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, 2024.
Daniel P. Penberthy, President and Chief Executive Officer of Rand, commented, “We are consistent and persistent in the execution of our strategy, driving strong growth in total investment income through prudent and strategic investments in income-generating debt instruments. During the quarter, our efforts to optimize the portfolio, including selective exits, generated capital that we advantageously deployed to improve our balance sheet. This positions us well for future growth opportunities. Additionally, we look forward to leveraging the capital expected from the pending sale of our portfolio investment company, SciAps, which we had previously announced and is expected to close later this year.
“Looking ahead, our plan is to continue scaling our business through new investments and also reinvesting in high-potential existing portfolio companies. Our goal is to focus on new debt investments in smaller opportunities, replicating our past successes in helping these companies grow. We believe this will cultivate a robust and steady income stream, strengthening our ability to increase cash dividends over the long term.”
Second Quarter Highlights (compared with the prior-year period unless otherwise noted):
- Total investment income grew by $321,000, or 18%, to $2.1 million, reflecting a 35% increase in interest from portfolio companies, partially offset by lower dividend and fee income.
- Total expenses were $2.7 million compared with $1.3 million in last year’s second quarter, largely due to a $1.2 million increase in capital gains incentive fees to the Company’s external investment adviser. The increase also includes $393,000 in interest expense from the senior revolving credit facility compared with $259,000 for the second quarter of 2023.
- Adjusted expenses, excluding capital gains incentive fees, were $1.0 million compared with $816,000 in the second quarter of 2023.
- Net investment loss was $517,000, or $0.20 per share, compared with net investment income of $493,000, or $0.19 per share, in the second quarter of 2023. Adjusted net investment income per share, excluding the capital gains incentive fee accrual expense, was $0.44 per share, up 16% from $0.38 per share in last year’s second quarter.
Portfolio and Investment Activity:
As of June 30, 2024, Rand’s portfolio included investments with a fair value of $87.1 million across 26 portfolio businesses. This represents an increase of $9.9 million, or 13%, from December 31, 2023, reflecting new and follow-on investments and valuation adjustments in multiple portfolio companies, partially offset by stock sales and other portfolio company loan repayments. Rand’s portfolio was comprised of approximately 66% in debt investments, 32% in equity investments in private companies, and 2% in publicly traded equities of other BDCs. The annualized weighted average yield of debt investments, including PIK interest, was 13.8% at June 30, 2024, compared with 13.6% at the end of 2023.
Second quarter 2024 highlights:
- Funded a follow-on equity investment of $108,000 in Food Service Supply Holdco LLC (FSS). Rand’s total debt and equity investment in FSS had a fair value of $7.5 million at quarter-end.
- Sold shares in three publicly traded BDCs for total proceeds of $3.3 million, which included a realized gain of $1.3 million.
- Received $740,000 principal loan repayment from Pressure Pro, Inc.
- Realized a gain of $397,000 from a partial asset sale of a Tilson affiliated company.
- At quarter-end, Rand’s total debt and equity investment in SciAps had a fair value of $10.8 million.
- Exited remaining equity investment in KNOA Software.
Liquidity and Capital Resources:
Cash was $2.3 million at June 30, 2024. The Company also held shares valued at approximately $1.3 million in other publicly traded BDCs, which are available for future operational and liquidity needs. During the quarter, Rand reduced its outstanding borrowings by $2.0 million, leaving a balance of $17.2 million on its existing $25.0 million senior secured revolving credit facility at June 30, 2024. The outstanding borrowings carried an interest rate of 8.8% at quarter-end. Subsequent to quarter-end, Rand repaid an additional $2.3 million on its outstanding borrowings. The Company did not repurchase any outstanding common stock during the second quarter of 2024.
Dividends:
On May 8, 2024, Rand declared its regular quarterly cash dividend distribution of $0.29 per share, which was paid during the second quarter to shareholders of record as of May 31, 2024. On July 31, 2024, Rand declared its regular quarterly cash dividend distribution of $0.29 per share. The cash dividend will be distributed on or about September 13, 2024, to shareholders of record as of August 30, 2024.
Webcast and Conference Call:
Rand will host a conference call and webcast on Tuesday, August 6, 2024, at 1:30 p.m. Eastern Time, to review its financial results. The review will be accompanied by a slide presentation, which will be available on Rand’s website at www.randcapital.com in the “Investor Relations” section. Rand’s conference call can be accessed by calling (201) 689-8263. Alternatively, the webcast can be monitored on Rand’s website at www.randcapital.com under “Investor Relations,” where the replay will also be available. A telephonic replay will be available from 5:30 p.m. ET on the day of the call through Tuesday, August 20, 2024. To listen to the archived call, dial (412) 317-6671 and enter replay pin number 13747031. A transcript of the call will also be posted once available.
