Q2 2020 Rand Capital Corp Earnings Call

Greetings, ladies and gentlemen, and walk on what you read Capital's second quarter 2020 earnings conference call.

Sorry, all participants are in listen only mode. A question answer session will follow the formal presentation.

I want to acquire operators, that's even for Starz here on your telephone keypad.

That was supposed to introduce your host that's the last <unk> of Investor Relations. Thank you you may begin.

Thank you Dan and good morning, everyone. We appreciate your interest in ran capital and taking the time to join US. This morning on aligned with me today or peak Brown, our Chief Executive Officer, and Dan Penberthy, Our executive Vice President Chief Financial Officer.

You should have a copy of the released the crossed the wires. This morning as well the slides it will accompany our conversation today if not they are available on our website at www dot raised capital Dot com.

Please note that entered discussions today all per share values in the belief landslide will reflect the one for nine reverse split was effective on May 21. This year.

If you would turn to slide two of the slide deck I would like to point out some important information.

You are likely aware, we may make forward looking statements. During this presentation and during the question and answer session. These statements apply to future events that are subject to risks and uncertainties as long as other factors that could cause actual results could differ from where we are today.

You can find a summer these risks and uncertainties and other factors in the earnings release as well as in other documents filed by the company with Securities Exchange Commission. These documents can be found on our website, where it FCC dot Gov.

If you'll turn to slide three I will hand, the discussion over to Pete Pete.

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

Well I wish I could say that the covert 19 pandemic that's behind us all.

Like I will not be the case for sometime I.

Hi, helping you in your family help him say.

And ran we continue to work remotely and alternate everyone's presence in the office, even while we operate in the call with 19, I'll turn working environment.

We're able to leverage the success of our transformation strategy to deliver solid financial performance.

Total investment income.

Yes.

Almost 16% over last year.

The effectiveness of externalization or the administration and management of our portfolio to ramp capital management LLC.

RCM.

Attribute it to lowering expenses $80000 compared with last year's second corner.

The combination of growth in investment income at lower cost <unk> net income higher 299000, or eight cents per share compared with a 20 cents per share loss in the second quarter last year.

In May we distributed 23.7 million has a special dividend.

So it's kind of what they untapped total like regulated investment company or Ric status with T. Iris.

[noise] as you know the dividend was paid in both cash and shares of stock.

4.8 billion cash portion of the dividend payment was the primary reason.

Our net asset value was down.

A lot of more than 4 billion to 49.7 million they handle the corridor.

Hey, approximately 960000 additional shares issued as part of the dividend.

Back to the Pershare by about Navy.

And have anyway 1921 per share compared with 33.2 for sure at the end of March 2020.

Dan and his presentation or prevent more detailed analysis of the change in our navy per share.

Also during May we executed the one for nine reverse stock split that mentioned in her comments.

In June we repurchased 1300 shares.

There are currently.

1.5 million share repurchase authorization.

Never fried sometime 99%.

In addition to board authorized a tenbfive one plan for the share repurchase program.

I haven't program.

Purchase and establish a banker brokers that identified the amount of shares repurchase at certain prices were allowed to repurchase shares at times laundry might otherwise have been prevented from doing so by securities law or because of self imposed trading blackout periods.

We call it south of corridor or 22 million a cash cash equivalents.

Are they doing 30, 2020, which represented 44% of on that asset.

We also have an additional 3 million available on the S.P.A. long program.

That's that's part of any unique construct position for building our portfolio and to continue executing.

Alright transformation strategy.

Well I live in any quarter for us I work I turn to slide four you can see that we are investing 58% equity at 42% dad at the end of the corridor.

That's right flex our investment objective to generate current income and when possible complement income with capital appreciation.

Our future investments will continue to focus on yield investment primarily data alone instruments.

We also evaluate equity investment size alternative absent instruments that kept provide didn't come through dividend.

[noise] during the second quarter brand invested approximately 1.5 million.

Portfolio companies Syapse with it fixed rate senior promissory note at 12% to 2023.

I would tell you a lot of more about this part Pope Taleo company later in the presentation.

Interest provided by our portfolio companies increased 81%.

29 team had our net investment income as 199000 compared with a lot. So 241000 a year ago.

We also invested 70 N type 2000 and to tell some technology and during the quarter.

