- Net Asset Value per share was $4.39 at September 30,
2019
- Received approval from U.S. Small Business Administration,
plan for East transaction closing in November
- Board renewed and increased share buyback
authorization
Rand Capital Corporation (Nasdaq: RAND) (“Rand” or “Rand
Capital”), a business development company, announced its results
for the quarter and nine months ended September 30, 2019.
Allen F. (“Pete”) Grum, President and Chief Executive Officer of
Rand Capital, commented, “We are pleased to have received approval
from the SBA, which was the final regulatory approval required to
close on our transaction with East Asset Management (“East”).
Having received that approval, we anticipate closing the
transaction in November. The closing of this transformational
transaction culminates approximately two years of work and we look
forward to continuing our path forward with East. In the coming
months, our Board and management will make best efforts to continue
the steps to transform Rand into a regulated investment company
(“RIC”) and complete the anticipated special dividend outlined in
our proxy statement for the special shareholders meeting which was
held in May.”
He noted, “We were disappointed with our third quarter financial
results, as reflected in the decrease in our NAV. Investing in
small and growing businesses and valuing them on a quarterly basis
is complex. The valuation changes we recorded for several of our
portfolio companies this quarter were unrealized and we believe
that, over time, the companies can fulfill their potential and we
may see reversals of some of those unfavorable valuation
adjustments that were taken this quarter.”
Mr. Grum added, “We curtailed our investment activity over the
past 18 months as we completed the requirements of the East
transaction, including pursuit of the SBA approval. We now expect
to increase our investment activity, utilizing the additional
capital from the East transaction and our historically high cash
balances in our SBIC subsidiary. We currently have $1.47 per share
in cash and will substantially increase that balance after closing
on the East transaction. Additionally, the Board renewed and
increased our longstanding share repurchase program. With the
increased cash from the East transaction, buying back shares is a
viable option.”
Third Quarter 2019 Financial Highlights
- Reported $4.39 net asset value (NAV) per share at September 30,
2019, compared with $4.85 at June 30, 2019. The sequential decrease
was primarily due to net depreciation in five portfolio investments
in accordance with the Company’s valuation policy.
- At September 30, 2019, portfolio fair value was $26.8 million
and consolidated cash was $9.3 million, or $1.47 per share, with
$1.2 million available for corporate purposes and $8.1 million in
the SBIC.
Total investment income in the third quarter of 2019 was
$437,000, compared with $662,000 in the same period last year. Last
year’s quarter included approximately $233,000 of nonrecurring
interest and debt modification fee income generated from a
portfolio company loan restructuring. Total expenses in the 2019
and 2018 third quarters were $531,000 and $448,000, respectively.
Higher expenses were due primarily to the East transaction as well
as more interest expense on higher outstanding debt.
The Company recorded pre-tax net unrealized depreciation of $3.6
million in the third quarter of 2019 compared with $476,000
positive change in pre-tax unrealized depreciation in the same
quarter of 2018. Rand also recorded a $1.1 million realized pre-tax
loss during the prior-year third quarter.
Total investment income increased 21% to $1.7 million for the
nine months ended September 30, 2019, compared with $1.4 million in
the same 2018 period. The growth resulted from the Company’s
investment focus on income-generating instruments as well as
variations in nonrecurring investment income in each period. Total
expenses for the first nine months of 2019 and 2018 were $2.0
million and $1.5 million, respectively, with the increase primarily
related to the East transaction process.
Pre-tax realized losses were $392,000 in the first nine months
of 2019 and $1.1 million in the same 2018 period. The 2019 loss
primarily resulted from Rand’s investment in a company that ceased
doing business during the second quarter of 2019, reflecting a
reclassification of an unrealized loss previously recorded. Pre-tax
net unrealized depreciation on investments was $4.2 million and
$732,000 in the first nine months of 2019 and 2018,
respectively.
