RAND Rand Capital Corporation

• Total investment income increased 18% to $2.1 million for the quarter compared with the second quarter last year driven by strong growth in interest income from an expanded portfolio of debt investments
• Net asset value per share (“NAV”) was $26.56 at June 30, 2024, up 11% from March 31, 2024 and up 13% from year-end 2023
• Capitalized on market conditions with the sale of certain BDC holdings that resulted in a realized gain of $1.3 million
• Reduced debt balance $2.0 million during the quarter and repaid an additional $2.3 million subsequent to quarter-end
• Portfolio company SciAps expected to be acquired in 2024 after definitive purchase agreement signed
• Announced a quarterly dividend of $0.29 per share for third quarter 2024

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, 2024.

Daniel P. Penberthy, President and Chief Executive Officer of Rand, commented, "We are consistent and persistent in the execution of our strategy, driving strong growth in total investment income through prudent and strategic investments in income-generating debt instruments. During the quarter, our efforts to optimize the portfolio, including selective exits, generated capital that we advantageously deployed to improve our balance sheet. This positions us well for future growth opportunities. Additionally, we look forward to leveraging the capital expected from the pending sale of our portfolio investment company, SciAps, which we had previously announced and is expected to close later this year.

“Looking ahead, our plan is to continue scaling our business through new investments and also reinvesting in high-potential existing portfolio companies. Our goal is to focus on new debt investments in smaller opportunities, replicating our past successes in helping these companies grow. We believe this will cultivate a robust and steady income stream, strengthening our ability to increase cash dividends over the long term.”

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

• Total investment income grew $321,000, or 18%, to $2.1 million, which reflected a 35% increase in interest from portfolio companies, partially offset by lower dividend and fee income.
• Total expenses were $2.7 million compared with $1.3 million in last year’s second quarter. The change largely reflects a $1.2 million increase in capital gains incentive fees to the Company’s external investment adviser. The increase in total expenses also reflects $393,000 in interest expense from the senior revolving credit facility compared with $259,000 for the second quarter of 2023.
• Adjusted expenses, which exclude capital gains incentive fees and is a non-GAAP financial measure, were $1.0 million compared with $816,000 in the second quarter of 2023. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted expenses.
• Net investment loss was $517,000, or $0.20 per share, compared with net investment income of $493,000, or $0.19 per share, in the second quarter of 2023. Adjusted net investment income per share, a non-GAAP financial measure, which excludes the capital gains incentive fee accrual expense, was $0.44 per share, up 16% from $0.38 per share 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, 2024, Rand’s portfolio included investments with a fair value of $87.1 million across 26 portfolio businesses. This was an increase of $9.9 million, or 13%, from December 31, 2023, and reflected new and follow-on investments and valuation adjustments in multiple portfolio companies, partially offset by stock sales and other portfolio company loan repayments. At June 30, 2024, Rand’s portfolio was comprised of approximately 66% in debt investments, 32% in equity investments in private companies, and 2% in publicly traded equities of other BDCs. The annualized weighted average yield of debt investments, which includes PIK interest, was 13.8% at June 30, 2024, compared with 13.6% at the end of 2023.

Second quarter 2024:

• Funded a follow-on equity investment of $108,000 in Food Service Supply Holdco LLC (FSS). Rand’s total debt and equity investment in FSS had a fair value of $7.5 million at quarter-end.
• Sold shares in three publicly traded BDCs for total proceeds of $3.3 million, which included a realized gain of $1.3 million.
• Received $740,000 principal loan repayment from Pressure Pro, Inc.
• Realized a gain of $397,000 from a partial asset sale of a Tilson affiliated company.
• At quarter-end, Rand’s total debt and equity investment in SciAps had a fair value of $10.8 million.
• Exited remaining equity investment in KNOA Software.

Liquidity and Capital Resources

Cash was $2.3 million at June 30, 2024. The Company also held shares valued at approximately $1.3 million in other publicly traded BDCs, which are available for future operational and liquidity needs.

