Great Elm Group, Inc.

Great Elm Group, Inc. (GEG) operates as a publicly-traded alternative asset management company, strategically focused on cultivating a diversified portfolio of long-duration and permanent capital vehicles across various alternative strategies including credit, real estate, and specialty finance. The company's business model is centered on generating recurring free cash flows through its asset management activities. GEG's wholly-owned subsidiaries, Great Elm Capital Management, LLC (GECM) and Monomoy CRE, LLC (MCRE), provide investment management services to Great Elm Capital Corp. (GECC), a business development company (BDC), and Monomoy UpREIT, LLC (Monomoy UpREIT), a private real estate investment trust specializing in Industrial Outdoor Storage (IOS) focused net leased assets. As of June 30, 2025, the combined assets under management of these entities totaled approximately $758.5 million ¹. GEG also engages in real estate development through its wholly-owned subsidiary, Monomoy BTS Corporation (MBTS), which purchases land parcels, constructs build-to-suit improvements, and then seeks to sell the land and improvements with attached leases.

The core business model of GEG revolves around earning revenue through investment management agreements (IMAs) with its managed investment vehicles. These IMAs provide for management fees, property management fees, incentive fees, and administration fees. These fees are generally based on assets under management, rent collected, investment performance, and allocable expenses incurred in the administration of these investment vehicles. The company also generates revenue from real estate property sales and project management fees from its construction management business.

GEG's product and service lines are primarily divided into investment management and real estate activities. In investment management, GECM provides services to GECC and other private funds, while MCRE manages Monomoy UpREIT. As of June 30, 2025, GEG owned approximately 12.4% ² of GECC's shares and approximately 5.1% ³ of Monomoy UpREIT, along with 4.0% ⁴ of Monomoy Properties REIT, LLC. Revenue from management fees for the year ended June 30, 2025, was $7.038 million ⁵, and incentive fees were $4.069 million ⁶. Administration and service fees contributed $1.514 million ⁷, and property management fees generated $1.245 million ⁸. In its real estate segment, MBTS completed its third land parcel purchase in Florida in March 2025, with leases commencing upon substantial completion of build-to-suit developments. In June 2024, MBTS sold one development, and in December 2024, the lease for another development commenced. Real estate property sales for the year ended June 30, 2025, were $1.192 million ⁹, with related cost of revenues of $1.082 million ¹⁰. Project management fees, primarily from the newly acquired construction business, contributed $0.941 million ¹¹ in revenue. Real estate rental income was $0.317 million ¹².

For the fiscal year ended June 30, 2025, GEG reported total revenues of $16.316 million ¹³, a decrease of 9% ¹⁴ from $17.834 million ¹⁵ in the prior year. Cost of revenues significantly decreased by 80% ¹⁶ to $1.082 million ¹⁷ from $5.526 million ¹⁸ in the prior year. The company reported an operating loss of $(8.003) million ¹⁹, compared to an operating loss of $(7.838) million ²⁰ in the prior year. Net income from continuing operations was $15.550 million ²¹, a substantial improvement from a net loss of $(0.942) million ²² in the prior year. Diluted EPS from continuing operations was $0.38 ²³, compared to $(0.05) ²⁴ in the prior year. As of June 30, 2025, cash and cash equivalents were $30.603 million ²⁵, and total investments at fair value were $60.614 million ²⁶. Total long-term debt (face value) was $26.945 million ²⁷ for GEGGL Notes and $35.063 million ²⁸ for Convertible Notes.

