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 investment management services, leveraging its Board of Directors' and employees' industry expertise. GEG's primary customer segments are the investment vehicles it manages, such as Great Elm Capital Corp. (GECC) and Monomoy UpREIT, LLC ¹.

GEG's core business model involves its wholly-owned registered investment adviser subsidiary, Great Elm Capital Management, LLC (GECM), which provides investment management services to GECC and other private funds. Additionally, Monomoy CRE, LLC (MCRE), another wholly-owned subsidiary, offers investment management services to Monomoy UpREIT. These subsidiaries generate revenue through investment management agreements (IMAs) that include management fees, property management fees, incentive fees, and administration fees, generally based on assets under management, rent collected, investment performance, and allocable expenses ².

The company's product and service lines are primarily divided into investment management and real estate development. In investment management, GECM and MCRE manage a combined $758.5 million in assets under management as of June 30, 2025 ³. GEG owns approximately 12.4% of GECC's shares as of June 30, 2025 ⁴, and approximately 5.1% of Monomoy UpREIT and 4.0% of Monomoy Properties REIT, LLC ⁵. The real estate segment involves Monomoy BTS Corporation (MBTS), a wholly-owned subsidiary, which purchases land parcels, develops build-to-suit improvements, enters into commercial lease agreements, and then seeks to sell the land and improvements with attached leases. MBTS completed its third land parcel purchase in Florida in March 2025 ⁶. In February 2025, GEG acquired certain assets of Greenfield CRE (Greenfield), a construction management company, forming Monomoy Construction Services, LLC (MCS) to provide integrated, full-service construction management services to both the Company's real estate businesses and third-party clients ⁷.

For the fiscal year ended June 30, 2025, GEG reported total revenues of $16.316 million ⁸, a decrease of 9% from the prior year ⁹. Cost of revenues decreased significantly by 80% to $1.082 million ¹⁰. The company recorded an operating loss of $8.003 million ¹¹. Net income from continuing operations was $15.550 million ¹², a substantial improvement from a net loss of $(942) thousand in the prior year ¹³. Basic earnings per share (EPS) from continuing operations was $0.47 ¹⁴, and diluted EPS was $0.38 ¹⁵. Net cash used in operating activities from continuing operations was $(9.006) million ¹⁶. As of June 30, 2025, GEG had an unrestricted cash balance of $30.603 million ¹⁷ and investments with a fair value of $60.614 million ¹⁸. Total long-term debt (face value) was $26.945 million ¹⁹, and convertible notes (face value) were $35.063 million ²⁰.

Year-over-year, revenues decreased by $1.5 million, primarily due to a decrease in real estate property sales and related cost of revenue, with only $1.2 million in real estate property sales in the current year compared to $6.6 million in the prior year ²¹. This decline was partially offset by a $2.6 million increase in management and incentive fees from GECC, driven by increased assets under management ²². Additionally, the newly acquired construction business contributed $0.9 million in project management fee revenue ²³. Operating costs and expenses increased by $3.1 million ²⁴, mainly due to a $3.4 million increase in investment management expenses, primarily from higher personnel costs related to the Greenfield Acquisition and shifts in personnel cost allocations ²⁵. Non-cash compensation increased by $0.3 million ²⁶, and depreciation and amortization increased by $0.1 million ²⁷. Other selling, general and administrative expenses decreased by $0.7 million ²⁸. Other income (expense), net, saw a significant increase of $14.6 million in net realized and unrealized gains ²⁹, primarily from an unrealized gain on an investment in a private fund due to a public offering announcement and a change in valuation technique for special purpose vehicles ³⁰. Interest income decreased by $1.5 million ³¹, and dividend income decreased by $0.4 million ³².

During the reported period, GEG capitalized development costs of $3.4 million for real estate projects ³³. On February 4, 2025, GEG acquired certain assets of Greenfield CRE, a construction management company, and formed Monomoy Construction Services, LLC (MCS) to integrate Greenfield's assets with those of Monomoy BTS Construction Management, LLC (MCM) ³⁴. In December 2024, the lease for a second real estate development commenced ³⁵. The company also issued a promissory note to Monomoy REIT for up to $10.0 million in January 2025, of which $8.0 million was drawn as of June 30, 2025 ³⁶. In June 2025, GEG repurchased $2.2 million of principal of Convertible Notes for $1.8 million, resulting in a realized gain of $0.5 million ³⁷. The Board authorized an increase in the stock repurchase plan from $20 million to $25 million in July 2025 ³⁸.

GEG continues to actively seek out additional investment management opportunities and other areas that are expected to yield attractive risk-adjusted returns on invested capital. The company's strategic growth plan is contingent on its ability to raise additional capital through debt or equity, without which it may not be able to execute its growth initiatives ³⁹.

