Good morning. My name is Jessa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Great Elm Capital Group, Inc. Fourth Quarter 2019 Conference Call and Webcast. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Mr. Adam Yates, you may begin your conference.

Thank you, Jessa, and good morning, everyone. Thank you for joining us for Great Elm Capital Group, Inc’s fourth quarter and fiscal year 2019 earnings conference call. As a reminder, this webcast is being recorded on Friday, September 13, 2019. If you’d like to be added to our distribution list, you can either e-mail Investor Relations at greatelmcap.com or sign up for alerts directly on our website. This slide presentation accompanying this morning’s call and webcast can be found on Great Elm Capital Group’s website www.greatelmcap.com under Events & Presentations. The link to the webcast is also available on this section of our website, as well as in the press release that was disseminated to announce the quarterly results. 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 a solicitation of offers to purchase our securities. Today’s conference call includes forward-looking statements and projections, and we ask that you refer to Great Elm Capital Group’s filings with the SEC for important factors that could cause actual results to differ materially from these projections. Great Elm Capital Group does not undertake to update its forward-looking statements unless required by law. To obtain copies of the SEC filings, please visit Great Elm Capital Group’s website under financial info and select SEC filings. Hosting our call this morning is Peter Reed, Great Elm Capital Group’s, Chief Executive Officer. I will now turn the call over to Peter.

