BUFFALO - Rand Capital Corporation (Nasdaq: RAND) ('Rand' or the 'Company'), a business development company providing alternative financing for lower middle market companies, announced its results for the third quarter ended September 30, 2023.
Daniel P. Penberthy, President and Chief Executive Officer of Rand, commented, 'We delivered another quarter of strong performance. Our results have been supported by the sustained growth in interest income, primarily attributed to the continued deployment of capital as part of our investment strategy, which is centered on high-quality debt investments.
'Looking forward, we remain focused on generating strong, consistent returns for our shareholders. During the quarter, we completed two new investments that fit well within our investment objectives and demonstrate our ability to attract opportunities in the current market environment. The expansion of the portion of our portfolio invested into debt investments has proven to be a cornerstone of our success, and we expect to continue this trajectory of growth well into the future.'
Third Quarter Highlights (compared with the prior-year period unless otherwise noted)
Total investment income grew $187,000, or 12%, to $1.7 million, which reflected a 40% increase in interest from portfolio companies, partially offset by lower dividend income. The decrease in dividend income was largely due to a large prior-year dividend from a portfolio company, which did not repeat in the third quarter of 2023, and the sale of the Company's investment in Dealer Solutions and Design (DSD) during the second quarter of 2023.
Total expenses were $810,000 compared with $499,000 in the prior-year third quarter. The increase largely reflects a $264,000 increase in interest expense on borrowings under the senior revolving credit facility entered into in June 2022 to fund growth. Partially offsetting was a change in accrued capital gains incentive fees to the Company's external investment adviser. The current period included a credit of $41,000 in capital gains incentive fees compared with an expense of $22,000 for the third quarter of 2022.
Adjusted expenses, which exclude capital gains incentive fees and is a non-GAAP financial measure, were $851,000 compared with $477,000 in the third quarter of 2022.
Net investment income was $799,000, or $0.31 per share, compared with $1.0 million, or $0.39 per share, in the third quarter of 2022. Adjusted net investment income per share, a non-GAAP financial measure, which excludes the capital gains incentive fee accrual expense, was $0.29 per share, compared with $0.40 in last year's third quarter.
Portfolio and Investment Activity
As of September 30, 2023, Rand's portfolio included investments with a fair value of $74.7 million across 30 portfolio businesses. This was up $13.2 million, or 21%, from December 31, 2022, and reflects new and follow on investments and valuation adjustments in multiple portfolio companies. This was partially offset by equity sales and loan repayments. At September 30, 2023, the portfolio was comprised of approximately 63% in debt investments, 27% in equity investments in private companies, and 10% in publicly traded equities consisting of other BDCs and ACV Auctions. The annualized weighted average yield of debt investments was 13.45%.
Third quarter 2023: Funded $4.0 million total investment in All About People, which included $3.0 million of senior debt at 16%, and a $1.0 million preferred equity investment, which will carry a 12% dividend. All About People is a full-service staffing and executive search firm, with a growing focus on the healthcare industry.
Funded $3.8 million to First Coast Mulch, consisting of a $3.4 million subordinate note at 13% and an interest earning convertible note of $420,000. First Coast Mulch is a commercial mulch installation company that covers the north and central Florida market.
Liquidity and Capital Resources
Cash at the end of the third quarter of 2023 was $3.5 million, up from $1.4 million at year-end 2022, reflecting the proceeds received from exiting DSD and ACV Auctions share sales in the second quarter of 2023. As of September 30, 2023, the Company held shares valued at approximately $4.2 million in other publicly traded BDCs and $3.0 million in ACV Auctions, all of which are available for future liquidity needs including dividends and portfolio investments.
At September 30, 2023, Rand had outstanding borrowings of $13.8 million on its existing $25.0 million senior secured revolving credit facility. The outstanding borrowings carried an interest rate of 8.8% at quarter-end.
The Company did not repurchase any outstanding common stock during the third quarter of 2023.
Dividends
On July 25, 2023, Rand declared its regular quarterly cash dividend distribution of $0.25 per share, which was paid during the third quarter to shareholders of record as of August 31, 2023.
ABOUT RAND CAPITAL
Rand Capital (Nasdaq: RAND) is an externally managed business development company (BDC). The Company's investment objective is to maximize total return to its shareholders with current income and capital appreciation by focusing its debt and related equity investments in privately-held, lower middle market companies with committed and experienced managements in a broad variety of industries. Rand invests in early to later stage businesses that have sustainable, differentiated and market-proven products, revenue of more than $2 million and a path to free cash flow or up to $5 million in EBITDA. The Company's investment activities are managed by its external investment adviser, Rand Capital Management, LLC. Additional information can be found at the Company's website where it regularly posts information: https://www.randcapital.com/.
Safe Harbor Statement
This press release contains 'forward-looking statements' within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than historical facts, including but not limited to statements regarding the strategy of the Company and its outlook; statements regarding the implementation of the Company's strategy and its growth trajectory and any assumptions underlying any of the foregoing, are forward-looking statements. Forward-looking statements concern future circumstances and results and other statements that are not historical facts and are sometimes identified by the words 'may,' 'will,' 'should,' 'potential,' 'intend,' 'expect,' 'endeavor,' 'seek,' 'anticipate,' 'estimate,' 'overestimate,' 'underestimate,' 'believe,' 'could,' 'project,' 'predict,' 'continue,' 'target' or other similar words or expressions. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove to be incorrect, actual results may vary materially from those indicated or anticipated by such forward-looking statements. The inclusion of such statements should not be regarded as a representation that such plans, estimates or expectations will be achieved. Important factors that could cause actual results to differ materially from such plans, estimates or expectations include, among others, (1) evolving legal, regulatory and tax regimes; (2) changes in general economic and/or industry specific conditions and (3) other risk factors as detailed from time to time in Rand 's reports filed with the Securities and Exchange Commission ('SEC'), including Rand's annual report on Form 10-K for the year ended December 31, 2022, quarterly reports on Form 10-Q, and other documents filed with the SEC. Consequently, such forward-looking statements should be regarded as Rand's current plans, estimates and beliefs. Except as required by applicable law, Rand assumes no obligation to update the forward-looking information contained in this release.
Contact:
Daniel P. Penberthy
Tel: 716.853.0802
Email: dpenberthy@randcapital.com
RAND CAPITAL CORPORATION 
