Rand Capital Corporation (NASDAQ: RAND) reported a strong start to fiscal year 2024, with a solid first quarter marked by strategic capital deployment and a notable increase in dividends for shareholders.
The company's focus on debt investments has led to a 12% growth in investment income, and the recent sale of ACV Auction stock has further fortified the company's financial position. Rand Capital's diverse portfolio and strategic exits underscore its agility and strength in the investment landscape.
Key Takeaways
- Rand Capital's total investment income rose by 12% in Q1 2024, driven by strategic debt investments.
- The company's debt portfolio now represents 70% of the total mix, up from 64% at the end of 2023.
- Dividends increased by 16% to $0.29 per share for Q2, reflecting the company's operational strength and future confidence.
- Portfolio diversity remains a key strategy, with investments spread across various industries.
- Net asset value per share increased to $23.85 at the end of Q1 2024.
Company Outlook
- Rand Capital remains committed to maximizing shareholder value and growing dividends through strategic income-generating investments.
- The company has a strong and flexible balance sheet, with $11 million in total availability for future investments.
- Management is confident in executing a strategy that supports a consistent and robust income stream.
Bearish Highlights
- Total expenses for Q1 2024 increased due to a rise in interest expense on borrowings.
Bullish Highlights
- Rand Capital realized gains from the sale of ACV Auction stock, contributing to a robust financial position.
- The shift towards more income-producing investments is expected to support increased dividend levels over time.
Misses
- Adjusted net investment income per share saw a slight decrease from $0.39 in Q1 2023 to $0.37 in Q1 2024.
Q&A Highlights
- The earnings call did not provide a Q&A session, as it was not mentioned in the transcript summary provided.
Rand Capital's first quarter of fiscal year 2024 has set a positive tone for the company's operational and financial trajectory. With a disciplined approach to investments and a clear focus on income generation, the company is well-positioned to continue delivering value to its shareholders. Investors and stakeholders can anticipate further updates in August when Rand Capital reports its second quarter results.
InvestingPro Insights
Rand Capital Corporation (NASDAQ: RAND) has demonstrated a strong financial performance as it enters the fiscal year 2024, with notable metrics that reflect its operational success and investment acumen. Here are some insights based on real-time data from InvestingPro:
InvestingPro Data:
- The company's market capitalization stands at a robust $38.12 million, signaling investor confidence in its business model and growth potential.
- With a P/E Ratio of 5.82, Rand Capital presents an attractive valuation to investors looking for earnings at a reasonable share price.
- Revenue for the last twelve months as of Q4 2023 reached $7.34 million, with a remarkable growth rate of 27.28%, showcasing the company's ability to increase its top-line figures effectively.
InvestingPro Tips:
- Rand Capital pays a significant dividend to shareholders, with a dividend yield of 12.12% as of the latest data, which is a strong indicator of the company's commitment to returning value to its investors.
- The company is currently trading near its 52-week high, with a price 96.85% of the peak, reflecting a sustained positive market sentiment.
For investors looking to delve deeper into the financials and strategic positioning of Rand Capital, additional InvestingPro Tips are available. There are more tips to explore that can provide a more comprehensive understanding of the company's performance and future outlook. To access these insights and enhance your investment strategy, consider using the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
Full transcript - Rand Capital Corp (NASDAQ:RAND) Q1 2024:
Operator: Greetings and welcome to Rand Capital Corporation’s First Quarter Fiscal Year 2024 Financial Results. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the conference over to your host Mr. Craig Mychajluk. Thank you. You may begin.