Year-over-year, revenues decreased by $1.5 million ²⁹, primarily due to a decrease in real estate property sales and related cost of revenue, with only $1.2 million ³⁰ of real estate property sales in the current year compared to $6.6 million ³¹ in the prior year. This decline was partially offset by a $2.6 million ³² increase in management and incentive fees from GECC due to increased assets under management. Project management fee revenue of $0.9 million ³³ was recognized from the newly acquired construction business, which was not present in the prior year. Operating costs and expenses increased by $3.1 million ³⁴, driven by a $3.4 million ³⁵ increase in investment management expenses, mainly due to increased personnel costs from the Greenfield Acquisition and changes in personnel cost allocations. Non-cash compensation increased by $0.3 million ³⁶, and depreciation and amortization increased by $0.1 million ³⁷. Other selling, general and administrative expenses decreased by $0.7 million ³⁸. Net realized and unrealized gains increased by $14.6 million ³⁹, primarily due to a significant unrealized gain on an investment in a private fund following its public offering announcement and a change in valuation technique for special purpose vehicles. Interest income decreased by $1.5 million ⁴⁰ due to a shift in the investment portfolio away from interest-earning marketable securities. Dividend income decreased by $0.4 million ⁴¹ due to a one-time redemption in the prior year.

Significant operational developments during the period include the acquisition of certain assets of Greenfield CRE (Greenfield) on February 4, 2025 ⁴². This acquisition led to the formation of Monomoy Construction Services, LLC (MCS), a wholly-owned subsidiary, which combined Greenfield's assets with those of Monomoy BTS Construction Management, LLC (MCM) to create an integrated, full-service construction business. MCS is intended to serve the company's real estate businesses and expand its third-party consulting business. The financial results of MCS are included in the company's consolidated results from February 4, 2025 ⁴³. During the year ended June 30, 2025, GEG capitalized development costs of $3.4 million ⁴⁴ for real estate projects. The company also issued a promissory note to Monomoy REIT for up to $10.0 million ⁴⁵ in January 2025, of which $8.0 million ⁴⁶ was drawn as of June 30, 2025, and fully paid down in July 2025.

The company continues to explore other investment management opportunities and opportunities in other areas that it believes provide attractive risk-adjusted returns on invested capital. GEG had no unfunded binding commitments to make additional investments as of the report date. The company intends to make acquisitions that will likely result in the investment of all its liquid financial resources, the issuance of equity securities, and the incurrence of indebtedness. If GEG is unsuccessful in raising additional capital through debt or equity, it is unlikely to be able to execute its strategic growth plan.

A major growth area for GEG is its newly integrated, full-service construction business, Monomoy Construction Services, LLC (MCS), formed on February 4, 2025 ⁴⁷ through the acquisition of Greenfield CRE. MCS is dedicated to serving the company's various real estate businesses and expanding its existing third-party consulting business. The company's revenue from this business line depends on the size and number of projects it can manage, and its ability to scale the business.

Another growth vector involves the company's real estate development activities through Monomoy BTS Corporation (MBTS). MBTS purchases land parcels, constructs build-to-suit improvements, and then seeks to sell the land and improvements with attached leases. MBTS completed its third land parcel purchase in Florida in March 2025 ⁴⁸. The leases for these developments commence upon substantial completion of the build-to-suit projects, and MBTS aims to sell the land and improvements at or subsequent to the lease commencement date.

Regarding capital allocation, the Board authorized an increase in the company’s stock repurchase plan from $20 million ⁴⁹ to $25 million ⁵⁰ in July 2025. The company implemented a stock buyback program in May 2025, authorizing the repurchase of up to 1,575,000 shares ⁵¹ of common stock in open market transactions through the close of business on the second full trading day following the filing of the Form 10-K for the fiscal year ended June 30, 2025. No shares were repurchased under this specific plan in the quarter ending June 30, 2025.

Subsequent to the fiscal year end, on July 31, 2025, GEG entered into a Stock Purchase Agreement with Kennedy Lewis Investment Management LLC (KLIM) affiliated funds, selling 1,353,885 shares ⁵² of common stock at $2.1144 per share ⁵³ for an aggregate purchase price of $2.9 million ⁵⁴. Concurrently, GEG formed Great Elm Real Estate Ventures, LLC, a new holding company for its real estate business, granting KLIM-affiliated Investors a pro rata participation interest in preferred equity with a cumulative preferred distribution of 12.5% per annum ⁵⁵ and a Profit Interest Percentage of 15% ⁵⁶ of distributions, increasing by 1.0% for each $10.0 million ⁵⁷ of borrowings under a new loan agreement, up to a maximum of 20% ⁵⁸. On August 27, 2025, GEG entered into a Securities Purchase Agreement with Woodstead Value Fund LP, selling 4,000,000 shares ⁵⁹ of common stock at $2.25 per share ⁶⁰ for an aggregate purchase price of $9 million ⁶¹. Additionally, GEG issued Series A Warrants to buy 1,000,000 shares ⁶² at an exercise price of $3.50 per share ⁶³ and Series B Warrants to buy 1,000,000 shares ⁶⁴ at an exercise price of $5.00 per share ⁶⁵, both with a ten-year term.

