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 second quarter ended June 30, 2023.
Daniel P. Penberthy, President and Chief Executive Officer of Rand, commented, 'We delivered a strong quarter of total investment income growth, fueled by the addition of high-quality debt investments. Additionally, Rand recognized a sizable gain from the sale of our debt and equity investment in Dealer Solutions and Design (DSD) during the quarter, further strengthening our balance sheet and liquidity position. We believe we can continue to execute our strategy as we look to the second half of the year and beyond. With our strong cash position, we paid down some of our outstanding borrowings under our credit facility in July and expect to utilize additional cash on hand and our credit facility to further strengthen and solidify our portfolio in order to drive our earnings potential and support a growing dividend.'
Second Quarter Highlights (compared with the prior-year period unless otherwise noted)
Total investment income grew $462,000, or 34%, to $1.8 million driven by a 47% increase in interest from portfolio companies and higher fee income.
Total expenses were $1.3 million compared with a credit of $96,000 in the prior-year second quarter. The increase largely reflects a change in accrued capital gains incentive fees to the Company's external investment adviser. The current period included $491,000 of capital gains incentive fees expense compared with a credit of $663,000 for the second quarter of 2022. The increase in total expenses also reflects $259,000 in interest expense from the senior revolving credit facility entered into in June 2022 to fund growth, compared with no interest expense during the prior year quarter. Offsetting these increases was a $112,000 decline in professional fees.
Excluding capital gains incentive fees expense, adjusted expenses, which is a non-GAAP financial measure, were $816,000 compared with $567,000 in the second quarter of 2022.
Net investment income was $493,000, or $0.19 per share, compared with $1.4 million, or
$0.55 per share, in the second quarter of 2022. Adjusted net investment income per share, a non-GAAP financial measure, which excludes the capital gains incentive fee accrual expense, was $0.38 per share, up from $0.29 in last year's second quarter.
Portfolio and Investment Activity
As of June 30, 2023, Rand's portfolio included investments with a fair value of $66.8 million across 29 portfolio businesses. This was up $5.3 million, or 9%, from December 31, 2022, and reflected new and follow on investments and valuation adjustments in multiple portfolio companies. This was partially offset by equity sales and loan repayments. At June 30, 2023, the portfolio was comprised of approximately 60% in debt investments, 29% in equity investments in private companies, and 11% in publicly traded equities consisting of other BDCs and ACV Auctions. The annualized weighted average yield of debt investments was 13.5%.
Second quarter 2023: Funded $4.3 million to INEA, consisting of $3.3 million of senior subordinated debt and $1.0 million of preferred equity. INEA is a stocking distributor of controlled expansion alloys, electronic grade nickels, refractory grade metals and alloys, and soft magnetic alloys. The company plays an important role between the mills that produce the specialty alloys and the end-users whose order sizes don't require full mill quantities.
Funded a follow on debt investment of $390,000 to ITA Acquisition, LLC, a blind and shade manufacturer, to help support a new line of business. Rand's total debt and equity investment in ITA had a fair value of $4.0 million at quarter-end.
Portfolio investment company DSD was sold during June 2023, which resulted in the full repayment of Rand's subordinated debt and sale of its preferred equity investments. In total, Rand received $6.8 million of proceeds, which included a net gain of $2.5 million.
Sold 125,000 shares of ACV Auctions at an average price of $14.03 per share for a realized gain of $1.7 million. Rand held 194,934 shares of ACV at quarter-end, which represented approximately 5% of its portfolio's fair value.
Sold remaining small equity position in Somerset Gas, a provider of natural gas transmission services.
Liquidity and Capital Resources
Cash at the end of the second quarter of 2023 was $8.4 million, up considerably from $1.4 million at year-end 2022, reflecting the proceeds received from the DSD and ACV Auctions share sales. As of June 30, 2023, the Company held shares valued at approximately $4.0 million in other publicly traded BDCs and $3.4 million in ACV Auctions, all of which are available for future liquidity needs including dividends and portfolio investments.
At June 30, 2023, Rand had outstanding borrowings of $10.7 million on its existing $25.0 million senior secured revolving credit facility. The outstanding borrowings carried an interest rate of 8.59% at quarter-end. Subsequent to quarter-end, in July, Rand used $3.0 million of its cash on hand to pay down its outstanding borrowings.
The Company did not repurchase any outstanding common stock during the second quarter of 2023.
Dividends
On July 25, 2023, Rand declared its regular quarterly cash dividend distribution of $0.25 per share. The cash dividend will be distributed on or about September 14, 2023, 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; statements regarding increasing the Company's dividend, 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:
Kei Advisors LLC
Tel: 716-843-3908
Email: dpawlowski@keiadvisors.com
RAND CAPITAL CORPORATION 
