Rand Capital Reports Net Investment Income per Share of $0.29 for the Fourth Quarter 2020 and $0.77 for the Full Year

Rhea-AI Summary

Rand Capital Corporation (NASDAQ: RAND) reported its financial results for the year ending December 31, 2020. The Company declared a special dividend of $23.7 million, representing $1.62 per share. Net investment income surged to $738,000, up from $100,000 year-over-year. Total expenses decreased by 28% due to external management and reduced stockholder costs. The portfolio consisted of 36 companies, with 50% in equity investments and a 12.7% yield on debt investments. Cash and cash equivalents stood at $20.4 million, or 44% of net assets. A conference call is scheduled for March 8, 2021.

Positive

• Declared a special dividend of $23.7 million ($1.62 per share).
• Net investment income rose to $738,000 from $100,000 YoY.
• Investment income increased by 14% due to a focus on interest-yielding securities.
• Total expenses decreased by 28% to $2.0 million.
• Portfolio now comprises 50% equity investments with strong capital return potential.
• Cash and cash equivalents reached $20.4 million, representing 44% of net assets.

Negative

• Net asset value decreased to $46.1 million from $53.6 million YoY.
• Portfolio fair value dropped $1.6 million primarily due to valuation adjustments.

Rand Capital Corporation (Nasdaq: RAND) (“Rand” or the “Company”), a business development company (“BDC”), announced its results for the quarter and year ended December 31, 2020.

Allen F. (“Pete”) Grum, President and Chief Executive Officer of Rand, commented, “We made measurable progress in 2020 with the transformation of Rand Capital. We declared a special dividend of $23.7 million, or $1.62 per share in March; executed a 1:9 reverse stock split in May; declared the 2020 dividend of $1.33 per share in December and continued to evolve our portfolio. Importantly, we have now structured a path for regularly quarterly dividend payments.”

He added, “The evolution of our portfolio to align with our strategy to be a dividend paying BDC is apparent in the 14% growth in investment income for the year. We focused on more interest-yielding debt securities to increase our investment income in support of our planned regular quarterly cash dividends. We also purchased the securities of several other publicly traded BDCs. This put capital to work earning dividends while providing for ready liquidity as our lending pipeline builds. Through liquidations or exits, we also reduced equity investments by seven portfolio companies. Our equity holdings at the end of 2020 comprised 50% of our portfolio, down from 59% when we entered the year, excluding the investments made in other BDCs. Importantly, we believe most of the remaining portfolio equity investments have strong capital return potential.”

Fourth Quarter Highlights

• Investment income in the quarter grew 7% as a result of the shift in portfolio mix.
• Total expenses in the quarter were down 28%, or $200,000, mostly due to the externalization of management and reduced stockholders’ expenses.
• Net investment income grew to $738,000 compared with $100,000 in the prior-year period.

2020 Highlights

• Expenses in 2020 were $2.0 million, down from $2.8 million in the prior year for similar reasons as in the fourth quarter.
• Net investment income per share was $0.77 for the year and reflected the successful shift in strategy to become an income producing, dividend paying BDC. Net investment income also benefited from a $628,000 tax benefit related to the intent to elect status as a regulated investment company for U.S. federal income tax purposes.
• Net asset value (“NAV”) at December 31, 2020 was $46.1 million compared with $53.6 million at the end of 2019 and compared with $50.0 million at September 30, 2020. The change in net asset value was primarily the result of $8.2 million in dividends.
• At December 31, 2020, portfolio fair value decreased $1.6 million to $40.0 million compared with September 30, 2020, primarily due to valuation adjustments.

Portfolio and Investment Activity

As of December 31, 2020, Rand’s portfolio consisted of 36 companies. At that date, the portfolio was comprised of approximately 50% in equity investments, 41% in fixed-rate debt investments and 8% in dividend paying, publicly traded BDCs. The annualized weighted average yield of debt investments was 12.7%.

Rand made $4.3 million in new and follow-on investment in the quarter. These included:

• The Company made its largest initial investment in a new portfolio company, Caitec Inc. Rand invested $3.8 million in total, which was comprised of a $3.5 million, 14% subordinated secured note and $300,000 in Class A Preferred stock.
• Rand participated in the $34 million Series B funding for portfolio company, Centivo Corporation, by purchasing $500,000 in preferred stock bringing Rand’s total investment in Centivo to approximately $800,000. Centivo’s fair value was $1.4 million at December 31, 2020.

