10-Q: Great Elm Group Reports Q1 Loss Amid Real Estate Sale

Great Elm Group, Inc. reported a net loss of $7.9 million for the quarter ended September 30, 2025, despite a significant increase in real estate property sales revenue, driven by segment realignment and investment portfolio shifts.

Summary

• A net loss of $7.904 million was reported for the three months ended September 30, 2025, a significant decline from a net income of $2.974 million in the prior year period.
• Net loss attributable to Great Elm Group, Inc. stockholders was $(7.030) million, compared to net income of $2.639 million in the prior year period.
• Basic earnings per share (EPS) was $(0.24), down from $0.09 in the corresponding prior year period.
• Total revenues increased by 170% to $10.788 million, primarily driven by a $7.4 million real estate property sale in the Real Estate segment.
• Cost of revenues increased significantly to $6.748 million from $0.635 million, directly related to the real estate property sale.
• Operating costs and expenses rose to $7.766 million from $5.353 million, mainly due to increased compensation and benefits ($1.7 million increase) and selling, general and administrative expenses ($0.7 million increase) following the Greenfield acquisition and increased activity.
• Net realized and unrealized gains decreased by $6.6 million, primarily due to a notable unrealized loss on one private fund investment.
• Cash and cash equivalents increased to $53.470 million as of September 30, 2025, from $30.603 million as of June 30, 2025.
• The company realigned its segment reporting structure, effective September 30, 2025, into two reportable segments: Alternative Credit and Real Estate.
• Assets under management (AUM) for managed entities totaled approximately $792 million as of September 30, 2025.

Sentiment

Score: 4

Explanation: While the company achieved substantial revenue growth driven by a significant real estate sale and improved cash flow from operations, the overall net loss and considerable decline in net realized and unrealized gains indicate a challenging quarter. The strategic segment realignment and recent capital raises provide a foundation for future growth, but current profitability remains a concern.

Positives

• Total revenues increased by 170% to $10.788 million for the quarter, primarily driven by a $7.4 million real estate property sale.
• Cash and cash equivalents significantly increased to $53.470 million as of September 30, 2025, from $30.603 million as of June 30, 2025.
• Net cash flows from operating activities improved by $9.6 million, shifting from a net cash used of $5.8 million to net cash provided of $3.8 million.
• Net cash flows from investing activities increased by $6.9 million to $9.3 million, driven by the settlement of a related party loan receivable and net sales of investments.
• Net cash flows from financing activities increased by $11.9 million to $9.7 million, primarily due to proceeds from the issuance of common stock and lower stock repurchases.
• The company successfully completed the sale of a real estate property for $7.0 million in September 2025.
• The acquisition of Greenfield CRE integrated construction management services, expanding the company's full-service real estate platform and third-party consulting business.
• The net consolidated debt to equity ratio was 0.1:1.0 as of September 30, 2025, well below the 2:1 covenant limit for the GEGGL Notes.
• The Board authorized an increase in the company's stock repurchase plan from $20 million to $25 million in July 2025.

Negatives

• A net loss of $7.904 million was reported for the quarter, a substantial decrease from a net income of $2.974 million in the prior year period.
• Net loss attributable to Great Elm Group, Inc. stockholders was $(7.030) million, compared to net income of $2.639 million in the prior year.
• Basic EPS declined significantly to $(0.24) from $0.09 in the corresponding prior year period.
• Net realized and unrealized gains decreased by $6.6 million, primarily due to a significant unrealized loss on one private fund investment.
• Alternative Credit segment revenue decreased by $0.9 million (36%) due to a reduction in incentive fee revenue, as performance metrics for the underlying fund were not yet met.
• Interest income decreased by $0.3 million due to a shift in the investment portfolio away from interest-earning marketable securities into other strategic private investments.
• Operating loss widened to $(3.726) million from $(1.996) million in the prior year period.
• Operating costs and expenses increased, with compensation and benefits up $1.7 million and selling, general and administrative expenses up $0.7 million, largely due to the Greenfield acquisition and increased activity.

Risks

• The ability of Great Elm Capital Management, LLC (GECM) to profitably manage Great Elm Capital Corp. (GECC) and the ability of Monomoy CRE, LLC (MCRE) to manage Monomoy UpREIT.
• The dividend rate that GECC and Monomoy UpREIT will pay.
• The results of investment management activities.
• The ability to sell real estate properties developed at a profit.
• The ability to raise capital to fund the business plan.
• The ability to make acquisitions and manage any businesses that may be acquired.
• Conditions in the equity capital markets and debt capital markets, as well as the economy generally, including market uncertainty regarding global trade policies and tariffs, changes to interest rates, and inflationary pressures.
• The ability to maintain the security of electronic and other confidential information.
• Serious disruptions and catastrophic events, including the potential impact of public health emergencies on the global economy.
• Competition, mostly from larger, well-financed organizations (both domestic and foreign), including operating companies, global asset managers, investment banks, commercial banks, and private equity funds.
• Outcomes of litigation and proceedings and the availability of insurance, indemnification, and other third-party coverage of any losses suffered in connection therewith.
• Maintaining contractual arrangements and relationships with third parties.
• The ability to attract, assimilate, develop, and retain key personnel.
• Compliance with laws, regulations, and orders.
• Changes in laws and regulations governing operations.

