Q4 2019 Earnings Call

Greetings and welcome to the ran capital Corporation fourth quarter 2019 financial results. At this time all participants are in listen only mode. A question and answer session will follow the formal presentation.

You bet you require operator systems during the conference. Please press Star Zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host Ms., Karen Howard Investor Relations for ran capital Corporation thinking you may begin.

Thank you Melissa and good afternoon, everyone. We appreciate your time.

Order 29, Chief financial results Conference call.

On the line with me today or peak Brown, our Chief Executive Officer, Dan <unk>, Executive Vice President and Chief Financial Officer.

A copy of the release it crossed the wires. This morning, as well like well company. Your conversation if not they are available on our website at www Dot capital Dot com.

If you look at this slide deck internists like to let me point that's important information.

As you are likely aware, we may make some forward looking statements. During this presentation and also during the question and answer session.

These statements apply to future events that are subject to risks and uncertainties as well as other factors that could cause actual results to differ from where we are today.

These risks and uncertainties and other factors are provided in the earnings release as well as in other documents filed by the company with the Securities Exchange Commission.

You can find that information other website or www <unk> S. You see I guess.

And with that let me now I'll turn it over to create and he's going to give an update on the status of the transactions with east asset management and summarize our 2018 performance, including providing some color on the newest investments in our portfolio that were contributed by East then Dan will follow with more details regarding the financials Pete.

Good afternoon, everyone. Thank you for your time today.

Were happy to have this opportunity to summarize 2019.

Well, it's proved to be a very exciting here [noise].

You can turn to slide three what a highlight the transaction with the passenger demand.

Where it says we refer to it.

The current status of the related activities.

As you know he calls on the transaction in November.

Yeah, sure about 8.3 million shares, Iran common stock they take shape for 25 million about.

The 25 million consists of approximately 9.5 million of an batchfire had about 15.5 million a cash.

[noise], we've also establish ramp capital management.

Yeah, So server the external registered investment adviser to Iran.

Ran employees.

How big come a point of our RCM.

We also during that that's probably the transaction had a tone of board members, Adam Cascadian Bad Guy like well toward our long standing Board members Patterson return chain ran and Ross counting.

Were continuing to process to transform ran into a regulated investment company or Rick.

Recall, the one of the benefits a banner Rick has our investment income on a capital gains well no longer be something like the U.S.

<unk> income tax.

Okay, that's what we need to that's true, but our exit starting in the process to our shareholders.

Last week, our board declared a special dividend of 23.7 million.

<unk> dollar 62% or share.

Payable on a combination of cash and share the ramp common stock.

We previously communicated.

And then education I talked to that said as potential value the members, Iran Bard.

Management and need to handle electorate team had all stock dividend.

She our shareholder that of the April 2nd record they receive a mailing with a detail included in there an election farm.

My second doesn't make their perhaps for us for cash or stock.

Subject of a limitation.

Let me say from the total cash payout has limited to 20% to 20% excuse me how's that total dividend.

We expect a dividend will be interest for me to honor about May 11.

[noise] well I thought process is complete our board expect.

In fact to reverse stock split.

It was approved by our shareholders at the 2019 annual meeting in December.

Then going forward to maintain our REIT status, our board intends to establish and ongoing regular cash dividend policy.

Let's turn to slide far and I'll provide you with some of the 2019 operational highlights.

Total assets grew by 24.3 man or 64% Tortola 64.8 million.

Funding from the 25 million dollar he's talking about fun.

Yes.

We ended the year with 25.8 million of cash some of which will be used for dividend and future involves funds.

2019, we invested 2.8, Miami a follow up cap on six of our portfolio companies.

Which I will review on the next slide.

[noise] sanity airway solve our equity after its and micro surgeon Hello they.

And from that we received 1.5 million how proceeds.

And realize the 1.5 million pre tax gain.

Additionally, microphone array of paid 453000.

First of all to.

I know the first quarter, we updated our 1.5 million subordinated note due for micro set a three o'clock, an 11% actress right.

Five year maturity.

Henry saved award for 5% of their equity.

Our 2019 net investment income increased 29% or 2018.

[noise] due to our investment focus on of and buff income generating that's formats.

Well, some variation and non recurring investment income and each period.

At the end of the Yara Navy or net asset value.

Decreased to 3.66.

While we benefited from the gain on the micro decision to exit.

