Thank you for joining us today for the Great Elm Capital Group, Inc. Q1 2020 Conference Call and Webcast. Currently, all participants are in listen-only mode. Following the presentations, we will have a question-and-answer session. I will now turn the call over to your speaker today, Adam Yates. Please proceed.

Thank you, Emily, and good morning, everyone. Thank you for joining us for Great Elm Capital Group, Inc.'s first quarter 2020 earnings conference call. As a reminder, this webcast is being recorded on Tuesday, November 12, 2019. If you'd like to be added to our distribution list, you can either email Investor Relations or sign up for alerts directly on our website. A slide presentation accompanying this afternoon’s conference call and webcast can be found on Great Elm Capital Group’s website under Events & Presentations. A link to the webcast is also available on this section of 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 these 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 afternoon, everyone. Thank you for joining us today. I am joined this afternoon by our President and COO, Adam Kleinman; our CFO, Brent Pearson; and two senior members of our investment teams, 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 five. During the quarter ended September 30, 2019, we reported consolidated revenue, net loss, and adjusted EBITDA of $15.4 million, $3.3 million, and $3.5 million respectively. We are intently focused on growing both revenue and profitability across our verticals. Please turn to slide seven 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 are interested in partnering with owners and lessees to utilize our substantial tax assets. On a consolidated basis, our goal is to generate increased free cash flow in fiscal year 2020. We intend to achieve this goal through continued growth at Great Elm DME and Investment Management enhanced by reduced corporate overhead. Please turn to slide eight. It is very important for us to maintain long-term alignment with you, our shareholders. Our team collectively owns approximately 2 million shares or 8% of the Company. Including our Board of Directors and their funds under management, insiders collectively own approximately 19% of the shares outstanding. We believe this fosters a significant and long-term alignment of interest among employees, directors, and shareholders. Let’s turn to slide 10 for an overview of our operating company activity. Since the formation of Great Elm DME, Inc. in September 2018, we've been pleased with the business’s rate of organic growth. DME generated $13.2 million of revenue and $3.0 million of adjusted EBITDA during the quarter. We're experiencing meaningful growth in all major product categories, including new PAP patient setup, which increased by approximately 22% year-over-year. As we grow, we're investing heavily in people, process, and technology to increase the scalability of the DME platform. For example, we successfully consolidated the billing platform and implemented financial management software that will strengthen operations as we scale. Furthermore, we anticipate growth in both revenue and adjusted EBITDA during this fiscal year supported by strong KPIs. Please turn to slide 11 to discuss our plan for inorganic growth at DME. DME intends to acquire complementary, patient-focused businesses and integrate them into the existing platform. The respiratory-focused durable medical equipment industry is fragmented and ripe for consolidation. DME seeks to pursue an expansion strategy that targets tangential or overlapping markets to our existing geographical footprint in Arizona, the Midwest, and the Pacific Northwest. In June, a subsidiary of DME acquired the respiratory assets of Midwest Respiratory Care for approximately $6.3 million or 4.6 times Midwest EBITDA less capital expenditure for the 12 months ended April 30, 2019. In addition, we're exploring complementary product lines and services that leverage the Company's valuable contracts, referral sources, customer basis, and infrastructure. Please turn to slide 12 to walk through the financial update for our DME segment. Total revenue for the quarter was approximately $13.2 million. Adjusted EBITDA for the quarter was approximately $3.0 million. As you can see, a majority of DME’s cash flow was reinvested into the business as we develop a scalable platform capable of supporting organic growth and acquisition opportunities. Levered free cash flow was negative $818,000, negatively impacted by the timing of an $814,000 interest payment that fell on July 1, 2019, and was included in the quarter. This payment was related to interest expense that we incurred in the prior quarter. Stripping the payment out, adjusted levered free cash flow would have been approximately flat for the quarter. As adjusted EBITDA continues to grow, we anticipate growth in free cash flow at DME. Please turn to slide 14 to discuss 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 significant free cash flow generation. In the near term, we plan to grow our Investment Management business in two ways: First, by opportunistically issuing additional debt at Great Elm Capital Corp., which would increase GECC’s assets and thus management fees for Great Elm. During the quarter ended June 30, 2019, GECC issued a $45 million unsecured note under NASDAQ ticker, GECCN, GECC’s third baby bond. Definitely, we plan to grow our Investment Management business by increasing assets under management either through BDC, M&A, or other investment vehicles. With significant embedded operating leverage and an established infrastructure, we believe the Investment Management business has the potential to generate substantial free cash flow on a meaningful scale. Turning to slide 15. Management fees increased by greater than 2% quarter-over-quarter. Management fees increased as the fair value of GEC’s diversified portfolio increases. The longer-term trend points to continued management fee growth as we deploy capital into both niche syndicated leverage credits and potentially specialty finance investments. On slide 16, we break out the segment financials for Investment Management. Total revenues, which include both management fees and administration fees were approximately $867,000 during the quarter. The Full Circle consulting agreement, which expired on November 3, 2019, deducted $211,000 from revenues in the quarter. GECM earned but did not recognize incentive fees in the amount of $655,000. Adjusted EBITDA was approximately $1.0 million in the quarter. The positive trend in management fee revenue, coupled with the termination of the Full Circle consulting agreement, leads us to believe that this segment is poised for continued free cash flow generation. Please turn to slide 18 to discuss Real Estate. We continue to target credit tenant lease financings and ground lease structures across commercial, government, and other property types, taking defined situations in which we see GEC's substantial tax assets and deal structuring expertise to be a value-added partner or lessor. To date, we have found a very limited number of attractive Real Estate opportunities in what we believe to be a relatively overheated market. Let's turn to slide 19. As we 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 expiry in 2030. As cash flows from the rental stream are utilized to amortize debt, equity grows from one time to our investment at acquisitions greater than 7 times in 2030, all without deploying any additional capital. Turning to slide 20, let's walk through the segment financials for Real Estate. During the first quarter, we generated approximately $1.3 million in rental income, $61,000 in net income, and $1.15 million of EBITDA. While not generating levered 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 22, we have a review of Great Elm's General Corporate segment financial detail. This quarter's net loss was primarily driven by an unrealized loss on the investment in GECC shares, offset in part by dividends from those GECC shares and prudent management of operating expenses. Beyond the financial review, on slide 27, we have a summary of how we plan to continue to drive shareholder value. To reiterate, our goal is to generate consolidated free cash flow in fiscal year 2020. We intend to achieve this goal through continued growth at Great Elm DME and Investment Management, enhanced by reduced corporate overhead. That concludes our review of Great Elm’s first fiscal quarter, let's open up the call for Q&A.

