RAND Rand Capital Corporation

• Total investment income rose 27% to $2.2 million for the quarter compared with the third quarter last year, driven by strong growth in interest income from an expanded portfolio of debt investments
• Net asset value per share (“NAV”) increased to $27.29, up 3% from June 30, 2024 and 16% higher than year-end 2023
• $13.1 million received from the sale of portfolio company SciAps, Inc. with proceeds used to reduce debt balance
• Paid 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 third quarter ended September 30, 2024.

"Our third quarter results reflect the strength of our investment strategy, highlighted by a 27% increase in total investment income, driven by the growth in our debt portfolio,” commented Daniel P. Penberthy, President and Chief Executive Officer of Rand. “The sale of SciAps, which netted us $13.1 million in total proceeds, and the sale of our remaining BDC holdings, which generated a realized gain, not only delivered substantial returns but also allowed us to reduce debt and improve liquidity. With over $24 million in total liquidity, we are well-positioned to capitalize on future opportunities. Following the closing of the SciAps transaction, we have further transitioned the portfolio closer to a targeted debt-focused portfolio, and will continue to focus on mezzanine debt investments, which we believe will help in delivering strong returns and supporting consistent shareholder dividends.”

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

• Total investment income grew $477,000, or 27%, to $2.2 million, which reflected strong growth of interest from portfolio companies given the origination of five new debt instruments over the last year. Also contributing to the total investment income growth was an increase in fee income.
• Total expenses were $1.3 million compared with $810,000 in last year’s third quarter. The change largely reflects a $354,000 increase in capital gains incentive fee expense and a $178,000 increase in the income based incentive fee expense payable to the Company’s external investment advisor. The Company had lower interest expense of $46,000 given the debt pay down during the quarter.
• Adjusted expenses, which exclude capital gains incentive fees and is a non-GAAP financial measure, were $1.0 million compared with $851,000 in the third quarter of 2023. See the attached description of this non-GAAP financial measure and reconciliation table for adjusted expenses.
• Net investment income was $887,000, or $0.34 per share, compared with $799,000, or $0.31 per share, in the third quarter of 2023. Adjusted net investment income per share, a non-GAAP financial measure, which excludes the capital gains incentive fee accrual expense, was $0.46 per share, up 59% from $0.29 per share in last year’s third 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 September 30, 2024, Rand’s portfolio included investments with a fair value of $75.0 million across 22 portfolio businesses. This was a decrease of $2.1 million, or 3%, from December 31, 2023, and reflected new and follow-on investments and valuation adjustments in multiple portfolio companies, offset by the SciAps exit, stock sales and other portfolio company loan repayments. At September 30, 2024, Rand’s portfolio was comprised of approximately 74% in debt investments and 26% in equity investments in private companies. The annualized weighted average yield of debt investments, which includes PIK interest, was 13.8% at September 30, 2024, compared with 13.6% at the end of 2023.

Third quarter 2024:

• Funded a follow-on debt investment of $125,000 in ITA Acquisition, LLC. Rand’s total debt and equity investment in ITA Acquisition, LLC had a fair value of $4.9 million at quarter-end.
• Received $13.1 million from the previously announced sale of portfolio company SciAps, Inc., which included a realized gain of $7.7 million. The proceeds from the sale payable at closing to Rand consisted of $2.1 million in debt repayment, $165,000 in interest income and loan-related fees, and $10.8 million in equity return. These totals reflect $244,000 held in transaction-related escrows.
• Sold remaining shares in two publicly traded BDCs for total proceeds of $1.3 million, which netted a realized gain of $249,000.
• Exited investment in Mezmeriz, realizing a tax loss on an equity investment having a fair value of zero.

Liquidity and Capital Resources

Cash was $3.4 million at September 30, 2024. During the quarter, Rand utilized the proceeds from the portfolio company sale and cash on hand to reduce its outstanding borrowings by $13.3 million, leaving a principal balance of $3.9 million on its existing $25.0 million senior secured revolving credit facility at September 30, 2024. The outstanding borrowings carried an interest rate of 8.46% at quarter-end.

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

Dividends

On July 31, 2024, Rand declared its regular quarterly cash dividend distribution of $0.29 per share. The cash dividend was paid during the third quarter to shareholders of record as of August 30, 2024. Rand’s fourth quarter dividend announcement is expected in early December.

