RAND

• Portfolio expansion focused on income producing assets drove 67% total investment income growth to $1.4 million for the quarter
• Net asset value per share (“NAV”) was $22.34 at June 30, 2022, which reflected a decline in market value of portfolio holdings in publicly traded securities
• Follow-on debt investment of $2.2 million to support portfolio company growth
• Announced a quarterly dividend of $0.15 per share for third quarter 2022
• Secured new $25 million senior secured revolving credit facility to support future portfolio investments

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 second quarter ended June 30, 2022.

Daniel P. Penberthy, President, and Chief Executive Officer of Rand, commented, “We delivered another solid quarter of total investment income growth, which reflected our focused investment strategy and significant debt portfolio expansion over the past year. During the recent quarter, we took a number of steps to position Rand for our next phase of growth. Most importantly, we added a new source of capital to support this strategy by securing a $25 million credit facility, which provides not only increased liquidity, but also greater flexibility. We also exited some of our publicly traded securities, which we in turn utilized to fund our follow-on debt investment in Seybert’s Billiard Corporation, making Seybert’s the largest Rand interest yielding debt holding with an approximately $5.6 million cost basis.”

Second Quarter Highlights

• Total investment income grew $542,000, or 67%, to $1.4 million primarily due to increased interest income from portfolio companies and higher dividend income.
• Total expenses were a credit of $96,000 compared with an expense of $1.6 million in the prior-year period. A reduction in value of Rand’s publicly held securities impacted accrued capital gain incentive fees to the external investment adviser, resulting in a credit of $663,000 for the second quarter of 2022 compared with $1.1 million of expense for the second quarter of 2021. Excluding capital gains incentive fees, adjusted expenses, which is a non-GAAP financial measure, were $567,000, up $7,000, or 1%, from the prior-year period. Higher professional fees resulting from the new debt financing were largely offset with the elimination of interest expense payments for the SBA obligations that were paid off in full in December 2021. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted expenses.
• Net investment income was $1.4 million, or $0.55 per share, compared with a net investment loss of $811,000, or $0.31 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 $0.29 for the second quarter of 2022 compared with $0.10 in the second quarter of 2021. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted net investment income per share.

Portfolio and Investment Activity

As of June 30, 2022, Rand’s portfolio included investments with a fair value of $59.0 million across

29 portfolio businesses. This was down $3.4 million, or 6%, from March 31, 2022, due primarily to the change in ACV Auctions’ market value and stock sales, net of the follow-on Seybert’s investment. At

June 30, 2022, the portfolio was comprised of approximately 55% in debt investments, 35% in equity investments in private companies, and 10% in publicly traded equities consisting of other BDCs and ACV Auctions. The annualized weighted average yield of debt investments was 12.1%.

Second quarter 2022:

• Follow on debt investment of $2.2 million in Seybert’s Billiard Corporation.
• Sold 86,000 shares of ACV Auctions at an average price of $14.24 per share for a realized gain of $1.2 million. Rand held 319,934 shares at quarter-end, which represented approximately 4% of the portfolio’s fair value.
• Sold holdings in two publicly traded BDCs – Golub Capital and Owl Rock Capital – generating total proceeds of $922,000 and a gain of $171,000.
• Sold remaining interest in Microcision, which netted a gain of $190,000.

Liquidity and Capital Resources

Cash and cash equivalents at the end of the second quarter of 2022 were $1.2 million compared with $834,000 at 2021 year-end. As of June 30, 2022, the Company held approximately $4.0 million in public equities of other BDCs and $2.1 million of ACV Auctions shares, all of which are available for future liquidity requirements including both RIC dividends and new portfolio investments.

On June 27, 2022, Rand closed on a $25 million senior secured revolving credit facility with M&T Bank. The new facility provides for a 5-year term through 2027, at an interest rate calculated using SOFR plus 3.5%. There were no borrowings under the facility at quarter-end.

The Company did not repurchase any outstanding common stock during the second quarter of 2022.

Dividends

On July 28, 2022, Rand declared a quarterly cash dividend of $0.15 per share. The cash dividend will be distributed on or about September 15, 2022, to shareholders of record as of September 1, 2022.

