Ladies and gentlemen, thank you for standing by, and welcome to the Great Elm Capital Group's Fiscal Third Quarter 2020 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Adam Yates. Please go ahead, sir.

Thank you, Jacqueline, and good morning, everyone. Thank you for joining us for Great Elm Capital Group's Fiscal Third Quarter 2020 Earnings Conference Call. As a reminder, this webcast is being recorded on Tuesday, May 12, 2020. If you'd like to be added to our distribution list, you can either e-mail investorrelations@greatelmcap.com or sign up for alerts directly on our website. The slide presentation accompanying this morning's conference call and webcast can be found on Great Elm Capital Group's website, www.greatelmcap.com under Events and Presentations. A link to the webcast is also available on 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 those 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 2 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 4 for a note to shareholders regarding our current operating environment. The impact of COVID-19 has been significant and widespread, but our businesses are well positioned for the difficult economic environment. DME saw a year-over-year revenue growth of 20.2% during the quarter, underpinned by growth in its major product categories. Under investment management, the majority of GECC's portfolio companies are weathering the difficult economic environment with resilient business models and sustainable cash flows. Our real estate investment is a Class A property under a long-term triple net lease to a credit-worthy tenant. In general corporate, we recorded an unrealized loss on our investment in GECC shares of approximately $9.8 million during the quarter, driven by a reduction in the price of GECC shares. Nevertheless, we closed quarter end with approximately $39 million of cash and cash equivalents available for deployment. In order to successfully navigate the current environment and be in a position to capitalize on attractive investment opportunities, we believe we must take every opportunity to bolster liquidity. During the quarter, we issued $30 million in aggregate principal of unsecured convertible notes, significantly enhancing our ability to pursue attractive new business opportunities. In summary, we are confident in the quality of our businesses and our ability to capitalize on new potential opportunities for growth. Please turn to Slide 5. During the quarter ended March 31, 2020, we reported consolidated revenue, net loss and adjusted EBITDA of $16.2 million, $11.9 million and $2.6 million, respectively. We are intently focused on growing both revenue and profitability across our verticals. 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 managing our existing investment in Fort Myers to monetize our substantial tax assets. Please turn to Slide 9. Our team collectively owns approximately 2 million shares or 7% of the company, including our Board of Directors and their funds under management. Insiders collectively own circa 27% of the shares outstanding. We believe this fosters a significant and long-term alignment of interest amongst employees, directors and other shareholders. Let's turn to Slide 11 for an overview of our operating company activity. DME generated $14.1 million of revenues and $2.5 million of adjusted EBITDA during the quarter. We're experiencing meaningful revenue growth in all major product categories, including the key PAP category. New PAP patient setups grew 19% year-over-year, with total active PAP patients hitting a new high this quarter. As we grow, we're investing heavily in people, processes and technology to increase the scalability of the DME platform. However, toward the end of the quarter, local shelter-in-place orders negatively impacted physician referrals, which drove a reduction in the referral volume for DME. The decline in referrals continued post quarter end. Despite headwinds, DME has been proactive in taking measures to respond to the COVID-19 pandemic to ensure it can continue to provide critical respiratory services. Please turn to Slide 12 to discuss our plan for inorganic growth at DME. Acknowledging the many challenges in the current business environment, DME seeks to partner with companies in tangential and overlapping markets. We're exploring opportunities for corporate development with respiratory-focused, durable medical equipment businesses. These opportunities may result in relationships that provide stabilization in a fragmented industry. In addition, these opportunities could help to further diversify DME's payer and product mix. We continue to explore complementary product lines and services, utilize 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 $14.1 million. Adjusted EBITDA for the quarter was approximately $2.5 million. To note, a healthy portion of DME's cash flow was reinvested in the business. Virtually all of the CapEx spend was devoted to revenue-generating equipment. Revenue and profitability, however, were negatively impacted by revenue reserves of $1.1 million, approximately $0.8 million of which is associated with receivables older than 9 months. Turning to Slide 15. Let's discuss the operating environment for our investment management business. In the third fiscal quarter of 2020, investment management generated approximately $0.8 million of revenue and $0.3 million of adjusted EBITDA. First half of 2020 has been characterized by remarkable volatility in the leveraged credit markets, driven by the impact of the COVID-19 pandemic and violent swings in asset prices. The fair value of the managed portfolio investments, primarily GECC, was negatively impacted by this volatility. All GECC portfolio companies are operating in a highly uncertain environment. Nevertheless, a majority of these portfolio companies are weathering the difficult economic environment with resilient business models and sustainable cash flows. In managing GECC, we are focused on liquidity preservation and strengthening its balance sheet. We believe that prudent cash management is paramount during bouts of market volatility. As of March 31, 2020, GECC held approximately $23 million of cash. Please turn to Slide 16 to discuss characteristics of 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 free cash flow generation. Over the long term, we plan to grow our investment management business by increasing assets under management, either through BDC M&A or in other investment vehicles. With significant embedded operating leverage and an established infrastructure, we believe the investment management business has the potential to generate free cash flow on a meaningful scale. Turning to Slide 17. Management fees received were approximately $683,000 for the fiscal third quarter, the lowest rating in some time. The spreads widened and prices fell on the secondary credit markets. Fair value of assets on which we charge management fees also fell. On Slide 18, we break out the segment financials for investment management. Total revenues, which include both management fees and administration fees, were approximately $829,000 during the quarter. Adjusted EBITDA was approximately $307,000 in the quarter. As you can see, leveraged free cash flow of $272,000 is a high percentage of adjusted EBITDA. Potential growth in adjusted EBITDA should translate to a commensurate amount of leveraged free cash flow generation. Limited fixed costs, coupled with the termination of the Full Circle consulting agreement in the fiscal second quarter of 2020, leads us to believe this segment is poised for continued free cash flow generation. Please turn to Slide 20 to discuss real estate. Our real estate investment has been characterized by a limited amount of upfront capital deployed, significant amount of nonrecourse leverage to finance our acquisition in 2018 and continued taxable income to help monetize our NOLs. Let's turn to Slide 21. As you see on the chart, assuming no appreciation in the property value, GEC's equity in the Fort Myers investment will continue to grow between now and the lease expiration in 2030. As cash flows from the rental stream are utilized to amortize debt, equity grows from 1x our investment in acquisition to greater than 7x in 2030, all without deploying any additional capital. Turning to Slide 22. Let's walk through the segment financials for real estate. During the third quarter, we generated approximately $1.3 million in rental income, $67,000 in net income and $1.15 million of adjusted EBITDA. While not generating leveraged 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 24, we have a review of Great Elm's general corporate segment financial detail. This quarter's net loss was, in large part, driven by a $9.8 million unrealized loss on the investment in GECC shares, offset in part by dividends from those shares. As of March 31, 2020, GEC's consolidated cash balance was approximately $39 million. GEC is actively looking for new investment opportunities. Beyond the financial review on Slide 29, we have a summary of how we plan to continue to drive shareholder value. We intend to achieve this goal through growth at Great Elm DME and investment management, enhanced by reduced corporate overhead. That concludes our review of Great Elm's fiscal third quarter. Let's open up the call for Q&A.

[Operator Instructions] There are no questions at this time. I'll turn the call back over to Adam Yates.

Thank you again for joining us this morning to discuss Great Elm Capital Group's third quarter 2020 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.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.