Selected Portfolio Highlights
- ACV Auctions, Inc., is the leading dealer-to-dealer,
online automotive marketplace that strives to be the trusted way
that dealers source their wholesale vehicles. The company recently
launched new tools and features that it believes will further
increase efficiency for dealers buying and selling on the online
ACV platform: 1) Their new Run List provides access to certain
auctions before they go live, enabling dealers to bid in a way that
fits their schedule. The dealer’s bid will automatically go into
effect once the auction becomes live. 2) Enhancements to filters
are optimizing the time dealers spend on the platform so they can
find the exact dealer they want quickly and easily. 3) Proxy bids
have been enhanced, allowing for both standard and persistent proxy
bids. These features also optimize the time spent in the app,
generating more views and bids. 4) ACV recently launched Virtual
Lift™, the industry’s first mobile vehicle undercarriage imaging
tool. The portable, lightweight, low profile device utilizes ACV’s
proprietary mobile hardware and software technology to provide a
full bumper-to-bumper view and image of the vehicle’s undercarriage
in less than one minute. Virtual Lift™ elevates the level of trust
and transparency in the ACV Auctions online marketplace. Since its
establishment in 2015, ACV has experienced rapid growth and now
operates in 138 territories from coast-to-coast. Rand’s initial
$163,000 investment in 2016 has a fair market value of $2.8 million
at September 30, 2019.
- Carolina Skiff, LLC is a leading manufacturer of high
quality, versatile outboard boats, including the #1 fiberglass
outboard brand within their size range. The company recently
undertook a comprehensive refresh of its product line, developing a
more linear series of boats with advanced features and
functionality in response to evolving consumer preferences. In
mid-2019, Carolina Skiff launched an industry-leading 18 new models
for the 2020 model year, featured at a dealer showcase at one of
its facilities in Georgia. In alignment with their slogan – Family.
Fishing. Fun. – the new models provide boat enthusiasts with
turnkey options to simplify the buying process while delivering
reduced lead times. Offering more than 60 models through its
established footprint of 94 dealers across 23 states, Carolina
Skiff boats provide the most features and the best functionality
available on the market. Rand initially invested in Carolina Skiff
in 2004 and its investment currently carries a cost of $15,000. The
company’s strong financial performance has resulted in the
investment carrying a fair market value of $1.8 million in Rand’s
portfolio as of September 30, 2019.
As of September 30, 2019, Rand’s portfolio consisted of 28
active companies. At that date, the portfolio was comprised of
approximately 67% in equity investments and 33% in debt
investments, compared with 57% in equity investments and 43% in
debt investments at September 30, 2018. The change was attributable
to the repayment of a large loan by a portfolio company in
2019.
Renewed and Increased Share Buyback Authorization
Rand’s priority for allocating capital continues to be
investment in its portfolio. Also, the Board of Directors has
renewed and increased the Company’s share repurchase program by
authorizing up to an additional 1,000,000 shares of Rand common
stock through October 25, 2020.
Webcast and Conference Call
Rand will host a conference call and live webcast today,
November 7, 2019, at 2:30 p.m. Eastern Time to review its financial
condition and results for the 2019 third quarter, 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 5:30 p.m. ET on the
day of the call through Thursday, November 14, 2019. To listen to
the archived call, dial (412) 317-6671 and enter replay pin number
13694913. 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 a 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). Rand currently focuses its equity investments in
early or expansion stage companies and generally lends to more
mature companies. The Company seeks investment opportunities in
businesses with strong leaders who are bringing to market new or
unique products, technologies or services that have a high
potential for growth. 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 expected timing of the
closing of the proposed transactions; the ability of the parties to
complete the proposed transactions considering the various closing
conditions, including approval from the U.S. Small Business
Administration (“SBA”); the intention of Rand Capital and Rand
Capital SBIC, Inc. (“Rand SBIC”) to elect to be taxed as a
regulated investment company for U.S. federal tax purposes; the
intention to declare and pay a special cash and stock dividend
after the closing of the proposed transactions; the intention to
pay a regular cash dividend after the completion of the proposed
transactions; the expected benefits of the proposed transactions
such as a lower expense-to-asset ratio for Rand Capital, increased
net investment income, availability of additional resources,
expanded access to and sourcing platform for new investments and
streamlining of operations under the external management structure;
the business strategy of originating additional income-producing
investments; the competitive ability and position of Rand Capital
following completion of the proposed transactions; 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)
that one or more closing conditions to the stock purchase may not
be satisfied or waived, on a timely basis or otherwise, including
that the SBA may not approve the proposed transactions; (2) the
