Great Elm (GECC) Q2 EPS Surges 136%

Key Points

• GAAP EPS of $1.02 more than doubled the analyst estimate of $0.43 in Q2 2025, representing a 136.4% positive GAAP EPS surprise.

• Total investment income (GAAP) reached $14.3 million, exceeding GAAP estimates.

• Net asset value per share increased to $12.10, supported by unrealized gains and strong investment returns.

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Great Elm Capital (NASDAQ:GECC), a business development company specializing in debt and specialty finance investments, posted its second quarter 2025 earnings on August 4, 2025. The company delivered strong results, far outperforming analyst expectations, with GAAP EPS of $1.02 versus the analyst estimate of $0.43 in Q2 2025. EPS (GAAP) came in at $1.02, well above the $0.43 consensus GAAP estimate. Total investment income (GAAP) was $14.3 million, surpassing the GAAP estimate of $13.51 million. The quarter featured record-setting cash income, higher yields on new investments, and growth in net asset value per share. Overall, the results mark another strong period.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

Business Overview and Key Areas of Focus

Great Elm Capital invests primarily in secured and senior secured loans, targeting middle-market companies with enterprise values between $100 million and $2 billion. Its portfolio also includes specialty finance equity, collateralized loan obligation (CLO) investments, and other income-generating assets. The firm aims to deliver income and capital appreciation for shareholders by focusing on risk-protected, high-yield debt and strategic equity positions in less liquid markets.

In recent periods, the company concentrated on expanding its core debt portfolio and growing income from its specialty finance and CLO Joint Venture holdings. Effective capital deployment and disciplined exits enable Great Elm to achieve higher overall portfolio yields. Its success relies on experienced management, robust underwriting, and compliance with Business Development Company regulatory requirements, all while maintaining a competitive edge in sourcing and structuring investments.

Quarter Highlights: Portfolio, Performance, and Strategic Shifts

The quarter saw significant financial outperformance, with GAAP EPS of $1.02 and GAAP revenue of $14.3 million. Net investment income per share improved to $0.51. These gains resulted from record cash income, income generated by the CLO joint venture, and robust capital deployment into higher-yielding investments.

Great Elm continued to focus its portfolio on secured debt investments, which accounted for 58.9% of total fair value, or $197.3 million across 55 different positions. CLO investments made up 16.5% of the portfolio, contributing both income and portfolio diversification. The firm also maintained $36.4 million in specialty finance investments and a mix of equity assets for additional diversification.

Management deployed $22.6 million in new capital across 26 investments, achieving a weighted average current yield of 14.1%. At the same time, $35.0 million was monetized from 38 investments at a weighted average current yield of 11.1%, including $21.5 million of mandatory debt paydowns and redemptions at a weighted average current yield of 11.4%. By recycling capital from lower-yield monetizations into higher-yield opportunities, Great Elm aimed to support future income growth and portfolio optimization.

The CLO Joint Venture, which allows the company to participate in the residual cash flows of CLO vehicles, delivered $4.3 million in distributions, up from $3.8 million in the previous quarter. Management commented that this “robust cash generation” was a primary driver of the increase in net investment income. However, the company recognized that income from the CLO JV can be uneven between quarters due to its distribution schedule and underlying market dynamics, as reflected in the variability of distributions received in recent quarters.

Great Elm’s asset coverage ratio, a measure of asset protection for debt holders, improved to 169.5% from 163.8% in the prior quarter. Net asset value per share increased to $12.10 for Q2 2025, supported by unrealized gains, particularly from an investment related to CoreWeave, a technology firm focused on artificial intelligence infrastructure. The company reported that over 90% of investment income was in cash.

The quarterly dividend was maintained at $0.37 per share for Q3 2025, $0.37 per share, a 5.7% increase from the prior year’s $0.35 per share quarterly distribution. At the end of the quarter, this amounted to an annualized yield of 13.5% on the August 1, 2025 period-end closing price and 12.2% annualized dividend yield on net asset value. Net investment income exceeded the distribution by 38%, indicating solid coverage for shareholder payouts.

The specialty finance platform also completed business simplification and rebranding initiatives during the period. The exit of its last equipment lease holding and the shift to focus solely on healthcare real estate financing marked the end of a platform transition started in previous quarters.

Looking Forward: Guidance and Watch Areas

Management expressed a cautiously optimistic stance for the coming periods. Leadership stated, “we expect NII will step down in Q3 2025 due to the uneven cadence of cash flows from our CLO JV, but we remain well-positioned for our NII to exceed our distribution for the full year 2025.” No specific numerical guidance was provided for the third quarter or full year.

The company highlighted that income from the CLO Joint Venture remains variable, introducing the possibility of near-term volatility in quarterly earnings even if full-year targets are met, as income from the CLO JV is only recognized when distributions are received, resulting in uneven income reporting. The high level of monetizations versus new deployments means that management will need to continue sourcing attractive new investments to maintain portfolio scale and income growth. Asset quality, portfolio concentration, and the sustainability of high net investment income will be important areas for investors to monitor in upcoming quarters.

The quarterly dividend was maintained at $0.37 per share for Q3 2025.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.

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