Craig Mychajluk: Thank you, and good afternoon, everyone. We appreciate your interest in Rand Capital and for joining us today for our first quarter 2024 financial results conference call. On the line with me are Dan Penberthy, our President and Chief Executive Officer; and Margaret Brechtel, our Executive Vice President and Chief Financial Officer. A copy of the release and slides that accompany our conversation is available at randcapital.com. If you're following along in the slide deck, please turn to Slide 2, where I'd like to point out some important information. As you are likely aware, we may make some forward-looking statements during this presentation. These statements apply to future events that are subject to risks and uncertainties, as well as other factors that could cause actual results to differ from where we are today. You can find a summary of these risks and uncertainties and other factors in the earnings release and other documents filed by the company with the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. During today's call, we'll also discuss some non-GAAP financial measures. We believe, these will be useful in evaluating our performance. You should not consider the presentation of this additional information in isolation, or as a substitute for results in accordance with generally accepted accounting principles. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's earnings release. With that, please turn to Slide 3, and I'll hand the discussion over to Dan. Dan?
Daniel Penberthy: Thank you, Craig, and good afternoon, everyone. We kicked off the year with solid momentum fueled by the strategic deployment of capital, particularly into new and follow-on debt investments. This approach has consistently delivered results over the past years and evidences our strong performance in the first quarter of 2024. The initial three months were dynamic within our portfolio, characterized by these new and follow-on investments, certain equity sales and portfolio repayments. This activity does underscore the strength and agility of our investment approach. Moreover, seizing upon favorable market conditions, we realized $3.5 million from the sale of our ACV Auction stock. This strategic exit in conjunction with the prudent utilization of our credit facility has enabled us to deploy $10 million during the quarter fortifying the potential yield and the future of our portfolio, and the strengthening dividends. Noteworthy is the evolution of our debt portfolio, which now represents 70% of our total mix, up from 64% at the close of 2023, and 56% at the end of 2022. This strategic shift has driven the 12% growth in total investment income for the quarter. The strong performance translated into tangible benefits for our shareholders as evidence on Slide 4. Year-to-date, we have declared total dividends of $0.54 per share. This includes a cash dividend of $0.25 per share for the first quarter, and just last week on May 8, we increased our regularly quarterly cash dividend for the second quarter by $0.04 per share, marking a 16% increase and is now at $0.29 per share. This dividend increase reflects not only the strength and stability of our business operations and its portfolio, but our consistent and confident abilities to execute in the future trajectory of the company. We firmly believe that our deal flow and unique marketing position will continue to support future dividends. At quarter end, having put our capital to work and distributing $645,000 in cash dividends to the shareholders, we still had approximately $11 million in total availability, including our cash on hand, line of credit availability, and our highly liquid publicly traded securities. If you turn to Slide 5, you can see our portfolio mix between debt and equity and the changes during the recent quarter. Our portfolio consisted of investments with a fair value of $82.8 million across 30 portfolio businesses. This was up $5.6 million rather a net basis, or 7% from the year end 2023, and reflected these new and follow on investments in valuation adjustments in multiple portfolio companies. These were partially offset by our sale of ACV Auction stock and other portfolio company loan repayments. The portfolio comprised approximately 70% in debt investments as I priorly noted -- previously noted rather, which have an annualized weighted average yield of 13.7%, which includes PIK or payment in kind interest. The remaining mix was comprised 25% in equity investments in private companies and 5% in publicly traded securities consisting of our other BDC investments. During the first quarter, we completed one follow on and two new investments. These transactions are highlighted on Slide 6. The larger investment was a debt investment totaling $5.5 million into Madison Avenue Holdings. They had previously repaid their $1.9 million loan to Rand also during the quarter. This debt instrument will carry a rate of 14%, including PIK interest. Madison Avenue is based out of Texas and provides upscale salon spaces for lease. The second was a new investment of $3.2 million made with Mountain Regional Equipment Solutions or MRES that consisted of a $3 million term loan at 14% and a $205,000 equity investment. MRES is based out of Utah and supplies automated lubrication systems, active and passive safety systems and maintenance products designed for the mobile