Thank you, Adam, and good morning, everyone. Thank you for joining us today. I’m joined this morning by our President and COO, Adam Kleinman; our CFO, Brent Pearson; and two senior members of our investment team, Adam Yates and John Ehlinger. We will walk through an update on our Operating Companies, Investment Management, Real Estate and General Corporate business segments, as well as their associated financials. Where relevant in our prepared remarks, we will point you to the corresponding slide in the presentation that Adam referenced. Please turn to Slide 5. During the quarter ended June 30, 2019, we reported consolidated revenue and adjusted EBITDA of $15.1 million and $3.2 million, respectively. Please turn to Slide 6. During the fiscal year ended June 30, 2019, we reported consolidated revenue and adjusted EBITDA of $51.2 million and $12.0 million, respectively. It’s worth noting that DME only accounts for approximately 10 months of that period, as we acquired those assets in September of 2018. Please turn to Slide 8 to discuss drivers of shareholder value. We have clear objectives in each of our verticals. In Operating Companies, we’re focused on acquiring undercapitalized companies with significant growth potential, both organic and through M&A. In Investment Management, we seek to increase assets under management, both in GECC and in other investment vehicles managed by GECM. In Real Estate, we’re interested in partnering with owners and lessees to utilize our substantial tax assets. On a consolidated basis, our goal is to generate increased free cash flow in fiscal year 2020. We intend to achieve this goal through a continued growth at Great Elm DME and Investment Management enhanced by reduced corporate overhead. Please turn to Slide 9. It is very important for us to maintain long-term alignment with you, our shareholders. Our team collectively owns approximately 2 million shares, or 8% of the company, including our Board of Directors and their funds under management, insiders collectively own 19% of the shares outstanding. We believe this fosters a significant and long-term alignment of interest amongst employees, directors and shareholders. Let’s turn to Slide 11 for an overview of our operating company activity. Recall in September 2018, we acquired Valley Healthcare Group and Northwest Medical collectively Great Elm DME for approximately $64 million, equating to a 4.9 times multiple of LTM pro forma adjusted EBITDA at acquisition. Since acquisition, we’ve been very pleased with the organic growth DME is experiencing. DME generated $12.9 million of revenue and $2.8 million of adjusted EBITDA during the quarter. We’re experiencing meaningful growth in all major product categories and we’re investing heavily in the people, processes and technology to increase the scalability of the DME platform. For example, we’ve successfully consolidated the billing platform and implemented financial management software that will strengthen operations as we scale. Furthermore, we anticipate growth in revenue, adjusted EBITDA and free cash flow in the forthcoming year, supported by strong KPI performance. Please turn to Slide 12 to discuss our plan for inorganic growth at DME. DME intends to acquire complementary, patient-focused businesses and integrate them into the existing platform. The respiratory-focused durable medical equipment industry is fragmented and ripe for consolidation. DME seeks to pursue an expansion strategy that targets tangential or overlapping markets to our existing geographical footprint in Arizona, the Midwest and the Pacific Northwest. In June, a subsidiary of DME acquired the respiratory assets of Midwest Respiratory Care, Inc. for approximately $6.3 million, or 4.6 times Midwest EBITDA less capital expenditure for the 12 months ended April 30, 2019. Midwest integration in the DME is going well and we anticipate that this acquisition will increase DME’s unleveraged free cash flow by approximately $1.4 million in our first year of ownership. In addition, we’re exploring complementary product lines and services that leverage the company’s valuable contracts, referral sources, customer bases and infrastructure. Please turn to Slide 13 to walk through the financial update for our DME segment. Total revenue for the quarter was approximately $12.9 million, as you can see substantially all of DME’s cash flow was invested in rental equipment for new customers. The financial contribution from this new business will primarily come in future quarters. Adjusted EBITDA for the quarter was approximately $2.8 million, leaving the leverage free cash flow generation of greater than $1.7 million. As adjusted EBITDA continues to grow, we anticipate further growth in free cash flow at DME. Please turn to Slide 15 to discuss the Investment Management vertical. We believe Investment Management is an attractive business for Great Elm due to its scalable business model, high margins and the potential for significant free cash flow generation. In the near-term, we plan to grow our Investment Management business in two ways. First, by opportunistically issuing additional debt at Great Elm Capital Corp., which would increase GECC’s assets and thus, management fees for Great Elm. During the quarter, we issued a new $45 million unsecured note under NASDAQ ticker GECCN. Secondly, we plan to grow our Investment Management business by increasing AUM in other investment vehicles. With significant embedded operating leverage and an established infrastructure, we believe the Investment Management business has the potential to generate substantial free cash flow on a meaningful scale. Turning to Slide 16, management fees increased by greater than 7% quarter-over-quarter. Management fees increased at the fair value of GECC’s diversified portfolio increases. The long-term trend points to continued management fee growth as we deploy capital into both niche indicated leverage credits and potentially specialty finance investments. On Slide 17, we break out the segment financials for Investment Management. Total revenues, which include both management fees and administration fees were approximately $926,000 during the quarter. The full circle consulting fee, which will no longer be charged post November 3, 2019 deducted $183,000 from revenue in the quarter. GECM earned, but did not recognize incentive fees in the amount of $749,000. Adjusted EBITDA was approximately $756,000 in the quarter. The positive trend in management fee revenue, coupled with a significant reduction in OpEx in the near future leads us to believe this segment is poised for free cash flow generation. Please turn to Slide 19 to discuss Real Estate. We continue to target credit tenant lease financings and ground lease structures across commercial, government and other property types, taking defined situations in which we can use GEC substantial tax assets and deal structuring expertise to be a value-added partner or lessor. Let’s turn to Slide 20. As you can see on the chart, assuming no appreciation in the property value, GEC’s equity value in the Fort Myers investment will continue to grow between now and the lease expiry in 2030. As cash flows from the rental stream are utilized to amortize debt, equity grows from one times our investment at acquisition to greater than seven times in 2013, all without deploying any additional capital. Turning to Slide 21, let’s walk through the segments financials for Real Estate. During the fourth quarter, we generated approximately $1.3 million in rental income, $64,000 in net income and $1.2 million of EBITDA. While not generating levered free cash flow for Great Elm, as we discussed on the prior slide, we continue to build equity value in this investment through the amortization of debt. On Slide 23, we have a review of Great Elm’s General Corporate segment financial detail. This quarter’s positive net income was primarily driven by an unrealized gain on the investment in GECC shares, dividends from those GECC shares and prudent management of operating expenses. Beyond the financial review on slide 28, we have a summary of how we plan to continue to drive shareholder value. To reiterate, our goal is to generate consolidated free cash flow in fiscal year 2020. We intend to achieve this goal through continued growth in free cash flow at Great Elm DME and Investment Management enhanced by reduced corporate overhead. That concludes our overview of Great Elm’s fiscal fourth quarter. Let’s open up the call for Q&A.