Webcast and Conference Call

Rand will host a conference call and webcast on Monday, August 8, 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 in the “Investor Relations” section. 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” where the replay will also be available. A telephonic replay will be available from 4:30 p.m. ET on the day of the call through Monday, August 15, 2022. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13731266. A transcript of the call 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; 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

   

 

 

June 30, 2022 (Unaudited)

 

December 31, 2021

ASSETS

 

 

 

 

Investments at fair value:

 

 

 

 

Affiliate investments (cost of $30,195,392 and $27,357,797, respectively)

 

$33,165,309

 

$30,279,873

Non-Control/Non-Affiliate investments (cost of $22,291,325 and $25,012,871, respectively)

 

25,833,464

 

33,788,589

Total investments, at fair value (cost of $52,486,717 and $52,370,668, respectively)

 

58,998,773

 

64,068,462

Cash

 

1,189,146

 

833,875

Interest receivable

 

193,807

 

128,047

Prepaid income taxes

 

6,360

 

252,010

Deferred tax asset

 

239,158

 

181,003

Other assets

 

360,091

 

181,457

Total assets

 

$60,987,335

 

$65,644,854

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

   

Liabilities:

 

 

 

Due to investment adviser

 

$230,781

 

$891,102

Accounts payable and accrued expenses

 

55,933

 

51,689

Capital gains incentive fees

 

2,645,000

 

3,547,760

Deferred revenue

 

391,437

 

408,887

Total liabilities

 

3,323,151

 

4,899,438

 

 

 

 

 

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 6/30/22 and 12/31/21

 

264,892

 

264,892

Capital in excess of par value

 

51,679,809

 

51,679,809

Treasury stock, at cost: 67,895 shares at 6/30/22 and 12/31/21

 

(1,566,605)

 

(1,566,605)

Total distributable earnings

 

7,286,088

 

10,367,320

Total stockholders’ equity (net assets) (per share – 6/30/22: $22.34; 12/31/21: $23.54)

 

57,664,184

 

60,745,416

Total liabilities and stockholders’ equity (net assets)

 

$60,987,335

 

$65,644,854

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

       

 

 

 

 

Three months ended June 30, 2022

 

Three months ended June 30, 2021

 

Six months ended June 30, 2022

 

Six months ended June 30, 2021

Investment income:

 

 

 

 

 

 

 

 

Interest from portfolio companies:

 

 

 

 

 

 

 

 

Control investment

 

$-

 

$2,867

 

$-

 

$2,867

Affiliate investments

 

614,997

 

295,085

 

1,185,113

 

614,501

Non-Control/Non-Affiliate investments

 

389,835

 

344,254

 

731,858

 

735,600

Total interest from portfolio companies

 

1,004,832

 

642,206

 

1,916,971

 

1,352,968

 

 

 

 

 

 

 

 

 

Interest from other investments:

 

 

 

 

 

 

 

 

Non-Control/Non-Affiliate investments

 

1

 

243

 

1

 

12,870

Total interest from other investments

 

1

 

243

 

1

 

12,870

 

 

 

 

 

 

 

 

 

Dividend and other investment income:

 

 

 

 

 

 

 

 

Affiliate investments

 

202,785

 

13,125

 

246,510

 

108,051

Non-Control/Non-Affiliate investments

 

113,735

 

123,922

 

243,000

 

275,665

Total dividend and other investment income

 

316,520

 

137,047

 

489,510

 

383,716

 

 

 

 

 

 

 

 

 

Fee income:

 

 

 

 

 

 

 

 

Affiliate investments

 

22,515

 

24,562

 

52,820

 

63,918

Non-Control/Non-Affiliate investments

 

9,314

 

6,979

 

18,628

 

13,957

Total fee income

 

31,829

 

31,541

 

71,448

 

77,875

Total investment income

 

1,353,182

 

811,037

 

2,477,930

 

1,827,429

Expenses:

 

 

 

 

 

 

 

 

Base management fee

 

230,767

 

212,907

 

471,042

 

388,516

Capital gains incentive fees

 

(663,000)

 

1,060,000

 

(902,760)

 

3,660,000

Interest on SBA obligations

 

-

 

104,190

 

-

 

208,380

Professional fees

 

212,138

 

123,991

 

443,221

 

284,124

Stockholders and office operating

 

64,890

 

69,661

 

121,588

 

141,083

Directors' fees

 

44,883

 

38,900

 

89,983

 

75,400

Insurance

 

13,353

 

9,380

 

22,263

 

19,707

Corporate development

 

