Q4 2021 Rand Capital Corp Earnings Call

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Reading welcome to the Rand Capital Corporation fourth quarter 2021 financial results call. At this time all participants are in a listen only mode. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded I will now turn the conference over to your host Craig Mahalik Investor Relations. Thank you you may begin.

Thank you and good afternoon, everyone. We appreciate your interest in Rand capital and for joining US today for our fourth quarter 2021 financial results Conference call.

The line with me are Dan Penberthy, our President and Chief Executive Officer, and Margaret breakdown, our executive Vice President and Chief Financial Officer.

Copies are released some slides that accompany our conversation are available on our website at ramp capital dotcom.

Following along on the slide deck, please turn to slide two where I'd like to point out some important information.

Likely aware, we may make some forward looking statements during this presentation.

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.

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

Documents can be found on our website or at SEC Gov.

During today's call. We will also discuss some non-GAAP financial measures we'd.

We believe these will be useful in evaluating our performance you.

You should not consider the presentation of this additional information in isolation or as a substitute for results in accordance with GAAP.

We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's rate.

With that please turn to slide three and I'll hand, the discussion over to Dan Dan.

Thank you Craig and good afternoon, everyone.

2021 was an exceptional year for Rand capital one of them, which we achieved exceptional growth and further demonstrated the benefits of transforming the composition of our portfolio we.

We are proud of the accomplishments we have made and appreciate the support of our entire team, particularly as we implemented our leadership transition and board changes during the fourth quarter.

Our multiyear strategy to transition ran into a dividend paying business development company with a portfolio focused on income producing instrument has proved advantageous.

And so doing our investment income grew 31% to $4 1 million, which allowed us to pay for regular quarterly dividends and a supplemental dividends in 2021.

The fair value of our portfolio increased 60% to $64 1 million and our net asset value was up 32% or $23.54 per share from year end 2020.

We put our capital to work by investing $19 7 million into income yielding investments, which included a shift towards more debt instruments, we paid down the $11 million small business administration loan.

And distributed $4 6 million in total dividends to shareholders.

As a result of paying off the S. P. A loan and subsequently surrounding our SBA license or Spi see license.

We have simplified our reporting and regulatory requirements, which we do believe will help us scale the business in the future.

If you turn to slide four where I'll highlight the positive progress we have made in shifting our investment portfolio composition.

The 60% increase in fair value reflects the impact of new investments and valuation adjustments that fall in line with our overall investment plan.

At year end, our 34 portfolio companies comprised of approximately 40%, rather 46% and fixed rate debt investments.

32% and equity investments.

22% and dividend paying publicly traded bdcs in a C V auction stack.

Our strategy includes making larger investments in two portfolio companies, which does offer better scaling opportunities.

Of the $19 7 million, we invested in 2020 one.

$17 6 million was made in only each transactions.

The average investment of about $2 5 million with nearly five times greater than our historical initial investment amount.

The remaining $2 1 million was invested in other publicly traded bdcs during the year.

Which does yield increased dividend income and provides more liquidity for our financial flexibility and future funding transactions.

We exited five equity holdings in private companies that did that $2 7 million and so public equities for an additional $3 1 million in gains.

These totaled $5 8 million in gains during the last year.

We also received $4 9 million and repaid loans from our debt portfolio.

Our fourth quarter transactions are highlighted on slide five.

The largest investment during the fourth quarter was $2 $3 million equity investment and nail Biter, Inc.

Oh, one equity investment this does have the economic traits of a 10% subordinated secured promissory notes with warrants for preferred stock.

Nail-biter captures incur converts real shopping behavior until actionable metrics offering a competitive advantage to global CPG consumer packaged goods companies.

We also funded a 175 million dollar investment to applied image, Inc, which consists of a 10% senior subordinated notes and equity warrants.

Apply damage in Rochester, New York is a global supplier of precision image optical components and calibration standards for a wide range of industries and applications.

The two follow on investments in the quarter were provided to see births failures supply a leading global billiard E E retailer and filter works USA and authorized distributor for leading equipment manufacturers in the collision repair industry.

We sold approximately 98000 shares at a C V. During the quarter at an average price of $20 43 per share for a total proceeds of 2.1 million.

Most all of which was represented as a game.

As a reminder, any proceeds for us above our $163000 initial investment will be a capital gain and treat it as such as it relates to any regulated investment company or Ric based distribution calculations.

At year end, we still hold 442934 shares of E C V.

Which were valued at 18 81 per share.