During the quarter, Rand reduced its outstanding borrowings by $2.0 million, leaving a balance of $17.2 million on its existing $25.0 million senior secured revolving credit facility at June 30, 2024. The outstanding borrowings carried an interest rate of 8.8% at quarter-end. Subsequent to quarter-end, Rand repaid an additional $2.3 million on its outstanding borrowings.

The Company did not repurchase any outstanding common stock during the second quarter of 2024.

Dividends

On May 8, 2024, Rand declared its regular quarterly cash dividend distribution of $0.29 per share, which was paid during the second quarter to shareholders of record as of May 31, 2024.

On July 31, 2024, Rand declared its regular quarterly cash dividend distribution of $0.29 per share. The cash dividend will be distributed on or about September 13, 2024, to shareholders of record as of August 30, 2024.

Webcast and Conference Call

Rand will host a conference call and webcast on Tuesday August 6, 2024, 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 5:30 p.m. ET on the day of the call through Tuesday, August 20, 2024. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13747031. 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 businesses that have sustainable, differentiated and market-proven products, revenue of more than $10 million and EBITDA in excess of $1.5 million. 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: 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 pending sale of portfolio company SciAps and the timing for the expected closing of such transaction; statements regarding the implementation of the Company’s strategy and the growth of its 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, 2023, 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, 2024 (Unaudited)

 

 

December 31, 2023

 

ASSETS

 

 

 

 

 

 

Investments at fair value:

 

 

 

 

 

 

Control investments (cost of $5,721,856 and $5,272,770, respectively)

 

$

4,598,046

 

 

$

4,148,960

 

Affiliate investments (cost of $45,250,676 and $45,720,974, respectively)

 

 

61,779,019

 

 

 

53,499,372

 

Non-Control/Non-Affiliate investments (cost of $22,449,599 and $17,371,862, respectively)

 

 

20,693,902

 

 

 

19,477,380

 

Total investments, at fair value (cost of $73,422,131 and $68,365,606, respectively)

 

 

87,070,967

 

 

 

77,125,712

 

Cash

 

 

2,293,226

 

 

 

3,295,321

 

Interest receivable

 

 

516,617

 

 

 

244,600

 

Prepaid income taxes

 

 

149,863

 

 

 

127,869

 

Deferred tax asset, net

 

 

174,053

 

 

 

39,179

 

Other assets

 

 

584,343

 

 

 

189,301

 

Total assets

 

$

90,789,069

 

 

$

81,021,982

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

Due to investment adviser

 

$

322,672

 

 

$

979,297

 

Accounts payable and accrued expenses

 

 

108,358

 

 

 

145,516

 

Line of credit

 

 

17,200,000

 

 

 

16,250,000

 

Capital gains incentive fees

 

 

4,033,000

 

 

 

2,279,700

 

Deferred revenue

 

 

566,423

 

 

 

552,256

 

Total liabilities

 

 

22,230,453

 

 

 

20,206,769

 

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 6/30/24 and 12/31/23

 

 

264,892

 

 

 

264,892

 

Capital in excess of par value

 

 

55,801,170

 

 

 

55,801,170

 

Treasury stock, at cost: 67,895 shares at 6/30/24 and 12/31/23

 

 

(1,566,605

)

 

 

(1,566,605

)

Total distributable earnings

 

 

14,059,159

 

 

 

6,315,756

 

Total stockholders’ equity (net assets) (per share – 6/30/24: $26.56; 12/31/23: $23.56)

 

 

68,558,616

 

 

 

60,815,213

 

Total liabilities and stockholders’ equity (net assets)

 

$

90,789,069

 

 

$

81,021,982

 

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three months ended June 30, 2024

 

 

Three months ended June 30, 2023

 

 

Six months ended June 30, 2024

 

 

Six months ended June 30, 2023

 

Investment income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest from portfolio companies:

 

 

 

 

 

 

 

 

 

 

 

 

Control investments

 

$

198,885

 

 

$

179,922

 

 

$

386,368

 

 

$

330,838

 

Affiliate investments

 

 

1,192,116

 

 

 

941,201

 

 

 

2,358,201

 

