TechDogs-"Rand Capital Reports 34% Increase In Total Investment Income For Second Quarter 2023"

Financial Technology

Rand Capital Reports 34% Increase In Total Investment Income For Second Quarter 2023

By Business Wire

Business Wire
Overall Rating
  • Total investment income increased 34% to $1.8 million for the quarter compared with the second quarter last year driven by strong growth in interest and fee income
  • Net asset value per share (“NAV”) was $23.79 at June 30, 2023, up 3% from March 31, 2023 and up 6% from year-end 2022
  • Invested $4.7 million in new and follow on investments during the quarter
  • Received $6.8 million in proceeds from single portfolio company investment sale, which included a gain of $2.5 million
  • Announced a quarterly dividend of $0.25 per share for third quarter 2023

BUFFALO, N.Y.--(BUSINESS WIRE)--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, 2023.

Daniel P. Penberthy, President and Chief Executive Officer of Rand, commented, “We delivered a strong quarter of total investment income growth, fueled by the addition of high-quality debt investments. Additionally, Rand recognized a sizable gain from the sale of our debt and equity investment in Dealer Solutions and Design (DSD) during the quarter, further strengthening our balance sheet and liquidity position. We believe we can continue to execute our strategy as we look to the second half of the year and beyond. With our strong cash position, we paid down some of our outstanding borrowings under our credit facility in July and expect to utilize additional cash on hand and our credit facility to further strengthen and solidify our portfolio in order to drive our earnings potential and support a growing dividend.”

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

  • Total investment income grew $462,000, or 34%, to $1.8 million driven by a 47% increase in interest from portfolio companies and higher fee income.
  • Total expenses were $1.3 million compared with a credit of $96,000 in the prior-year second quarter. The increase largely reflects a change in accrued capital gains incentive fees to the Company’s external investment adviser. The current period included $491,000 of capital gains incentive fees expense compared with a credit of $663,000 for the second quarter of 2022. The increase in total expenses also reflects $259,000 in interest expense from the senior revolving credit facility entered into in June 2022 to fund growth, compared with no interest expense during the prior year quarter. Offsetting these increases was a $112,000 decline in professional fees.
  • Excluding capital gains incentive fees expense, adjusted expenses, which is a non-GAAP financial measure, were $816,000 compared with $567,000 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 $493,000, or $0.19 per share, compared with $1.4 million, or
    $0.55 per share, in the second quarter of 2022. Adjusted net investment income per share, a non-GAAP financial measure, which excludes the capital gains incentive fee accrual expense, was $0.38 per share, up from $0.29 in last year’s second 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 June 30, 2023, Rand’s portfolio included investments with a fair value of $66.8 million across 29 portfolio businesses. This was up $5.3 million, or 9%, from December 31, 2022, and reflected new and follow on investments and valuation adjustments in multiple portfolio companies. This was partially offset by equity sales and loan repayments. At June 30, 2023, the portfolio was comprised of approximately 60% in debt investments, 29% in equity investments in private companies, and 11% in publicly traded equities consisting of other BDCs and ACV Auctions. The annualized weighted average yield of debt investments was 13.5%.

Second quarter 2023:

  • Funded $4.3 million to INEA, consisting of $3.3 million of senior subordinated debt and $1.0 million of preferred equity. INEA is a stocking distributor of controlled expansion alloys, electronic grade nickels, refractory grade metals and alloys, and soft magnetic alloys. The company plays an important role between the mills that produce the specialty alloys and the end-users whose order sizes don’t require full mill quantities.
  • Funded a follow on debt investment of $390,000 to ITA Acquisition, LLC, a blind and shade manufacturer, to help support a new line of business. Rand’s total debt and equity investment in ITA had a fair value of $4.0 million at quarter-end.
  • Portfolio investment company DSD was sold during June 2023, which resulted in the full repayment of Rand’s subordinated debt and sale of its preferred equity investments. In total, Rand received $6.8 million of proceeds, which included a net gain of $2.5 million.
  • Sold 125,000 shares of ACV Auctions at an average price of $14.03 per share for a realized gain of $1.7 million. Rand held 194,934 shares of ACV at quarter-end, which represented approximately 5% of its portfolio’s fair value.
  • Sold remaining small equity position in Somerset Gas, a provider of natural gas transmission services.