Future Outlook

The company continues to explore other investment management opportunities, as well as opportunities in other areas that it believes provide attractive risk-adjusted returns on invested capital. As of the report date, the company had no unfunded binding commitments to make additional investments. The company is evaluating the potential impact of recently issued accounting standards (ASU 2023-09, 2024-03, and 2024-04) on its consolidated financial statements.

Management Comments

• We believe we have sufficient liquidity available to meet our short-term and long-term obligations.

Industry Context

Great Elm Group operates in the alternative asset management sector, with a strategic focus on Alternative Credit and Real Estate, including Industrial Outdoor Storage (IOS). This realignment positions the company to capitalize on specialized asset management trends and the growing interest in niche real estate sectors. The significant increase in real estate property sales and construction services revenue indicates active participation and growth in the real estate development and management space. However, the decline in incentive fees in the Alternative Credit segment suggests potential challenges in achieving performance hurdles, which can be common in volatile credit markets.

Comparison to Industry Standards

• NA

Corporate Governance

Legal Proceedings

• No changes to legal proceedings required to be disclosed.
• The company is not a named party in any other pending or threatened litigation expected to have a material adverse impact on its business, results of operations, financial condition, or cash flows.

Related Party Transactions

• Great Elm Capital Management, LLC (GECM) manages investment portfolios for Great Elm Capital Corp. (GECC) and other investment products, and provides administrative services.
• Monomoy CRE, LLC (MCRE) has agreements with Monomoy UpREIT to receive management fees, incentive fees, and administration and service fees.
• The company owns 1,358,276 shares of GECC, representing approximately 9.7% of its outstanding shares.
• Certain officers and directors of GECC also hold officer and director positions at Great Elm Group, Inc., including Matthew A. Drapkin, Adam M. Kleinman, Matt Kaplan, and Keri A. Davis.
• The company holds investments in Great Elm Strategic Partnership I, LLC (GESP), Prosper Peak Holdings, LLC (PPH), and Summit Grove Partners, LLC (SGP), each of which owns shares of GECC.
• GECM has shared personnel and reimbursement agreements with Imperial Capital Asset Management, LLC (ICAM), with costs of $0.2 million for the three months ended September 30, 2025, and $0.1 million for the prior year period.
• ICAM reimburses GECM for administrative services, with costs of approximately $1 thousand for both the current and prior year periods.
• Jason W. Reese, CEO and Chairman, entered into a voting waiver agreement for his common stock.
• GECM contributed approximately $0.1 million to GECC's equity distribution sales to ensure sales were not made below net asset value per share.
• Convertible Notes include $17.0 million held by related parties, specifically funds managed by ICAM, Mr. Drapkin, and Northern Right Capital Management, L.P. (Northern Right).
• ICAM and Northern Right have agreed not to convert their Convertible Notes into common stock prior to November 2026 and January 1, 2026, respectively.
• A promissory note to Monomoy REIT for up to $10.0 million, drawn for $8.0 million as of June 30, 2025, was fully paid down in July 2025, with $0.1 million of interest income recognized.

Stakeholder Impact

• Shareholders experienced a net loss and diluted EPS, but also benefited from increased stock repurchase authorization and strategic capital raises that could support future growth.
• Employees saw increased personnel and compensation expenses due to the Greenfield acquisition, indicating growth in certain operational areas.
• Customers of managed funds continue to receive investment management and administrative services, with expanded construction services available through the newly integrated business.
• Creditors are positively impacted by the company's strong liquidity position and compliance with debt covenants, with a net consolidated debt to equity ratio well below the limit.
• Suppliers and partners in the real estate development and construction sector may see increased opportunities due to the company's expanded capabilities and active project pipeline.

Next Steps

• Continue to explore other investment management opportunities and areas providing attractive risk-adjusted returns.
• Evaluate the potential impact of new accounting standards (ASU 2023-09, 2024-03, 2024-04) on consolidated financial statements.
• Potentially execute further stock repurchases under the increased $25 million authorization.

Key Dates

Recommendation

The company reported a significant net loss and a decline in investment performance, which are concerning. However, the substantial revenue growth in the Real Estate segment, strong cash position, and strategic capital raises indicate potential for future turnaround and growth. The segment realignment and acquisition of Greenfield CRE suggest a focused strategy. Investors should hold to observe if the strategic initiatives translate into improved profitability and sustained growth in the coming quarters, particularly in the Real Estate segment, and if the Alternative Credit segment can recover its incentive fees. The current financial performance does not warrant a 'buy' despite the strategic moves, nor a 'sell' given the underlying asset management and real estate platforms.

Keywords

Alternative Asset Management, Real Estate, Industrial Outdoor Storage, Credit, Specialty Finance, Investment Management, SEC Filing, 10-Q, Financial Results, GECC, Monomoy UpREIT, Greenfield Acquisition, Capital Raise, Stock Repurchase, Convertible Notes