Liquidity and Capital Resources

During the quarter, the Company repurchased 3,234 shares of outstanding common stock for $39,000 under a $1.5 million share repurchase authorization. The average purchase price was $11.98 per share. For the year, Rand has repurchased 6,631 shares of outstanding common stock for $77,000 at an average purchase price of $11.57 per share. Total shares outstanding at year-end were 2,582,169.

Cash and cash equivalents at the end of the quarter was $20.4 million and represented 44% of net assets. Outstanding SBA leverage was $11 million at the end of the quarter and there was $3 million remaining available to draw on the SBA loan program. The earliest debenture maturity is in 2022 when $3 million in borrowings are due.

Webcast and Conference Call

Rand will host a conference call and live webcast today, March 8, 2021, at 1:30 p.m. Eastern Time to review its financial condition and results as well as its strategy and outlook. The review will be accompanied by a slide presentation, which will be available on Rand’s website at www.randcapital.com under the “Investor Relations” heading. A question-and-answer session will follow the formal presentation.

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”.

A telephonic replay will be available from 4:30 p.m. ET on the day of the call through Monday, March 15, 2021. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13715235. The webcast replay will be available in the Investors section at www.randcapital.com, where a transcript will also be posted once available.

ABOUT RAND CAPITAL

Rand Capital (Nasdaq: RAND) is an externally managed Business Development Company (BDC) with a wholly owned subsidiary licensed by the U.S. Small Business Administration (SBA) as a Small Business Investment Company (SBIC). 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 effectiveness of Rand’s new investment strategy, the success of increasing interest income with new investments, the capital return potential of Rand’s equity investments, the competitive ability and position of Rand; 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) the risk that Rand and/or Rand SBIC may be unable to fulfill the conditions required in order to elect to be treated as a RIC for U.S. tax purposes; (2) evolving legal, regulatory and tax regimes; (3) changes in general economic and/or industry specific conditions; and (4) 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, 2020, quarterly reports on Form 10-Q, the definitive proxy statement 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
(Audited)
		December 31,
			2020				2019
ASSETS
Investments at fair value:
Affiliate investments (cost of $14,835,885 and $19,035,446, respectively)		$	13,891,199			$	12,151,435
Non- Control/Non-Affiliate investments (cost of $25,884,428 and $25,584,017, respectively)			26,157,302				24,869,357
Total investments, at fair value (cost of $40,720,313 and $44,619,463, respectively)			40,048,501				37,020,792
Cash and cash equivalents			20,365,415				25,815,720
Interest receivable (net of allowance of $15,000 and $166,413, respectively)			258,186				142,265
Deferred tax asset			-				1,204,198
Prepaid income taxes			220,740				343,096
Other assets			74,100				265,378
Total assets		$	60,966,942			$	64,791,449
LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)
Liabilities:
Debentures guaranteed by the SBA (net of debt issuance costs)		$	10,824,587			$	10,786,913
Dividend payable			3,434,117				-
Accounts payable and accrued expenses			171,373				207,873
Due to investment adviser			156,999				50,564
Deferred revenue			153,895				37,583
Deferred tax payable			121,141				-
Bonus payable			-				80,000
Total liabilities			14,862,112				11,162,933
Stockholders’ equity (net assets):
Common stock, $0.10 par; shares authorized 100,000,000; shares issued: 2,648,916 at 12/31/20 and 1,688,485 at 12/31/19; shares outstanding: 2,582,169 at 12/31/20 and 1,628,369 at 12/31/19			2,384,547				1,519,637
Capital in excess of par value			49,883,890				34,142,455
Treasury stock, at cost: 66,747 shares at 12/31/20 and 60,116 shares at 12/31/19			(1,545,834	)			(1,469,105	)
Total distributable earnings			(4,617,773	)			19,435,529
Total stockholders’ equity (net assets) (per share - 2020: $17.86, 2019: $32.93)			46,104,830				53,628,516
Total liabilities and stockholders’ equity (net assets)		$	60,966,942			$	64,791,449