A key growth area for GEG is its newly integrated, full-service construction business, Monomoy Construction Services, LLC (MCS), formed through the acquisition of Greenfield CRE in February 2025. MCS is dedicated to serving the Company's various real estate businesses and expanding its existing third-party consulting business ⁴⁰. The revenue generated from this business line is dependent on the size and number of projects managed, with many current projects being small. The company aims to scale this business in terms of both project count and size ⁴¹.

Another growth vector is the real estate development segment, specifically through Monomoy BTS Corporation (MBTS). MBTS focuses on purchasing land, developing build-to-suit improvements, and then selling the land and improvements with attached commercial leases. MBTS completed its third land parcel purchase in Florida in March 2025 ⁴², indicating ongoing development activity. The leases for these developments commence upon substantial completion, and MBTS intends to sell the land and improvements at or after the lease commencement date ⁴³.

Operationally, GEG's investment management expenses increased by $3.4 million in the past year, primarily due to increased personnel costs from the Greenfield Acquisition and changes in personnel cost allocations ⁴⁴. The company's ability to manage and scale its new construction management business effectively will be crucial for its operational trajectory, especially given the intense competition and the need to contract with skilled trade partners at reasonable rates ⁴⁵. The company's financial and operational controls will need to be adequate to manage this business expansion, including the integration of controls and systems from acquired businesses ⁴⁶.

Regarding capital allocation, GEG's Board authorized an increase in the company's stock repurchase plan from $20 million to $25 million in July 2025 ⁴⁷. The company had $26.945 million in outstanding 7.25% Notes due 2027 as of June 30, 2025 ⁴⁸, and $35.063 million in outstanding 5.0% Convertible Senior Notes due 2030 ⁴⁹. The Convertible Notes are convertible into common stock at a conversion price of $3.4722 per share ⁵⁰.

Management has explicitly flagged several structural headwinds and execution risks. The growth strategy may not be successful due to challenges in identifying attractive investment opportunities and strategic transaction partners, intense competition from larger, well-financed organizations, and potential failures to consummate identified opportunities due to regulatory complexities, financing difficulties, or adverse economic conditions ⁵¹. The company's dependence on its investments means any material adverse change in an investment or industry could significantly impact its financial condition and results of operations ⁵². Furthermore, the company has only recently entered the construction management business and lacks prior experience in this industry, which could affect its ability to operate effectively and scale the business ⁵³.

Geographic, regulatory, and macro factors also pose constraints. The financial services industry is subject to extensive regulation, and recent legislation and new or pending regulations could affect revenue, profitability, limit business opportunities, and impose additional costs ⁵⁴. Changing conditions in financial markets and the economy, including limitations on credit availability, illiquid credit markets, wider credit spreads, high inflation, and interest rates, could adversely affect GEG's business by decreasing revenues, causing losses, or increasing funding costs ⁵⁵. The company also faces risks related to its tax filing positions being challenged by tax jurisdictions, which could result in significant payments or reductions in deferred tax assets ⁵⁶.

GEG faces material risks across several dimensions. Macroeconomic risks include global or regional changes in financial markets and economic conditions, such as limitations on credit availability, illiquid credit markets, wider credit spreads, high inflation, and interest rates, which could adversely affect the company's revenue, profitability, and funding costs ⁵⁷. Competitive risks stem from intense competition from larger, well-financed organizations, including global asset managers, investment banks, commercial banks, private equity funds, sovereign wealth funds, and SPACs, which could lead to reduced business, revenues, and profits, and increase costs for talent acquisition and retention ⁵⁸. Regulatory risks are significant due to extensive laws, rules, and regulations in the financial services industry, with recent legislative and regulatory initiatives potentially affecting revenue, profitability, and business practices, and imposing additional costs ⁵⁹. Operational risks include the potential for disruptions from failures in financial, accounting, or data processing systems, cyberattacks, and other cyber incidents, which could lead to financial losses, regulatory intervention, or reputational damage ⁶⁰. The company also faces risks from its growth strategy, as it may fail to identify or consummate attractive investment opportunities, or may not correctly assess the management teams of acquired businesses ⁶¹. Furthermore, the company's common stock is subject to transfer restrictions to preserve net operating loss (NOL) carryforwards and other tax attributes, which generally restrict ownership of 4.99% or more of its common stock ⁶².

Management's overall tone emphasizes a strategic focus on expanding its alternative asset management platform and growing a diversified portfolio of long-duration and permanent capital vehicles. The company is actively exploring new investment management opportunities and other areas that offer attractive risk-adjusted returns. Management has highlighted the successful integration of the Greenfield CRE acquisition into Monomoy Construction Services, LLC, which is expected to serve both internal real estate businesses and external clients. A key strategic priority is to scale the construction management business, which is currently characterized by many small projects, to increase both the number and size of projects. Management also underscored the importance of maintaining sufficient liquidity to meet short-term and long-term obligations, noting an unrestricted cash balance of $30.603 million ⁶³ and investments with a fair value of $60.614 million ⁶⁴ as of June 30, 2025. The Board's recent authorization to increase the stock repurchase plan from $20 million to $25 million ⁶⁵ signals a commitment to shareholder value.