RAND

• Expanded debt portfolio and portfolio dividends drove total investment income to $1.6 million in the third quarter, up 54% over prior-year period
• Net investment income per share increased to $0.39 compared with $0.02 in the prior-year period; Adjusted net investment income per share doubled to $0.40
• Net asset value per share (“NAV”) was $22.62 at September 30, 2022, up 1% from June 30, 2022 largely due to changes in market value of portfolio holdings and investment income
• Completed portfolio company follow-on equity investment of $400,000 in the quarter

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 third quarter ended September 30, 2022.

“We have made great strides building out our portfolio that is delivering strong total investment income growth. Combined with prudent expense management, we achieved net investment income per share of $0.39 for the quarter, a measurable improvement over last year,” commented Daniel P. Penberthy, President and Chief Executive Officer of Rand. “We are excited about our future. With a flexible balance sheet that is supported by multiple sources of capital, we believe we can continue to evolve our portfolio company mix, scale our business to drive investment income and further grow our distributable dividends, as we continue to seek additional portfolio investments to drive higher earnings.”

Third Quarter Highlights

• Total investment income grew $542,000, or 54%, to $1.6 million primarily due to increased interest income from portfolio companies and higher portfolio dividend income.
• Total expenses were $499,000 compared with $962,000 in the prior-year period. The decrease largely was due to lower accrued capital gain incentive fees. The current quarter accrual was $22,000 compared with $454,000 during the third quarter of 2021. Excluding capital gains incentive fees, adjusted expenses, which is a non-GAAP financial measure, were $477,000, down $31,000, or 6%, from the prior-year period. The decrease reflects lower interest expense given the Company’s SBA indebtedness was paid off in full in December 2021, partially offset by higher professional fees resulting from the new senior secured revolving credit facility completed in the second quarter of 2022. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted expenses.
• Net investment income was $1.0 million, or $0.39 per share, compared with $53,000, or $0.02 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 $0.40 for the third quarter of 2022 compared with $0.20 in the third 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 September 30, 2022, Rand’s portfolio included investments with a fair value of $59.7 million across 29 portfolio businesses. This was up $725,000, or 1%, from June 30, 2022, due primarily to the change in ACV Auctions’ (Nasdaq: ACVA) market value and a follow-on investment in ITA Acquisitions LLC (“ITA”). At September 30, 2022, the portfolio was comprised of approximately 54% in debt investments, 36% 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%.

Third quarter 2022:

• Follow on equity investment of $400,000 in ITA, a blind and shade manufacturer. Rand’s total equity investment in ITA had a fair value of $749,000 at quarter-end. Rand also has a $3.5 million debt investment in ITA.

Liquidity and Capital Resources

Cash at the end of the third quarter of 2022 was $1.0 million compared with $834,000 at the end of 2021. As of September 30, 2022, the Company held approximately $3.6 million in publicly traded equities of other BDCs and $2.5 million of ACV Auctions shares, all of which are available for future liquidity requirements including dividends and portfolio investments.

There were no borrowings under the Company’s $25 million senior secured revolving credit facility at quarter-end. Subsequent to the end of the quarter, the Company made a small initial funding drawdown.

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

Dividends

On July 28, 2022, Rand declared a quarterly cash dividend of $0.15 per share, which was paid during the third quarter to shareholders of record as of September 1, 2022.

Webcast and Conference Call

Rand will host a conference call and webcast on Monday, November 7, 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, November 14, 2022. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13733278. 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

   

 

 

September 30, 2022 (Unaudited)

 

December 31, 2021

ASSETS

 

 

 

 

Investments at fair value:

 

 

 

 

Control investments (cost of $4,612,896 and $0, respectively)

 

$4,237,896

 

$-

Affiliate investments (cost of $26,176,398 and $27,357,797, respectively)

 

29,521,315

 

30,279,873

Non-Control/Non-Affiliate investments (cost of $22,329,474 and $25,012,871, respectively)

 

25,964,429

 

33,788,589

Total investments, at fair value (cost of $53,118,768 and $52,370,668, respectively)

 

59,723,640

 

64,068,462

Cash

 

1,035,455

 

833,875

Interest receivable

 

220,664

 

128,047

Prepaid income taxes

 

51,136

 

252,010

Deferred tax asset

 

229,398

 

181,003

Other assets

 