 

 

1,729,022

 

Non-Control/Non-Affiliate Investments

 

 

604,226

 

 

 

352,417

 

 

 

1,064,306

 

 

 

710,583

 

Total interest from portfolio companies

 

 

1,995,227

 

 

 

1,473,540

 

 

 

3,808,875

 

 

 

2,770,443

 

Interest from other investments:

 

 

 

 

 

 

 

 

 

 

 

 

Non-Control/Non-Affiliate Investments

 

 

144

 

 

 

104

 

 

 

2,058

 

 

 

236

 

Total interest from other investments

 

 

144

 

 

 

104

 

 

 

2,058

 

 

 

236

 

Dividend and other investment income:

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments

 

 

13,125

 

 

 

59,677

 

 

 

26,250

 

 

 

406,825

 

Non-Control/Non-Affiliate Investments

 

 

60,050

 

 

 

132,920

 

 

 

198,760

 

 

 

260,515

 

Total dividend and other investment income

 

 

73,175

 

 

 

192,597

 

 

 

225,010

 

 

 

667,340

 

Fee income:

 

 

 

 

 

 

 

 

 

 

 

 

Control investments

 

 

4,516

 

 

 

4,311

 

 

 

9,032

 

 

 

8,211

 

Affiliate investments

 

 

54,815

 

 

 

138,902

 

 

 

128,535

 

 

 

206,744

 

Non-Control/Non-Affiliate Investments

 

 

8,272

 

 

 

5,978

 

 

 

29,858

 

 

 

13,956

 

Total fee income

 

 

67,603

 

 

 

149,191

 

 

 

167,425

 

 

 

228,911

 

Total investment income

 

 

2,136,149

 

 

 

1,815,432

 

 

 

4,203,368

 

 

 

3,666,930

 

Expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Base management fee

 

 

322,672

 

 

 

255,867

 

 

 

625,267

 

 

 

501,260

 

Capital gains incentive fees

 

 

1,641,000

 

 

 

491,000

 

 

 

1,753,300

 

 

 

782,000

 

Interest expense

 

 

393,172

 

 

 

258,912

 

 

 

783,192

 

 

 

417,312

 

Professional fees

 

 

91,460

 

 

 

100,307

 

 

 

323,767

 

 

 

271,282

 

Stockholders and office operating

 

 

82,667

 

 

 

85,080

 

 

 

151,695

 

 

 

149,384

 

Directors' fees

 

 

66,550

 

 

 

67,391

 

 

 

130,400

 

 

 

131,241

 

Administrative fees

 

 

40,000

 

 

 

37,250

 

 

 

78,167

 

 

 

74,500

 

Insurance

 

 

10,380

 

 

 

10,380

 

 

 

23,424

 

 

 

23,340

 

Corporate development

 

 

4,881

 

 

 

554

 

 

 

10,426

 

 

 

4,267

 

Total expenses

 

 

2,652,782

 

 

 

1,306,741

 

 

 

3,879,638

 

 

 

2,354,586

 

Net investment (loss) income before income taxes:

 

 

(516,633

)

 

 

508,691

 

 

 

323,730

 

 

 

1,312,344

 

Income taxes, including excise tax expense

 

 

562

 

 

 

16,061

 

 

 

1,340

 

 

 

104,798

 

Net investment (loss) income

 

 

(517,195

)

 

 

492,630

 

 

 

322,390

 

 

 

1,207,546

 

Net realized gain on sales and dispositions of investments:

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments

 

 

(831,891

)

 

 

2,537,765

 

 

 

(831,891

)

 

 

2,596,094

 

Non-Control/Non-Affiliate Investments

 

 

1,259,999

 

 

 

1,280,482

 

 

 

4,710,091

 

 

 

1,275,541

 

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

 

 

428,108

 

 

 

3,818,247

 

 

 

3,878,200

 

 

 

3,871,635

 

Income tax expense

 

 

—

 

 

 

338,158

 

 

 

—

 

 

 

338,158

 

Net realized gain on sales and dispositions of investments

 

 

