Rand Capital Reports 54% Increase in Total Investment Income for Third Quarter 2022
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
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