447,317

 

181,457

 

 

 

 

Total assets

 

$61,707,610

 

$65,644,854

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

 

 

 

 

Liabilities:

 

 

 

 

Due to investment adviser

 

$225,649

 

$891,102

Accounts payable and accrued expenses

 

74,142

 

51,689

Capital gains incentive fees

 

2,667,000

 

3,547,760

Deferred revenue

 

358,886

 

408,887

Total liabilities

 

3,325,677

 

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 9/30/22 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 9/30/22 and 12/31/21

 

(1,566,605)

 

(1,566,605)

Total distributable earnings

 

8,003,837

 

10,367,320

Total stockholders’ equity (net assets) (per share – 9/30/22: $22.62; 12/31/21: $23.54)

 

58,381,933

 

60,745,416

 

 

 

 

Total liabilities and stockholders’ equity (net assets)

 

$61,707,610

 

$65,644,854

   

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

       

 

 

 

 

Three months ended September 30, 2022

 

Three months ended September 30, 2021

 

Nine months ended September 30, 2022

 

Nine months ended September 30, 2021

Investment income:

     

 

 

 

Interest from portfolio companies:

     

 

 

 

Control investment

 

$

124,408

 

$

8,898

 

 

$

124,408

 

 

$

11,765

 

Affiliate investments

 

 

581,911

 

 

409,467

 

 

 

1,767,024

 

 

 

1,023,968

 

Non-Control/Non-Affiliate investments

 

 

393,686

 

 

339,416

 

 

 

1,125,544

 

 

 

1,075,016

 

Total interest from portfolio companies

 

 

1,100,005

 

 

757,781

 

 

 

3,016,976

 

 

 

2,110,749

 

 

 

 

 

 

 

 

 

 

Interest from other investments:

 

 

 

 

 

 

 

 

Non-Control/Non-Affiliate investments

 

 

48

 

 

473

 

 

 

49

 

 

 

13,343

 

Total interest from other investments

 

 

48

 

 

473

 

 

 

49

 

 

 

13,343

 

 

 

 

 

 

 

 

 

 

Dividend and other investment income:

 

 

 

 

 

 

 

 

Affiliate investments

 

 

305,959

 

 

100,896

 

 

 

552,469

 

 

 

208,947

 

Non-Control/Non-Affiliate investments

 

 

115,700

 

 

129,013

 

 

 

358,700

 

 

 

404,678

 

Total dividend and other investment income

 

 

421,659

 

 

229,909

 

 

 

911,169

 

 

 

613,625

 

 

 

 

 

 

 

 

 

 

Fee income:

 

 

 

 

 

 

 

 

Control investments

 

 

3,900

 

 

-

 

 

 

3,900

 

 

 

-

 

Affiliate investments

 

 

19,340

 

 

13,867

 

 

 

72,160

 

 

 

77,785

 

Non-Control/Non-Affiliate investments

 

 

9,313

 

 

10,313

 

 

 

27,941

 

 

 

24,270

 

Total fee income

 

 

32,553

 

 

24,180

 

 

 

104,001

 

 

 

102,055

 

Total investment income

 

 

1,554,265

 

 

1,012,343

 

 

 

4,032,195

 

 

 

2,839,772

 

Expenses:

 

 

 

 

 

 

 

 

Base management fee

 

 

225,730

 

 

230,724

 

 

 

696,772

 

 

 

619,240

 

Capital gains incentive fees

 

 

22,000

 

 

454,000

 

 

 

(880,760

)

 

 

4,114,000

 

Interest expense

 

 

26,042

 

 

104,190

 

 

 

26,042

 

 

 

312,570

 

Professional fees

 

 

126,089

 

 

94,258

 

 

 

569,310

 

 

 

378,382

 

Stockholders and office operating

 

 

41,739

 

 

43,420

 

 

 

163,327

 

 

 

184,503

 

Directors' fees

 

 

47,800

 

 

39,050

 

 

 

137,783

 

 

 

114,450

 

Insurance

 

 

9,525

 

 

9,230

 

 

 

31,788

 

 

 

28,937

 

Corporate development

 

 

-

 

 

2,027

 

 

 

3,753

 

 

 

10,330

 

Bad debt recovery

 

 

-

 

 

(15,000

)

 

 

-

 

 

 

(15,000

)