The decline was impacted by an 83 cents per share dilutive effect I was a share that should team.

Please turn to slide five.

In summary, the sex follow on investments we made during 2019.

Well the assets contributed by age.

Follow on investments for me that during the fourth corridor, where the 1.5 million to go at all.

And 250000, alumina, which were previously referred to type 2000.

Oh I like the poor company contribute anything you have the next few slides.

Slide six a snapshot of the top five investments in our portfolio based on our year end portfolio bias.

Our total portfolio as I in about 37 million.

[laughter] 32 active companies.

The value of our top five investments so suddenly comprises about half of our portfolio.

Got it fair paired with our top five at the end of third quarter pay TV auction now number one valued at approximately 6.5 man or 18% of our portfolio.

Driven by its innovative solution or market penetration.

Sure the assets contributed by eating out our top five.

And driving and number two and filter works and number four.

I will touch on them in more detail on the next few slides.

Now turning to slide seven.

As I do each quarter I want to take the opportunity to features arm of the company within our portfolio and give you more insight to them.

This quarter I'm, featuring the Fourq companies contributed by East.

Oliver Chen Colada subordinate and so the provides current income.

Let's start with Andretti indoor gardening and games.

Hard to quantify hey, I occasionally.

Corridors in Orlando, Florida.

The company offered Guardian games, right and I find myself activities all under one roof.

At each of us locations on Marietta, Georgia, Orlando in Florida.

Also in San Antonio, Texas.

They provide investor activity, such as apply name rock climbing on a rope obstacle course.

And they're venues also offer phone full service bar catering to parties, meaning have special events.

Our investments consists of a termed out with a 12% coupon and a 4% pack and as of December 31st we valued at 4.4 million.

Turning to slide eight let me tell you a lot about filter works acquisition U.S. sandwiches headquartered in Deerfield Beach, Florida.

There are like South, Florida, and general and mechanical contractor, providing spray both equipment frame repair machines and painful filter services.

[laughter] founding the 1988 I felt it works team of have stalled over a 15 kind of paint booth.

Our investments and close the term no 12% coupon that took effect as well as some collect class a units.

Collectively our investment carried at fair market value of 2.9 million Hey, yearend.

Slide nine enters us is not helping display they.

Refer to as H.C.

This company headquartered in Greensboro, North Carolina has a nationally recognized manufacturer of scientists on branding products.

They were formed a 1981.

Have emerged as an industry leader.

With that puts us on primary brand identification.

Architectural retail interior way, finding and digital display products.

Our investment consists of a term loan with a 12% coupon and 2% Peck valued at 1.2 million at yearend.

The last assets contributed by eight cents on slide 10 headquartered in Dallas, Texas.

So no I have no provides no way of working in the beauty industry and an upscale professional setting. They currently leaves high quality saliva suites, and the Dallas Houston in Tampa Mark.

Hi investment consists of a promissory note with a 14% coupon.

<unk> percent pick carried at fair value of 1 million at December 31st.

Please turn to slide 11.

You see the industry mix of our portfolio at the end of 2019 and 18.

Year over year comparison, so more diverse portfolio at the end up to five the nice thing with some significant changes are in there.

The decrease in health care was affected by the sale of our equity interests and micro says you had a reduction in the value of check on.

The growth of software was driven by the increased value.

And our investment in HCV auctions.

The growth in professional services.

It's driven by an increase.

Valuation of telephone and the addition of Madison Avenue for me.

Hey man and automotive.

Excuse me how did he I know my entertainment an automobile are known as a pie due to the east contribute assets have bad Kgs filter works.

Slide 12, we describe where new target in the Bachelor structure has established by the investment committee of our Sam.

That's a part our desired Ric status, we all need to evolve our portfolio to be more cash generating that it has historically been.

Cardium will place more emphasis on subordinate that's rest with wants her preferred equity.

We will complement that with expansion capital and we will continue to co invest with institutional phone typically have a minority owner.

The current entrants combined with equity interest well become more important to us.

Hey, yearend as shown here at 37 million dollar portfolio.

That's about 40, why person that 59% <unk> equity.

Going forward I.

I anticipate that it will involve until all higher portion of debt instruments.

Slide 13 has our updated investment criteria.

And targeted investment terms.

Has established by the investment can many of our Sam.

Our investment criteria and close companies.

