portfolio fair value as of December 31. Given the volatile macro environment, including uncertainties around further rate cuts and implications of tariff policy, we continue to take a measured approach to capital deployment.

As always, we prioritize credit quality and seek investments with minimal risk of permanent capital loss, directing capital toward opportunities that are primed to perform across various economic cycles. This balanced approach, combined with our strengthened platform and diversified portfolio positions us well to continue growing Great Elm Capital Corp. and delivering attractive risk-adjusted returns for our shareholders. We remain excited for the future of GECC. And with that, I’d like to turn the call over to Mike Keller to provide an update on Specialty Finance.

Mike Keller: Thanks, Matt. Revenue and net income at GESF increased from the third quarter. This growth was primarily driven by Prestige, our invoice financing business. We saw a rebound from the normal third quarter seasonal lull and Prestige ended the year on a strong note. Volumes have continued to trend well into 2025, and we are confident in management’s ability to continue to execute this year. Moving on to our ABL businesses. I stepped into the CEO role at Great Elm Healthcare Finance at the end of 2024. After spending time strategically reviewing our 2 ABL platforms, Sterling and Great Elm Healthcare Finance, we made the decision to consolidate all ABL operations under one roof, rebranding as Great Elm Commercial Finance.

Great Elm Commercial Finance offers traditional ABL products to a wide range of industries, including health care. With this, we will be retiring the Sterling Commercial Credit name. Additionally, we also decided to reposition our legacy Great Elm Healthcare Finance business to focus solely on health care real estate financing opportunities. The planning for this started in the fourth quarter and in early 2025, we are beginning to execute on our strategic initiatives. In summary, we ended 2024 with renewed energy and momentum that is beginning to take hold this quarter as we execute on growing and streamlining Great Elm Specialty Finance. And I’m optimistic that the steps that we have taken will drive increased profitability over 2025 and beyond.

I look forward to sharing more when we speak again as I am confident in our ability to execute on the next steps of our plan at GESF.

Matt Kaplan: Thanks, Mike. In closing, while the fourth quarter was impacted by some isolated items, we ended the year on strong footing. Recapping our highlights for the year. We successfully expanded into CLO products through the formation of our distinctive CLO JV structure, which strengthens our cash generation ability. Through our equity and note issuances, we raised nearly $150 million of total capital, substantially increasing our operating scale. One of our note issuances refinanced our GECCM notes, extending our debt maturity profile into 2026 and beyond, providing us with enhanced financial flexibility, and we filed a $500 million shelf. In summary, we grew our portfolio substantially, raised ample capital and implemented our CLO strategy.

I am optimistic for 2025 with our strong pipeline, growing CLO JV distributions and enhanced scale, positioning us for continued success. Looking ahead, we believe we remain well positioned to cover our dividend in 2025 and to continue delivering attractive risk-adjusted returns for our shareholders. With that, I’ll turn the call over to the operator for questions. Operator?

Operator: [Operator Instructions] The first question comes from Mickey Schleien with Ladenburg Thalmann.

Mickey Schleien: Matt, a couple of questions on the CLO JV. First, have you and your partners fully funded the JV?

Matt Kaplan: Mickey, thanks for the question. First, the JV commitment is outlined in our 10-K, and we have some uncommitted capital still to be drawn in there as well as of 12/31. So the answer is not fully funded. We expect to continue growing it over time.

Mickey Schleien: How do you intend to raise the capital to finish funding your commitment then?

Matt Kaplan: As you recall, we ended the quarter with $8 million of cash and equivalents on our balance sheet as well as we have a $25 million unfunded revolver. — one great thing that we did in the quarter was we closed on a new SPV to raise equity at net asset value into GECC that happened in mid-December just before we went [X] on our dividend. That added some funding, which we have not drawn down any leverage on. So our target debt-to-equity ratio is kind of around the 1.5x. As you can see, we ended the quarter a little under levered. So we have extra capacity on our revolver as well, fully available to us to meet the remaining commitment.

Mickey Schleien: Okay. I understand. Fair enough. The JV is only investing in Apex, credit, CLOs. I’m curious why you’re only investing in Apex instead of diversifying the portfolio a little bit more.

Matt Kaplan: That is the current investment mix as of today. One of the things the JV affords us to do is to take majority positions. We have a couple of strategic institutional partners that we are working with, and that is the current opportunity set as of today. We may diversify over time our CLO exposure.

Mickey Schleien: All right. As you know, there’s been a sharp amount of spread compression in the loan market over the last year, and that’s impacted the CLO arbitrage. Since your CLOs in the JV are new, I’m assuming they’re still in their non-call period. So you can’t reset or refinance their liabilities yet. So how do you see that spread compression impacting the CLO’s cash flows this year? And what’s sort of your target ROE on your CLO JV investment?