428,108

 

 

 

3,480,089

 

 

 

3,878,200

 

 

 

3,533,477

 

Net change in unrealized appreciation/depreciation on investments:

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate investments

 

 

8,849,945

 

 

 

(886,698

)

 

 

8,749,945

 

 

 

(886,698

)

Non-Control/Non-Affiliate Investments

 

 

(1,070,919

)

 

 

(480,572

)

 

 

(3,861,215

)

 

 

921,401

 

Change in unrealized appreciation/depreciation before income taxes

 

 

7,779,026

 

 

 

(1,367,270

)

 

 

4,888,730

 

 

 

34,703

 

Deferred income tax benefit

 

 

(47,834

)

 

 

(66,441

)

 

 

(47,834

)

 

 

(66,441

)

Net change in unrealized appreciation/depreciation on investments

 

 

7,826,860

 

 

 

(1,300,829

)

 

 

4,936,564

 

 

 

101,144

 

Net realized and unrealized gain on investments

 

 

8,254,968

 

 

 

2,179,260

 

 

 

8,814,764

 

 

 

3,634,621

 

Net increase in net assets from operations

 

$

7,737,773

 

 

$

2,671,890

 

 

$

9,137,154

 

 

$

4,842,167

 

Weighted average shares outstanding

 

 

2,581,021

 

 

 

2,581,021

 

 

 

2,581,021

 

 

 

2,581,021

 

Basic and diluted net increase in net assets from operations per share

 

$

3.00

 

 

$

1.04

 

 

$

3.54

 

 

$

1.88

 

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets

(Unaudited)

 

 

 

Three months ended June 30, 2024

 

 

Three months ended June 30, 2023

 

 

Six months ended June 30, 2024

 

 

Six months ended June 30, 2023

 

Net assets at beginning of period

 

$

61,569,339

 

 

$

59,375,393

 

 

$

60,815,213

 

 

$

57,721,320

 

Net investment (loss) income

 

 

(517,195

)

 

 

492,630

 

 

 

322,390

 

 

 

1,207,546

 

Net realized gain on sales and dispositions of investments

 

 

428,108

 

 

 

3,480,089

 

 

 

3,878,200

 

 

 

3,533,477

 

Net change in unrealized appreciation/depreciation on investments

 

 

7,826,860

 

 

 

(1,300,829

)

 

 

4,936,564

 

 

 

101,144

 

Net increase in net assets from operations

 

 

7,737,773

 

 

 

2,671,890

 

 

 

9,137,154

 

 

 

4,842,167

 

Declaration of dividend

 

 

(748,496

)

 

 

(645,255

)

 

 

(1,393,751

)

 

 

(1,161,459

)

Net assets at end of period

 

$

68,558,616

 

 

$

61,402,028

 

 

$

68,558,616

 

 

$

61,402,028

 

Rand Capital Corporation and Subsidiaries Reconciliation of GAAP Total Expense 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 for capital gains incentive fees accrual. 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, 2024

Three months ended June 30, 2023

Six months ended June 30, 2024

Six months ended June 30, 2023

 

 

 

 

 

Total expenses

$

2,652,782

$

1,306,741

$

3,879,638

$

2,354,586

Exclude expenses for capital gains incentive fees

 

1,641,000

 

491,000

 

1,753,300

 

782,000

Adjusted total expenses

$

1,011,782

$

815,741

$

2,126,338

$

1,572,586

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

In addition to reporting Net Investment (Loss) Income per Share, which is a 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 (Loss) Income per Share removing the effect of any expenses for capital gains incentive fees. GAAP Net Investment (Loss) 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, 2024

Three months ended June 30, 2023

Six months ended June 30, 2024

Six months ended June 30, 2023

 

 

 

 

 

Net investment (loss) income per share

$

(0.20)

$

0.19

$

0.12

$

0.47

Exclude expenses for capital gains incentive fees per share

 

0.64

 

0.19

 

0.68

 

0.30

Adjusted net investment income per share

$

0.44

$

0.38

$

0.80

$

0.77

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20240806482417/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