Great Elm Capital’s Q1 2025 Earnings: Navigating Volatility with Strong CLO Momentum

Great Elm Capital Corporation (GECC), a leading business development company (BDC), delivered a robust Q1 2025 earnings report, defying market volatility with record revenue and net investment income. Despite a dip in its stock price, the company’s focus on high-yield dividends, strategic diversification, and its expanding CLO joint venture position it as a resilient player in the BDC sector.

Financial Highlights: Beating Expectations with CLO Momentum

GECC’s Q1 results were driven by a 40% year-over-year revenue surge to $12.5 million, exceeding analyst forecasts of $10.9 million. Net investment income (NII) doubled to $0.40 per share from $0.20 in Q4 2024, fueled by distributions from its CLO joint venture and new investments. The company also raised its dividend by 5.7% to $0.37 per share, maintaining a 15.28% dividend yield, one of the highest among BDCs.

However, net asset value (NAV) per share fell to $11.46 from $11.79 in late 2024, primarily due to unrealized losses on its CLO equity and CoreWeave holdings. Management emphasized these losses are non-cash and temporary, tied to market-wide loan pricing volatility.

Strategic Initiatives: CLO Scaling and Portfolio Defense

The CLO joint venture remains GECC’s crown jewel. With $48 million deployed through March 2025, the venture targets high teens to 20% returns over time. Q1 distributions totaled $3.8 million, rising to $4.3 million in early Q2, with further stability expected as newer CLOs mature. Management anticipates the first distribution from its April 2025 CLO—$48 million in size—to arrive in October 2025.

The company also launched a $100 million at-the-market (ATM) equity program, enabling it to issue shares at NAV or better to fund growth. Meanwhile, its corporate portfolio grew to $250 million, with 71% in first-lien loans, emphasizing secured debt and risk mitigation.

Risks and Challenges: NAV Pressures and Economic Uncertainty

GECC faces headwinds from market volatility, particularly in its CLO equity and CoreWeave investments. CoreWeave, a public AI hyperscaler, saw its stock price drop sharply in late Q1, contributing to unrealized losses. While management remains confident in long-term recovery, these positions could remain volatile.

Economic risks also linger. Tariffs and potential recession scenarios require disciplined underwriting, though GECC’s portfolio leans into recession-resistant sectors like private-label manufacturing and healthcare real estate. A domestic focus limits international growth but reduces geopolitical exposure.

Executive Outlook: Confidence in Dividend Sustainability

CEO Matt Kaplan called Q1 a “record-setting quarter”, emphasizing that NII comfortably covers the $0.37 quarterly dividend (12.9% annualized yield). CFO Carrie Davis noted $132 million in total net assets and a robust 163.8% asset coverage ratio, well above covenants.

For Q2, GECC anticipates NII to exceed Q1 levels, buoyed by rising CLO distributions and new investments. Management also highlighted its $100 million ATM program as a tool to capitalize on market dislocations.

Market Reaction and Valuation

Despite strong fundamentals, GECC’s stock closed at $10.01 (down 0.81%), within its 52-week range. Its beta of 1.11 reflects sensitivity to broader market swings, but the dividend yield and stable NAV trajectory have drawn long-term investors.

Conclusion: A High-Yield Play with Structural Growth

GECC’s Q1 results underscore its ability to generate income through secured debt and CLO diversification, even amid market turbulence. While NAV faces short-term pressures from unrealized losses, its dividend coverage and strategic initiatives—like the CLO joint venture and ATM program—position it for sustained growth.

With $48 million in new CLOs deploying this year, rising NII, and a 15.28% dividend yield, GECC remains an attractive option for investors seeking income and capital appreciation. However, its beta of 1.11 and exposure to CLO equity volatility mean it’s best suited for those willing to ride market fluctuations.

In a sector where many BDCs struggle with yield compression, GECC’s 40% revenue growth and disciplined portfolio construction make it a standout performer. As CEO Kaplan noted, “This is a company built to weather cycles—and thrive in them.”

Data as of March 31, 2025. Past performance does not guarantee future results.