Rand Capital Corporation and Subsidiaries
Consolidated Statements of Operations
		(Unaudited)								(Audited)
		For the Quarter Ended December 31,								For the Year Ended December 31,
			2020				2019				2020				2019
Investment income:
Interest from portfolio companies:
Affiliate investments		$	179,147			$	190,861			$	666,969			$	823,565
Non-Control/Non-Affiliate investments		$	541,535				280,122				1,794,974				696,975
Total interest from portfolio companies			720,682				470,983				2,461,943				1,520,540
Interest from other investments:
Non-Control/Non-Affiliate investments			623				58,410				87,784				166,556
Total interest from other investments			623				58,410				87,784				166,556
Dividend and other investment income:
Affiliate investments			79,355				13,125				118,730				320,806
Non-Control/Non-Affiliate investments			147,826				259,042				309,351				259,042
Total dividend and other investment income			227,181				272,167				428,081				579,848
Fee income:
Affiliate investments			5,000				16,179				15,417				27,639
Non-Control/Non-Affiliate investments			102,194				167,186				109,694				430,113
Total fee income			107,194				183,365				125,111				457,752
Total investment income			1,055,680				984,925				3,102,919				2,724,696
Expenses:
Base management fee			155,318				85,483				589,519				85,483
Interest on SBA obligations			104,190				104,190				416,760				408,039
Professional fees			185,062				141,182				568,857				548,041
Shareholders and office operating			40,400				91,003				258,266				557,546
Directors' fees			31,375				30,128				116,500				117,500
Insurance			7,767				7,232				33,868				38,302
Corporate development			2,066				15,814				14,546				67,441
Other operating			90				14,091				662				17,504
Salaries			-				76,790				-				621,290
Bonuses			-				115,000				-				115,000
Employee benefits			-				45,452				-				189,157
Bad debt (recovery) expense			-				-				(24,000	)			5,413
Total expenses			526,268				726,365				1,974,978				2,770,716
Net investment income (loss) before income taxes			529,412				258,560				1,127,941				(46,020	)
Income tax (benefit) expense			(209,086	)			158,175				(628,187	)			39,677
Net investment income (loss)			738,498				100,385				1,756,128				(85,697	)
Net realized (loss) gain on sales and dispositions of investments:
Control investments			-				-				-				80,393
Affiliate investments			(7,984,468	)			-				(7,927,552	)			(472,632	)
Non-Control/Non-Affiliate investments			(410,857	)			1,510,000				1,944,273				1,510,000
Net realized (loss) gain on sales and dispositions, before income taxes			(8,395,325	)			1,510,000				(5,983,279	)			1,117,761
Income tax expense			-				346,784				-				255,923
Net realized (loss) gain on sales and dispositions of investments			(8,395,325	)			1,163,216				(5,983,279	)			861,838
Net change in unrealized depreciation on investments:
Affiliate investments			6,455,129				(2,793,687	)			5,939,325				(3,970,007	)
Non-Control/Non-Affiliate investments			1,011,763				3,017,636				987,534				(3,325	)
Change in unrealized depreciation before income taxes			7,466,892				223,949				6,926,859				(3,973,332	)
Deferred income tax expense (benefit)			182,530				6,198				1,955,942				(907,521	)
Net change in unrealized depreciation on investments			7,284,362				217,751				4,970,917				(3,065,811	)
Net realized and unrealized (loss) gain on investments			(1,110,963	)			1,380,967				(1,012,362	)			(2,203,973	)
Net increase (decrease) in net assets from operations		$	(372,465	)		$	1,481,352			$	743,766			$	(2,289,670	)
Weighted average shares outstanding			2,583,622				1,241,719				2,268,356				836,893
Basic and diluted net increase (decrease) in net assets from operations per share		$	(0.14	)		$	1.19			$	0.33			$	(2.74	)

Rand Capital Corporation and Subsidiaries
Consolidated Statements of Changes in Net Assets
			2020				2019
Net assets at beginning of year		$	53,628,516			$	31,524,187
Net investment income (loss)			1,756,128				(85,697	)
Net realized (loss) gain on sales and dispositions of investments			(5,983,279	)			861,838
Net change in unrealized depreciation on investments			4,970,917				(3,065,811	)
Net increase (decrease) in net assets from operations			743,766				(2,289,670	)
Declaration of dividends			(8,190,723	)			-
Issuance of capital stock, net			-				24,393,999
Purchase of treasury shares			(76,729	)			-
Net assets at end of year		$	46,104,830			$	53,628,516

 

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FAQ

What were Rand Capital's financial results for 2020?

Rand Capital reported a net investment income of $738,000 and declared a special dividend of $23.7 million.

What is the stock symbol for Rand Capital?

The stock symbol for Rand Capital is RAND.

When is the Rand Capital conference call?

Rand Capital's conference call is scheduled for March 8, 2021, at 1:30 p.m. Eastern Time.

What significant changes occurred in Rand's portfolio by the end of 2020?

By year-end 2020, Rand's portfolio comprised 50% equity investments and included 36 companies.

How did Rand Capital's expenses change in 2020?

Total expenses for Rand Capital decreased by 28% to $2.0 million in 2020.