risk that the proposed transactions may not be completed in the
time frame expected by parties, or at all; (3) 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 regulated investment
company for U.S. tax purposes; (4) uncertainty of the expected
financial performance of Rand Capital following completion of the
proposed transactions; (5) failure to realize the anticipated
benefits of the proposed transactions, including as a result of
delay in completing the proposed transactions; (6) the risk that
the board of directors of Rand Capital is unable or unwilling to
declare and pay the special cash and stock dividend or pay
quarterly dividends on a going forward basis; (7) the occurrence of
any event that could give rise to termination of the stock purchase
agreement; (8) the risk that shareholder litigation in connection
with the proposed transactions may affect the timing or occurrence
of the contemplated transactions or result in significant costs of
defense, indemnification and liability; (9) evolving legal,
regulatory and tax regimes; (10) changes in general economic and/or
industry specific conditions; and (11) 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, 2018, later filed quarterly reports on Form 10-Q, the
definitive proxy statement for the proposed transactions 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
September 30,
2019
December 31,
(Unaudited)
2018
ASSETS
Investments at fair value:
Control investments (cost of $0
and $99,500,
respectively)...............................................................
$
-
$
99,500
Affiliate investments (cost of
$20,427,536 and $20,708,659,
respectively)........................................
15,568,648
17,026,091
Non-Control/Non-Affiliate
investments (cost of $14,182,282 and $17,483,984,
respectively)............
11,218,550
17,541,213
Total investments, at fair value (cost of $34,609,818 and
$38,292,143, respectively)...............................
26,787,198
34,666,804
Cash and cash equivalents
........................................................................................................................
9,288,502
4,033,792
Interest receivable (net of allowance of $166,413 and
$161,000, respectively).........................................
125,808
145,532
Deferred tax
asset.......................................................................................................................................
1,653,395
525,198
Prepaid income
taxes..................................................................................................................................
488,768
1,138,708
Other
assets................................................................................................................................................
317,668
11,690
Total
assets..................................................................................................................................
$
38,661,339
$
40,521,724
LIABILITIES AND STOCKHOLDERS’ EQUITY (NET
ASSETS) Liabilities:
Debentures guaranteed by the SBA (net of debt issuance
costs) ............................................................
$ 10,777,493
$
8,554,443
Profit sharing and bonus
payable................................................................................................................
-
125,000
Accounts payable and accrued
expenses..................................................................................................
102,733
245,758
Deferred
revenue.........................................................................................................................................
27,948
72,336
Total
liabilities.................................................................................................................................
10,908,174
8,997,537
Stockholders’
equity (net assets): Common stock,
$0.10 par; shares authorized 10,000,000; shares issued
6,863,034;
shares outstanding of
6,321,988 at 9/30/19 and
12/31/18.....................................................................
686,304
686,304
Capital in excess of par
value.....................................................................................................................
10,581,789
10,581,789
Accumulated net investment
loss...............................................................................................................
(1,851,634)
(1,665,552)
Undistributed net realized gain on
investments..........................................................................................
25,920,065
26,221,443
Net unrealized depreciation on
investments...............................................................................................
(6,114,254)
(2,830,692)
Treasury stock, at cost: 541,046
shares....................................................................................................
(1,469,105)
(1,469,105)
Total stockholders’ equity (net assets) (per share -
9/30/19: $4.39; 12/31/18: $4.99)..................
27,753,165
31,524,187
Total liabilities and stockholders’ equity (net
assets)............................................................
$
38,661,339
$
40,521,724
Rand Capital Corporation and
Subsidiaries
Consolidated Statements of
Operations
(Unaudited)
For the Quarter EndedSeptember 30,
For the Nine MonthsEnded September 30,
2019
2018
2019
2018
Investment income:
Interest from
portfolio companies:
Affiliate
investments............................................................................................................
$ 217,953
$
192,758
$ 632,705
$
515,784
Non-Control/Non-Affiliate
investments...................................................................................
