- Announced Special Dividend of $23.7 million, or $1.62 per
share, in connection with plans to elect to become a regulated
investment company
- Sold interest in Outmatch Holdings, LLC for gain of $2.3
million
- Net asset value at March 31, 2020 was $3.69 per
share
- Board approved 1:9 reverse stock split following dividend
distribution
- Board authorized a new share buyback program to allow for
repurchase of up to $1.5 million in shares outstanding
Rand Capital Corporation (Nasdaq: RAND) (“Rand”), a business
development company (“BDC”), announced its results for the quarter
ended March 31, 2020.
Allen F. (“Pete”) Grum, President and Chief Executive Officer of
Rand Capital, commented, “These are certainly unprecedented times
with the COVID-19 global pandemic. We are actively engaged in
conversation with our portfolio companies to ascertain their
efforts to address the impacts on their businesses and believe they
are being proactive and aggressive in the actions they are taking
including cost cuts and accessing federal loan programs.”
He continued, “In the midst of this turmoil, we continue our
efforts to transform Rand into a dividend-paying BDC and create a
better investment opportunity for shareholders. The process is not
simple and has required the following:
- We are distributing $23.7 million in accumulated earnings and
profits to our shareholders consisting of approximately $4.75
million in cash and $19.0 million in Rand common stock.
- We are refocusing our investments into income producing
assets.
- Our Board has approved a 1:9 reverse stock split, and
- The Board amended our share repurchase program to authorize the
repurchase of up to $1.5 million in Rand stock.
Importantly, we believe during these challenging times that the
share repurchase authorization further reinforces our long-term
optimism regarding our prospects.”
First Quarter 2020 Financial Highlights
- Net asset value (“NAV”) at March 31, 2020 was $3.69 per share,
up from $3.66 per share at December 31, 2019. The increase was
primarily due to the $2.9 million in net investment income and net
gains realized from sales of assets, including Outmatch Holdings,
LLC. This more than offset the $2.5 million net change in
unrealized depreciation on assets which included $1.8 million
associated with the write off of a deferred tax asset associated
with the conversion to a regulated investment company (“RIC”) for
U.S. federal tax purposes beginning with tax year 2020.
- At March 31, 2020, portfolio fair value was $36.0 million and
consolidated cash was $29.1 million, of which $15.6 million was
available for corporate purposes and $13.5 million is restricted to
lending by the SBIC.
Total investment income was $636,000 compared with $719,000 in
the same period last year. The decline was mostly the result of
lower fee income. The first quarter of 2019 benefitted from an
atypically high level of fee income related to a large loan
repayment.
Total expenses were $517,000 compared with $690,000 in the
prior-year period. Lower expenses reflect the benefit of the
conversion to an externally-managed BDC structure.
The $419,000 income tax benefit for the quarter was the result
of the conversion to a regulated investment company and the
allowance in the Coronavirus Aid, Relief, and Economic Security
(CARES) Act to carryback net operating loss from certain allowed
prior years.
Net investment gain was $538,000 compared with $23,000 in the
first quarter of 2019.
Portfolio Companies Address COVID-19 Situation
Rand believes that its portfolio companies are taking necessary
actions to ensure the safety of their employees, customers and
suppliers during the COVID-19 pandemic by enacting work from home
processes, staggered manufacturing schedules, increased sanitation
efforts and social distancing. In addition, most of the portfolio
companies that qualify have applied for available federal loans
resulting from the COVID-19 pandemic.
Rand Capital Management, the external investment adviser for
Rand, has also implemented remote operations and staggered
schedules to maintain social distancing.
Portfolio Additions
During the quarter, Rand invested $1.7 million in the public
equity of other business development companies. These investments
provide income through dividends and are also more liquid assets
than is typical for the portfolio.
BDC investments included:
Company
# of shares
Net Amount Paid
Annualized Dividend*
Apollo Investment Corp (Nasdaq: AINV)
35,000
$ 364,084
$1.80
Ares Capital (Nasdaq: ARCC)
27,000
$ 343,460
$1.60
FS KKR Capital Corp (NYSE: FSK)
100,000
$ 338,980
$0.76
Golub Capital BDC, Inc. (Nasdaq: GBDC)
25,000
$ 346,597
$1.16
Owl Rock Capital Corporation (NYSE:
ORCC)
30,000
$ 347,067
$1.24
$ 1,740,189
*Source: Nasdaq.com
As of March 31, 2020, Rand’s portfolio consisted of 36 active
companies. At that date, the portfolio was comprised of
approximately 59% in equity investments and 41% in debt
investments.
