• Strengthened debt portfolio, transaction fees and portfolio dividends drove total investment income of $4.1 million in 2021, up 31% over 2020; Fourth quarter total investment income grew 17% to $1.2 million
  • Net asset value per share (“NAV”) was $23.54 at year-end, up 1% from September 30, 2021 and up 32% compared with $17.86 per share at December 31, 2020
  • Total investments in the quarter were $4.6 million and for the year totaled $19.7 million
  • Rand repaid $11 million of SBA obligations during the fourth quarter
  • Declared total dividends of $0.44 per share in 2021
  • Announced regular quarterly dividend of $0.15 per share for first quarter 2022, up 50% compared with quarterly dividends in 2021

 

Rand Capital Corporation (Nasdaq: RAND) (“Rand” or the “Company”), a business development company providing alternative financing for lower middle market companies, announced its results for the fourth quarter and year ended December 31, 2021.

Daniel P. Penberthy, President and Chief Executive Officer of Rand, commented, “We had an exceptional year in 2021 as we successfully advanced our portfolio transformation. Our exits generated strong capital gains, we invested $19.7 million primarily in income yielding investments, and we distributed $4.6 million in dividends. We continued to evolve our portfolio into an income producing debt portfolio. In fact, the portfolio is now comprised of 55% of income producing assets, which includes debt investments as well as dividend paying equity investments.”

Mr. Penberthy continued, “Beyond our portfolio, there were many other changes that occurred at Rand in the last quarter. We had a change in leadership, we paid off our SBA obligations and surrendered our SBIC license. We have positioned the Company for financial flexibility that will enable us to continue to grow investment income, expand our portfolio and provide total return to our shareholders.”

Fourth Quarter Highlights

  • Total investment income grew 17% to $1.2 million due to increased interest income from portfolio companies and higher dividend income.
  • Total expenses were $923,000 compared with $526,000 in the prior-year period. The Company accrued capital gains incentive fees of $86,000 during the quarter resulting from portfolio valuation changes and their related impact to the gains calculation. There was no similar accrual of fees in the prior-year period. Excluding the capital gains incentive fee accrual, adjusted expenses, which is a non-GAAP financial measure, were $837,000, up $311,000, or 59%. This increase was mostly due to an increase in the base management fee payable to Rand’s investment adviser resulting from higher asset values year-over-year, and an increase in interest expense as the Company pre-paid two additional months of interest and expensed prior capitalized loan fees as part of the SBA payoff. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted expenses.
  • Net investment income was $320,000, or $0.12 per share, compared with $738,000, or $0.29 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 $0.16 for the fourth quarter of 2021. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted net investment income per share.

2021 Highlights

  • Total investment income of $4.1 million increased $973,000, or 31%, due to similar reasons as the fourth quarter.
  • Total expenses were $6.7 million compared with $2.0 million in the prior year. The change was largely due to the accrual of $4.2 million of capital gains incentive fees during the year 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 GiveGab and Centivo Corporation and the increase in unrealized appreciation mostly related to ACV Auctions (Nasdaq: ACVA), Open Exchange and Tilson Technologies.
  • Excluding the capital gains incentive fee accrual, adjusted expenses, which is a non-GAAP financial measure, increased $495,000, or 25%, to $2.5 million due to similar reasons as in the fourth quarter. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted expenses.
  • Net investment loss per share was $1.01 for the year compared with net investment income of $0.68 per share in the prior year. Excluding the capital gains incentive fee accrual, adjusted net investment income per share was $0.62 for 2021 compared with $0.68 for 2020. The prior-year period did reflect a tax benefit related to the intent to elect status as a regulated investment company for U.S. federal income tax purposes. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted net investment income per share.
  • Net assets at December 31, 2021 were $60.7 million, up 1% from September 30, 2021. The increase reflects higher fair market values of Rand’s investments in Empire Genomics and SciAps; the sale of ACV stock and increase in its share price; and a loan payoff from Mercantile Adjustment Bureau. These increases were somewhat offset by valuation adjustments to several portfolio companies. Net assets were up 32% from December 31, 2020, mostly due to the changes from the fourth quarter and higher fair market values of Rand’s investment in Open Exchange and Tilson Technologies.

Portfolio and Investment Activity

As of December 31, 2021, Rand’s portfolio consisted of 34 companies with a fair value of $64.1 million. This was up $2.0 million, or 3%, from September 30, 2021 and up $24.1 million, or 60%, from

December 31, 2020 due primarily to investments and valuation changes. At December 31, 2021, the portfolio was comprised of approximately 46% in debt investments, 32% in equity investments in private companies, and 22% in publicly traded equities including other BDCs and ACV Auctions. The annualized weighted average yield of debt investments was 12.3%.