Thank you. [Operator Instructions] Your first question comes from the line of Nat Stewart from N.A.S. Capital. Please go ahead.

Hey, how are you guys?

Doing well, Nat. How are you?

Good. Yes, I just had a few questions. I saw you mentioned a few times reducing corporate overhead next year. Just curious kind of what specific measures you’re thinking of and what kind of – to what extent a corporate overhead do you think can be reduced?

Sure, Nat. So I don’t have specific forward-looking guidance to give on the exact numbers…

Sure.

…but categorically…

Okay.

…if you think about this past fiscal year, the DME acquisition was a transformative acquisition for the company. And the downside of that is it did come along with enhanced public company costs, not all of which we expect to be recurring.

Okay.

[Indiscernible] was unusually expensive as a result of the transformative nature of bringing those two companies into our financials. We don’t expect to have that level of expense in the coming fiscal year. That’s one pretty tangible example of a number of small – there are probably additional smaller public company costs that we’ve substantially already taken actions to reduce, but it’s only partially or not at all flow through our financial statements.

Okay, very good. In terms of acquisitions, you have the great platform with DME. Are there other areas you’re going to be considering looking at it? And how does that compare to what you’re seeing with the asset management segment in terms of growing that area?

Sure. So I think that the bar for acquisitions across industries and we are looking at acquisitions across industries is relatively high. We expect to get a high return for our stockholders. One of the things at DME and also an investment management is both of those business segments have established infrastructure, whereby we frequently can’t have the power of buyers’ earnings be higher than the standalone targets earnings. And therefore, those kinds of acquisitions tend to, but not always, hence allowed to having higher financial returns for our stockholders than things in unaffiliated businesses or businesses where we don’t have existing infrastructure. That being said, we’re looking at all sorts of different opportunities and are open-minded about the way in which we create value for our stockholders.

Okay. I noticed that a comment on the Real Estate, you said you’re looking to add value with that one property you had. Is there any additional detail you could talk about that? I don’t know, is there some element of that that’s negotiable? Do you remember, which comment I’m talking about on the slides? It says, maybe there’s some way to add value there. What was that about?

Sure. So in this particular case, I think, our property has incremental amount of land that hasn’t been developed. And so from time-to-time, we’ve talked with our tenants about ways in which we could be a partner to them to help them develop or utilize that excess land that is not really being utilized or isn’t being utilized in a way that’s particularly valuable today. That’s one example. Anytime someone is thinking about extending a lease or changing a lease, we have the ability to utilize our NOLs to make that transaction more tax effective for our tenants. And in this, if we can do that and enhance the value for our stockholders by making the proposition a more value-added one for our tenants, we think that’s a great opportunity for win-win transactions.

Okay. Yes, that sounds good. Now in terms of the stock, you guys are still pretty small under the radar. Is there a point at which you think, there are some firms that will do coverage of smaller stocks like this around you’re not quite there yet, but around the $100-plus-million market cap range. Is that something you’ve looked at getting to kind of put the stock on the radar a little bit? Because I think, with DME and the growth, I think, you do have a pretty good growth story. So I certainly think, it would be beneficial to get the word out a little more on the stock?

I think we’re open-minded about doing that from sort of DME acquisition. To date, we’ve been sprinting to try to build infrastructure to execute on the growth strategy, in particular, the business needed more infrastructure to be able to be an aggressive acquirer and acquirer of multiple assets per year. That being said, as a lot of that work is being done and we see some of the impacts of that in the quarter and we feel good about the the growth rate there, I think, we’re very open-minded ways to tell our story to a wider audience. And perhaps, we could follow-up offline about any ideas that you heard there.