Special Dividend
As previously announced on March 3, 2020, Rand’s Board of
Directors declared a special dividend of $23.7 million, or
approximately $1.62 per share, in connection with its plans to
elect to become a regulated investment company (“RIC”) for U.S.
federal tax purposes beginning with tax year 2020.
The special dividend is being paid today in a combination of
$4.75 million in cash and approximately 8.6 million shares of the
Company’s common stock. The stock will trade ex-dividend effective
May 12, 2020.
1:9 Reverse Stock Split
Following approval by the Company's shareholders at its Annual
Meeting in December 2019, the Company's Board of Directors has
approved a 1-for-9 reverse stock split of the Company's common
stock. The reverse split will be effective at 5:00 p.m. Eastern
Time on May 21, 2020 (the "Effective Time"), and the Company's
common stock will begin trading on a split-adjusted basis as of the
market open on May 22, 2020.
The reverse stock split affects all issued and outstanding
shares of the Company's common stock including shares held in
treasury. The reverse stock split will reduce the number of issued
and outstanding shares of the Company's common stock following the
Special Dividend distribution from 23,845,470 shares and 23,304,424
shares, respectively, to approximately 2,649,496 shares and
2,589,380 shares, respectively. The reverse stock split affects all
stockholders uniformly and will not alter any stockholder's
percentage interest in the Company's outstanding common stock,
except for adjustments that may result from the treatment of
fractional shares.
No fractional shares will be issued as a result of the reverse
stock split. The Company will pay cash in lieu of any fractional
shares, which amount will be determined based on the closing price
of a share of Rand’s common stock on the Nasdaq Stock Market on the
last trading day preceding the Effective Time (as adjusted to give
effect to the reverse stock split).
New Share Repurchase Authorization
Rand’s Board of Directors approved a new share repurchase
program which authorizes the purchase of up to $1.5 million in Rand
common stock. The shares may be repurchased from time to time in
privately negotiated transactions or the open market, including
pursuant to any Rule 10b5-1 trading plans if established, and in
accordance with applicable regulations of the SEC. The stock
repurchase program does not obligate the Company to purchase any
particular number of shares, and the timing and exact amount of any
repurchases will depend on various factors, including the
performance of the Company’s stock price, general market and other
conditions, applicable legal requirements and other factors. The
new stock repurchase program expires on April 22, 2021. The new
stock repurchase program may be suspended, terminated or amended by
the Board at any time prior to the expiration date.
Webcast and Conference Call
Rand will host a conference call and live webcast today, May 11,
2020, at 1:30 p.m. Eastern Time to review its financial condition
and results as well as its strategy and outlook. The review will be
accompanied by a slide presentation, which will be available on
Rand’s website at www.randcapital.com under the “Investor
Relations” heading. A question-and-answer session will follow the
formal presentation.
Rand’s conference call can be accessed by calling (201)
689-8263. Alternatively, the webcast can be monitored on Rand’s
website at www.randcapital.com under the “Investor Relations”
heading.
A telephonic replay will be available from 4:30 p.m. ET on the
day of the call through Monday, May 18, 2020. To listen to the
archived call, dial (412) 317-6671 and enter replay pin number
13702037. The webcast replay will be available in the Investors
section at www.randcapital.com, where a transcript will also be
posted once available.
ABOUT RAND CAPITAL
Rand Capital (Nasdaq: RAND) is an externally-managed Business
Development Company (BDC) with a wholly-owned subsidiary licensed
by the U.S. Small Business Administration (SBA) as a Small Business
Investment Company (SBIC). The Company’s investment objective is to
maximize total return to its shareholders with current income and
capital appreciation by focusing its debt and related equity
investments in privately-held, lower middle market companies with
committed and experienced managements in a broad variety of
industries. Rand invests in early to later stage businesses that
have sustainable, differentiated and market-proven products,
revenue of more than $2 million and a path to free cash flow or up
to $5 million in EBITDA. The Company’s investment activities are
managed by its external investment adviser, Rand Capital
Management, LLC. Additional information can be found at the
Company’s website where it regularly posts information:
https://www.randcapital.com/.
