- Total investment income grew 68.5% over prior-year period to
$737 thousand
- Net investment income grew to $280 thousand, or $0.11 per
share
- Invested $3.0 million in yielding assets including $1.9
million for a 12% note
- Net asset value of $19.32 per share compared with $19.21 per
share as of June 30, 2020
- 2,097 shares repurchased in September 2020 subsequent to
adoption of 10b5-1 plan
Rand Capital Corporation (Nasdaq:RAND) (“Rand” or the
“Company”), a business development company (“BDC”), announced its
results for the quarter ended September 30, 2020.
Allen F. (“Pete”) Grum, President and Chief Executive Officer of
Rand, commented, “We delivered solid results in the third quarter
as we continue to advance the transformation of Rand. Since
refocusing our business to become a regular dividend paying
business development company, we have effectively increased our
yielding assets and reduced our operating expenses. With our
intention to elect regulated investment company tax status for
2020, we will be required to distribute at least 90% of our
qualified net investment income in the form of a dividend. We
expect to announce the plans for the distribution of this year’s
earnings and capital gains before year end and to establish a
regular quarterly dividend for 2021.”
Third Quarter 2020 Highlights
- Net investment income grew to $0.11 per share in the third
quarter compared with a loss of $0.09 per share in the prior-year
period.
- Net asset value (“NAV”) at September 30, 2020 was $49.95
million, up $0.24 million compared with $49.71 million at June 30,
2020. The increase in NAV was primarily the result of the $0.26
million increase in net assets from operations driven by the growth
in net investment income.
- On a per share basis, NAV increased to $19.32 per share
compared with $19.21 at June 30, 2020. The per share increase was
primarily the result of the increase in net assets from operations,
which contributed $0.10 per share, and approximately $0.01 of the
increase was related to the repurchase of 2,097 shares in the
quarter.
- At September 30, 2020, portfolio fair value increased $3.1
million, or 8.0%, to $41.7 million from $38.6 million on June 30,
2020, primarily due to new investments made during the
quarter.
Third Quarter 2020 Operating Results
Total investment income of $737 thousand for the third quarter
of 2020 increased 68%, or $300 thousand, over the prior-year
period. The increase was primarily attributable to a 93%, or $307
thousand, increase in total interest from portfolio companies
reflecting the changed portfolio profile to include more interest
and dividend yielding assets.
Total expenses declined 14% to $456 thousand primarily due to
$74 thousand in savings realized with the externalization of
investment management and administration.
Higher investment income and lower operating expenses drove net
investment income growth to $280 thousand compared with a net
investment loss of $66 thousand in the prior-year period.
Portfolio and Investment Activity
As of September 30, 2020, Rand’s portfolio consisted of 42
companies. At that date, the portfolio was comprised of
approximately 56% in equity investments and 44% in fixed-rate debt
investments. The annualized weighted average yield of debt
investments was 10.5%.
During the quarter, Rand committed $3.0 million in new
investments which included:
- $1.9 million in Science and Medicine Group through a 12%
promissory note
- $1.1 million in the public equity of three business development
companies
Liquidity and Capital Resources
During the quarter, the Company repurchased 2,097 shares of
outstanding common stock for $24 thousand under a $1.5 million
share repurchase authorization through a 10b5-1 plan that was
effective in September 2020. The average purchase price per share
was $11.29 per share. Year to date, Rand has repurchased 3,397
shares of outstanding common stock for $38 thousand.
Cash and cash equivalents at the end of the quarter was $19.1
million and represented 38% of net assets. Approximately $9.7
million of cash was available for corporate purposes and $9.4
million was restricted to investments by the SBIC. Outstanding SBA
leverage was $11.0 million at the end of the quarter and there was
$3.0 million remaining available to draw on the SBA loan program.
The earliest debenture maturity is in 2022 when $3.0 million in
borrowings are due.
Debt to equity at September 30, 2020 was 23% and cost of debt
was 3.45% at September 30, 2020.
Special Meeting of Shareholders
Rand has filed a preliminary proxy statement with the Securities
and Exchange Commission (SEC) for a special meeting of
shareholders, scheduled for December 16, 2020, to approve new
investment advisory and management agreements in response to the
pending change in ownership of Rand’s investment advisor, Rand
Capital Management (RCM). The terms of the agreement are not
changing from those contained in the Company’s current agreements
and the services provided by RCM and its investment processes are
not expected to change, but the transfer of ownership of RCM
requires shareholder approval of the new agreements. Details of the
change of ownership of RCM are more fully described in the
preliminary proxy statement filed with the SEC.
