- 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
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
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230804047799/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
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