Webcast and Conference Call

Rand will host a conference call and webcast on Wednesday November 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 “Investors” 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 Wednesday, November 20, 2024. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13749407. 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 primarily 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: 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 and the growth of its dividend and the timing for the Company’s fourth quarter dividend announcement; 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

 

 

September 30, 2024 (Unaudited)

December 31, 2023

ASSETS

Investments at fair value:

Control investments (cost of $6,043,779 and $5,272,770, respectively)

$

4,919,969

 

$

4,148,960

 

Affiliate investments (cost of $39,484,404 and $45,720,974,

respectively)

 

50,859,581

 

 

53,499,372

 

Non-Control/Non-Affiliate investments (cost of $21,524,089 and

$17,371,862, respectively)

 

19,256,017

 

 

19,477,380

 

Total investments, at fair value (cost of $67,052,272 and $68,365,606,

respectively)

 

75,035,567

 

 

77,125,712

 

Cash

 

3,352,734

 

 

3,295,321

 

Interest receivable

 

408,247

 

 

244,600

 

Prepaid income taxes

 

185,602

 

 

127,869

 

Deferred tax asset, net

 

367,765

 

 

39,179

 

Other assets

 

448,204

 

 

189,301

 

Total assets

$

79,798,119

 

$

81,021,982

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (NET ASSETS)

Liabilities:

Due to investment adviser

$

487,483

 

$

979,297

 

Accounts payable and accrued expenses

 

104,381

 

 

145,516

 

Line of credit

 

3,900,000

 

 

16,250,000

 

Capital gains incentive fees

 

4,346,000

 

 

2,279,700

 

Deferred revenue

 

513,619

 

 

552,256

 

Total liabilities

 

9,351,483

 

 

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 9/30/24 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 9/30/24 and 12/31/23

 

(1,566,605

)

 

(1,566,605

)

Total distributable earnings

 

15,947,179

 

 

6,315,756

 

Total stockholders’ equity (net assets) (per share – 9/30/24: $27.29; 12/31/23: $23.56)

 

70,446,636

 

 

60,815,213

 

Total liabilities and stockholders’ equity (net assets)

$

79,798,119

 

$

81,021,982

 

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

  Three months endedSeptember 30, 2024 Three months endedSeptember 30, 2023 Nine months endedSeptember 30, 2024 Nine months endedSeptember 30, 2023 Investment income: Interest from portfolio companies: Control investments

$

164,167

 

$

175,962

 

$

550,535

 

$

506,800

 

Affiliate investments

 

1,164,525

 

 

1,002,553

 

 

3,522,726

 

 

2,731,575

 

Non-Control/Non-Affiliate investments

 

616,903

 

 

357,162

 

 

1,681,209

 

 

1,067,745

 

Total interest from portfolio companies

 

1,945,595

 

 

1,535,677

 

 

5,754,470

 

 

4,306,120

 

Interest from other investments: Non-Control/Non-Affiliate investments

 

113

 

 

456

 

 

2,171

 

 

692

 

Total interest from other investments

 

113

 

 

456

 

 

2,171

 

 

692

 

Dividend and other investment income: Affiliate investments

 

13,125

 

 

13,126

 

 

39,375

 

 

419,951

 

Non-Control/Non-Affiliate investments

 

44,000

 

 

141,290

 

 

242,760

 

 

401,805

 

Total dividend and other investment income

 

57,125

 

 

154,416

 

 

282,135

 

 

821,756

 

Fee income: Control investments

 

4,515

 

 

4,515

 

 

13,547

 

 

12,726

 

Affiliate investments

 

202,834

 

 

40,072

 

 

331,369

 

 

246,816

 

Non-Control/Non-Affiliate investments

 

8,272

 

 

5,978

 

 

38,130

 

 

19,934

 

Total fee income

 

215,621

 

 

50,565

 

 

383,046

 

 

279,476

 

Total investment income

 

2,218,454

 

 

1,741,114

 

 

6,421,822

 

 

5,408,044

 

Expenses: Base management fee

 

309,265

 

 

268,609

 

 

934,532

 

 

769,869

 

Income based incentive fees

 

178,218

 

 

—

 

 

178,218

 

 

—

 

Capital gains incentive fees

 

313,000

 

 

(41,300

)

 

2,066,300

 

 

740,700

 

Interest expense

 

245,006

 

 

290,522

 

 

1,028,198

 

 

707,834

 

Professional fees

 

113,168

 

 

120,828

 

 

436,935

 

 

392,110

 

Stockholders and office operating

 

57,869

 

 

57,097

 

 

209,564

 

 

206,481

 

Directors' fees

 

66,550

 

 

66,550

 

 

196,950

 

 

197,791

 

Administrative fees

 

40,000

 

 

37,250

 

 

118,167

 

 

111,750

 

Insurance

 

10,467

 

 

10,380

 

 

33,891

 

 

33,720

 

Corporate development

 

387

 

 

—

 

 

10,813

 

 

4,267

 

Total expenses

 

1,333,930

 

 

809,936

 

 

5,213,568

 

