• Continuing strategic shift to income producing portfolio drives total investment income of $1.0 million in the quarter, up 37% over the prior-year period
  • Net asset value per share (“NAV”) increased 4% to $23.31 per share from $22.51 per share at June 30, 2021; NAV increased 31% compared with $17.86 per share at December 31, 2020
  • Total investments in the quarter were $3.8 million in a new portfolio company
  • Exits and loan repayments totaled $3.8 million in the quarter
  • 1,148 shares repurchased in the third quarter
  • Subsequent to quarter-end, Rand paid off $11 million of SBA obligations

Rand Capital Corporation (Nasdaq: RAND) (“Rand” or the “Company”), a business development company (“BDC”), announced its results for the quarter ended September 30, 2021.

Allen F. (“Pete”) Grum, President and Chief Executive Officer of Rand, commented, “Our results continue to validate the success of our strategy to transform Rand into an income producing business development company that provides a dividend for its shareholders. We continue to liquidate our equity positions and reinvest in income producing vehicles.”

He added, “As we transform Rand, we are also transitioning our leadership team. I have been honored over these last 25 years to serve as CEO and am excited to support Dan Penberthy and Margaret Brechtel as they take Rand to the next level.”

Third Quarter Highlights

  • Total investment income in the quarter grew 37% to $1.0 million due to increased interest income from portfolio companies, increased dividend and other investment income, and higher fee income.
  • Total expenses were $962,000 compared with $456,000 in the third quarter of 2020. The change was largely due to the accrual of $454,000 of capital gains incentive fees during the quarter compared with no similar accrual of fees in the prior-year period. The capital gains incentive fee accrual reflects realized gains from the sale of Rand’s investment in Centivo Corporation and the increase in unrealized appreciation mostly related to Tilson Technologies. Operating expenses in the quarter, a non-GAAP financial measure which excludes the capital gains incentive fee accrual, increased $52,000, or 11%, mostly because of an increase in the base management fee payable to Rand’s investment adviser resulting from increased asset values. See the attached description of this non-GAAP financial measure and reconciliation table for operating expenses.
  • Net investment income was $53,000, or $0.02 per share, compared with $280,000, or $0.11 per share, in the prior-year period.
  • Adjusted net investment income per share, a non-GAAP financial measure, which excludes the capital gains incentive fee accrual, was $0.20 for the third quarter of 2021, compared with $0.11 per share in the prior-year period. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted net investment income per share.
  • Net assets at September 30, 2021 were $60.2 million, up 4% from June 30, 2021. The increase largely reflects the realized gains from the sale of Rand’s investment in Centivo Corporation and increase in unrealized appreciation of Tilson Technologies, offset by a reduction in value of ACV Auctions from the prior quarter. Net assets were up 30% from December 31, 2020, mostly due to the increase in the fair market values of Rand’s investment in Open Exchange, Tilson Technologies and ACV Auctions.

Portfolio and Investment Activity

As of September 30, 2021, Rand’s portfolio consisted of 34 companies. At that date, the dollar value of the portfolio was comprised of approximately 51% in equity investments, 40% in fixed-rate debt investments and 9% in dividend paying, publicly traded BDCs. The annualized weighted average yield of debt investments was 11.9%.

  • At September 30, 2021, portfolio fair value increased $2.3 million, or 4%, to $62.1 million compared with June 30, 2021, due primarily to a new investment partially offset by sales, debt repayments and valuation changes.
  • There was one exit in the quarter, as well as debt repayments and one stock sale:
    • Sold the investment in Centivo Corporation for $2.4 million, which resulted in recognized gain of $1.6 million.
    • Sold 50,000 shares of ACV Auctions at an average price of $19.44 per share. Rand still held 540,580 shares at quarter-end.
    • Received $418,000 partial debt repayment from Mercantile Adjustment Bureau.
    • Advantage 24/7 made a final loan repayment of $40,000.
  • Rand made one new investment in the quarter:
    • Funded $3.8 million to DSD Operating, LLC, which consisted of a $2.7 million loan and $1.1 million equity investment. DSD is headquartered in Georgia and outfits fixed operations facilities with shop equipment for auto dealers.

Liquidity and Capital Resources

Cash and cash equivalents at the end of the quarter was $13.3 million and represented 22.1% of net assets. On November 2, 2021, Rand repaid its $11 million of outstanding SBA leverage using cash on hand and submitted a request to surrender its SBIC license to the SBA.

Daniel P. Penberthy, Executive Vice President and CFO, noted, “We are using our excess liquidity to repay our SBA obligations and believe we can measurably simplify our lending processes by eliminating the requirements of an SBIC.”

During the quarter, the Company repurchased 1,148 shares of outstanding common stock for $20,770 under a $1.5 million share repurchase authorization. The average purchase price was $18.09 per share.

Dividend Distributions

On July 29, 2021, the Board declared a regular quarterly cash dividend distribution of $0.10 per share, which was paid during the quarter, to shareholders of record as of September 2, 2021.