A C V recently announced what appears to be positive acquisitions and earnings.

We are hopeful will help the stock to now recover from its current trading levels.

The charts on slide six illustrates the diversity in our portfolio and the change in industry mix since 2000 Twenty's year end.

With the investments, we've recently made and the impact of investments at fair value changes professional services in the health card health care. So notable changes while most of the other industries, where we are within a few percentage points.

We value the diversity of our portfolio as we feel this mitigate market risk impact.

Slide seven lists our top five portfolio companies at year end, which collectively represent almost half of our total portfolio.

Telephone has moved to the top spot from last quarter, largely due to the valuation changes in stock selling of H C V. Although a C V still ranks high at number two.

With that I'll turn it over to Margaret to review our financials in greater depth.

Thanks, Dan and good afternoon, everyone slides nine and 10 provide an overview of our financial summary, and operational highlights for the fourth quarter and full year period.

Total investment income for the quarter was $1 2 million, a 17% increase over last year, demonstrating increased interest income from portfolio companies and higher dividend income.

Total expenses were 923000 compared to 526000 in the prior year period, the company accrued capital gains incentive fees at 86000 during the fourth quarter and there were no similar accrual of fees in the prior year period.

Excluding the capital gains incentive fees adjusted expenses, which is a non-GAAP financial measure were 837000.

This was up 311000, mostly due to an increase in the base management fee payable to ramp investment advisor.

Starting from higher asset values year over year, and an increase in interest expense as we prepaid two additional months of interest and expense prior capitalized loan fees, it's part of our SBA path.

Net investment income was 320000 or 12 cents per share and on an adjusted basis, which is a non-GAAP financial measure was 16 cents for the fourth quarter of 2021.

For the full year period total investment income increased 31% to 4.1 million due.

Due to similar reasons as the fourth quarter.

Total expenses were up year over year, largely due to the accrual of $4 2 million of capital gains incentive fees.

These fees reflect the realized gains from the sale of brands investment in give GAAP and send Tivo Corporation and an increase in unrealized depreciation mostly related to a C. D auctions open exchange until some technologies.

Excluding the capital gains incentive fee accrual adjusted net investment income per share was <unk> 62 cents compared with 68 cents per share for 2020.

The prior year period did reflect a tax benefit related to the intent to elect status as a regulated investment company for U S Federal income tax purposes.

Even with the increase in expenses during the year net assets from operations increased significantly to $15 8 million or $6 12 per share.

Slide 11 provides a waterfall graph for the change in any D for the year.

Net assets at December 31, 2021 were 67 million up 32% year over year.

The increase reflects higher fair market value of brands investment in open exchange Tilson technologies Empire genomics and sign up for.

The sale of ACD stack and increase in its share price and a loan payoff from mercantile adjustment Bureau.

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Slide 12 highlights the deployment of our strategy, which has been supported by a strong balance sheet.

Cash and cash equivalents at year end were 834000, which reflected in the $11 million and SBA debt that was repaid during the fourth quarter of 2021 as well as new investments and dividend payments during the year.

We repurchased a small amount of shares during 2021.

As highlighted in the table, we have nearly $14 million of liquid BDC and a C. D stack, which can provide near term funding capital for investment.

During 2021 Rand paid a total of $4 6 million in dividends, which included four regular quarterly dividends of 10 cents per share.

<unk> per share supplemental dividend and $1 33 per share dividend for 2020 that was paid in January of 2021 .

Our portfolio transformation to contain more income producing investments is expected to support an increased dividend level and in line with that expectation, we announced on February 28.

We raised the regular quarterly cash dividend by 50% to 15 cents per share for the first quarter of 2022.

This dividend increase takes into account our conservative expectation of the income from our current portfolio and our initial tax based expense projections.

With that I will turn the discussion back over to Dan.

Thanks Margaret.

We are excited about the future of Rand our strategy is to continue to grow and scale Rand to drive total returns and create shareholder value.

We have a number of focused action items, many of which are a continuation of the strategic initiatives that have been well underway as part of our transformation.

We have positioned the company for financial flexibility. This will enable us to continue to expand our portfolio and be an active investor in income producing assets.

We are prudently monitoring our equity portfolio mix to provide potential additional capital gains over time. When these are made available.

Ultimately, we expect our actions to contribute to an increasing net investment income.

And to support a growing dividend.

Thank you for joining us today and for your interest in Rand capital. We look forward to updating all of you on our first quarter 2022 results, which will be reported in may.

Have a great day.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Okay.

Okay.

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