Q3 2020 Rand Capital Corp Earnings Call
[music].
Greetings and welcome to the ramp Capital Corporation third quarter 2020 financial results Conference call.
At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During this conference. Please press star zero on your telephone keypad.
Please note that this conference is being recorded.
I will now turn the conference over to our host Deborah Pawlowski Investor Relations. Thank you you may begin.
Thanks, Diego and good morning, everyone. We certainly appreciate your interest and capital and for joining us for our third quarter 2020 financial results Conference call.
On the line with me today are Pete Graham, our Chief Executive Officer, and Dan have they see our executive Vice President Chief Financial Officer.
Should have a copy of the release crossed the wire. This morning disgusting I was health as well as the slides will accompany our conversation today you know.
You can find them both on our website at <unk> capital Dot com.
If youre following along on the slide deck would turn to slide two I would like to point out some important information.
As you are likely aware, we may make some forward looking statements. During this presentation. During the question and answer session. These statements apply to future events that are subject to risks and uncertainties.
Other factors that could cause actual results could differ materially from where we are today.
Find a summary of these risks and uncertainties and other factors in the earnings release as well as in other documents filed by the company with Securities and Exchange Commission. These documents can be found on our web site or at S.P.C. Dot Gov that.
Now if you'll turn to slide three I will hand, the discussion over to Pete could you get paid.
Good morning, everyone.
Thank you for your time today.
As you all know the cobot pandemic remains a part of our daily lives, we continue to work remotely and alternate ever on PRASM.
And they all pets for the health and safety of our personnel.
But I am pleased to say that even in this environment, we delivered solid financial performance during the third quarter.
Net investment income was $280000 or 11 cents per share.
We had an outspend September that ramp capital established a tenbfive one stock repurchase plan.
Okay holiday the purchase of shares.
EUR 1.5 million share repurchase program.
The Tenbfive one trading plan allows us to repurchase shares at times, where we might not otherwise be able to because of self imposed training blackout period and other securities laws.
I know the plan during this quarter, we repurchased 2090 shares have ramped stock at an average price of $11.29 per share.
We are in a strong position was relatively significant liquidity of 22 million.
When she was compromised of 19 million in cash had 3 million and available leverage from the ASP.
With this liquidity, we intend to build our portfolio and to continue to execute on our strategy.
I shouldn't Mad I wasn't mentioned that last week, we filed a preliminary proxy with the FCC for a special meeting of shareholders to approve a new investment advisory and management agreement.
The agreements are being renewed as a result of the change in ownership.
Rand and best friend of I, Advize, our ramp capital management.
The terms are not changing on the services provided by our Anda.
And the investment profit that are not changing.
You can find the details of the change in ownership in the pilot.
[noise] get all turn to slide four.
You can see that that that investment now compromise 44%.
Oh, one bathroom, an increase of 33% from a year ago.
The shift in our portfolio was intentional and we tend to like to be a regulated investment company for tax purposes, which requires us to distribute at least 90% of our qualified income to our shareholders.
The intention is to grow our investment income.
Part of regular distribution.
The remaining 56% of the park following our equity investments, primarily our legacy investments.
As we continue our transformation.
We do see these assets over time through various exit strategies.
On the investment side during the quarter, we invested 1.9 million and a 12% fixed rate promissory note.
Let's find some medicine grew up a new portfolio company.
So now it is two and 2023.
Hi, It's a medicine grew up as a leading research and advisory firm, serving a life science and a lot of class Rad diagnostic health care radiology in DAPL industries.
The group using business intelligence in a market research to help build their clients product strategy and marketing plan.
Then leverage their digital audience outgrow their clients' business.
We also invested $1.8 million in three more publicly traded bdcs.
This brings our total BDC portfolio they didn't pass that.
He's advice that certain companies that are much larger than rand and they provide a dividend on our liquid instruments.
We can readily access for other opportunities going fine [noise].
