RAND Rand Capital Corporation

• Total investment income increased 65% to $1.85 million for the quarter compared with the first quarter last year driven by strong growth in interest, dividend and fee income
• First quarter net investment income per share was $0.28 compared with $0.30 in the prior-year first quarter; Non-GAAP adjusted net investment income per share increased 86% to $0.39 compared with $0.21 in the first quarter of 2022
• Net asset value per share (“NAV”) increased 3% to $23.00 at March 31, 2023 from $22.36 at December 31, 2022
• Invested $5.6 million in new and follow on investments during the first quarter 2023 while receiving $0.5 million from portfolio investment sales and payments
• Increased regular quarterly dividend 25% to $0.25 per share for second quarter 2023
• Board of Directors renewed $1.5 million share repurchase program

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 first quarter ended March 31, 2023.

Daniel P. Penberthy, President and Chief Executive Officer of Rand, commented, “We have had a strong start to 2023 demonstrated by continued earnings momentum driven by the improvement of our portfolio composition as well as the overall favorable performance of portfolio companies amidst a challenging economic business climate. Importantly, we have a strong balance sheet and significant liquidity that positions us well in a volatile market as we expect to continue to grow our portfolio, expand earnings and deliver on our goal to consistently increase our dividend.”

First Quarter Highlights (compared with the prior-year period unless otherwise noted)

• Total investment income grew $727,000, or 65%, to $1.85 million driven by a 42% increase in interest from portfolio companies, dividend income that more than doubled, and higher fee income.
• Total expenses were $1.05 million compared with $345,000 in the prior-year first quarter. The increase includes a $531,000 increase in capital gains incentives fees payable to the Company’s external investment adviser, Rand Capital Management, LLC. The increase also reflects $158,000 in interest expense from the senior revolving credit facility entered into in June 2022 to fund growth. Offsetting these increases was a $60,000 decline in professional fees. Excluding capital gains incentive fees, adjusted expenses, which is a non-GAAP financial measure, were $757,000 compared with $585,000 in the first quarter of 2022. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted expenses.
• Net investment income was $715,000, or $0.28 per share, compared with $772,000, or $0.30 per share, in the first quarter of 2022. Adjusted net investment income per share, a non-GAAP financial measure, which excludes the capital gains incentive fee accrual, was $0.39 per share, up from $0.21 in last year’s first quarter. 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 March 31, 2023, Rand’s portfolio included investments with a fair value of $68.2 million across 30 portfolio businesses. This was up $6.7 million, or 11%, from December 31, 2022, and reflected new and follow on investments and a $1.5 million valuation adjustment on ACV Auctions, Inc. (Nasdaq: ACVA). This was partially offset by equity sales and loan repayments. At March 31, 2023, the portfolio was comprised of approximately 58% in debt investments, 30.5% in equity investments in private companies, and 11.5% in publicly traded equities consisting of other BDCs and ACV Auctions. The annualized weighted average yield of debt investments was 13.4%.

First quarter 2023:

• Provided $3.0 million to PressurePro in subordinated debt at 15% interest rate and with a 10% warrant. PressurePro is a family owned and operated company that has established itself as a market leader for branded tire pressure monitoring systems consisting of a suite of proprietary hardware and software.
• Funded a follow on debt investment of $2.3 million in Food Service Supply (FSS) in combination with an equity sale of $210,000. Rand’s total debt and equity investment in FSS had a fair value of $5.2 million as of March 31, 2023.
• Equity investment of $250,000 in Tilson Technologies’ asset ownership affiliate SQF, LLC, which supports Tilson’s expansion by both driving the continued growth of its nationwide network infrastructure design-build services and supporting SQF. SQF develops telecommunications assets in public rights-of-way throughout the United States and is a leading pole owner and solutions provider for 5G.

Liquidity and Capital Resources

Cash at the end of the first quarter of 2023 was $1.8 million compared with $1.4 million at the end of 2022. As of March 31, 2023, the Company held approximately $3.8 million in publicly traded equities of other BDCs and $4.0 million of ACV Auctions shares, all of which are available for future liquidity needs including dividends and portfolio investments.

At March 31, 2023, Rand had outstanding borrowings of $7.95 million on its existing $25.0 million senior secured revolving credit facility. The outstanding borrowings carried an interest rate of 8.05% at quarter-end.