Liquidity and Capital Resources

Cash at the end of the second quarter of 2023 was $8.4 million, up considerably from $1.4 million at year-end 2022, reflecting the proceeds received from the DSD and ACV Auctions share sales. As of June 30, 2023, the Company held shares valued at approximately $4.0 million in other publicly traded BDCs and $3.4 million in ACV Auctions, all of which are available for future liquidity needs including dividends and portfolio investments.

At June 30, 2023, Rand had outstanding borrowings of $10.7 million on its existing $25.0 million senior secured revolving credit facility. The outstanding borrowings carried an interest rate of 8.59% at quarter-end. Subsequent to quarter-end, in July, Rand used $3.0 million of its cash on hand to pay down its outstanding borrowings.

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

Dividends

On July 25, 2023, Rand declared its regular quarterly cash dividend distribution of $0.25 per share. The cash dividend will be distributed on or about September 14, 2023, to shareholders of record as of August 31, 2023.

Webcast and Conference Call

Rand will host a conference call and webcast on Friday, August 4, 2023, at 11:00 a.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 2:00 p.m. ET on the day of the call through Friday, August 18, 2023. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13739663. 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 the implementation of the Company’s strategy; statements regarding increasing the Company’s 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.

FINANCIAL TABLES FOLLOW

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Financial Position

June 30,
2023
(Unaudited)

December 31,
2022

ASSETS

Investments at fair value:

Control investments (cost of $5,155,545 and $4,660,017, respectively)

$

4,031,735

$

3,536,207

Affiliate investments (cost of $35,940,068 and $30,204,160, respectively)

43,090,799

38,241,589

Non-Control/Non-Affiliate investments (cost of $19,873,405 and $20,852,060, respectively)

19,669,209

19,726,463

Total investments, at fair value (cost of $60,969,018 and $55,716,237, respectively)

66,791,743

61,504,259

Cash

8,356,401

1,368,996

Interest receivable

199,587

208,338

Prepaid income taxes

76,396

Deferred tax asset

174,826

28,160

Other assets

532,280

295,043

Total assets

$

76,054,837

$

63,481,192

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

Liabilities:

Due to investment adviser

$

255,867

$

562,221

Accounts payable and accrued expenses

79,983

66,680

Income taxes payable

253,870

Line of credit

10,650,000

2,550,000

Capital gains incentive fees

2,949,000

2,167,000

Deferred revenue

464,089

413,971

Total liabilities

14,652,809

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 6/30/23 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 6/30/23 and 12/31/22

(1,566,605

)

(1,566,605

)

Total distributable earnings

11,239,474

7,558,766

Total stockholders’ equity (net assets) (per share –6/30/23: $23.79; 12/31/22: $22.36)

61,402,028

57,721,320

Total liabilities and stockholders’ equity (net assets)

$

76,054,837

$

63,481,192

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

Three months
ended
June 30, 2023

Three months
ended
June 30, 2022

Six months
ended
June 30, 2023

Six months
ended
June 30, 2022

Investment income:

Interest from portfolio companies:

Control investments

$

179,922

$

$

330,838

$

Affiliate investments

941,201

614,997

1,729,022

1,185,113

Non-Control/Non-Affiliate investments

352,417

389,835

710,583

731,858

Total interest from portfolio companies

1,473,540

1,004,832

2,770,443

1,916,971

Interest from other investments:

Non-Control/Non-Affiliate investments

104

1

236

1

Total interest from other investments

104

1

236

1

Dividend and other investment income:

Affiliate investments

59,677

202,785

406,825

246,510

Non-Control/Non-Affiliate investments

132,920

113,735

260,515

243,000

Total dividend and other investment income

192,597

316,520

667,340

489,510

Fee income:

Control investments

4,311

8,211

Affiliate investments

138,902

22,515

206,744

52,820

Non-Control/Non-Affiliate investments

5,978

9,314

13,956

18,628

Total fee income

149,191

31,829

228,911

71,448

Total investment income

1,815,432

1,353,182

3,666,930

2,477,930

Expenses:

Base management fee

255,867

230,767

501,260

471,042

Capital gains incentive fees

491,000

(663,000

)

782,000

(902,760

)

Interest expense

258,912

417,312

Professional fees

100,307

212,138

271,282

443,221

Stockholders and office operating

85,080

64,890

149,384

121,588

Directors' fees

67,391

44,883

131,241

89,983

Administrative fees

37,250

74,500

Insurance

10,380

13,353

23,340

22,263

Corporate development

554

726

4,267

3,753

Other operating

45

90

Total expenses

1,306,741

(96,198

)

2,354,586

249,180

Net investment income before income taxes:

