Q1 2022 Rand Capital Corp Earnings Call

Greetings and welcome to the Rand Capital Corporation first quarter 2022 financial results Conference 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 Craig Mihalik 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 first quarter 2020.

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On the line with me are Dan Penberthy, our President and Chief Executive Officer, and Margaret Bracco, Our executive Vice President and Chief Financial Officer.

Copy of the release and slides that accompany our conversation are available on our website ran capital Dot com.

You are following along in the slide deck, please turn to slide two where I'd like to point out some important information.

As you are likely aware, we may make some forward looking statements. During this presentation. 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.

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

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

During today's call, we'll also discuss some non-GAAP financial measures.

We believe these will be useful in evaluating our performance should not consider the presentation of this additional information in isolation or as a substitute for results in accordance with yeah.

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

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

Thank you Craig and good afternoon, everyone.

We kicked off the year with a strong first quarter as we continued to execute on our strategy to position our portfolio to grow investment income and distributor earnings to shareholders.

We delivered 11% growth in total investment income by leveraging the significant investments made in 2021, which had approximately $20 million and portfolio additions and are now reaping the benefits of our improved mix of interest yielding debt instruments.

We paid a regular quarterly cash dividend of <unk> 15 per share during the first quarter. This did represent a 50% increase over the regular quarterly dividends in 2021 and.

And more recently on April 28 ran declared its regular quarterly cash dividend distribution of 15 cents per share again this being for the second quarter.

Other notable highlights during the quarter included the election of a new independent Board member at our April annual meeting.

Cary Jarislowsky enhances our board expertise with their significant financing operations knowledge as well as her broad SEC experience.

Ranch Board of directors also renewed the share repurchase program, which permits the purchase of up to $1 5 million in additional Rand common stock.

This renewed program expires on April 21st of 2023.

If you turn to slide four you can see the mix of our portfolio between debt and equity and the changes during the first quarter.

As of March 31, 2022, our portfolio consisted of investments in 33 companies, which was down one since 2021 year end.

The fair value of those investments totaled $62 4 million, which contracted 3% primarily due to the changes in a C V auctions market value as.

As well as the impact of net new investments in pay offs.

At quarter end, the portfolio comprised of approximately 48% and fixed rate debt and debt investments.

33% and equity investments in private companies.

In 19% and dividend paying publicly traded bdcs as well as our a C V auctions securities.

We have made good progress in shifting our investment portfolio composition toward more debt instruments, and we expect that trend to continue as we execute on our strategy.

Also during the quarter, we made two follow on investments that totaled $542000.

Exhibited one position and.

So public securities.

Those transactions are highlighted on slide five.

The largest follow on investments during the period was $318000 debt investment in dealer solutions and design.

Raising the balance of our term note to $3 1 million.

That's no does accrue at 14%, which includes a 12% current pay and a 2% Pic accrual.

In addition, we continue to hold our $1.1 million equity investment in the company, which consists of both preferred and common shares.

Established in 2005 D. S. D was the first company to create the concept to completion approach to fixed operations of new and renovated auto dealership facilities.

Basically the back of the house of an auto dealership.

We also funded a $224000 of equity investment and Iga acquisitions, which consisted of class a preferred units and class B units.

I T. A manufactures a broad variety of window covering components and finished window treatments, including wood.

Award in fabric shades shutters, and blinds for both residential and commercial applications.

We exited our investment in social flow a long held equity investment.

And also benefited from this exit value in excess of our fair value.

In addition, during the quarter, we sold public equity investments, including some H T D Securities and BDC stock holdings to generate cash for both working capital as well as future debt instruments.

We sold approximately 37000 shares of H C V. During the period at an average price of $13 82 per share for a net realized gain of approximately $500000.

As a reminder, any proceeds for us above our approximately $100000 remaining cost will be a capital gain and treated as such as it relates to any potential regulated investment company or Ric based income and capital gain distributions calculate.

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At quarter end, we still hold 405934 shares of HCV, which represented approximately 10% of our total portfolio is fair value.

The charts on slide six illustrates the diversity in our portfolio and the change in industry mix during the first quarter.

With the impact of recent investments and exits and fair value changes professional services is now our largest industry classification at 24%.

With software right behind at 23%.

The ranking of the other industries did not significantly change.

We value the diversity of our portfolio as we feel this mitigates market risks impact.

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

The two major changes since last quarter, where D. S T and K Tec, which has swapped places given our recent investment in D. S T.

And also E C V's fair value declining.

This now does represent 10% of the total portfolio down from 13% last quarter, which is an impact following our stock sale and the resulting change in stock price as well.

These still ranks haedo and number two.

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

Thanks, Dan and good afternoon, everyone I will start on slide nine which provides an overview of our financial summary, and operational highlights for the first quarter of 2022.

Total investment income for the quarter was $1 1 million and that's up 11% over last year, which reflects increased interest income from portfolio companies.

The number of interested yielding companies contributing to current investment income has continued to increase over the last 12 months to 18 months due to our focus on investments and interest yielding instruments and alignment with our investment objectives and strategy.

Total expenses were 345000, compared with $3 2 million in the prior year period.

Capital gains incentive fees for external investment advisor was a credit of 240000 compared with $2 6 million in expenses in the prior year period.

Excluding the capital gains incentive fees adjusted expenses, which is a non-GAAP financial measure where 585000 for the quarter up 3% or less than 20000.

Reflected in that amount were higher based management fees payable to rand's investor and adviser, resulting from a change in asset values year over year, and higher professional fees and director fees.

The increases were partially offset by the elimination of interest expense on our SBA obligations that were paid off in full and December of 2021.

Net investment income.

772000, or <unk> 30 per share.

On an adjusted basis, which is a non-GAAP financial measure net investment income was 21 cents per share for the first quarter of 2022 up from 17 cents per share in last year's period.

Slide 10 provides a waterfall graph for the change in net asset value for the quarter.

As such at March 31, 2022 were $59 9 million down slightly since 2021 year end.

The change was primarily attributable to the change in HCV auctions market value.

This was offset by new investments and a smaller number.

Valuation adjustments as well as the change in the capital gain fees due to our external investment advisor.

As a result, the net asset value per share was $23.23 at March 31st.

2022, compared with $23.54 at December 31st 2021.

Slide 11 highlights the deployment of our strategy, which has been supported by a strong balance sheet cash.

Cash and cash equivalents at quarter end was 597000, we did not repurchase any shares during the quarter.

As Dan mentioned, the board of directors renewed the share repurchase program, which replaces the 2021 plan.

We hold nearly $12 million of liquid BDC in HCV auction stock, which can provide near term funding capital for investments as we demonstrated this past quarter.

During the first quarter brand paid a total of $387000 in dividends.

And the board maintained the per share dividend level for the second quarter of 2022 at 15 cents and that'll be paid in mid June .

With that I turn the discussion back to Dan.

Thanks, Margaret the first quarter demonstrated our continued progress in execution of our strategy. We are confident in our plan and we do believe we can continue to replicate our success well into the future.

Thank you for joining us today and for your continued interest in Rand capital. We look forward to updating all of you on our second quarter 2022 results, which will be reported in August we hope you have a great day.

This concludes today's conference and you may disconnect your lines at this time.

You for your participation and have a wonderful day.

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