726

 

821

 

3,753

 

8,303

Other operating

 

45

 

108

 

90

 

108

Total expenses

 

(96,198)

 

1,619,958

 

249,180

 

4,785,621

Net investment income (loss) before income taxes

 

1,449,380

 

(808,921)

 

2,228,750

 

(2,958,192)

Income tax expense

 

31,243

 

1,966

 

38,610

 

19,723

Net investment income (loss)

 

1,418,137

 

(810,887)

 

2,190,140

 

(2,977,915)

 

 

 

 

 

 

 

 

 

Net realized gain on sales and dispositions of investments:

         

 

 

 

Affiliate investments

 

167,159

 

-

 

167,159

 

135,430

Non-Control/Non-Affiliate investments

 

1,372,984

 

1,817,350

 

521,513

 

1,992,675

Net realized gain on sales and dispositions of investments

 

1,540,143

 

1,817,350

 

688,672

 

2,128,105

Net change in unrealized appreciation/ depreciation on investments:

               

Affiliate investments

 

47,841

 

-

 

47,841

 

-

Non-Control/Non-Affiliate investments

 

(4,902,510)

 

3,495,322

 

(5,233,579)

 

13,382,354

 

 

 

 

 

 

 

 

 

Change in unrealized appreciation/ depreciation before income taxes

 

(4,854,669)

 

3,495,322

 

(5,185,738)

 

13,382,354

Deferred income tax expense

 

-

 

951

 

-

 

951

Net change in unrealized appreciation/ depreciation on investments

 

(4,854,669)

 

3,494,371

 

(5,185,738)

 

13,381,403

 

 

 

 

 

 

 

 

 

Net realized and unrealized (loss) gain on investments

 

(3,314,526)

 

5,311,721

 

(4,497,066)

 

15,509,508

Net (decrease) increase in net assets from operations

 

($1,896,389)

 

$4,500,834

 

($2,306,926)

 

$12,531,593

Weighted average shares outstanding

 

2,581,021

 

2,582,169

 

2,581,021

 

2,582,169

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

 

($0.73)

 

$1.74

 

($0.89)

 

 

$4.85

       

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets

(Unaudited)

         

 

 

Three months ended June 30, 2022

 

Three months ended June 30, 2021

 

Six months ended June 30, 2022

 

Six months ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets at beginning of period

 

$59,947,726

 

$53,877,204

 

$60,745,416

 

$46,104,830

Net investment income (loss)

 

1,418,137

 

(810,887)

 

2,190,140

 

(2,977,915)

Net realized gain on sales and dispositions of investments

 

1,540,143

 

1,817,350

 

688,672

 

2,128,105

Net change in unrealized appreciation/ depreciation on investments

 

(4,854,669)

 

3,494,371

 

(5,185,738)

 

13,381,403

Net (decrease) increase in net assets from operations

 

(1,896,389)

 

4,500,834

 

(2,306,926)

 

12,531,593

Declaration of dividend

 

(387,153)

 

(258,217)

 

(774,306)

 

(516,602)

Net assets at end of period

 

$57,664,184

 

$58,119,821

 

$57,664,184

 

$58,119,821

Rand Capital Corporation and Subsidiaries Reconciliation of Non-GAAP Adjusted Expenses to GAAP Total (Credits)/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 is defined as GAAP total (credits)/expenses removing the effect of any expenses/(credits) for capital gains incentive fees. GAAP total (credits)/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 June 30, 2022

 

Three months ended June 30, 2021

Total (credits)/expenses

 

$

(96,198

)

 

$

1,619,958

 

Exclude (credits)/expenses for capital gains incentive fees

 

 

(663,000

)

 

 

1,060,000

 

Adjusted expenses

 

$

566,802

 

 

$

559,958

 

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

In addition to reporting Net Investment Income (Loss) per Share, which is a U.S. generally accepted accounting principle (“GAAP”) financial measure, the Company 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 removing the effect of any expenses/ (credits) for capital gains incentive fees. 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 June 30, 2022

 

Three months ended June 30, 2021

Net investment income (loss) per share

 

$

0.55

 

 

$

(0.31

)

Exclude (credits)/expenses for capital gains incentive fees per share

 

 

(0.26

)

 

 

0.41

 

Adjusted net investment income per share

 

$

0.29

 

 

$

0.10

 

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20220808005074/en/

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