Fourth quarter 2021:

  • Funded $2.25 million to Nailbiter, Inc., a Reston, VA, based company providing behavioral videometrics on a consumer research platform that captures and converts real shopping behavior in-store and online into actionable metrics for global CPG (consumer packaged goods) companies. This equity investment has the economic traits of a 10% subordinated secured promissory note and warrants for preferred stock.
  • Funded $1.75 million to Applied Image, Inc., which consisted of a senior secured subordinated note at 10% and equity warrants. Applied Image is headquartered in Rochester, NY, and is a global supplier of precision imaged optical components and calibration standards for a wide range of industries and applications.
  • Follow on debt investment of $500,000 in Seyberts Billiard Corporation.
  • Follow on equity investment of $64,000 in Filterworks Acquisition USA.
  • Sold 97,646 shares of ACV Auctions at an average price of $20.43 per share. Rand still held 442,934 shares at quarter-end.
  • Received final $1.0 million loan and warrant repayment from Mercantile Adjustment Bureau.
  • Exchanged 100% of equity holdings in Empire Genomics into a $1.0 million secured promissory note at 8%.
  • Exited equity investment in First Wave Technologies.

Full year 2021:

  • Invested a total of $19.7 million across eight transactions, which largely consisted of interest yielding assets and included $2.1 million in publicly traded BDCs.
  • Exited five equity holdings in private companies netting realized gains of $2.7 million.
  • Sold Apollo Investment Corporation (Nasdaq: AINV) and ACV Auctions public securities for $3.1 million in gains.
  • Received $4.9 million from repaid loans.

Liquidity and Capital Resources

Cash and cash equivalents at year-end was $834,000, which reflected the $11 million in SBA debt that was repaid during the fourth quarter as well as new investments and dividend payments during the year. The Company holds approximately $5.6 million in public equities of BDCs and 442,934 shares of ACV Auctions, which are available for future liquidity requirements.

The Company repurchased 1,148 shares of its outstanding common stock for $20,771 in 2021. The average purchase price was $18.09 per share.

Dividends

On December 10, 2021, the Board declared a $0.14 per share dividend distribution, which was paid during the quarter, to shareholders of record as of December 20, 2021. The dividend consisted of a regular quarterly dividend of $0.10 per share and a net supplemental dividend of $0.04 per share that included the spill over from additional taxable income generated in 2020 and short-term gains in 2021, offset by increased expenses related to Rand’s surrender of its SBIC license and fees payable for capital gains.

During 2021, Rand paid a total of $4.6 million in dividends, which included the four regular quarterly dividends, the year-end 2021 supplemental dividend and the $1.33 per share dividend for 2020 that was paid in January 2021.

On February 28, 2022, Rand declared its regular quarterly cash dividend distribution of $0.15 per share, which represented a $0.05, or 50%, increase from the regular quarterly dividends paid in 2021. The cash dividend will be distributed on or about March 28, 2022, to shareholders of record as of March 14, 2022.

Webcast and Conference Call

Rand will host a conference call and webcast on Friday, March 11, 2022, at 1:30 p.m. Eastern Time to review its financial results. 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. 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 4:30 p.m. ET on the day of the call through Friday, March 18, 2022. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13725928. 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, 2021, 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 (Audited)

 

 

December 31,

 

2021

 

 

2020

 

ASSETS

 

Investments at fair value:

 

 

 

Affiliate investments (cost of $27,357,797 and $14,835,885, respectively)

$

30,279,873

 

 

$

13,891,199

 

Non-Control/Non-Affiliate investments (cost of $25,012,871 and $25,884,428, respectively)

 

33,788,589

 

 

 

26,157,302

 

Total investments, at fair value (cost of $52,370,668 and $40,720,313, respectively)

 

64,068,462

 

 

 

40,048,501

 

 Cash and cash equivalents

 

833,875

 

 

 

20,365,415

 

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

 

128,047

 

 

 

258,186

 

Prepaid income taxes

 

252,010

 

 

 

220,740

 

Deferred tax asset

 

181,003

 

 

 

-

 

Other assets

 

181,457

 

 

 

74,100

 

 Total assets

$

 

65,644,854

 

$

 

60,966,942

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

 

Liabilities:

   

 

 

 

Due to investment adviser

   

