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 first quarter ended March 31, 2023.
Daniel P. Penberthy, President and Chief Executive Officer of Rand, commented, 'We have had a strong start to 2023 demonstrated by continued earnings momentum driven by the improvement of our portfolio composition as well as the overall favorable performance of portfolio companies amidst a challenging economic business climate. Importantly, we have a strong balance sheet and significant liquidity that positions us well in a volatile market as we expect to continue to grow our portfolio, expand earnings and deliver on our goal to consistently increase our dividend.'
First Quarter Highlights (compared with the prior-year period unless otherwise noted)
Total investment income grew $727,000, or 65%, to $1.85 million driven by a 42% increase in interest from portfolio companies, dividend income that more than doubled, and higher fee income.
Total expenses were $1.05 million compared with $345,000 in the prior-year first quarter. The increase includes a $531,000 increase in capital gains incentives fees payable to the Company's external investment adviser, Rand Capital Management, LLC. The increase also reflects $158,000 in interest expense from the senior revolving credit facility entered into in June 2022 to fund growth. Offsetting these increases was a $60,000 decline in professional fees. Excluding capital gains incentive fees, adjusted expenses, which is a non-GAAP financial measure, were $757,000 compared with $585,000 in the first quarter of 2022.
Net investment income was $715,000, or $0.28 per share, compared with $772,000, or $0.30 per share, in the first quarter of 2022. Adjusted net investment income per share, a non-GAAP financial measure, which excludes the capital gains incentive fee accrual, was $0.39 per share, up from $0.21 in last year's first quarter.
Portfolio and Investment Activity
As of March 31, 2023, Rand's portfolio included investments with a fair value of $68.2 million across 30 portfolio businesses. This was up $6.7 million, or 11%, from December 31, 2022, and reflected new and follow on investments and a $1.5 million valuation adjustment on ACV Auctions, Inc. (Nasdaq: ACVA). This was partially offset by equity sales and loan repayments. At March 31, 2023, the portfolio was comprised of approximately 58% in debt investments, 30.5% in equity investments in private companies, and 11.5% in publicly traded equities consisting of other BDCs and ACV Auctions. The annualized weighted average yield of debt investments was 13.4%.
First quarter 2023: Provided $3.0 million to PressurePro in subordinated debt at 15% interest rate and with a 10% warrant. PressurePro is a family owned and operated company that has established itself as a market leader for branded tire pressure monitoring systems consisting of a suite of proprietary hardware and software.
Funded a follow on debt investment of $2.3 million in Food Service Supply (FSS) in combination with an equity sale of $210,000. Rand's total debt and equity investment in FSS had a fair value of $5.2 million as of March 31, 2023.
Equity investment of $250,000 in Tilson Technologies' asset ownership affiliate SQF, LLC, which supports Tilson's expansion by both driving the continued growth of its nationwide network infrastructure design-build services and supporting SQF. SQF develops telecommunications assets in public rights-of-way throughout the United States and is a leading pole owner and solutions provider for 5G.
Liquidity and Capital Resources
Cash at the end of the first quarter of 2023 was $1.8 million compared with $1.4 million at the end of 2022. As of March 31, 2023, the Company held approximately $3.8 million in publicly traded equities of other BDCs and $4.0 million of ACV Auctions shares, all of which are available for future liquidity needs including dividends and portfolio investments.
At March 31, 2023, Rand had outstanding borrowings of $7.95 million on its existing $25.0 million senior secured revolving credit facility. The outstanding borrowings carried an interest rate of 8.05% at quarter-end.
The Company did not repurchase any outstanding common stock during the first quarter of 2023.
Board Renewed Share Repurchase Authorization
Rand's Board of Directors renewed the share repurchase program authorizing the purchase of up to $1.5 million in additional Rand common stock. The shares may be repurchased from time to time in the open market and in accordance with applicable regulations of the Securities and Exchange Commission. The stock repurchase program does not obligate the Company to purchase any shares, and the timing and exact amount of any repurchases will depend on various factors, including the performance of the Company's stock price, general market and other conditions, applicable legal requirements and other factors. The renewed stock repurchase program expires on April 19, 2024, and may be suspended, terminated or amended by the Board at any time prior to the expiration date.
Dividends
On April 26, 2023, Rand declared its regular quarterly cash dividend distribution of $0.25 per share, which was increased by $0.05 per share or 25%. The cash dividend will be distributed on or about June 14, 2023, to shareholders of record as of May 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 increasing our 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:
Daniel P. Penberthy
Tel: 716.853.0802
Email: dpenberthy@randcapital.com
RAND CAPITAL CORPORATION 