Telephone pays a regular dividend to Iran.

The charts on slide five demonstrate named crazed University and growth in our portfolio.

We believe that the diversity reduces our exposure to market risk and will benefit us.

Turning the challenging economic times, we find ourselves.

We continue to engage in active discussions with the management teams.

Companies within our portfolio regarding access they have undertaken dilemma to spread of call. It 20 night excuse me 19.

We believe that are part of follow kind of these are taking the necessary actions.

Sure the same to their company.

Employers employees customers and suppliers by enacting such procedures has work from home process, a staggered schedule and increased sanitation have friends as well social doesn't see.

In addition, most of the portfolio. Although companies are qualified have received long to other paycheck protection programs and where applicable are applying for other federal support programs.

And I know the topline back those up and pandemic and resulting economic downturn.

On our portfolio company.

We are actively monitoring them their liquidity at operational status.

But encouraged frankly by the resiliency of the portfolio.

Please turn to slide six you can see our top five portfolio companies.

I mentioned earlier that two other they investments turned the corner.

We also purchased 57000 event that's true.

I will share.

Golub capital BDC through a rights offering.

In closing I sent basket the portfolio value of our public.

She securities in our portfolio increased by approximately 269000 during the quarter.

That's fair amount of talking about Syapse. That's company, it's located just outside of Boston math.

Leading manufacturer and allied.

To provide half cent elemental analysis.

Many industrial materials, including allies.

Cars minerals powders and other materials that are widely used in the heavy industry encoder oil and gas my name heavy transportation chemical pharmaceutical and primary metal on.

I don't progress parents and manufacturers.

Companies analyzers off a rapid accurate results on a variety of allied materials.

According to the measurement of carbon content have steel of Sandler.

Were pleased with our support of Syapse and they're all providing more efficient analysis equipment.

I should know before handing the call over to Dan that during the past took corridors with social doesn't same requirements for uptake on right.

Our ability for did due diligence continues to be M.P. It.

So our right investment pipeline remains robust.

It has made it difficult to be active and our funding process for Wheaton.

I need to prepare due diligence.

We can play in our site.

<unk> has a restriction Terry.

Let me turn it over to answer to review our financials in greater depth.

Thanks, Pete and good morning, everyone.

If you could please turn to slide eight.

You can see that the total investment income in the second quarter 2020 with $675000.

Which is up 16% from last year second quarter.

This was largely due to an 81% or 255000 dollar increase in interest income that was the result of the change in our portfolio profile to more debt investments.

As Pete mentioned, the externalization of the administration and management of the rant portfolio contributed $80000 in savings.

But last year second quarter was also heavily impacted with higher professional fees and stockholder costs because of the proxy contest during that period.

Second quarter expenses were more than 40% lower than the same period last year.

Our strong investment income and significantly reduced expenses during the quarter resulted in a net increase in net assets from operations, a $424000 were 20 cents per share.

The waterfall graph on slide nine visually shows the sequential impact of several items affecting any the during the second quarter.

Well, we increased net assets from operations by $400000.

This was more than offset by a returning $4.8 million to our shareholders in the form of the cash dividend.

Additionally, we repurchased 1300 shares of stock during the quarter, which also had the impact of and Avi.

If you'll turn to slide 10, you can see or net asset value per share compared with last quarter.

As part of a special dividend, we paid in the second quarter, we distributed approximately 1 million shares of ran stock.

This was a 59% increase of shares outstanding which also impacted any the on a per share basis by $11 in 29 cents.

These explain the larger decline in the NPV per share.

If you would now turn to slide 11.

I will discuss the strong position we remain in during this cope with 19 influenced the economy.

We continue to have a high level of cash at 22.1 million.

I hope that $10.6 million was available for corporate purposes.

Fighting a significant liquidity for us.

11.4 million Reais is reserved for investments by the U.S.P. I see subsidiary.

Our total liquidity also includes $3 million up additional availability of leverage which is our remaining commitment from the S.P.A.

The $11 million debentures owed to the S.P.A. mature over a multiyear period that does not begin until 2022.

2022, we have our first 3 million dollar installment due to the S.P.A.

That completes their prepared remarks, operator, please open the line for questions.

