Rand Capital Company (NASDAQ:RAND) This autumn 2022 Earnings Convention Name March 10, 2023 11:00 AM ET
Firm Individuals
Craig Mychajluk – Investor Relations
Dan Penberthy – President and CEO
Margaret Brechtel – Government Vice President and CFO
Convention Name Individuals
Operator
Greetings. Welcome to Rand Capital Company Fourth Quarter 2022 Monetary Outcomes. Right now, all individuals are in a listen-only mode. [Operator Instructions]
Please observe, this convention is being recorded. I’ll now flip the convention over to Craig Mychajluk, Investor Relations. Thanks once more. You might start.
Craig Mychajluk
Yeah. Thanks, and good morning, everybody. We respect your curiosity in Rand Capital and for becoming a member of us at this time for our fourth quarter and full 12 months 2022 monetary outcomes convention name. On the road with me are Dan Penberthy, our President and Chief Government Officer; and Margaret Brechtel, our Government Vice President and Chief Monetary Officer. A duplicate of the discharge and slides that accompany our dialog is on the market at randcapital.com.
In case you are following alongside the slide deck, please flip to slip two, the place I’d prefer to level out some vital info. As you’re doubtless conscious, we might make some forward-looking statements throughout this presentation. These statements apply to future occasions which might be topic to dangers and uncertainties, in addition to different components that might trigger precise outcomes to vary from the place we’re at this time.
Yow will discover a abstract of those dangers and uncertainties and different components within the earnings launch and different paperwork filed by the corporate with the Securities and Alternate Fee. These paperwork might be discovered on our web site or at sec.gov.
Throughout at this time’s name, we will even talk about some non-GAAP monetary measures. We imagine these shall be helpful in evaluating our efficiency. You shouldn’t think about the presentation of this extra info in isolation or as an alternative choice to ends in accordance with Usually Accepted Accounting Rules. We have now supplied reconciliations of non-GAAP measures with comparable GAAP measures within the tables that accompany at this time’s earnings launch.
With that, please flip to slip three and I’ll hand the dialogue over to Dan. Dan?
Dan Penberthy
Thanks, Craig, and good morning, everybody. The fourth quarter capped off a powerful 12 months for Rand as we proceed to execute our technique by specializing in present money yields as a way to obtain our earnings producing targets.
We superior our funding portfolio composition in the direction of extra debt devices with the addition of 4 interest-yielding investments over the previous 12 months. In whole, our debt portfolio now makes up greater than half of our whole portfolio combine sitting at 56%, in contrast with 46% on the finish of 2021.
We delivered whole funding progress of 40% for the quarter and over 41% for the complete 12 months interval, which mirrored enhance in curiosity earnings from portfolio corporations and better portfolio dividends.
Whereas we have now made nice strides constructing out our portfolio that’s delivering sturdy whole funding earnings progress, we’re equally targeted on prudent expense administration, which was demonstrated within the measurable enchancment of our web funding earnings per share of $0.48 for the quarter, up 4 occasions from final 12 months’s fourth quarter.
For the complete 12 months, web funding earnings per share was $1.72 in contrast with the lack of $1.01 per share in 2021. These improved outcomes enabled us to extend our return to shareholders. Throughout 2022, we paid out whole dividends of $0.83 per share, which represents a rise of almost 90% over 2021 distributions.
This included elevating our quarterly dividend money by 33% or $0.05 per share bringing it to $0.20 per share for the fourth quarter of 2022, and on the similar time, paying a supplemental dividend of $0.18 per share.
In the course of the 12 months, we invested over $7 million throughout seven transactions, which largely consisted of interest-yielding property. I’ll spotlight our fourth quarter investments in a second.
In case you flip to slip 4, you may see our portfolio combine between debt and fairness, and the modifications in the course of the previous 12 months. Fastened price debt investments made up 56% as we made progress in shifting our funding portfolio composition in the direction of extra debt devices and we do count on that pattern to proceed as we additional execute upon our technique.
The remainder of the portfolio comprised of 34% in fairness investments in non-public corporations, and 10% in dividend-paying publicly traded BDCs and our ACV Public sale securities. The honest worth of our investments totaled roughly $61.5 million, increasing 3% from the sequential 2022 third quarter.