Matt Kaplan: Sure. So I think we’re very fortunate with the execution on the — as you said, the loan side liability assets have compressed on spread. At the same time, the liability side that the CLOs are pricing have come in as well. And we are not fully at the bottom of that tier, but we are confident in our CLO cash flow generation. And based on what we’re seeing in modeling, we are expecting, as I mentioned earlier, high teens to 20% IRRs. One thing to think about is growth is rarely linear here. So you saw we had a step down in the nature of the distributions from the JV can be a little lumpy at the outset. But as we look, we’re doing 2 really great things here, raising equity at NAV and investing in these CLOs and taking majority positions through the joint venture that provide what we believe are enhanced economics and are really look-through vehicles to senior secured first lien investments that are generating cash yields.

So we look at our business over 12-month period rather than quarter-to-quarter. And I expect our trailing 12-month NII will steadily improve over the year. We believe based on our current expectations that we’re set up to cover the distribution in the first quarter. And as I mentioned earlier on the call, set up to incrementally improve NII in the second quarter and be off to the races for 2025 and cover the distribution for the full year.

Mickey Schleien: I understand, Matt. One last question. I appreciate your patience. It’s nice to see that your nonaccruals were stable because across the space, we’ve seen generally some credit deterioration as the credit cycle sort of matures. You do have one position in Maverick Gaming, and that first lien is — one of those first liens is marked at a pretty distressed level. Understanding that you can’t say a lot about a private company, can you give us a sense of what the outlook is for that company?

Matt Kaplan: The outlook — the company has operations in multiple geographies. I can say that there’s pluses and minuses here and there. We evaluate the position quarterly and have it fair valued quarterly by our third-party valuation specialists and provide them all the information and continue to monitor the situation. That’s all I can say.

Mickey Schleien: I mean the company is in the casino and gaming industry. Is it related to the demand side of the picture given what’s going on with the consumer? Or anything you can tell us about that?

Matt Kaplan: I think you can go on to the company’s website. They operate in Washington, Nevada and Colorado are the 3 core markets. So it’s pretty regional specific there. It’s a private company, so there’s not much more I can share.

Operator: The next question comes from Erik Zwick with Lucid Capital Markets.

Erik Zwick: I wanted to start with another question or so on the CLO JV. And just curious from a kind of bigger picture, longer-term perspective, how do you think about the appropriate size or contribution of the JV to Great Elm’s total results? Are you targeting kind of a certain percentage of assets or a certain percentage of total income? How should we think about that?

Matt Kaplan: I think we are — over time, we could see the CLO JV grow to around — our CLO kind of exposure to around 20% of our asset base as we kind of begin to scale. As you saw in 2024, we raised $50 million of — or nearly $50 million of equity and also raised some debt — new debt against that as well. I think we increased our corporates and CLO portfolio from $178 million, or call it $180 million at the end of ’23 to $280 million by the end of 2024. We are planning to continue to grow the platform. So the income mix will continue to increase as we grow the asset base and continue to look to add to this vertical in a measured way.

Erik Zwick: And just in terms of selecting the CLOs that you choose to invest in, can you just maybe, kind of briefly, kind of run through your investment selection process and how you share those responsibilities with your partner?

Matt Kaplan: Sure. So our partner is — we have a couple of partners in the joint venture. sophisticated institutional investors have relationships and have deep understanding of the CLO market. And as opportunities come up, we make investment decisions. One benefit of being in warehouses and ability to take majority equity positions allows for potential to have enhanced economics relative to just buying CLO equity in the secondary market being part of the primary process. So we evaluate every opportunity as they come.

Erik Zwick: And switching gears to the corporate portfolio. Could you provide an outlook just on the pipeline today, how it stands relative to maybe beginning of last quarter? And what is your outlook for kind of deployments here in the near term? And anything you have — I know it’s tough to have visibility into repayment outlook, but anything near term that is looking to be repaid?

Matt Kaplan: Good question, Erik, thanks. Let’s see. So it’s a little bit of a mixed world as we both operate in the quasi – in the direct lending space and the broadly syndicated market. As the recent market volatility has evolved here, we are starting to see some opportunities in the secondary space and starting to deploy capital measuredly in some item – some secondary loans that we have been tracking that we believe have gotten a little bit tight and those – some spreads are widening out and that kind of secondary market. On the direct lending side, continue to maintain an active dialogue and have a pretty stable pipeline quarter-over-quarter. Don’t really see repayments in the immediate term, but there’s a couple of portfolio companies that are in active discussions for potential refinancings or M&A.

The current environment has led to some pause to some extent on M&A as people try to understand exactly what the new administration taxes are going to look at. But I think people are generally planning for M&A, just the timing of that in this year seems to be a little more uncertain.

Operator: At this time, I would like to turn the call back to Matt Kaplan for closing remarks.

Matt Kaplan: Thank you again for joining us today. We are very excited to enter 2025 on strong footing as we continue to execute on our growth strategy. We look forward to continued investor dialogue. Please let us know if we can help with any follow-up questions that you may have. Thank you.

Operator: Thank you. This does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.