If you turn to slide five this demonstrates the increasing diversity and growth of our portfolio.
With the investments we made this quarter health care as a percentage of total investment increased four percentage points from the trailing sequential quarter.
And the BDC investment funds increased three percentage points.
We believe increased diversity of our portfolio reduces our exposure to market risk.
And benefits starting the challenging economic times, we kinda itself.
Well, we may not know the total impact nor their duration of the pandemic and resulting economics.
I'll turn that maybe in our portfolio companies.
We continue to actively engage with them and monitor their liquidity and operational status.
The resiliency of our part for a lot of it was encouraging frankly amazing.
Turning now to slide 16.
You can see in our top five portfolio companies and that has not changed since last quarter.
With the addition of the four companies I mentioned earlier.
Portfolio value was 41.7 million with 42 companies at quarter end.
Turning to slide seven I would like to give you an update on some of our portfolio companies.
We have several companies that are actually performing quite well and perhaps even benefiting from the covert nine pain environment.
Of course, there are a few companies that have been challenged as well.
As you might expect some other companies that are doing well are directly tied to finding a pandemic and I would like to share more about tourism Syapse Henry Onyx.
As I discussed during the call last quarter Syapse has a Boston, Massachusetts pace.
Company that is a leading manufacturer of handheld analyzers that.
I provide instant elemental analysis of many individual materials.
They have partner with Allied bio science.
Develop an EPA approved surface coating that can provide protection against viruses and bacteria. It's on the surface, including the virus that caused carbonite team.
I have since been chosen to examine the amount of kind of thing present on the surface. It.
And determine whether the coding is still present enact them.
React once you're talking about in the past isn't it forgot based company.
Developed in Capex workstations that are fully automatic systems, providing molecular testing for use in clinical research and applied testing laboratories.
What are their recent develops and the cobot athletic.
It is a fully automated attack.
That's tied to attack the Sars covert to the virus causes carbonite team directly from respiratory samples.
The test is designed to operate on the.
Riyadh I can't talk about his mdx workstation type.
So I'll take the same duct tape day test results for small and medium laboratory have.
I would encourage all of you to access their website as a way to keep up to date with their car.
Complex Trust.
Others have benefited because of the global work from home efforts to contain the environment.
For example, the open IX change, that's how public company investment bank, some perpetual investors keep their vital in from Investor information.
Flowing through with virtual video conferencing and video streaming solutions.
Their solutions have been used by some of the largest investment banks and that's.
Ben the platform for many investor conferences.
Demand for Carolinas cap has been driven by the surge in consumer interest in outboard activities.
They offer a lower price range fiberglass outboard motors.
The challenge has been keeping up with the demand for the challenges of manufacturing with reduced staggered staff.
Addressing the health and safety and managing their plight supply chain.
As a closing thought here are on our portfolio were advancing the portfolio composition, including determined they actions to take on.
To take on our equity all the investment.
As we pursue yield producing investment and also dividend paying equity investments.
With that I will turn it over to Dan to review our financials in greater depth.
Thanks Pete.
Good morning, everyone.
If you could please turn to slide nine you can see that the total investment income in the third quarter of 2024 $737000.
68% increase from last year's third quarter. This.
This was largely due to the change in our portfolio profile to more debt investments that resulted in 93% or $307000 increase in portfolio interest income.
As intended with our transformation the externalization of the administration and management of the Rand portfolio reduced our costs by $74000 in the quarter.
As a result growing investment income called <unk>. This is coupled with reduced expenses drove the net increase in net assets from operations of $263000 or 10 cents per share.
The waterfall graph on slide 10 visually shows the impact of several items affecting the $200000 increase in and maybe from the trailing second quarter.
This growth was primarily due to the $300000 increase in net investment income person.
Partially offset by unrealized depreciation on investments.
And the 2097 shares repurchased during the quarter.
On a per share basis, and Avi benefited by approximately a penny per share from these share repurchases.