Other operating

 

 

34

 

 

-

 

 

 

124

 

 

 

108

 

Total expenses

 

 

498,959

 

 

961,899

 

 

 

748,139

 

 

 

5,747,520

 

Net investment income (loss) before income taxes:

 

 

1,055,306

 

 

50,444

 

 

 

3,284,056

 

 

 

(2,907,748

)

Income tax expense

 

 

45,140

 

 

(2,708

)

 

 

83,750

 

 

 

17,015

 

Net investment income (loss)

 

 

1,010,166

 

 

53,152

 

 

 

3,200,306

 

 

 

(2,924,763

)

 

 

 

 

 

 

 

 

 

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations Continued

(Unaudited)

       

 

 

 

 

Three months ended September 30, 2022

 

Three months ended September 30, 2021

 

Nine months ended September 30, 2022

 

Nine months ended September 30, 2021

Net realized gain on sales and dispositions of investments:

 

 

 

 

 

 

 

 

Affiliate investments

 

-

 

-

 

167,159

 

135,430

Non-Control/Non-Affiliate investments

 

1,919

 

2,601,361

 

523,432

 

4,594,036

Net realized gain on sales and dispositions of investments

 

1,919

 

2,601,361

 

690,591

 

4,729,466

Net change in unrealized appreciation/ depreciation on investments:

 

 

 

 

 

 

 

 

Affiliate investments

 

-

 

3,647,299

 

47,841

 

3,647,299

Non-Control/Non-Affiliate investments

 

92,817

 

(3,980,612)

 

(5,140,762)

 

9,401,742

 

 

 

 

 

 

 

 

 

Change in unrealized appreciation/ depreciation before income taxes

 

92,817

 

(333,313)

 

(5,092,921)

 

13,049,041

Deferred income tax expense

 

-

 

-

 

-

 

951

Net change in unrealized appreciation/ depreciation on investments

 

92,817

 

(333,313)

 

(5,092,921)

 

13,048,090

 

 

 

 

 

 

 

 

 

Net realized and unrealized gain (loss) on investments

 

94,736

 

2,268,048

 

(4,402,330)

 

17,777,556

Net increase (decrease) in net assets from operations

 

$1,104,902

 

$2,321,200

 

($1,202,024)

 

$14,852,793

 

Weighted average shares outstanding

 

2,581,021

 

2,581,679

 

2,581,021

 

2,581,942

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

 

$0.43

 

$0.90

 

($0.47)

 

$5.75

       

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets

(Unaudited)

         

 

 

Three months ended September 30, 2022

 

Three months ended September 30, 2021

 

Nine months ended September 30, 2022

 

Nine months ended September 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net assets at beginning of period

 

$57,664,184

 

$58,119,821

 

$60,745,416

 

$46,104,830

Net investment income (loss)

 

1,010,166

 

53,152

 

3,200,306

 

(2,924,763)

Net realized gain on sales and dispositions of investments

 

1,919

 

2,601,361

 

690,591

 

4,729,466

Net change in unrealized appreciation/ depreciation on investments

 

92,817

 

(333,313)

 

(5,092,921)

 

13,048,090

Net increase (decrease) in net assets from operations

 

1,104,902

 

2,321,200

 

(1,202,024)

 

14,852,793

Purchase of treasury shares

 

-

 

(20,771)

 

-

 

(20,771)

Declaration of dividend

 

(387,153)

 

(258,125)

 

(1,161,459)

 

(774,727)

Net assets at end of period

 

$58,381,933

 

$60,162,125

 

$58,381,933

 

$60,162,125

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 is defined as GAAP total expenses removing the effect of 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 September 30, 2022

 

Three months ended September 30, 2021

Total expenses

 

$

498,959

 

$

961,899

Exclude expenses for capital gains incentive fees

 

 

22,000

 

 

454,000

Adjusted expenses

 

$

476,959

 

$

507,899

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

In addition to reporting Net Investment Income 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 per Share removing the effect of any expenses for capital gains incentive fees. GAAP Net Investment 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, 2022

 

Three months ended September 30, 2021

Net investment income per share

 

$

0.39

 

$

0.02

Exclude expenses for capital gains incentive fees per share

 

 

0.01

 

 

0.18

Adjusted net investment income per share

 

$

0.40

 

$

0.20

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20221107005225/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