Webcast and Conference Call
Rand will host a conference call and live webcast today,
November 6, 2020, at 10:30 a.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 1:30 p.m. ET on the
day of the call through Friday, November 13, 2020. To listen to the
archived call, dial (412) 317-6671 and enter replay pin number
13711508. 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 and Rand
Capital SBIC, Inc. (“Rand SBIC”) to elect to be taxed as a
regulated investment company (“RIC”) for U.S. federal tax purposes;
the intention to make a distribution of the company’s earnings and
profits for 2020; the intention to establish a regular quarterly
dividend in 2021; the effectiveness of Rand’s new investment
strategy, the impact of the change in ownership of Rand Capital
Management, scope of services to be provided by Rand Capital
Management and the investment processes to be used by Rand Capital
Management each under the new investment advisory and management
agreement with Rand; the competitive ability and position of Rand;
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 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) evolving
legal, regulatory and tax regimes; (3) changes in general economic
and/or industry specific conditions; and (4) other risk factors as
detailed from time to time in Rand ’s reports filed with the
Securities and Exchange Commission (“SEC”), including Rand’s annual
report on Form 10-K for the year ended December 31, 2019, 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’s current plans, estimates
and beliefs. Except as required by applicable law, Rand assumes no
obligation to update the forward-looking information contained in
this release.
FINANCIAL TABLES FOLLOW.
Rand Capital Corporation and
Subsidiaries
Consolidated Statements of
Financial Position
September 30, 2020
(Unaudited)
December 31, 2019
ASSETS
Investments at fair value:
Affiliate investments (cost of
$22,859,230 and $19,035,446, respectively)
15,459,415
12,151,435
Non- Control/Non-Affiliate
investments (cost of $26,961,995 and $25,584,017, respectively)
26,223,106
24,869,357
Total investments, at fair value
(cost of $49,821,225 and $44,619,463, respectively)
41,682,521
37,020,792
Cash and cash equivalents
19,074,372
25,815,720
Interest receivable (net of
allowance: $142,413 at 9/30/20 and $166,413 at 12/31/19)
457,501
142,265
Deferred tax asset
-
1,204,198
Prepaid income taxes
40,789
343,096
Other assets
53,732
265,378
Total assets
$
61,308,915
$
64,791,449
LIABILITIES AND STOCKHOLDERS’ EQUITY (NET
ASSETS)
Liabilities:
Debentures guaranteed by the SBA
(net of debt issuance costs)
$
10,815,169
$
10,786,913
Amounts due to investment
adviser
$
152,447
$
50,564
Accounts payable and accrued
expenses
82,785
207,873
Deferred tax payable
228,695
-
Bonus payable
-
80,000
Deferred revenue
79,666
37,583
Total liabilities
11,358,762
11,162,933
Stockholders’ equity (net
assets):
Common stock, $0.10 par; shares
authorized 100,000,000; shares issued: 2,648,916 at 9/30/20
and 1,688,485 at 12/31/19; shares
outstanding: 2,585,403 at 9/30/20 and 1,628,369 at 12/31/19
2,384,547
1,519,637
Capital in excess of par
value
34,142,455
34,142,455
Treasury stock, at cost: shares:
63,513 at 9/30/20 and 60,116 at 12/31/19
(1,507,093
)
(1,469,105
)
Total distributable earnings
14,930,244
19,435,529
Total stockholders’ equity (net
assets) (per share – 9/30/20: $19.32, 12/31/19: $32.93)
49,950,153
53,628,516
Total liabilities and
stockholders’ equity (net assets)
$
61,308,915
$
64,791,449
Rand Capital Corporation and
Subsidiaries
Consolidated Statements of
Operations
(Unaudited)
For the Quarter Ended
September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
Investment income: Interest from portfolio companies:
Affiliate investments
$
178,714
$
217,953
$
487,822
$
632,705
Non-Control/Non-Affiliate investments
