Earnings call transcript: Great Elm Capital Corp Q1 2026 reports mixed results

Great Elm Capital Corp (GECC) reported its Q1 2026 earnings, showcasing a complex financial picture. The company exceeded earnings expectations with an EPS of $0.36, a 24.14% surprise over the projected $0.29. However, revenue fell short at $9.54 million, missing forecasts by 22.63%. The stock reacted negatively, dropping 2.35% in premarket trading to $5.40, reflecting concerns over revenue performance despite positive EPS.

Great Elm Capital Corp reported a mixed performance in Q1 2026. While EPS exceeded expectations, revenue fell significantly short. The company has been focusing on strategic portfolio improvements and balance sheet strength, which are evident in the improved asset coverage and debt-to-equity ratios. However, challenges in the broader BDC and CLO markets have impacted the company’s NAV and overall revenue.

Great Elm Capital reported an EPS of $0.36, exceeding the forecasted $0.29 by 24.14%. This positive surprise contrasts with a revenue miss, where actual revenue of $9.54 million fell short of the $12.33 million forecast by 22.63%. The discrepancy highlights operational challenges despite strong earnings performance.

The stock price dropped 2.35% in premarket trading to $5.40, reflecting investor concerns over the revenue miss. The stock is trading closer to its 52-week low of $4.63, down over 34% in the past year and nearly 17% year-to-date. The market’s focus on revenue shortfalls has overshadowed the positive EPS performance. Despite the stock’s struggles, an InvestingPro tip highlights that the company has maintained dividend payments for 11 consecutive years, with the current dividend yield standing at an impressive 21.7%—even higher than the 18% mentioned in the earnings report.

Great Elm Capital is focusing on enhancing portfolio quality and maintaining strong liquidity. The company has shifted its strategy towards senior-secured investments and private credit deals, which it views as less risky in the current environment. This strategic focus is particularly important given that InvestingPro data shows the company’s current ratio at just 0.26, and an InvestingPro tip notes that short-term obligations exceed liquid assets. For investors seeking deeper insights, GECC is one of 1,400+ US equities covered by comprehensive Pro Research Reports, which transform complex Wall Street data into clear, actionable intelligence. Management has not provided specific future guidance but emphasized ongoing strategic improvements.

CEO Jason Reese highlighted the company’s strategic shift, stating, "Our focus on high-quality, senior-secured investments is aimed at protecting NAV and ensuring sustainable growth." He also noted the importance of maintaining strong liquidity and balance sheet metrics to navigate market challenges.

During the earnings call, analysts questioned the company’s revenue trajectory and the impact of market volatility on CLO investments. Management addressed concerns by emphasizing strategic portfolio shifts and liquidity management to mitigate risks. InvestingPro assigns GECC a Financial Health Score of 2.42, rated as "FAIR," with access to over 10 additional ProTips and exclusive metrics available to subscribers seeking a complete investment analysis.

Conference Call Operator: Greetings, and welcome to Great Elm Capital Corp 1st quarter 2026 financial results conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Adam Yates, Managing Director. Thank you. Mr. Yates, you may begin.

Adam Yates, Managing Director, Great Elm Capital Corp: Hello, thank you, everyone, for joining us for Great Elm Capital Corp’s 1st quarter 2026 earnings conference call. If you would like to be added to our distribution list, you can email investorrelations@greatelmcap.com, or you can sign up for alerts directly on our website, www.greatelmcc.com. The slide presentation accompanying today’s conference call and webcast can be found on our website under Events and Presentations. On our website, you can also find our earnings release and SEC filings. I would 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 a 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 our 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 Jason Reese, Great Elm Capital Corp.’s Chairman of the Board and newly appointed CEO. He’ll be joined by Matt Kaplan, Portfolio Manager, Chris Croteau, Head of Research, Chief Financial Officer Keri Davis, Chief Compliance Officer and General Counsel Adam Kleinman, and Michael Keller, President of Great Elm Specialty Finance. I will now turn the call over to GECC’s Chairman and CEO, Jason Reese.

Jason Reese, Chairman of the Board and Chief Executive Officer, Great Elm Capital Corp: Thanks, Adam, and thank you everyone for joining us today. In March, I assumed the role of Executive Chairman of GECC at an important inflection point for the company. On May fourth, I was appointed CEO. The company was established to create income and protect and grow NAV. In the near term, I am reprioritizing. We will protect and grow NAV first and secondarily create income. We will accomplish this by strengthening oversight, protecting shareholder value, and reinforcing accountability across the platform. We are well underway making progress on these fronts. I noted last quarter that as Chairman and CEO of Great Elm Group, the parent company of GECC’s investment manager, I bring deep familiarity with both the team and our investment process.

That familiarity enables a seamless transition into my role as both GECC Chairman and CEO, I’m working closely with management to reinforce disciplined underwriting and thoughtful capital allocation. Before turning to the quarter, I would like to thank Matt Kaplan for his leadership during his tenure as CEO. Matt will continue in his role as portfolio manager. Turning to results. Recent quarters have been challenging for the broader BDC sector, GECC was not immune to the macro environment. Our NAV declined this quarter, driven primarily by unrealized losses in select investments, most notably our CLO JV and 1 private investment with an idiosyncratic event. Our CLO investments can exhibit volatility given their inherent leverage. Additionally, in the 1st quarter, the broader CLO equity market declined. Despite the volatility of the quarterly marked, CLO exposure provides additional diversification to GECC’s portfolio of secured investments.

Our CLO investments continue to generate meaningful cash flows, diversify our income streams, and support the sustainability of our net investment income. In light of these unrealized losses, Great Elm Capital Management, GEC’s investment advisor, has waived all accrued and unpaid incentive fees through June 30, 2026, marking the third consecutive quarter of fee waivers. As of March 31, 2026, that waiver amounted to approximately $2.8 million or $0.20 per share of direct benefit to our shareholders. This action is immediately accretive to NAV and underscores our alignment with shareholders. We have also taken decisive action to deleverage the balance sheet. Recently, we called and repurchased all $57.5 million of GECCO notes due later this year. Once these notes are fully retired, GECC will have no funded debt maturities until 2029.

This eliminates near-term refinancing risk and enables our flexibility to deploy capital strategically. In addition, we continue to improve portfolio credit quality through active investment rotation. During the quarter, we deployed approximately $22 million across 12 investments while exiting investments we viewed as higher risk. As a result, first lien investments now comprise nearly 75% of the corporate portfolio, the highest level in the company’s recent history. This reflects a deliberate shift towards senior secured investments with stronger downside protection and is a direct outcome of the underwriting discipline we have instilled across the platform. At the same time, we’re expanding our proprietary sourcing efforts.

During the quarter, we closed 3 transactions sourced through institutional partnerships, committing approximately $15 million to new private investments. We closed on 1 additional proprietary private investment in April, and we expect to close additional investments in the near future, building on this momentum as our sourcing network continues to deepen and differentiate our platform. At Great Elm Specialty Finance, or GESF, we continue to execute on the strategic transformation aimed at streamlining the platform for enhanced growth and profitability. Great Elm Commercial Finance is building a robust pipeline of asset-based lending opportunities, while Great Elm Healthcare Finance has successfully repositioned the business and recently closed on another transaction. Prestige, our invoice financing business, generates durable returns but can exhibit quarter-to-quarter variability due to the spot nature of its business. I’m pleased to say all 3 of our core verticals under GESF are profitable and generate cash distributions.

Collectively, GESF is poised for continued growth and represents an i