Webcast and Conference Call

Rand will host a conference call and live webcast today, November 5, 2021, at 12:30 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 “Investor Relations”.

A telephonic replay will be available from 3:30 p.m. ET on the day of the call through Friday, November 12, 2021. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13723741. 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). 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 strategy of the Company and its outlook, the effectiveness of changes in leadership; 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) evolving legal, regulatory and tax regimes; (2) changes in general economic and/or industry specific conditions; and (3) 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, 2020, quarterly reports on Form 10-Q, 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, 2021 (Unaudited)

 

December 31, 2020

ASSETS

 

 

 

 

Investments at fair value:

 

 

 

 

Control investments (cost of $1,753,591 and $0, respectively)

 

$602,570

$  -

 

Affiliate investments (cost of $24,929,546 and $14,835,885, respectively)

 

28,084,871

13,891,199

 

Non-Control/Non-Affiliate investments (cost of $23,042,003 and $25,884,428, respectively)

 

33,414,928

26,157,302

 

Total investments, at fair value (cost of $49,725,140 and $40,720,313, respectively)

 

62,102,369

40,048,501

 

Cash and cash equivalents

 

13,299,834

20,365,415

 

Interest receivable (net of allowance of $0 and  $15,000, respectively)

 

111,213

258,186

 

Prepaid income taxes

 

200,281

220,740

 

Other assets

 

167,961

74,100

 

 Total assets

 

 

$75,881,658

 

$60,966,942

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

 

 

 

Liabilities:

 

 

 

 

Debentures guaranteed by the SBA (net of debt issuance costs) 

 

$10,852,844

$10,824,587

 

Dividend payable

 

-

3,434,117

 

Accounts payable and accrued expenses

 

82,309

171,373

 

Due to investment adviser

 

233,438

156,999

 

Capital gains incentive fees

 

4,114,000

-

 

Deferred revenue

 

  384,196

  153,895

 

Deferred taxes

 

52,746

121,141

 

              Total liabilities

 

15,719,533

14,862,112

 

 

 

 

 

 

Stockholders’ equity (net assets):

 

 

 

 

Common stock, $0.10 par; shares authorized 100,000,000; shares issued: 2,648,916; shares outstanding: 2,581,021

 

264,892

264,892

 

Capital in excess of par value

 

52,003,545

52,003,545

 

Treasury stock, at cost: 67,895 shares and 66,747 shares, respectively 

 

(1,566,605)

(1,545,834)

 

Total distributable earnings

 

9,460,293

(4,617,773)

 

               Total stockholders’ equity (net assets) (per share – $23.31 and $17.86, respectively)

 

60,162,125

46,104,830

Total liabilities and stockholders’ equity (net assets)

 

 

$75,881,658

 

$60,966,942

 

 

 

 

Rand Capital Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited)

 

 

 

 

Three months ended September 30,

2021

Three months ended September 30, 2020

Nine months ended September 30, 2021

Nine months ended September 30, 2020

Investment income:

 

 

 

 

 

Interest from portfolio companies:

 

 

 

 

 

 

Control investment

$8,898

$ -

$11,765

$ -

 

 

Affiliate investments

409,467

178,714

1,023,968

487,822

 

 

Non-Control/Non-Affiliate investments

339,416

456,160

1,075,016

1,253,439

 

 

Total interest from portfolio companies

757,781

634,874

2,110,749

1,741,261

 

 

 

 

 

 

 

Interest from other investments:

 

 

 

 

 

 

Non-Control/Non-Affiliate investments

473

1,157

13,343

87,161

 

 

Total interest from other investments

473

1,157

13,343

87,161

 

 

 

 

 

 

 

Dividend and other investment income:

 

 

 

 

 

 

Affiliate investments

100,896

13,125

208,947

39,375

 

 

Non-Control/Non-Affiliate investments

129,013

80,212

404,678

161,525

 

 

Total dividend and other investment income

229,909

93,337

613,625

200,900

 

 

 

 

 

 

 

Fee income:

 

 

 

 

 

 

Affiliate investments

13,867

5,000

77,785

10,417

 

 

Non-Control/Non-Affiliate investments

10,313

2,500

24,270

7,500

 

 

Total fee income

24,180

7,500

102,055

17,917

Total investment income

1,012,343

736,868

2,839,772

2,047,239

Expenses:

 

 

 

 

 

Base management fee

230,724

152,438

619,240

434,201

 

Capital gains incentive fees

454,000

-

4,114,000

-

 

Interest on SBA obligations

104,190

104,190

312,570

312,570

 

Professional fees

94,258

126,759

378,382

383,795

 

Stockholders and office operating

43,420

50,022

184,503

217,866

 

Directors' fees

39,050

28,375

114,450

85,125

 

Insurance

9,230

8,033

28,937

26,101

 

Corporate development

2,027

10,474

10,330

12,480

 

Bad debt recovery

(15,000)

(24,000)

(15,000)

(24,000)

 

Other operating

-

107

108

572

 

Total expenses

961,899

456,398

5,747,520

1,448,710

Net investment income (loss) before income taxes

50,444

280,470

(2,907,748)

598,529

 

Income tax (benefit) expense

(2,708)

-

17,015

(419,101)

Net investment income (loss)

53,152

280,470

(2,924,763)

1,017,630

Rand Capital Corporation and Subsidiaries Consolidated Statements of Operations (continued, unaudited)

 

 

 

 

Three months ended September 30, 2021

Three months ended September 30, 2020

Nine months ended September 30, 2021

Nine months ended September 30, 2020

Net realized gain on sales and dispositions of investments:

 

 

 

 

 

Affiliate investments

-

-

135,430

56,916

 

Non-Control/Non-Affiliate investments

2,601,361

-

4,594,036

2,355,130

 

Net realized gain on sales and dispositions of investments

2,601,361

-

 

4,729,466

 

2,412,046

Net change in unrealized appreciation/ depreciation on investments:

 

 

 

 

 

Affiliate investments

3,647,299

-

3,647,299

(515,804)

 

Non-Control/Non-Affiliate investments

(3,980,612)

(17,947)

9,401,742

(24,229)

 

Change in unrealized appreciation/ depreciation before income taxes

(333,313)

(17,947)

13,049,041

(540,033)

 

Deferred income tax expense

-

-

951

1,773,412

 

Net change in unrealized appreciation/ depreciation on investments

(333,313)

(17,947)

13,048,090

(2,313,445)

 

 

 

 

 

 

Net realized and unrealized gains (losses) on investments

2,268,048

(17,947)

17,777,556

98,601

Net increase in net assets from operations

$2,321,200

$262,523

$14,852,793

$1,116,231

Weighted average shares outstanding

2,581,679

2,587,155

2,581,942

2,162,308

Basic and diluted net increase in net assets from operations per share

$0.90

$0.10

 

$5.75

 

$0.52

Rand Capital Corporation and Subsidiaries Consolidated Statements of Changes in Net Assets (unaudited)

 

 

Three months ended September 30, 2021

Three months ended September 30, 2020

Nine months ended September 30, 2021

Nine months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

Net assets at beginning of period

$58,119,821

$49,711,314

$46,104,830

$53,628,516

Net investment income (loss)

53,152

280,470

(2,924,763)

1,017,630

Net realized gain on sales and dispositions of investments

2,601,361

-

4,729,466

2,412,046

Net change in unrealized appreciation/ depreciation on investments

(333,313)

(17,947)

13,048,090

(2,313,445)

Net increase in net assets from operations

2,321,200

262,523

14,852,793

1,116,231

Purchase of treasury shares

(20,771)

(23,684)

(20,771)

(37,988)

Declaration of dividend

(258,125)

-

(774,727)

(4,756,606)

Net assets at end of period

$60,162,125

$49,950,153

$60,162,125

$49,950,153

 

Rand Capital Corporation and Subsidiaries Reconciliation of Non-GAAP Operating Expenses to GAAP Total Expense (unaudited)

In addition to reporting Total expenses, which is a U.S. generally accepted accounting principle (“GAAP”) financial measure, Rand presents Operating Expenses, which is a non-GAAP financial measure. Operating expenses are defined as GAAP Total expenses less any expenses for capital gains incentive fees. GAAP Total expenses is the most directly comparable GAAP financial measure. Rand believes that Operating expenses provides useful information to investors regarding financial performance because it is a method the Company uses to measure its financial and business trends related to its results of operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

 

Three months ended September 30, 2021

Three months ended September 30, 2020

 

 

 

Total expenses

$

961,899

$

456,398

Exclude capital gains incentive fees

 

454,000

 

-

Operating expenses

$

507,899

$

456,398

Reconciliation of Adjusted Net Investment Income per Share to GAAP Net Investment (Loss) Income per Share (unaudited)

In addition to reporting Net Investment (Loss) Income per Share, which is a U.S. generally accepted accounting principle (“GAAP”) financial measure, Rand presents Adjusted Net Investment Income per Share, which is a non-GAAP financial measure. Adjusted Net Investment Income per Share is defined as GAAP Net Investment (Loss) Income per Share plus any capital gains incentive fees. GAAP Net Investment (Loss) Income per Share is the most directly comparable GAAP financial measure. Rand believes that Adjusted Net Investment Income per Share provides useful information to investors regarding financial performance because it is a method the Company uses to measure its financial and business trends related to its results of operations. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP.

 

Three months ended September 30, 2021

Three months ended September 30, 2020

 

 

 

Net Investment Income per Share

$

0.02

$

0.11

Capital gains incentive fees per share

 

0.18

 

-

Adjusted Net Investment Income per Share

$

0.20

$

0.11

 

Company: Allen F. ("Pete") Grum President and CEO Phone: 716.853.0802 Email: pgrum@randcapital.com

Investors: Deborah K. Pawlowski Kei Advisors LLC Phone: 716.843.3908 Email: dpawlowski@keiadvisors.com

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