$

891,102

 

 

$

156,999

 

Accounts payable and accrued expenses

   

 

51,689

 

 

 

171,373

 

Capital gains incentive fees

   

 

3,547,760

 

 

 

-

 

Deferred revenue

   

 

  408,887

 

 

 

  153,895

 

Deferred tax payable

   

 

-

 

 

 

121,141

 

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

   

 

 -

 

 

 

10,824,587

 

Dividend payable

   

 

-

 

 

 

3,434,117

 

Total liabilities

   

 

4,899,438

 

 

 

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 at 12/31/21 and 2,582,169 at 12/31/20

   

 

264,892

 

 

 

264,892

 

 Capital in excess of par value

   

 

51,679,809

 

 

 

52,003,545

 

 Treasury stock, at cost: 67,895 shares at 12/31/21 and 66,747 shares at 12/31/20

   

 

(1,566,605

)

 

 

(1,545,834

)

 Total distributable earnings

   

 

10,367,320

 

 

 

(4,617,773

)

Total stockholders’ equity (net assets) (per share - 2021: $23.54, 2020: $17.86)

   

 

60,745,416

 

 

 

46,104,830

 

                     Total liabilities and stockholders’ equity (net assets)

   

$

65,644,854

 

 

$

60,966,942

 

 

   

 

 

 

 

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

        (Unaudited)   (Audited)   For the Quarter EndedDecember 31,   For the Year EndedDecember 31,  

 

2021

 

 

2020

 

 

 

2021

 

 

2020

 

Investment income:     Interest from portfolio companies:     Control investments  

$

11,303

 

$

-

 

 

$

23,068

 

$

-

 

Affiliate investments  

 

517,539

 

$

179,147

 

 

 

1,541,507

 

 

666,969

 

Non-Control/Non-Affiliate investments  

 

378,043

 

$

541,535

 

 

 

1,453,059

 

 

1,794,974

 

Total interest from portfolio companies  

 

906,885

 

 

720,682

 

 

$

3,017,634

 

 

2,461,943

 

      Interest from other investments:     Non-Control/Non-Affiliate investments  

 

533

 

 

623

 

 

 

13,876

 

 

87,784

 

Total interest from other investments  

 

533

 

 

623

 

 

 

13,876

 

 

87,784

 

      Dividend and other investment income:     Affiliate investments  

 

145,589

 

 

79,355

 

 

 

354,536

 

 

118,730

 

Non-Control/Non-Affiliate investments  

 

128,965

 

 

147,826

 

 

 

533,643

 

 

309,351

 

Total dividend and other investment income  

 

274,554

 

 

227,181

 

 

 

888,179

 

 

428,081

 

      Fee income:     Affiliate investments  

 

36,912

 

 

5,000

 

 

 

114,697

 

 

15,417

 

Non-Control/Non-Affiliate investments  

 

17,647

 

 

102,194

 

 

 

41,917

 

 

109,694

 

Total fee income  

 

54,559

 

 

107,194

 

 

 

156,614

 

 

125,111

 

Total investment income  

 

1,236,531

 

 

1,055,680

 

 

 

4,076,303

 

 

3,102,919

 

      Expenses:     Base management fee  

 

238,904

 

 

155,318

 

 

 

858,144

 

 

589,519

 

Capital gains incentive fees  

 

86,000

 

 

-

 

 

 

4,200,000

 

 

-

 

Interest on SBA obligations  

 

304,700

 

 

104,190

 

 

 

617,270

 

 

416,760

 

Professional fees  

 

200,195

 

 

185,062

 

 

 

578,577

 

 

568,857

 

Shareholders and office operating  

 

38,878

 

 

40,400

 

 

 

223,381

 

 

258,266

 

Directors' fees  

 

39,050

 

 

31,375

 

 

 

153,500

 

 

116,500

 

Insurance  

 

9,698

 

 

7,767

 

 

 

38,635

 

 

33,868

 

Corporate development  

 

4,372

 

 

2,066

 

 

 

14,702

 

 

14,546

 

Bad debt (recovery)

 

 

-

 

 

-

 

 

 

(15,000

)

 

(24,000

)

Other operating  

 

998

 

 

90

 

 

 

1,106

 

 

662

 

Total expenses  

 

922,795

 

 

526,268

 

 

 

6,670,315

 

 

1,974,978

 

Net investment income (loss) before income taxes  

 

313,736

 

 

529,412

 

 

 

(2,594,012

)

 

1,127,941

 