508,691

1,449,380

1,312,344

2,228,750

Income taxes, including excise tax expense

16,061

31,243

104,798

38,610

Net investment income

492,630

1,418,137

1,207,546

2,190,140

Net realized gain on sales and dispositions of investments:

Affiliate investments

2,537,765

167,159

2,596,094

167,159

Non-Control/Non-Affiliate investments

1,280,482

1,372,984

1,275,541

521,513

Net realized gain on sales and dispositions of investments, before income taxes

3,818,247

1,540,143

3,871,635

688,672

Income tax expense

338,158

338,158

Net realized gain on sales and dispositions of investments

3,480,089

1,540,143

3,533,477

688,672

Net change in unrealized appreciation/depreciation on investments:

Affiliate investments

(886,698

)

47,841

(886,698

)

47,841

Non-Control/Non-Affiliate investments

(480,572

)

(4,902,510

)

921,401

(5,233,579

)

Change in unrealized appreciation/depreciation before income taxes

(1,367,270

)

(4,854,669

)

34,703

(5,185,738

)

Deferred income tax benefit

(66,441

)

(66,441

)

Net change in unrealized appreciation/depreciation on investments

(1,300,829

)

(4,854,669

)

101,144

(5,185,738

)

Net realized and unrealized gain (loss) on investments

2,179,260

(3,314,526

)

3,634,621

(4,497,066

)

Net increase (decrease) in net assets from operations

$

2,671,890

$

(1,896,389

)

$

4,842,167

$

(2,306,926

)

Weighted average shares outstanding

2,581,021

2,581,021

2,581,021

2,581,021

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

$

1.04

$

(0.73

)

$

1.88

$

(0.89

)

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets

(Unaudited)

Three
months
ended
June 30, 2023

Three
months
ended
June 30, 2022

Six months
ended
June 30, 2023

Six months
ended
June 30, 2022

Net assets at beginning of period

$

59,375,393

$

59,947,726

$

57,721,320

$

60,745,416

Net investment income

492,630

1,418,137

1,207,546

2,190,140

Net realized gain on sales and dispositions of investments

3,480,089

1,540,143

3,533,477

688,672

Net change in unrealized appreciation/depreciation on investments

(1,300,829

)

(4,854,669

)

101,144

(5,185,738

)

Net increase (decrease) in net assets from operations

2,671,890

(1,896,389

)

4,842,167

(2,306,926

)

Declaration of dividend

(645,255

)

(387,153

)

(1,161,459

)

(774,306

)

Net assets at end of period

$

61,402,028

$

57,664,184

$

61,402,028

$

57,664,184

Rand Capital Corporation and Subsidiaries
Reconciliation of GAAP Total Expense/(Credits) 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/(credits) 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

June 30, 2023

Three months
ended

June 30, 2022

Total expenses/(credits)

$

1,306,741

$

(96,198

)

Exclude expenses/(credits) for capital gains incentive fees

491,000

(663,000

)

Adjusted expenses

$

815,741

$

566,802

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/(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

June 30, 2023

Three months
ended

June 30, 2022

Net investment income per share

$

0.19

$

0.55

Exclude expenses/(credits) for capital gains incentive fees

0.19

(0.26

)

Adjusted net investment income per share

$

0.38

$

0.29

Contacts

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

First published on Fri, Aug 4, 2023

Enjoyed what you've read so far? Great news - there's more to explore!

Stay up to date with the latest news, a vast collection of tech articles including introductory guides, product reviews, trends and more, thought-provoking interviews, hottest AI blogs and entertaining tech memes.

Plus, get access to branded insights such as informative white papers, intriguing case studies, in-depth reports, enlightening videos and exciting events and webinars from industry-leading global brands.

Dive into TechDogs' treasure trove today and Know Your World of technology!

Disclaimer - Reference to any specific product, software or entity does not constitute an endorsement or recommendation by TechDogs nor should any data or content published be relied upon. The views expressed by TechDogs’ members and guests are their own and their appearance on our site does not imply an endorsement of them or any entity they represent. Views and opinions expressed by TechDogs’ Authors are those of the Authors and do not necessarily reflect the view of TechDogs or any of its officials. All information / content found on TechDogs’ site may not necessarily be reviewed by individuals with the expertise to validate its completeness, accuracy and reliability.

Tags:

Investor Relations SoftwareRand Capital Business Development Company (BDC) Dealer Solutions And Design (DSD) Venture Capital

References:

Join The Discussion

  • Dark
  • Light