More advanced than their evolution that are the store and the initial investment.

Were looking for business. It was one of the leave Ptomaine forever no positive EBITDA.

So I mean, facilitating their ability to generate cash flow.

We want to private businesses in the early there like staying safe and we now have a little bit broader geographic area.

And then a password <unk> strong management and differentiated product.

We expect sensor product rollover IRA gain market acceptance.

With respect our new targeted investment terms.

We have increased them out of both our initial investment size on follow on total levels noted here.

We have targeted at a five to seven year old parent and as in the past well have some board involved met pro oversight.

Thank you next I'd like to turn it over Danbury theory, VP and CFO.

For the financial results.

Thanks, Pete and good afternoon, everyone. If you could please turn to slide 15, I'll start with the net asset value per share or and Avi.

As Pete mentioned, we started the year with a net asset value a 366 per share.

As you can see immature and havey decreased 73 cents per share over the last year.

The decline is primarily attributable to the 83 cents per share dilutive effect.

Issuing the 8.3 million shares to east.

This is partially offset by the gain on the sale over equity investment in micro citizen.

Slide 16, Here's a summary of our operating performance for the 2019 in 2018 fourth quarters and the full calendar years.

Total investment income in the fourth quarter 2019 was $985000.

Up from 668000 in the same period last year.

The 317000, our increase were 47% included approximately 76000 of incremental interest income.

70000 of incremental dividend income in 170000 or incremental non recurring fee income.

For 2019 investment income was up 29% over 2018.

Our fourth quarter expenses were $726000 in 2019, it's 684000 in 2018.

Excluding the cost related to these transaction fourth quarter expenses were $645000 in 2019.

And $581000 2018.

The 2018 month period benefited from a 50000 dollar bad debt recovery I should note.

I also want to point out that the 2019 fourth quarter includes cost for the base management fee payable to RCM, our newly established external registered investment advisor of which we're now employees.

Going forward into 2020, this will be a regular fee and certain expenses previously incurred by Rand.

Now incurred by RCM. These would include such things as compensation and General office expenses.

For all of 2019 total expenses were 2.8 million. This compares with 2.2 million in 2018.

Excluding costs related to the east transaction total expenses were 2.2 million.

2.1 million in 2019 and 2018, respectively.

The net realized and unrealized gain on investments was 1.4 million in one point onemillion in the fourth quarters of 2019 and 22, respectively.

The 2019 gain was driven by the Microvision transaction as previously mentioned.

Well as a favorable valuation adjustment for our portfolio holding and ACB auctions.

40 year, we had a 2.2 million net realized and unrealized loss.

This compares with 326000 dollar loss in 2018.

For 2019 results were driven by unrealized losses recorded in the prior quarters.

Partially offset by the fourth quarter gain as Pete mentioned.

To summarize the 2019 fourth quarter resulted in an increase in net assets from operations of 13 cents per share, which compares with the 15 cents per share in the 2018 fourth quarter.

The full year of 2019, and 2018 resulted in 30 cents and point and six cents losses per share respectively.

As you can see on slide 17, we do continue to hold the strong balance sheet, which is well positioned for growth.

This is a direct result from the east transaction and now we haven't historically high level of cash at yearend cash represents $1.70, 6%, Oh, I'm, sorry, $1.76 cents per share at year end.

Our portfolio investments are also had an historic level. These are valued at $2.53 per share and we had 75 cents per share that remain so to the SP a further previous debenture drop.

We also have 12 cents per share of other assets net of liabilities.

This comprises our any be per share of $3.66.

So with that Pete shall we open the lineup for question yes.

Thank you.

This time up is conducting a question and answer session if you'd like to ask your question. Please press star one telephone keypad.

A confirmation code will indicate your line is in the question can you.

Let me press star to if he'd like to remove your question from the Q per participant seating speaker equipment, you may be necessary to pick up your handset before pressing the star.

Well, Paul well pause a moment for questions.

Once again, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone keypad.

Okay.

[noise] [noise] [noise] [noise]. Thank you there are no questions at this time I'll turn the floor back to management for any final comment.

Thank you for your time and attention. This afternoon, I know what tumultuous day in the market.

I want to thank everyone into appreciate your support and we're excited about 2020.

Whether we'll hold for Iran. Thanks, again and have a great day.

Thank you. This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation.