Q4 2020 Rand Capital Corp Earnings Call

Greetings and welcome to Rand Capital Corporation fourth quarter, 2020 financial results.

At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

And if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

And as a reminder, this conference is being recorded.

It's now my pleasure to introduce your host Deborah Pawlowski Rand Investor Relations. Thank you you may begin.

Thank you, Doug and good afternoon, everyone and certainly appreciate your time today and your interest and Rand capital.

And we discuss our fourth quarter and full year 2000, Twenty's financial results I will have Pete Grum, our Chief Executive Officer, and Dan Penberthy, Our executive Vice President and Chief Financial Officer provide you. Some formal remarks, and then we'll open up for Q&A.

You should have a copy of the release that crossed the wires. This morning, as well as the slides that will accompany our conversation if not they are available on our website at www Dot Rand capital that Hum.

If you thought if you are following along on the slide deck and would turn to slide two I would like to point out from important information.

And we're likely aware we may make some forward looking statements. During this presentation and during the question and answer session.

Statements for quite a future events are subject to risks and uncertainties as well as other factors that could cause actual results to differ from where we are today.

You can find a summary of these risks and uncertainties and other factors and the earnings release as well as and other documents filed by the company with Securities and Exchange Commission.

These documents can be found on our website or at SEC Gov.

With that please turn to slide three and I will hand, the discussion over to Pete and begin peak.

Thank you. Thank you and good morning, and are actually afternoon, everyone and thanks for your time today.

2020 marked another important year and our transformation into an income producing dividend paying BDC.

Importantly, I believe we ended the year on a strong note for the quarter net investment income per share was up nearly four times the 29 cents per share.

For the full year net investment income was $1 8 million or <unk> 77 per share.

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And we began this transformation process and 2019, but the sale of shares to east asset management at the rate of $25 million and equity concur.

Concurrent with the sale.

And we externalize, our management to Rand capital management.

Twentyfold and there are several additional achievements that were part of the path of transformation and to increase shareholder value.

Let me just outline them.

Because we are electing for IRS purposes to become a regulated investment company or Ric as we referred to it and.

And May last year, we distributed all of our accumulated earnings and profits.

Since inception with a special dividend.

Total Devin was $23 $7 million.

And $1 62 per share and was paid out with a combination of cash and stock.

Okay.

Later that month, we executed on one for nine reversed tax, but which was approved by our shareholders and December 2019.

And May our board authorized a new one 5 million dollar share repurchase program further and our ability to provide return of capital to our shareholders.

In September we implemented a 10 day five on trade and plan to assess our capital deployment in a manner that provides the best returns for our shareholders.

And that's playing out.

And enable us to repurchase 6000, and 631 share in 2020.

To finish it and that's a year, where and outside of 2020 dividend per dollar 33 per share which was payable to.

For the shareholders of January 'twenty, 'twenty, one and.

And we've announced our ongoing dividend plan.

What are your capital and there's all during a year defined by the COVID-19 pandemic that affected almost every aspect of our daily lives.

Could play it's hard to fight for.

As we discuss the progress we have made regarding the evolution of our investment portfolio as a part of our strategy.

Major element and branch transformation.

And our intent to grow net investment income.

We're now focusing on more and interest yielding debt securities that provide a steady income.

This is a significant departure from our history of investing and creating that for that asset value by investing and equity and high performing companies.

And so some other plan we have exited several equity investments.

And credit card debt investment portfolio had purchased dividend paying securities have other probably traded bdcs.

Given our liquidity, which Stan will discuss where else are creating a robust pipeline.

That's on new investments.

You can see the evolution of our portfolio and just for last year for equity investments now represent approximately 47 per cent of the total value of our portfolio compared with 57% last share.

From this calculation, we excluded the public company BDC shares.

The BD share and C shares for ride, both dividends and put our cabin to work and our liquid instruments that we can readily access for other opportunities as we find them a year and a fair value of these investments for $3 $3 million.

If you turn to page five provides a snapshot of certain portfolio investments from the past share.

Highlight of Cabo.

And nobody ever we made our largest and initial public and initial funding for our company and recent history.

And I'm buying debt and equity investment and K Tec.

And a $3 5 million of subordinated secured 14 per send out an additional 300000 of class a preferred stock purchases.

K Tech, which is based on how a third Maryland is a leading manufacturer and distributor of toys for dogs various products for pet birds and other supplies for the pet industry.

The company's products are offered globally for a variety of sales channels, including national and local pet retailers and mass and retail retailers and crushers tours and ecommerce.

During the fourth quarter, we increased our investment and and Tivo through a $500000 purchase of series B preferred stock as part of a $34 million raised.

And Tivo located in New York City recently and lives and New health plan that I'm on.

I'll allow employers to adapt for self insured model.

The soft drink and reduce health care costs, when compared to traditional health insurance.

Please turn to slide six and you'll notice the increasing diversity of our portfolio.

With the investment for our recently made and certain exit well.

Now have consumer products and 10 per cent.

Health care doubled to 12 per cent and the inclusion of the BDC investments.

The largest declines are and software, which now make up 29% of our portfolio and we have exited and entertainment.

We believe the increased diversity of our portfolio.

<unk> is our exposure to market risk.

Slide seven lists our top five portfolio companies a year and.