On slide 11, we could pick the waterfall at the change in any year to date.
The cash portion of the special dividend, which was $4.8 million was the largest element driving this decline.
This was offset by 2.4 million in a net realized gain from a portfolio exit.
And $1 million and net investment income.
Additionally, we have repurchased 3397 shares of stock during the year to date, which did reduce any be by $40000 from the repurchases.
However on a per share basis. This contributed positively per share as we are able to purchase the shares at a discount to any v.
If you'll turn to slide 12, let me review the strength of our balance sheet.
At the end of the third quarter, we had 19.1 million of cash on hand.
Oh that $9.7 million was available for corporate purposes, providing syndicate significant liquidity for us.
$9.4 million or is it is reserved for investments by the FDIC directly.
Our total liquidity also includes $3 million up and available leverage which is the remaining commitment from the SBA.
The $11 million currently owe to the S.P.A. matures over a multiyear period that begins in 20 2020, I'm, sorry, 20 $22.3 million this too.
As Pete noted, we're in an excellent position to grow our portfolio investments and drive investment income and further as part of Ric status. We plan to distribute a large part of that income to our shareholders in the form of cash dividends.
We expect to provide details regarding the dividend distribution for 2020 before year end.
I will remind you wherever that these are more complex calculations given our recent conversion from a C Corp tax status and also being our initial year of Rick Rick testing.
[noise], we do plan to take a look at our dividend plans for 2021 and those should be really shortly.
The distribution in 2020 will include both the element related to our net interest income, but also the capital gain portion related to the exits we had this year.
This completes our prepared remarks.
Operator, please open the lines for questions.
Thank you.
Ladies and gentlemen at this time, we will conduct a question and answer session.
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We will pause for a moment to poll for questions. Thank you.
Thank you and our first question comes from Brett Davidson. Please state.
A question.
Good morning, I missed the first couple a couple of slides, but anything takes this hasn't been addressed the.
The recent.
Oh funding round for PCB auctions.
I was wondering if you could add any color to that what you guys know on your end.
And how that impacts the valuation not easy.
Oh, and the company's accounts going forward.
I know.
And are able to share what is Ah I think they had a press release.
About raising $55 million and a new investor.
And at this point that that Holly no but.
You can read into what you want they've added some strengthen their board say bad it's investment professionals.
As employees, who have had a history of.
Taking companies public and.
Oh, that's a bad.
About all that I can really share with you.
So I mean do you guys have some idea of how that impacts you know rands investment in there I mean do they provide you some sort of information that would you know detailed information.
Ah we have not received anything formally from them.
[laughter] informally.
[laughter].
There's nothing that I that I can share.
With good that's fine we will certainly take a look at it again when we had the end of the year.
No I actually don't have any numbers other than the amount.
I went in.
Brett let me.
Right. If I may this is Dan I guess I want a quick point out put in context, you know that our position while very nice snap <unk> portfolio was 13.1% of our portfolio, we hold much less than 1% HM.
Well, that's still probably get there for you guys.
Okay, well I, just Michael Yes, we have it in context, though.
I mean, even even prior to that so I believe it was the CFO they brought on.
I've heard rumblings.
Yes.
Not totally sure when but I think at this point, it's almost inevitable are much the IPO market just creators.
But you know.
They are they are they required to provide anything to you guys as far as the valuation.
Hi, I don't believe so.
You know we have a good relationship with the company, it's a fabulous company.
Going to be great for Buffalo, and they're doing they're doing very very well.
Hi, <unk>.
Yeah that I'm sure. This is Dan I would encourage you to take a look at the Buffalo business first Dan.
Dan Yeah, you all are well aware todays paper and he's reported a they used to be as close on a 55 million or the cash injection at a 1.75 billion dollar valuation.
He yelled at I worry more yes.
He also previously reported that the prior rounds were done at a 1.5 billion dollar valuation.