The Company did not repurchase any outstanding common stock during the first quarter of 2023.

Board Renewed Share Repurchase Authorization

Rand’s Board of Directors renewed the share repurchase program authorizing the purchase of up to $1.5 million in additional Rand common stock. The shares may be repurchased from time to time in the open market and in accordance with applicable regulations of the Securities and Exchange Commission. The stock repurchase program does not obligate the Company to purchase any shares, and the timing and exact amount of any repurchases will depend on various factors, including the performance of the Company’s stock price, general market and other conditions, applicable legal requirements and other factors. The renewed stock repurchase program expires on April 19, 2024, and may be suspended, terminated or amended by the Board at any time prior to the expiration date.

Dividends

On April 26, 2023, Rand declared its regular quarterly cash dividend distribution of $0.25 per share, which was increased by $0.05 per share or 25%. The cash dividend will be distributed on or about June 14, 2023, to shareholders of record as of May 31, 2023.

Webcast and Conference Call

Rand will host a conference call and webcast on Tuesday, May 9, 2023, 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 5:00 p.m. ET on the day of the call through Tuesday, May 16, 2023. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13737966. 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; statements regarding increasing our dividend, 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, 2022, 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.

Rand Capital Corporation and Subsidiaries Consolidated Statements of Financial Position

 

 

March 31,

2023

(Unaudited)

 

 

December 31,

2022

 

ASSETS

 

 

 

 

 

 

Investments at fair value:

 

 

 

 

 

 

Control investments (cost of $4,704,404 and $4,660,017, respectively)

 

$

3,580,594

 

 

$

3,536,207

 

Affiliate investments (cost of $35,706,050 and $30,204,160, respectively)

 

 

43,743,479

 

 

 

38,241,589

 

Non-Control/Non-Affiliate investments (cost of $20,589,821 and $20,852,060, respectively)

 

 

20,866,197

 

 

 

19,726,463

 

Total investments, at fair value (cost of $61,000,275 and $55,716,237, respectively)

 

 

68,190,270

 

 

 

61,504,259

 

Cash

 

 

1,841,162

 

 

 

1,368,996

 

Interest receivable

 

 

209,492

 

 

 

208,338

 

Prepaid income taxes

 

 

43,939

 

 

 

76,396

 

Deferred tax asset

 

 

33,695

 

 

 

28,160

 

Other assets

 

 

286,715

 

 

 

295,043

 

Total assets

 

$

70,605,273

 

 

$

63,481,192

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Due to investment adviser

 

$

245,768

 

 

$

562,221

 

Accounts payable and accrued expenses

 

 

97,660

 

 

 

66,680

 

Line of credit

 

 

7,950,000

 

 

 

2,550,000

 

Capital gains incentive fees

 

 

2,458,000

 

 

 

2,167,000

 

Deferred revenue

 

 

478,452

 

 

 

413,971

 

Total liabilities

 

 

11,229,880

 

 

 

5,759,872

 

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 3/31/23 and 12/31/22

 

 

264,892

 

 

 

264,892

 

Capital in excess of par value

 

 

51,464,267

 

 

 

51,464,267

 

Treasury stock, at cost: 67,895 shares at 3/31/23 and 12/31/22

 

 

(1,566,605

)

 

 

(1,566,605

)

Total distributable earnings

 

 

9,212,839

 

 

 

7,558,766

 

Total stockholders’ equity (net assets) (per share – 3/31/23: $23.00; 12/31/22: $22.36)

 

 

59,375,393

 

 

 

57,721,320

 

Total liabilities and stockholders’ equity (net assets)

 

$

70,605,273

 

 

$

63,481,192

 

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

 

 

Three months

ended

March 31,

2023

 

 

Three months

ended

March 31,

2022

 

Investment income:

 

 

 

 

 

 

Interest from portfolio companies:

 

 

 

 

 

 

Control investments

 

$

150,916

 

 

$

—

 

Affiliate investments

 

 

787,821

 

 

 

570,116

 

Non-Control/Non-Affiliate investments

 

 

358,166

 

 

 

342,023

 

Total interest from portfolio companies

 

 

1,296,903

 

 

 

912,139

 

Interest from other investments:

 

 

 

 

 

 

Non-Control/Non-Affiliate investments

 

 

132

 

 

 

—

 

Total interest from other investments

 