We noticed some contraction of the honest worth when put next with 2021’s 12 months finish, which was primarily because of the BDC inventory gross sales made in the course of the 12 months and decrease valuations for ACV Auctions and Open Alternate, serving to partially offset this lower was our new and follow-on investments.
As of December 31, 2022, our portfolio consisted of investments in 29 corporations, down 5 since 2021. We exited two BDC investments together with Social Move, Empire, Microcision and New Monarch in the course of the course of the 12 months.
The one new addition was Meals Service Provide, which was executed in the course of the fourth quarter and as highlighted on slide 5.
We utilized present money and our senior secured revolving credit score facility to fund these investments. The $3.1 million funding in Meals Service Provide consisted of a $2.5 million of senior subordinated debt at 12% curiosity and $600,000 of most well-liked fairness. FSS is out of Utah and supply design, distribution and set up providers for business kitchens, in addition to renovations and new business builds.
We additionally made a follow-on debt funding of $590,000 in SciAps, an instrumentation firm that’s specializing in moveable analytical devices, which have the flexibility to establish chemical compounds, minerals and components.
We have now been an investor in SciAps for almost 10 years consisting of each debt and fairness investments alongside the best way. Our whole honest worth of those investments was $5.2 million at 12 months finish.
We have now additionally made $194,000 follow-on fairness funding into Seybert’s Billiards Company, elevating the whole honest worth of this funding to $5.9 million, which was largely comprised of $5.6 million in debt that does accrue at 14%, that 14% features a 12% present pay and a 2% PIK accrual. Seybert is a retail firm that makes a speciality of billiards tools and equipment, and is pretty typical of the varieties of investments which we’re making today.
We had one exit in the course of the quarter. This was Empire Genomics, which repaid the $1.4 million mortgage.
The charts on slide six illustrate the variety in our portfolio and the change in business combine year-over-year. Given the influence of investments, gross sales and honest worth modifications, we noticed the most important modifications within the software program sector, which decreased 10%, whereas skilled providers elevated to 31% and manufacturing additionally elevated to 23%. We proceed to worth this variety of our portfolio as we do really feel that this mitigates the last word market threat influence.
Slide seven does record out our high 5 portfolio corporations at 12 months finish, which represents virtually half of our whole portfolio. Since final quarter, SciAps has moved into the highest 5 rating on the quantity three spot given our fourth quarter funding into the corporate.
Tilson stays the most important honest worth funding and each Open Alternate and ITA have moved out of this high 5 given our valuation modifications in the course of the quarter.
And in addition we had shifts in DSD to the 4 spot and likewise moved Caitec into the highest 5 portfolio combine. At 12 months finish, we nonetheless held almost 320,000 shares of ACV and represents about 4% of the whole portfolio honest worth.
With that, I’ll flip it over to Margaret for a evaluation of our financials in larger depth.
Margaret Brechtel
Thanks, Dan, and good afternoon, everybody. I’ll begin on slides 9 and 10, which give an summary of our monetary abstract and operational highlights for the 2022 fourth quarter and full 12 months interval.
Whole funding earnings for the quarter was over $1.7 million, up 40% over final 12 months, pushed by elevated curiosity earnings from the 4 new debt devices originated over the past 12 months and better dividend earnings.
For the complete 12 months, whole funding earnings grew over 41% to $5.8 million for related causes because the quarter. The variety of portfolio corporations contributing to an funding earnings was 24% at 12 months finish.
Whole bills have been roughly $371,000 in the course of the fourth quarter, in contrast with $923,000 within the prior 12 months quarter. This lower displays decrease curiosity expense and a credit score of accrued capital achieve incentive charges given the lower in unrealized depreciation on our publicly traded securities and Open Alternate and ITA valuation modifications.
As a reminder, a capital achieve on our charge accrual underneath GAAP is calculated utilizing the cumulative, combination realized capital positive factors and losses and the combination web change in unrealized capital appreciation and depreciation on the shut of the interval.
Excluding the capital positive factors incentive charge, adjusted bills, a non-GAAP monetary measures have been roughly $539,000, down 36% from the prior 12 months interval, as a consequence of continued expense administration and decrease curiosity expense.