456,160
110,150
1,253,439
416,852
Total interest from portfolio companies
634,874
328,103
1,741,261
1,049,557
Interest from other investments: Non-Control/Non-Affiliate
investments
1,157
36,797
87,161
108,146
Total interest from other investments
1,157
36,797
87,161
108,146
Dividend and other investment income: Affiliate investments
13,125
65,996
39,375
307,681
Non-Control/Non-Affiliate investments
80,212
-
161,525
-
Total dividend and other investment income
93,337
65,996
200,900
307,681
Fee income: Affiliate investments
5,000
3,607
10,417
11,460
Non-Control/Non-Affiliate investments
2,500
2,852
7,500
262,927
Total fee income
7,500
6,459
17,917
274,387
Total investment income
736,868
437,355
2,047,239
1,739,771
Expenses: Base management fee
152,438
-
434,201
-
Interest on SBA obligations
104,190
94,191
312,570
303,849
Professional fees
126,759
68,931
383,795
406,859
Stockholders and office operating
50,022
85,782
217,866
466,543
Directors' fees
28,375
30,124
85,125
87,372
Insurance
8,033
10,500
26,101
31,070
Corporate development
10,474
18,301
12,480
51,627
Other operating
107
604
572
3,413
Salaries
-
181,500
-
544,500
Employee benefits
-
40,606
-
143,705
Bad debt (recovery) expense
(24,000
)
-
(24,000
)
5,413
Total expenses
456,398
530,539
1,448,710
2,044,351
Net investment income (loss) before income taxes
280,470
(93,184
)
598,529
(304,580
)
Income tax benefit
-
(27,635
)
(419,101
)
(118,498
)
Net investment income (loss)
280,470
(65,549
)
1,017,630
(186,082
)
Net realized gain (loss) on sales and dispositions of
investments: Control investments
-
-
-
80,393
Affiliate investments
-
-
56,916
(472,632
)
Non-Control/Non-Affiliate investments
-
-
2,355,130
-
Income tax benefit
-
-
-
(90,861
)
Net realized gain (loss) on sales and dispositions of investments
-
-
2,412,046
(301,378
)
Net change in unrealized depreciation on investments:
Affiliate investments
-
(1,847,468
)
(515,804
)
(1,176,320
)
Non-Control/Non-Affiliate investments
(17,947
)
(1,749,661
)
(24,229
)
(3,020,961
)
Change in unrealized depreciation before income taxes
(17,947
)
(3,597,129
)
(540,033
)
(4,197,281
)
Deferred income tax (benefit) expense
-
(783,790
)
1,773,412
(913,719
)
Net change in unrealized depreciation on investments
(17,947
)
(2,813,339
)
(2,313,445
)
(3,283,562
)
Net realized and unrealized (loss) gain on investments
(17,947
)
(2,813,339
)
98,601
(3,584,940
)
Net increase (decrease) in net assets from operations
$
262,523
$
(2,878,888
)
$
1,116,231
$
(3,771,022
)
Weighted average shares outstanding
2,587,155
702,443
2,162,308
702,443
Basic and diluted net increase (decrease) in net assets from
operations per share
$
0.10
$
(4.10
)
$
0.52
$
(5.37
)
Rand Capital Corporation and
Subsidiaries
Consolidated Statements of
Changes in Net Assets
(Unaudited)
For the Quarter Ended
September 30,
For the Nine Months Ended
September 30,
2020
2019
2020
2019
Net assets at beginning of
period
$
49,711,314
$
30,632,053
$
53,628,516
$
31,524,187
Net investment income (loss)
280,470
(65,549
)
1,017,630
(186,082
)
Net realized gain (loss) on sales and dispositions of investments
-
-
2,412,046
(301,378
)
Net change in unrealized depreciation on investments
(17,947
)
(2,813,339
)
(2,313,445
)
(3,283,562
)
Net increase (decrease) in net assets from operations
262,523
(2,878,888
)
1,116,231
(3,771,022
)
Purchase of treasury shares
(23,684
)
-
(37,988
)
-
Payment of cash dividend
-
-
(4,756,606
)
-
Net assets at end of period
$
49,950,153
$
27,753,165
$
49,950,153
$
27,753,165
View source
version on businesswire.com: https://www.businesswire.com/news/home/20201106005076/en/
Company: Allen F. ("Pete") Grum President and CEO
716.853.0802 pgrum@randcapital.com
Investors: Deborah K. Pawlowski Kei Advisors LLC
716.843.3908 dpawlowski@keiadvisors.com
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