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

Rhea-AI Summary

Rand Capital Corporation (Nasdaq: RAND) reported a 54% increase in total investment income, reaching $1.6 million for Q3 2022, driven by higher interest and dividend income. Net investment income per share surged to $0.39 from $0.02 year-over-year. The net asset value per share rose to $22.62. The company made a $400,000 follow-on equity investment in ITA Acquisitions LLC. Total expenses decreased significantly to $499,000, reflecting prudent expense management. Cash reserves improved, totaling $1.0 million. A dividend of $0.15 per share was declared on July 28, 2022, and paid in Q3.

Positive

• Total investment income increased by 54% to $1.6 million.
• Net investment income per share rose to $0.39 from $0.02 in the prior year.
• Net asset value per share increased to $22.62, up 1% from previous quarter.
• Total expenses decreased significantly to $499,000 from $962,000 in prior year.
• Cash at end of Q3 grew to $1.0 million, up from $834,000 at end of 2021.
• Declared a quarterly cash dividend of $0.15 per share, enhancing shareholder returns.

Negative

• None.

• Expanded debt portfolio and portfolio dividends drove total investment income to
  
  $1.6 million in the third quarter, up 54% over prior-year period
• Net investment income per share increased to $0.39 compared with $0.02 in the prior-year period; Adjusted net investment income per share doubled to $0.40
• Net asset value per share (“NAV”) was $22.62 at September 30, 2022, up 1% from
  
  June 30, 2022 largely due to changes in market value of portfolio holdings and investment income
• Completed portfolio company follow-on equity investment of $400,000 in the quarter

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 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

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20221107005225/en/

Company:

Daniel P. Penberthy

President and CEO

Phone: 716.853.0802

Email: dpenberthy@randcapital.com



Investors:

Deborah K. Pawlowski

Kei Advisors LLC

Phone: 716.843.3908

Email: dpawlowski@keiadvisors.com

Source: Rand Capital Corporation

FAQ

What were Rand Capital's financial results for Q3 2022?

Rand Capital reported $1.6 million in total investment income for Q3 2022, a 54% increase from the previous year.

How much did Rand Capital's net investment income per share increase in Q3 2022?

Net investment income per share increased to $0.39 in Q3 2022, up from $0.02 in Q3 2021.

What is the current net asset value per share for Rand Capital?

As of September 30, 2022, Rand Capital's net asset value per share is $22.62.

Did Rand Capital declare any dividends in Q3 2022?

Yes, Rand declared a quarterly cash dividend of $0.15 per share, which was paid in Q3 2022.

What was the main driver for Rand Capital's income increase in Q3 2022?

The increase was primarily driven by higher interest income from portfolio companies and increased portfolio dividend income.