Full 12 months 2022 whole bills decreased to $1.1 million from $6.7 million, largely as a consequence of an approximate $5.3 million swing inside the capital positive factors incentive charge accrual. Particularly, 2021 included $4.2 million of capital achieve incentive charges, whereas in 2022, it included a reversal of $1 million of those charges.
The overall expense lower additionally displays the elimination of curiosity expense funds for the SBA obligation, which was paid in full in November of 2021. When trying on an adjusted foundation, which is a non-GAAP monetary measure, 2022 bills have been down 12% year-over-year.
Fourth quarter web funding earnings was roughly $1.2 million or $0.48 per share, in contrast with roughly $320,000 or $0.12 per share within the prior 12 months quarter. On an adjusted foundation, which is a non-GAAP monetary measure, web funding earnings greater than doubled to $0.41 per share.
For the complete 12 months interval, web funding earnings per share was $1.72, in contrast with a web funding lack of $1.01 per share in 2021. Excluding the capital positive factors incentive charge accrual, which is a non-GAAP monetary measure, adjusted web funding earnings per share was $1.31 for 2022, once more greater than double the 2021 outcomes.
Slide 11 supplies a waterfall graph for the change in web asset worth for the 12 months. At December 31, 2022, web property have been $57.7 million, down 5% from 12 months finish 2021. The change displays the brand new and follow-on investments, offset by honest market worth modifications throughout various portfolio corporations and the over $2.1 million in dividend distributions to shareholders in the course of the 12 months. Consequently, the online asset worth per share was $22.36, in comparison with $23.54 per share at December 31, 2021.
Slide 12 highlights our sturdy stability sheet. Money at 12 months finish was roughly $1.4 million, in contrast with $834,000 on the finish of 2021. We nonetheless held roughly $6.4 million in liquid BDC and ACV public sale shares, which might present near-term funding capital for investments as we have now demonstrated in previous intervals.
Additionally, as a reminder, in the course of the second quarter of 2022, we closed on a five-year $25 million senior secured revolving credit score facility. At 12 months finish, we had excellent borrowings of $2.6 million, which was used to fund the funding that Dan highlighted earlier.
Throughout 2022, Rand paid a complete of $2.1 million of money dividends, which incorporates the 4 common quarterly dividends and the 12 months finish 2022 supplemental dividend. Our portfolio transformation to incorporate extra earnings producing investments is predicted to help an elevated dividend stage over time. In step with that expectation, we introduced in the course of the fourth quarter of 2022 that we raised the common — quarterly money dividend by 33% to $0.20 per share.
On February 28, 2023, Rand declared its common quarterly money dividend distribution of $0.20 per share for the primary quarter of 2023. The dividend shall be distributed on or about March 27, 2023, to shareholders of file as of March 13, 2023.
In April 2022, the Board of Administrators authorised a brand new share repurchase plan, which authorizes the corporate to repurchase shares of our excellent widespread inventory with an combination value of as much as $1.5 million. In the course of the previous 12 months, we didn’t repurchase any shares.
With that, I’ll flip the dialogue again to Dan.
Dan Penberthy
Thanks, Margaret. We entered 2023 with momentum on our facet. We imagine we have now a powerful and versatile stability sheet that’s supported by a number of sources of capital. Past our money readily available, our line of credit score availability, we additionally nonetheless have extremely liquid publicly traded ACV and our BDC shares, potential proceeds from portfolio exits, and naturally, our potential funding earnings.
We’re actively constructing a pipeline of funding alternatives as a way to put this capital to work. We’re targeted on investing in increased yielding debt devices and associated fairness investments in these privately held decrease center market corporations, which have a dedicated and skilled administration group throughout a broad number of industries. This will embody follow-on investments in present portfolio corporations as nicely that proceed to reveal and carry out and exhibit nice and distinctive progress potential.
General, we’re enthusiastic about our future and imagine we will proceed to execute our technique to drive funding earnings progress as a way to allow us to additional develop our distributable dividends over time.
Thanks for becoming a member of us at this time and in your continued curiosity in Rand Capital. We sit up for updating you on all of our first quarter 2023 outcomes, which shall be reported in Could. We hope you have got an awesome day.
Query-and-Reply Session
Q –
Operator
Thanks. This does conclude at this time’s convention. You might disconnect your traces right now and thanks in your participation.