Of course, we don't have insight into that but these are what's being reported by our major business paper in Buffalo.
Yeah, Yeah normal Buffalo Guy to somebody else.
I was aware of the 1.5 I wasn't aware that they had placed at 1.75 I know the current round so that that's certainly.
Yeah, its a little color to that.
Alright, Thank you very much I appreciate it.
We always appreciate here in for Brett.
All right you take care.
Thank you.
Our next question comes from Carlo D'angelo with.
With your question. Thank you.
Hi, Good morning, I'm I'm, just curious to know what is like let's go.
Mike You also have some she has a grand and he was telling me that we could expect a dividend payout of.
$7.50 for every show that we had something crazy like that is that true.
If your son figured that out it didn't come from us.
We are required and when we filed for Ric status, which is our.
And touch and then that tax filing.
To distribute at a minimum 90% of our net investment income.
To date that doesn't equal anywhere close to $7 a share.
Okay. All right I have another follow up question would be we'd be able to reinvest those dividends into whatever payouts youd give us would be able to reinvest those into a rent.
We do not at this point have a dividend reinvestment plan. That's a formal plan and of course, you can take it.
And anything you want and purchase in the open market.
Okay.
Okay. So that sounds good all right. That's it. Thank you for your time I appreciate it.
Thank you.
Thank you and just a reminder to ask a question press star one on your telephone keypad.
Our next question comes from Sam Rebotsky with SCR asset management. Please state your question.
Yeah. Good good morning, Pete and then.
The <unk> based on this third quarter, what would the dividend the available.
[noise] Oh, we have not done that computation, but we have started.
And.
You know as far as what its going to be and it's a fairly complex and new for us, but there's as Dan said, there's two parts there's a.
Capital gains part and there was a net.
Investment income you know Ana and they had a simplistic way view, if we've learned a 11 cents every quarter that would be 40.
44 cents and we would have to distribute at a minimum 90, 90% of that so I don't know what that is.
30, <unk> somewhere in like that.
Oh, Okay now as far as future investments the success, we've made with that you see.
And the various other investments do you have a dollar amount that we expect to allocate to these type of investments relative to income investments.
Oh, we don't we don't have a a farm out saying we are transitioning our portfolio to more.
Income investments.
They are not really looking and which is kind of the early stage equity only investment at this point, although we do have some and well.
Always have some but it's we.
We don't have a formal.
Strategy on that.
We'll find that in general in one word were looking at.
Debentures that there will be there will be in most cases, a portion also allocated to the equity piece.
And as far as the east West.
Ah investing in some of the same investments we're reinvesting have we created a dollar amount to allocate what they come into and what we come into the future investments.
No we have not Sam.
Okay.
So they will only come into what we'd come into or.
Jointly I've got.
I'm not I think you're talking about east asset management, yes, Okay, I'm not privy to what they invest then but a.
Large robust organization and you know.
On sports teams and they own the hotels and they own oil and gas.
I'm sure they do.
Other investments that we are not aware of nor do we participate.
Is there a plan for US I think before you went to this income approach you spoke of getting larger and having more investments into Rand is there any plans right now.
To increase the size of investments were although your stock is selling at a discount for the net asset value. How is that working of course. This is was one of the approaches that you want to try to increase the size of investments.
Yeah that that is in place and we are looking and.
I think in the next week or so you'll hear us announce some larger at least one larger investment that we've made.
And are continuing to pursue larger.
Investments.
Well hopefully you this comes into the stock valuation and people, but give you more credibility course your stock is now.
Trading at a significant discount and for me a net asset value. So good luck.
Thanks Sam.
Thank you there are no further questions at this time I'll turn it back to management for closing remarks.
Thank you for joining us this morning and for your interest in Rand.
We look forward to updating all of you on our fourth quarter and full year results in March have a great day and stay healthy.
Thank you. This concludes today's conference all parties may disconnect have a good day.