Income tax (benefit) expense  

 

(6,119

)

 

(209,086

)

 

 

10,896

 

 

(628,187

)

Net investment income (loss)  

 

319,855

 

 

738,498

 

 

 

(2,604,908

)

 

1,756,128

 

      Net realized gain (loss) on sales and dispositions of investments:     Control investments  

 

(308,676

)

 

-

 

 

 

(308,676

)

 

-

 

Affiliate investments  

 

57,215

 

 

(7,984,468

)

 

 

192,645

 

 

(7,927,552

)

Non-Control/Non-Affiliate investments  

 

1,342,349

 

 

(410,857

)

 

 

5,936,385

 

 

1,944,273

 

Net realized gain (loss) on sales and dispositions of investments  

 

1,090,888

 

 

(8,395,325

)

 

 

5,820,354

 

 

(5,983,279

)

      Net change in unrealized depreciation or appreciation on investments:     Control investments  

 

1,151,021

 

 

-

 

 

 

1,151,021

 

 

-

 

Affiliate investments  

 

(233,249

)

 

6,455,129

 

 

 

3,414,050

 

 

5,939,325

 

Non-Control/Non-Affiliate investments  

 

(1,597,207

)

 

1,011,763

 

 

 

7,804,535

 

 

987,534

 

Change in unrealized depreciation or appreciation before income taxes  

 

(679,435

)

 

7,466,892

 

 

 

12,369,606

 

 

6,926,859

 

Deferred income tax (benefit) expense  

 

(213,327

)

 

182,530

 

 

 

(212,376

)

 

1,955,942

 

Net change in unrealized depreciation or appreciation on investments  

 

(466,108

)

 

7,284,362

 

 

 

12,581,982

 

 

4,970,917

 

      Net realized and unrealized gain (loss) on investments  

 

624,780

 

 

(1,110,963

)

 

 

18,402,336

 

 

(1,012,362

)

Net increase (decrease) in net assets from operations  

$

944,635

 

$

(372,465

)

 

$

15,797,428

 

$

743,766

 

Weighted average shares outstanding  

 

2,581,021

 

 

2,583,622

 

 

 

2,581,707

 

 

2,268,356

 

Basic and diluted net increase (decrease) in net assets from operations per share  

$

0.37

 

$

(0.14

)

 

$

6.12

 

$

0.33

 

     

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets

 

 

 

2021

 

 

2020

 

Net assets at beginning of year

$

46,104,830

 

$

53,628,516

 

 

 

 

Net investment (loss) income

 

(2,604,908

)

 

1,756,128

 

Net realized gain (loss) on sales and dispositions of investments

 

5,820,354

 

 

(5,983,279

)

Net change in unrealized appreciation/depreciation on investments

 

12,581,982

 

 

4,970,917

 

Net increase in net assets from operations

 

15,797,428

 

 

743,766

 

 

 

 

Declaration of dividends

 

(1,136,071

)

 

(8,190,723

)

Purchase of treasury shares

 

(20,771

)

 

(76,729

)

Net assets at end of year

$

60,745,416

 

$

46,104,830

 

 

Rand Capital Corporation and Subsidiaries Reconciliation of Non-GAAP Adjusted 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 adjusted Expenses, which is a non-GAAP financial measure. Adjusted 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 adjusted 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

December 31, 2021

Three months ended

December 31, 2020

Year ended

December 31, 2021

Year ended

December 31, 2020

 

 

 

 

 

Total expenses

$

922,795

$

526,268

$

6,670,315

$

1,974,978

Exclude capital gains incentive fees

 

86,000

 

-

 

4,200,000

 

-

Adjusted expenses

$

836,795

$

526,268

$

2,470,315

$

1,974,978

 

Reconciliation of Adjusted Net Investment Income per Share to GAAP Net Investment Income (Loss) 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 Income (Loss) per Share plus any capital gains incentive fees per share. GAAP Net Investment Income (Loss) 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

December 31, 2021

Three months ended

December 31, 2020

Year ended

December 31, 2021

Year ended

December 31, 2020

 

 

 

 

 

Net Investment Income (Loss) per Share

$

0.12

$

0.29

$

(1.01

)

$

0.68

Capital gains incentive fees per share

 

0.04

 

-

 

1.63

 

 

-

Adjusted Net Investment Income per Share

$

0.16

$

0.29

$

0.62

 

$

0.68

 

Company: Daniel P. Penberthy President and CEO Phone: 716.853.0802 Email: dpenberthy@randcapital.com

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

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