Q3 2022 Rand Capital Corp Earnings Call

Greetings and welcome to the Rand Capital Corporation third quarter fiscal year 2022 financial risk.

Ralph.

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'll now like to turn the conference over to our host Craig Mahalik Investor Relations. Thank you you may begin.

Good afternoon, everyone. We appreciate your interest in Rand capital and for joining US today for our third quarter 2022 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.

A copy of the release and slides that accompany our conversation is available it ran capital back up.

If you're 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 forward looking statements during this presentation.

These statements apply to future events and are subject to risks and uncertainties as well as other factors that could cause actual results differ from where we are today.

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

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

During today's call will also discuss non-GAAP financial measures. We believe these will be useful in evaluating our performance.

Did not consider the presentation of this additional information in isolation or.

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 release.

With that please turn to slide three I'll handle this.

Gosh it over to Dan Dan.

Thank you, Greg and good afternoon, everyone.

We have delivered another strong quarter of total investment income growth of 54%, which reflects an expanded debt portfolio and higher portfolio dividend.

While we have made great strides building out our portfolio that is delivering strong total investment growth. We are equally focused on prudent expense management, which was demonstrated in the measurable improvement of net investment income per share of 39 cents for the quarter.

We paid a dividend of <unk> 15 per share during the quarter. The third quarter that is and so far this year, we've paid to shareholders 45 cents per share in dividend.

During this quarter, we made one investment to fund the $400000 follow on equity investment.

In an existing portfolio company.

With a flexible balance sheet that is supported by multiple sources of capital. We believe we can continue to evolve our portfolio company next scale, our business to drive investment income and further grow our distributable dividends.

If you turn to slide four.

There you can see our portfolio mix between debt and equity and the flight changes during the third quarter.

More than half of our portfolio its still comprised of fixed rate debt investments as we ended the period at 54%.

We have made significant progress in shifting our investment portfolio composition.

Towards more debt instruments, and we expect that trend to continue as we execute our strategy.

The rest of the portfolio comprised of 36% and equity investments in private company.

And 10% in dividend paying publicly traded BDC and our HCV auction security.

The fair value of our investments totaled $59 7 million.

Spanning 1%, primarily due to the changes in H T V auctions market value and the follow on investment I noted.

As of September 30th 2022, our portfolio consisted of investments in 29 companies.

On par with the sequential second quarter.

We did not exit any positions during the period and we only made the one follow on investment which was highlighted on slide five.

We utilize existing cash to fund our follow on equity investment in Iga, raising the total equity fair value of our investment to $749000.

We also have a $3 $5 million of debt investments also in I T E.

Does have a variable rate of interest and currently accrues at 14%, which is an does include rather a 12% current pay and a 2% Pic accrual.

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

Forward and fabric shade shutters, and blinds for residential and commercial applications.

We did not sell any of our holdings in a C V during the quarter.

As a reminder, any proceeds above our approximately $87000 remaining cost will be a capital gain and treat it as such when it relates to any potential regulated investment company or Ric based income and capital gains distribution calculations.

At quarter end, we still held 319934 shares of ACP, which represented approximately 4% of our total portfolio fair value.

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

With the impact of recent investments and fair value change at the.

The BDC contracted 6% and manufacturing increased to 19%.

The percentage mix of the other industry did not change substantially.

We continue to value the diversity of this portfolio.

We feel that it does mitigate market risk impact.

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

Since the last quarter. The major change was the I T. A moving into the top five ranking as the number four spot given our recent investment shifting D. S T down and K Tech moving out of the top five.

The other positions noted were consistent with the last quarter.

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

Thanks, Dan and good afternoon, everyone.

I'll start on slide nine which provides an overview of our financial summary, and operational highlight.

Third quarter of 2022.

Total investment income for the quarter was $1 6 million up 54% over last year.

<unk> increased interest income from portfolio companies.

For new debt investments over the last year and higher dividend on timing.

A number of portfolio companies contributing to current investment income during the third quarter was 21.

Total expenses were 499000 during the third quarter compared with 963000 in the prior year quarter.

This decrease was largely due to lower accrued capital gains incentive fee.

That resulted from a decrease in unrealized depreciation in our publicly traded securities.

As a reminder, the capital gains incentive fee accrual under GAAP.

Calculated using the cumulative realized.

Realized gains and losses in the aggregate net change in unrealized appreciation and depreciation.

Here yet.

Excluding the capital gains incentive fee adjusted expenses.

non-GAAP financial measure.

With 477000.

6% from the prior year period.

This decrease reflects lower interest expense given the company's SBA indebtedness was paid off in full in December 2021.

Partially offset by higher professional fees.

From the new senior secured revolving credit facility completed in the second quarter of 2022.

Net investment income was $1 million or 39 cents per share for the third quarter compared with 53000 or two cents per share in the prior year quarter.

On an adjusted basis, which is a non-GAAP financial measure.

Net investment income Cabo 40 cents per share for the third quarter of 'twenty to 'twenty two.

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

At September 30th 2022, net assets were $58 4 million an increase.

Second quarter.

The change was primarily attributable to the net investment income growth and change in ACB auction market value.

We also declared and paid out approximately 387000 up cash dividends during the quarter.

As a result, the net asset value per share was $22 62 scans.

At September 30th 'twenty, 'twenty, two compared with $22 34 at June 30 of 2022.

Slide 11 highlights our strong balance sheet cash.

Cash at quarter end was $1 million up 24% in 2021 here and we.

We still hold approximately $6 2 million in liquid BDC and ACD auction stock at quarter end.

These investments can provide near term funding and capital.

As we've demonstrated in past quarters.

Also as a reminder, during the second quarter, we closed on a five year $25 million senior secured revolving credit facility.

And no borrowings under that facility at quarter end. However, we did take an initial 300000 dry down early in the fourth quarter of 2022 to fund that investment.

We did not repurchase any shares during the quarter.

The board maintained the per share dividend novel 15 cents per share during the third quarter, which was paid in September of 2022.

When you do this fourth quarter, we will again review all sources of data and tech space income, including those from short and long term capital gain which May result in additional distributions over previously distributed accordingly cash dividends that were paid out.

The final determination and calculation of our tax base distributable income for each year its finalized and the October September October timeframe and the following year in conjunction with their tax return filings.

With that I turn the discussion back to Dan.

Thanks Margaret.

We're excited about our future with the support of our strong liquidity position. We believe we can continue to execute our strategy to grow our portfolio drive investment income and support a growing dividend.

Thank you for joining us today and for your continued interest in Rand capital with.

We look forward to updating all of you on our fourth quarter 2022 results, which will be recorded into March. We hope you have a great day.

Thank you that concludes today's conference all parties may disconnect have a great day.