110,150
257,531
416,852
547,553
Total interest from portfolio
companies............................................................................
328,103
450,289
1,049,557
1,063,337
Interest from other investments:
Non-Control/Non-Affiliate
investments...................................................................................
36,797
7,872
108,146
20,717
Total interest from other
investments..............................................................................
36,797
7,872
108,146
20,717
Dividend and other investment income:
Affiliate
investments............................................................................................................
65,996
48,856
307,681
175,905
Non-Control/Non-Affiliate
investments...................................................................................
-
-
-
6,058
Total dividend and other investment
income.....................................................................
65,996
48,856
307,681
181,963
Fee income:
Affiliate
investments............................................................................................................
3,607
4,042
11,460
11,625
Non-Control/Non-Affiliate
investments...................................................................................
2,852
151,243
262,927
160,987
Total fee
income...........................................................................................................
6,459
155,285
274,387
172,612
Total investment
income................................................................................................................
437,355
662,302
1,739,771
1,438,629
Expenses:
Salaries..................................................................................................................................
181,500
169,875
544,500
509,624
Employee
benefits...................................................................................................................
40,606
39,845
143,705
148,841
Directors'
fees.........................................................................................................................
30,124
28,624
87,372
92,123
Professional
fees.....................................................................................................................
68,931
81,745
406,859
220,773
Stockholders and office
operating..............................................................................................
85,782
47,839
466,543
176,877
Insurance................................................................................................................................
10,500
8,700
31,070
27,588
Corporate
development.............................................................................................................
18,301
15,028
51,627
41,470
Other operating
.......................................................................................................................
604
4,875
3,413
9,990
436,348
396,531
1,735,089
1,227,286
Interest on SBA
obligations......................................................................................................
94,191
77,568
303,849
232,406
Bad debt (recovery)
expense.....................................................................................................
-
(26,299)
5,413
50,342
Total
expenses........................................................................................................................
530,539
447,800
2,044,351
1,510,034
Net investment (loss) gain before income
taxes.............................................................................
(93,184)
214,502
(304,580)
(71,405)
Income tax (benefit)
expense....................................................................................................
(27,635)
50,003
(118,498)
(24,807)
Net investment (loss)
gain..............................................................................................................
(65,549)
164,499
(186,082)
(46,598)
Net realized (loss) gain on sales and dispositions of
investments:
Control
investments.................................................................................................................
-
-
80,393
-
Affiliate
investments.................................................................................................................
-
(1,125,673)
(472,632)
(1,125,673)
Net realized loss on sales and dispositions before income
taxes..................................................
-
(1,125,673)
(392,239)
(1,125,673)
Income tax
(benefit).................................................................................................................
-
(406,739)
(90,861)
(406,739)
Net realized loss on sales and dispositions of
investments..........................................................
-
(718,934)
(301,378)
(718,934)
Net change in unrealized depreciation or
appreciation on investments:
Affiliate
investments.................................................................................................................
(1,847,468)
725,673
(1,176,320)
169,232
Non-Control/Non-Affiliate
investments........................................................................................
(1,749,661)
(249,871)
(3,020,961)
(901,360)
Change in unrealized depreciation or appreciation before
income taxes.........................................
(3,597,129)
475,802
(4,197,281)
(732,128)
Deferred income tax (benefit)
expense.......................................................................................
(783,790)
100,669
(913,719)
(166,651)
Net change in unrealized depreciation or appreciation on
investments...........................................
(2,813,339)
375,133
(3,283,562)
(565,477)
Net realized and unrealized loss on
investments...........................................................................
(2,813,339)
(343,801)
(3,584,940)
(1,284,411)
Net decrease in net assets from
operations...................................................................................
$
(2,878,888)
$ (179,302)
$ (3,771,022)
$ (1,331,009)
Weighted average shares
outstanding...........................................................................................
6,321,988
6,321,988
6,321,988
6,321,988
Basic and diluted net decrease in net assets from operations per
share.......................................
$
(0.46)
$ (0.03)
$
(0.60)
$ (0.21)
View source
version on businesswire.com: https://www.businesswire.com/news/home/20191107005536/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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