And there are few changes since the last quarter, you'll notice that and Andretti is no longer on the slide and they've paid off their noted at the end of 2020 and exited the portfolio K.

K Tec and S. M D rose for the type of time.

S M G.

And the portfolio and July last year, but they did just pay us off last week on Friday, So there won't be changes to this list for the first quarter.

While we are encouraged by the resilience of our portfolio given the continued uncertainty regarding the duration of the pandemic and resulting economic downturns and impact on our portfolio of companies and we remain actively engaged with them and monitor their liquidity and operational status.

There are somehow over that had benefited during this period and others that have used the resulting headwinds and challenges to improve their operations.

And they likely have noticed the information on the press regarding HCV.

And as well so you know they filed their ASP on for a public offering of their equity and a couple of weeks ago.

Valuation and our portfolio of $6 5 million cars based on their last equity raise and has a private company.

We will be watching to see as I'm sure. Most for you all well where they are offering land.

And he proceeds for us above our 163000, Tyler and initial investment will.

And we'll make a capital gain and treated as I'd say as it relates sandy Devin and or distribution.

With that let me turn it over to Dan Penberthy to review our financials in greater depth.

Thanks, Pete and good afternoon, everyone slides nine and 10 provide an overview of our financial summary, and operational highlights.

Investment income in 'twenty, and 'twenty was $3 1 million, a 14% increase over last year and does reflect a shift and our portfolio profile to more debt investments. This.

This increase debt portfolio resulted in $941000 or <unk> 62 per cent increase and portfolio interest income.

The externalization of the administration and management of the Rand portfolio through the Rand capital management external manager did reduce our operating costs by $796000 compared with 2019.

As a result of the higher investment income coupled with the reduced operating expenses.

Net assets from operations Measurably improved $744000 for 33 cents per share.

If you turn to slides 11, and 12, you will see a waterfall graph for the changes and N V for the quarter as well as for the full 2020 period.

The fourth quarter change reflects net realized loss on the sales and disposition of investments of $8 $4 million.

It is important to recognize that and excess of $8 million up. This loss was simply recording a realized loss for portfolio investments that had been previously deemed worthless and had valuations carried at zero.

This is why you will also see a large offsetting valuation adjustment to net unrealized depreciation.

Effectively we have moved unrealized depreciation to a realized loss position.

This slide also illustrates a three point for millions of hours of the cash dividends that were declared during the quarter.

That dividend equated to $1 33 per share.

I should point out that the dividend was comprised of 39 cents per share from operating income and 94 cents per share from capital gains.

For the full year period cash dividends totaled $8 $2 million and we recognized a $6 million net loss again on the sales and disposition of investments many of which were previously deemed worthless.

So this component the large component of the net loss rather was previously discussed the realized losses recognized on the zero value securities.

If you turn to slide 13, I will review the strength of our balance sheet, we do have approximately $23 million and liquidity for new investments, including our Undrawn SBA commitment of $3 million, which is available for future investments into our portfolio.

The $11 million currently owe to the S. P. A does mature over a relatively long period. However, next year as our first installment went $3 million is due.

Usually utilizing our <unk> one plan, we did repurchase 3234 shares of stock at an average price of $11.98 during the fourth quarter.

And as Pete previously highlighted we did repurchase 6000 and 631 shares for the full year period and this was done at an average price of $11.57.

With the support of our strong liquidity position. We believe we can continue to execute our transformational strategy as we grow our portfolio and further drive investment income.

We distributed a large part of this year's income to our shareholders in the form of cash dividends and 2020, and we do expect that trend to continue in 2020 one.

In that regard, we have announced our first quarterly dividend of 10 cents per share that was just announced in February.

Our annualized dividend rate of 40 cents is based off our conservative estimates of net investment income for the year and does not take into effect than any net realized gains or losses, which we may have on the portfolio. During the course of the year.

Lastly, slide 14 highlights a number of action items for 2020 one.

And many of these are a continuation of the strategic initiatives that have already been underway as part of our transformation.

Most important is our effort to put our liquidity to work, which will further drive returns and support and ongoing and growing dividend.

This does complete our prepared remarks, operator, please open the lines for questions for Mr. Grum.

Yes.

Thank you, ladies and gentlemen at this time and will begin ducking. Your question and answer session. If you'd like to ask a question you May press star one on your telephone keypad.

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And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star key one moment, while we poll for questions.

We have a question from the line of Lance Gad private investor.

Proceed with your question.

Yes. Thank you.

It looks like ACB auctions.

And you did you it's.

It's carried and what the last raise was so it's up from 6.2 billion and is that correct.

I think we've put in there when we.

We reflected a raise and I don't believe it wasn't there last phrase.

So it so it's undervalued versus the last Grays correct, because I believe the last the last raise was higher than the one before I had understood.

Uh huh.

Value was six point to based on the last raise so I see the 6.5 I just assume that that was.

That was and my question.

And about it is do you have any indication where it might come and the S. One.

No way down near her guests.

Okay.

Okay. Thank you.

Thanks Lance.

And as a reminder, it is star and wanted to ask you a question.

Okay.

There are no other questions in the queue I'd like to hand, the call back to Mr. Grum for closing remarks.

But I think I and for joining us this afternoon and for your interest and Rand capital.

For the updating all of you on our first quarter 2021 results in May and <unk>.

Have a great day.

Ladies and gentlemen, and this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

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