 

132

 

 

 

—

 

Dividend and other investment income:

 

 

 

 

 

 

Affiliate investments

 

 

347,148

 

 

 

43,725

 

Non-Control/Non-Affiliate investments

 

 

127,595

 

 

 

129,265

 

Total dividend and other investment income

 

 

474,743

 

 

 

172,990

 

Fee income:

 

 

 

 

 

 

Control investments

 

 

3,900

 

 

 

—

 

Affiliate investments

 

 

67,842

 

 

 

30,305

 

Non-Control/Non-Affiliate investments

 

 

7,978

 

 

 

9,314

 

Total fee income

 

 

79,720

 

 

 

39,619

 

Total investment income

 

 

1,851,498

 

 

 

1,124,748

 

Expenses:

 

 

 

 

 

 

Base management fee

 

 

245,393

 

 

 

240,275

 

Capital gains incentive fees

 

 

291,000

 

 

 

(239,760

)

Professional fees

 

 

170,975

 

 

 

231,083

 

Interest expense

 

 

158,400

 

 

 

—

 

Stockholders and office operating

 

 

64,304

 

 

 

56,698

 

Directors' fees

 

 

63,850

 

 

 

45,100

 

Administrative fees

 

 

37,250

 

 

 

—

 

Insurance

 

 

12,960

 

 

 

8,910

 

Corporate development

 

 

3,713

 

 

 

3,027

 

Other operating

 

 

—

 

 

 

45

 

Total expenses

 

 

1,047,845

 

 

 

345,378

 

Net investment income before income taxes:

 

 

803,653

 

 

 

779,370

 

Income tax expense

 

 

88,737

 

 

 

7,367

 

Net investment income

 

 

714,916

 

 

 

772,003

 

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

 

 

 

 

 

 

Affiliate investments

 

 

58,329

 

 

 

—

 

Non-Control/Non-Affiliate investments

 

 

(4,941

)

 

 

(851,471

)

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

 

 

53,388

 

 

 

(851,471

)

Net change in unrealized appreciation/depreciation on investments:

 

 

 

 

 

 

Non-Control/Non-Affiliate investments

 

 

1,401,973

 

 

 

(331,069

)

Net change in unrealized appreciation/depreciation on investments

 

 

1,401,973

 

 

 

(331,069

)

Net realized and unrealized gain (loss) on investments

 

 

1,455,361

 

 

 

(1,182,540

)

Net increase (decrease) in net assets from operations

 

$

2,170,277

 

 

$

(410,537

)

Weighted average shares outstanding

 

 

2,581,021

 

 

 

2,581,021

 

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

 

$

0.84

 

 

$

(0.16

)

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

 

 

Three months

ended

March 31,

2023

 

 

Three months

ended

March 31,

2022

 

Net assets at beginning of period

 

$

57,721,320

 

 

$

60,745,416

 

Net investment income

 

 

714,916

 

 

 

772,003

 

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

 

 

53,388

 

 

 

(851,471

)

Net change in unrealized appreciation/depreciation on investments

 

 

1,401,973

 

 

 

(331,069

)

Net increase (decrease) in net assets from operations

 

 

2,170,277

 

 

 

(410,537

)

Declaration of dividend

 

 

(516,204

)

 

 

(387,153

)

Net assets at end of period

 

$

59,375,393

 

 

$

59,947,726

 

Rand Capital Corporation and Subsidiaries Reconciliation of GAAP Total Expenses to Non-GAAP Adjusted Expenses (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/(credits) 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

March 31, 2023

Three months

ended

March 31, 2022

Total expenses

$

1,047,845

$

345,378

 

Exclude expenses/(credits) for capital gains incentive fees

 

291,000

 

 

(239,760

)

Adjusted expenses

$

756,845

 

$

585,138

 

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

March 31, 2023

Three months

ended

March 31, 2022

Net investment income per share

$

0.28

$

0.30

 

Exclude expenses/(credits) for capital gains incentive fees

 

0.11

 

 

(0.09

)

Adjusted net investment income per share

$

0.39

 

$

0.21

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20230509005173/en/

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

Investors: Deborah K. Pawlowski / Craig P. Mychajluk Kei Advisors LLC 716-843-3908 / 716-843-3832 dpawlowski@keiadvisors.com / cmychajluk@keiadvisors.com