Our first question comes from Brian Alexitch from Greenwich Investment. Your line is open.

Good evening, everyone. I have a question regarding the Full Circle consulting. Will this lead to any expense reduction for GECC, or will the $210,000 from this quarter go directly to GEC on a run rate basis?

Hey, Brian. Good question. So, that contract which has expired, as we noted, is between a subsidiary of GEC, Great Elm Capital Management, and an entity at Full Circle. So that's separate and apart from GECC; it's unrelated. So, the expenses over the past three years have been borne by a GEC subsidiary. And now that the contract is terminated, the relief of those expenses accrues to GEC’s benefit.

Great. And then, a question on the Real Estate segment. You said that things appear overheated. So, does that mean that you guys are really focusing on sourcing opportunities in the other two verticals?

I think that's fair. We've looked at a lot of financings similar to the property that we have. And we've not been able to so far find another transaction where we believe that their risk-adjusted returns are anywhere near that which we have in Fort Myers. So, that's why we haven't completed any more transactions. But, we see a richer opportunity set, for example, in add-ons or adjacencies for our DME business or in our Investment Management business.

Okay, great. And then, finally, also opportunity for Real Estate, are you guys seeing standalone properties looking for a tenant or is that the sort of transaction that you’re seeing that is not really interested and you want kind of like a tenant in place, is that fair to say or are you...

Yes. So, the kinds of transactions we would look for would be, I think, stable assets with reliable, predictable cash flow, where our particular tax attributes, in particular, could give us enhanced return.

Great. That's all for me. Thanks for taking the questions.

Thanks, Brian.

And we have no further questions at this time. I will turn the call back over to Adam Yates for final remarks.

Thank you again for joining us this afternoon to discuss Great Elm Capital Group’s first 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 help with anything, and follow up, and have a great day.

And this concludes today's conference call. You may now disconnect.