GEG faces several material risks, including the potential for its growth strategy to be unsuccessful due to intense competition from larger, well-financed organizations, difficulties in identifying attractive investment opportunities or partners, and challenges in consummating identified opportunities due to regulatory, legal, or financing complexities. The company's business, financial condition, and results of operations are highly dependent on its investments, and any material adverse change in an investment or industry could significantly impact its financial performance. There is a risk that GEG may be forced to take write-downs or write-offs, restructuring, and impairment charges if investments do not perform as expected, which could negatively affect its financial condition and share price. The company's ability to successfully grow its business is dependent on its key personnel, and the loss of such personnel could severely impact operations and profitability. Changing conditions in financial markets and the economy, such as limitations on credit availability, high inflation, and interest rates, could adversely affect GEG through decreased revenues, losses, or increased funding costs. The financial services industry is subject to extensive and evolving regulation, which could affect revenue and profitability, limit business opportunities, and impose additional costs. Operational risks, including failures in data processing systems, cybersecurity threats, and inadequate financial and operational controls, could disrupt business, result in regulatory action, or limit growth. The company carries various insurance policies, but these may not provide sufficient coverage against all potential material losses, particularly for catastrophic events or certain types of risks that are uninsurable or not economically insurable. A significant portion of GEG's revenue is derived from investment management agreements that may be canceled at the counterparty's discretion without termination payment. If GEG is deemed an investment company under the Investment Company Act, it would be subject to burdensome compliance requirements and restricted activities, making it difficult to execute growth plans. Conflicts of interest may arise as officers and directors also serve other entities, potentially leading to business opportunities being presented to other entities first. The company's recent entry into the construction management business carries risks due to a lack of prior experience in the industry, intense competition, and dependence on the ability to manage numerous projects and contract with skilled trade partners. GEG's common stock is subject to transfer restrictions to reduce the possibility of limitations on the use of its net operating loss (NOL) carryforwards and other tax attributes, which could affect liquidity for some shareholders. Future issuances of common or preferred stock could significantly dilute existing equity interests, subordinate common stock rights, or cause a change in control. Anti-takeover provisions in the company's corporate documents and Delaware law could deter acquisition attempts, potentially limiting stockholders' opportunity to receive a premium for their shares. Common stockholders may experience significant dilution upon the conversion of the 5.0% Convertible Senior Notes due 2030, which could also cause the stock price to decline and further concentrate ownership in certain related parties.

Management's overall tone emphasizes a strategic focus on growing a scalable and diversified portfolio of long-duration and permanent capital vehicles across credit, real estate, specialty finance, and other alternative strategies, driven by the assessment of the asset management business's ability to generate recurring free cash flows and growth prospects. The Chief Operating Decision Maker (CODM), Jason W. Reese, utilizes net income in the annual budget and forecasting process and reviews budget-to-actual variances quarterly to make decisions on internal operations and future investments. A key strategic priority is the continued exploration of investment management opportunities and other areas offering attractive risk-adjusted returns on invested capital, with the understanding that this may involve investing liquid financial resources, issuing equity, and incurring indebtedness. Another priority is the development and expansion of the integrated, full-service construction business, Monomoy Construction Services, LLC (MCS), which was formed through the acquisition of Greenfield CRE on February 4, 2025 ⁴⁷, to serve the company's real estate businesses and grow its third-party consulting business. Furthermore, management is focused on capital allocation, as evidenced by the Board's authorization in July 2025 to increase the stock repurchase plan from $20 million ⁴⁹ to $25 million ⁵⁰, and the implementation of a stock buyback program in May 2025 to repurchase up to 1,575,000 shares ⁵¹ of common stock.