Sure. Okay. Well, that sounds very good. Keep up the good work. Thanks.

Thanks, Nat.

Your next question comes from the line of Jon Old from Long Meadow Investors. Please go ahead.

Hi, Pete, thanks for the call today. Just curious, given the – obviously, decline in interest rates, where do you stand with contemplating refinancing the DME debt?

Hey, Jon, good morning and good question. Certainly, the rate environment is borrower-friendly and certainly part of the deal, when we acquired DME was taking on the particular term loan that we have. The cost of redeeming that go down over time. And you’re right, the opportunity set looks more attractive, not only for saving interest expense on what we have potentially, but also as we think about funding, build out and acquisitions. I think if you look at our debt to EBITDA ratios, we’re relatively underleveraged. So I think that a natural time to seek to refinance that paper, either with our existing lender, who’s been a great partner, by the way, or with another lender is in connection with one or more acquisitions. And so, as we’re sort of always on the hunt, and always in dialogue with acquisitions, that’s never far from the front of our minds in connection with the next step of growing the value of that platform.

Okay, thanks. So with the respiratory deal, obviously was late in the year. What would you say that sort of the run rate adjusted EBITDA is going into 2020?

Our security employers probably don’t want me to give a super precise answer there. But I – what I can say is that the $12.9 million number that we had in public in connection with buying this, coupled with our performance so far, coupled with Midwest makes me think that we are on a – both at an absolute level run rate that’s higher than that and that our growth rate in our key product categories, in particular, has its very optimistic. So the trends lines, not only the absolute level of that, but the trend line growth of that adjusted EBITDA figure.

Okay. Well, I’m just weird, because the – you talk a lot about the growth and patient growth. And I’m trying to reconcile that with, I mean, the revenues have gone to the $13.2 million, $11.8 million, $12.9 million, EBITDA $3.6 million, $3.2 million, $2.8 million. Do you – I mean, is there a churn on the other side of that, that is not in the numbers or I mean, they doesn’t seem to be that much organic growth relative to the growth in the setups and stuff that you keep talking about, or is it just – is there a lag?

Sure. So one of the things I think is useful to remember is the fourth calendar quarter, our second fiscal quarter for most healthcare businesses is by far the seasonally strongest quarter. So the highest revenue number that you referenced within that seasonally strong fourth quarter.

Okay.

…that first quarter of the calendar, our third fiscal quarter is typically seasonally your weakest quarter. On top of that, our most important categories path, in particular, are growing very, very rapidly. Other product categories, such as sleep testing, in particular, independent sleep lab testings aren’t growing very quickly. So on a blended average basis, we expect the path, which is our biggest category, as it continues to grow at the rate at which it’s growing, that will – that should increase the overall revenue growth rate that I think you’re referencing. As far as EBITDA goes, we are on purpose investing pretty heavily in people process and infrastructure to be able to execute multiple bolt-on acquisitions a year, like we did with Midwest in the quarter. The process of doing that means that our margins in any particular moment aren’t exactly optimized, and this quarter is a great example of that. I feel really good about the revenue performance. But all of the work that we put into consolidating billing platforms and implementing new software just ends up being a bit distracting. And so the execution on the margin or profitability level is not where I would expect it would be in a quarter in which we weren’t doing all of that activity. We’re not completely done with that activity, but the team has made very good progress. And we feel good about how that’s going and we feel really good about the trend lines in the business.

Okay.

There are no further questions at this time. I turn the call back over to Mr. Yates for closing remarks.

Thank you, again, for joining us this morning to discuss Great Elm Capital Group’s fourth quarter and fiscal year 2019 financial results. We appreciate your support and we look forward to creating long-term shareholder value together. Please do not hesitate to reach out to us if we can be helpful with anything in follow-up, and have a great day.

Thank you. This concludes today’s conference call. Thank you for your participation. You may now disconnect.