 

3,164,522

 

Net investment income before income taxes:

 

884,524

 

 

931,178

 

 

1,208,254

 

 

2,243,522

 

Income tax (benefit) expense, including excise tax expense

 

(2,511

)

 

132,595

 

 

(1,171

)

 

237,393

 

Net investment income

 

887,035

 

 

798,583

 

 

1,209,425

 

 

2,006,129

 

Net realized gain (loss) on sales and dispositions of investments: Affiliate investments

 

6,980,728

 

 

—

 

 

6,148,837

 

 

2,596,094

 

Non-Control/Non-Affiliate investments

 

249,354

 

 

(2,802,731

)

 

4,959,445

 

 

(1,527,190

)

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

 

7,230,082

 

 

(2,802,731

)

 

11,108,282

 

 

1,068,904

 

Income tax expense

 

—

 

 

—

 

 

—

 

 

338,158

 

Net realized gain (loss) on sales and dispositions of investments

 

7,230,082

 

 

(2,802,731

)

 

11,108,282

 

 

730,746

 

Net change in unrealized appreciation/depreciationon investments: Affiliate investments

 

(5,153,166

)

 

—

 

 

3,596,779

 

 

(886,698

)

Non-Control/Non-Affiliate investments

 

(512,375

)

 

2,599,652

 

 

(4,373,590

)

 

3,521,053

 

Change in unrealized appreciation/depreciation before income taxes

 

(5,665,541

)

 

2,599,652

 

 

(776,811

)

 

2,634,355

 

Deferred income tax benefit

 

(184,940

)

 

—

 

 

(232,774

)

 

(66,441

)

Net change in unrealized appreciation/depreciation on investments

 

(5,480,601

)

 

2,599,652

 

 

(544,037

)

 

2,700,796

 

Net realized and unrealized gain (loss) on investments

 

1,749,481

 

 

(203,079

)

 

10,564,245

 

 

3,431,542

 

Net increase in net assets from operations

$

2,636,516

 

$

595,504

 

$

11,773,670

 

$

5,437,671

 

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

$

1.02

 

$

0.23

 

$

4.56

 

$

2.11

 

 

Rand Capital Corporation and Subsidiaries

Consolidated Statements of Changes in Net Assets

(Unaudited)

 

 

Three months ended September 30, 2024

Three months ended September 30, 2023

Nine months ended September 30, 2024

Nine months ended September 30, 2023

Net assets at beginning of period

$

68,558,616

 

$

61,402,028

 

$

60,815,213

 

$

57,721,320

 

Net investment income

 

887,035

 

 

798,583

 

 

1,209,425

 

 

2,006,129

 

Net realized gain (loss) on sales

and dispositions of investments

 

7,230,082

 

 

(2,802,731

)

 

11,108,282

 

 

730,746

 

Net change in unrealized

appreciation/depreciation on

investments

 

(5,480,601

)

 

2,599,652

 

 

(544,037

)

 

2,700,796

 

Net increase in net assets from

operations

 

2,636,516

 

 

595,504

 

 

11,773,670

 

 

5,437,671

 

Declaration of dividend

 

(748,496

)

 

(645,255

)

 

(2,142,247

)

 

(1,806,714

)

Net assets at end of period

$

70,446,636

 

$

61,352,277

 

$

70,446,636

 

$

61,352,277

 

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/(credits) 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 September 30, 2024

Three months ended September 30, 2023

Nine months ended September 30, 2024

Nine months ended September 30, 2023

 

 

 

 

 

Total expenses

$

1,333,930

$

809,936

 

$

5,213,568

$

3,164,522

Exclude expenses/(credits) for capital gains

incentive fees

 

313,000

 

(41,300

)

 

2,066,300

 

740,700

Adjusted total expenses

$

1,020,930

$

851,236

 

$

3,147,268

$

2,423,822

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

In addition to reporting Net Investment 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 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 September 30, 2024

Three months ended September 30, 2023

Nine months ended September 30, 2024

Nine months ended September 30, 2023

 

 

 

 

 

Net investment income per share

$

0.34

$

0.31

 

$

0.47

$

0.78

Exclude expenses/(credits) for capital gains

incentive fees per share

 

0.12

 

(0.02

)

 

0.80

 

0.28

Adjusted net investment income per share

$

0.46

$

0.29

 

$

1.27

$

1.06

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20241106507003/en/

Company: Daniel P. Penberthy President and CEO 716.853.0802 dpenberthy@randcapital.com

Investors: Deborah K. Pawlowski / Craig P. Mychajluk Alliance Advisors IR 716-843-3908 / 716-843-3832 dpawlowski@allianceadvisors.com cmychajluk@allianceadvisors.com