Thank you, ladies and gentlemen, if you'd like to ask a question. Please press star one of your telephone keypad and consummation whole indicate your line is the question Q you May press star to she'd like to move your question from MCU and participants using speaker equipment, maybe necessary to pick up the handset before pursuing sarkies one moment. Please when we pull for quest.

Gens.

I first question comes from the line of Sam Rebotsky with SCR management. Please proceed with your question.

Yeah, Good morning, Pete Dan.

I'm, a little will the high end, because my computer equipment, because it's not working well, but the I've.

Heard everything that you said and and as far is what red looks like today.

Uh huh.

So as far is it the dividend with D.A. sensing the current core to what we would give <unk>, 90% of the eight cents, assuming that was or what the earnings was.

Hi, the requirements are that we again have minimum over 90% of our net investment income.

Hi were evaluating that and a third quarter and won't be able to provide further guidance, but you're correct that that.

Tax rule.

Oh, Okay. Further in addition to do you filed the document which indicated you're looking for more money and this was a comp combination with the largest shareholder walk up what is your progress relative to raising additional well.

And what how will they spend that benefit the renn capital shareholders.

I'm not sure what document you're referring to Iran. Sam.

Oh, you as far as far as I don't I don't have been in front of me, but you speak well do you have a plan to raise additional buttons.

Hi, that's fine or we don't have one always I don't believe Weve filed anything.

Regarding that SAP are you aware of anything we filed the.

[laughter] no no not quite sure what you're talking to them.

Oh, Okay with the FCC disclosure I went up when my computer equipment is is better working I'll come back to you on that on that poor unless unless you're talking to I mean, so we have right now.

[laughter] a lot of cash we have 22 million in cash [laughter], we still have 3 million available to draw on the Sta loan. So it's not like we need additional funds at this point, we need to put that money to work.

Okay I will come back to you answered my quick math is better working at this point with the 22 million. What is your planes on investing this money are you seeing a lot of opportunities or will we earned more than we're currently earning on the 22 million and.

What is our timeframe for the earnings.

Oh, we continue to seek investments we continue to execute on investments and ER and next quarter I believe that you'll see that weve, but some of this money to work.

As we address it's a little bit difficult because part of our due diligence is meeting with the company.

Sometimes is problematic, but no we continue to invest the money and our goal is a.

To increase our investment income through debt instruments, and you'll see more that as we go forward.

Well that sounds good and one for important further question it to get more exposure to the two new potential share holders Howdy, how do you expect to participate.

Unfortunately, you have to do it in virtual conferences do you have any plans on doing something like that.

We have not signed up pardon me in the near future, but we're certainly going to evaluate that part of why we're doing Sam as you know we had people that were interested in ran because of our equity in best friends and we're transforming them over to.

And I've had active conversations.

People that are in BASF and interested in getting a dividend yield.

Well good luck hope you find some new investors course, with those stocks booked value 19, plus and with a 22 million in cash and you. The stock currently in the $11 range He would <unk> here.

That would bigger exposure you might be able drink Cray did a higher level. Okay. Good luck guys.

Thanks, Sam in comedy about that filing.

Well again I'll come back to you on that next week.

Thank you Oh, that's question comes from line of landscape.

Well, let's get please proceed with your question.

Yes. Thank you I was curious if the recent develop bids with Eastman Kodak would have any bad if they fill.

Effect.

On Rand.

Hi, not not that I'm aware of are you.

Before I know that talk spiked up because of some government contract.

Oh, well be government light each week Kodak $750 million to produce a.

Medical ingredients Ah.

Eventually 25%.

The oh that needs to the United States had I would I don't know I thought it would help but New York State Upstate New York God, I know, you're at Buffalo, but I I would say that that do you think that helps do up or do you arch state what helped you know.

I'm not aware of any of our companies that have exposure to a he spent kodak.

Okay that has that money gets deployed in may.

It may impact some of our companys okay. Thank you.

Thank you as a reminder, ladies and gentlemen, nice asking questions. So star one on your telephone keypad.

There's no further questions at this time I'd like to trim slow that's management for closing comments.

Thank you for participation this morning, and your interest in Rand capital, we look forward to.

Thank you ladies and gentlemen.

This concludes today's teleconference. You may disconnect your lines and thinking right.

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