Safe Harbor Statement
This press release contains “forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All statements, other than historical facts, including but
not limited to statements regarding the intention of Rand Capital
and Rand Capital SBIC, Inc. (“Rand SBIC”) to elect to be taxed as a
RIC for U.S. federal tax purposes; the impact of the COVID-19
pandemic on Rand and our portfolio companies; the timing and
completion of the contemplated reverse stock split; the amount of
Rand common stock that the Company plans to repurchase and the time
period during which such repurchases are to occur; the competitive
ability and position of Rand Capital; and any assumptions
underlying any of the foregoing, are forward-looking statements.
Forward-looking statements concern future circumstances and results
and other statements that are not historical facts and are
sometimes identified by the words “may,” “will,” “should,”
“potential,” “intend,” “expect,” “endeavor,” “seek,” “anticipate,”
“estimate,” “overestimate,” “underestimate,” “believe,” “could,”
“project,” “predict,” “continue,” “target” or other similar words
or expressions. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove to be
incorrect, actual results may vary materially from those indicated
or anticipated by such forward-looking statements. The inclusion of
such statements should not be regarded as a representation that
such plans, estimates or expectations will be achieved. Important
factors that could cause actual results to differ materially from
such plans, estimates or expectations include, among others, (1)
the risk that Rand Capital and/or Rand SBIC may be unable to
fulfill the conditions required in order to elect to be treated as
a RIC for U.S. tax purposes; (2) uncertainty around the scope of
the impact of the COVID-19 pandemic and its specific impact on our
portfolio companies; (3) evolving legal, regulatory and tax
regimes; (4) changes in general economic and/or industry specific
conditions; and (6) other risk factors as detailed from time to
time in Rand Capital’s reports filed with the Securities and
Exchange Commission (“SEC”), including Rand Capital’s annual report
on Form 10-K for the year ended December 31, 2019, later filed
quarterly reports on Form 10-Q, the definitive proxy statement and
other documents filed with the SEC. Consequently, such
forward-looking statements should be regarded as Rand Capital’s
current plans, estimates and beliefs. Except as required by
applicable law, Rand Capital assumes no obligation to update the
forward-looking information contained in this release.
FINANCIAL TABLES FOLLOW.
Rand Capital Corporation and
Subsidiary
Consolidated Statements of
Financial Position
March 31,2020(Unaudited) December 31,2020
ASSETS Investments at fair
value: Affiliate investments (cost of $20,562,778 and $19,035,446,
respectively).......................................................................................
13,168,576
12,151,435
Non- Control/Non-Affiliate investments (cost of $23,738,493 and
$25,584,017,
respectively).........................................................
22,805,701
24,869,357
Total investments, at fair value (cost of $44,301,271 and
$44,619,463,
respectively)..............................................................................
35,974,277
37,020,792
Cash and cash
equivalents.........................................................................................................................................................................
29,100,903
25,815,720
Interest receivable (net of allowance of
$166,413).....................................................................................................................................
138,589
142,265
Deferred tax
asset........................................................................................................................................................................................
-
1,204,198
Prepaid income
taxes..................................................................................................................................................................................
39,716
343,096
Other
assets.................................................................................................................................................................................................
129,271
265,378
Total
assets.................................................................................................................................................................................
$
65,382,756
$
64,791,449
LIABILITIES AND STOCKHOLDERS’
EQUITY (NET ASSETS) Liabilities: Debentures
guaranteed by the SBA (net of debt issuance costs)
............................................................................................................
$ 10,796,332
$ 10,786,913
Accounts payable and accrued
expenses..................................................................................................................................................
266,316
258,437
Deferred tax
payable....................................................................................................................................................................................
227,622
-
Profit sharing and bonus
payable................................................................................................................................................................
-
80,000
Deferred
revenue.........................................................................................................................................................................................
33,833
37,583
Total
liabilities.................................................................................................................................................................................
11,324,103
11,162,933
Stockholders’ equity (net assets): Common stock,
$0.10 par; shares authorized 100,000,000; shares issued 15,196,367;
shares outstanding 14,655,321.....................
1,519,637
1,519,637
Capital in excess of par
value......................................................................................................................................................................
34,142,455
34,142,455
Accumulated net investment
loss................................................................................................................................................................
(1,212,828)
(1,751,249)
Undistributed net realized gain on
investments...........................................................................................................................................
29,476,732
27,083,281
Net unrealized depreciation on
investments...............................................................................................................................................
(8,398,238)
(5,896,503)
Treasury stock, at cost: 541,046
shares.....................................................................................................................................................
(1,469,105)
(1,469,105)
Total stockholders’ equity (net assets) (per share – 3/31/20:
$3.69, 12/31/19:
$3.66)...............................................................
54,058,653
53,628,516
Total liabilities and stockholders’ equity (net
assets)..........................................................................................................
$
65,382,756
$
64,791,449
Rand Capital Corporation and
Subsidiaries
Consolidated Statements of
Operations
For the Quarter EndedMarch 31,
2020
2019
Investment income: Interest from portfolio companies:
Affiliate
investments......................................................................................................................................
$ 138,846
$ 208,715
Non-Control/Non-Affiliate
investments..........................................................................................................
396,855
197,250
Total interest from portfolio
companies.................................................................................................
535,701
405,965
Interest from other investments: Non-Control/Non-Affiliate
investments..........................................................................................................
83,250
17,811
Total interest from other
investments....................................................................................................
83,250
17,811
Dividend and other investment income: Affiliate
investments......................................................................................................................................
13,125
34,625
Total dividend and other investment
income.........................................................................................
13,125
34,625
Fee income: Affiliate
investments......................................................................................................................................
1,250
4,247
Non-Control/Non-Affiliate
investments..........................................................................................................
2,500
256,722
Total fee
income....................................................................................................................................
3,750
260,969
Total investment
income...........................................................................................................................................
635,826
719,370
Expenses: Base management
fee........................................................................................................................................
140,377
-
Interest on SBA
obligations................................................................................................................................
104,190
99,124
Professional
fees................................................................................................................................................
179,119
226,655
Stockholders and office operating
.....................................................................................................................
51,545
61,255
Directors'
fees....................................................................................................................................................
28,375
28,624
Insurance............................................................................................................................................................
10,668
9,601
Corporate
development.......................................................................................................................................
1,874
18,460
Other operating
..................................................................................................................................................
358
1,584
Salaries...............................................................................................................................................................
-
181,500
Employee
benefits..............................................................................................................................................
-
62,932
Total
expenses...................................................................................................................................................
516,506
689,735
Net investment gain before income
taxes...............................................................................................................
119,320
29,635
Income tax (benefit) expense
.............................................................................................................................
(419,101)
6,868
Net investment
gain...................................................................................................................................................
538,421
22,767
Net realized gain on sales and dispositions of
investments: Control
investments............................................................................................................................................
-
40,500
Non-Control/Non-Affiliate
investments................................................................................................................
2,393,451
-
Income tax
expense............................................................................................................................................
-
9,369
Net realized gain on sales and dispositions of
investments................................................................................
2,393,451
31,131
Net change in unrealized depreciation on investments:
Affiliate
investments............................................................................................................................................
(510,191)
1,043,595
Non-Control/Non-Affiliate
investments................................................................................................................
(218,132)
(521,300)
Change in unrealized depreciation before income
taxes.....................................................................................
(728,323)
522,296
Deferred income tax
expense.............................................................................................................................
1,773,412
120,779
Net change in unrealized depreciation on
investments.......................................................................................
(2,501,735)
401,517
Net realized and unrealized (loss) gain on
investments........................................................................................
(108,284)
432,648
Net increase in net assets from
operations.............................................................................................................
$ 430,137
$ 455,415
Weighted average shares
outstanding....................................................................................................................
14,655,321
6,321,988
Basic and diluted net increase in net assets from operations per
share
...........................................................
$ 0.03
$ 0.07
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200511005153/en/
Company: Allen F. ("Pete") Grum President and CEO Phone:
716.853.0802 Email: pgrum@randcapital.com Investors: Deborah
K. Pawlowski / Karen L. Howard Kei Advisors LLC Phone: 716.843.3908
/ 716.843.3942 Email: dpawlowski@keiadvisors.com
khoward@keiadvisors.com
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