heavy equipment industry. The follow-on investment during the quarter was $1.8 million into Seybert's Billiards Corporation, a Billiards supply company based out of Michigan. With this investment, our total debt and equity investment in Seybert's increased to a fair value of $7.8 million at quarter end. The bottom half of the slide highlights the notable exits and repayments from the quarter, including the sale of the stock of ACV Auctions. We have determined an appropriate time to make an exit within our investment portfolio and this is often just as critical as making the initial investment. The shares of ACV were sold at an average price of $18.02 per share. And the sales of the 194,000 shares did result in a realized gain of $3.5 million. I should highlight that during the prior quarter, we had ACV stock valued or that is rather unrealized appreciation for approximately $2.9 million. And with the sale, we have now monetized that prior appreciation. During the quarter, we also received $687,000 principal loan repayment from Pressure Pro, which left our total fair value of debt and equity investment at $2.4 million into this portfolio of company. The chart presented on Slide 7, offer a visual depiction of the diversity within our portfolio and the evolving landscape of industry allocation over the past quarter. Against the backdrop of recent investments as well as adjustments in fair value, our industry composition saw notable changes during the quarter. Sectors such as professional services, consumer products and distribution witness growth. On the other end, we observed declines in the representation of the manufacturing and software industries. Overall, we continue to value this diversity of our industry mix. The diverse spectrum of sectors across our entire portfolio serves as a testament to our strategic approach, ensuring resilience and mitigating risk in our investment efforts. Slide 8 lists our top five portfolio companies at quarter end. Tilson continues to remain the largest fair value investment at well over $10.6 million or 13% of our total portfolio. Seybert's moved up to number two following our recent investment and Mattison Avenue also moved to the fourth ranking following our investment. Overall, these top five represent 44% of our total portfolio at quarter end. With that, I'll turn it over to Margaret for a further review of our financials.
Margaret Brechtel: Thank you, Dan, and good afternoon, everybody. I will start on Slide 10, which provides an overview of our financial summary for the first quarter of 2024. Total investment income for the quarter was $2.1 million, up 12% over last year's first quarter, driven by a 40% increase in interest income. Overall, the number of portfolio companies contributing to investment income during the first quarter of 2024 was 24 companies compared to 23 in the first quarter of 2023. Total expenses were approximately $1.2 million during the first quarter compared with $1 million in the prior year's first quarter. The change reflects a $232,000 increase in interest expense on borrowings under our senior revolving credit facility, partially offset by a decrease in capital gain incentive fees to the company's external investment adviser. Adjusted expenses, which includes accrued capital gains incentive fees and is a non-GAAP financial measure, were $1.1 million compared with $757,000 in the first quarter of 2023. First quarter net investment income increased 17% to $840,000 or $0.33 per share compared with $715,000 or $0.28 per share in the prior year first quarter. On an adjusted basis, which is a non-GAAP financial measure and excludes the capital gains incentive fee accrual expense, net investment income was $0.37 per share compared with $0.39 per share in the first quarter of 2023. I'm going to move on to Slide 11, which provides a waterfall graph for the change in net asset value for the quarter. Net assets at March 31, 2024, were $61.6 million, up 1% from the end of 2023. The change reflects our net investment income and realized gains from the ACV Auction sales coupled with a $2.9 million net change in unrealized depreciation and the $645,000 dividend distribution to shareholders during the quarter. As a result, the net asset value per share at March 31, 2024, increased to $23.85 compared with $23.56 and per share at December 31, 2023. As highlighted on Slide 12, we continue to have a strong and flexible balance sheet that positions us well for future investments. Total assets grew 4% to $84.4 million, which included cash at quarter end of approximately $759,000. We also held approximately $4.5 million in liquid BDC shares, which are available for future liquidity needs, as Dan will touch on in a moment. Based on our borrowing base formula, Rand has approximately $5.8 million of availability on its existing $25 million senior secured revolving credit facility at March 31, 2024. Our total outstanding borrowings of $19.2 million carried an interest rate of approximately 8.8% at quarter end. We did not repurchase any shares during the quarter. The Board of Directors did renew the share repurchase program, authorizing the purchase of up to $1.5 million in additional Rand Capital stock. The new program expires on May 7, 2025. Our portfolio transformation to include more income-producing investments is expected to support an increased dividend level over time. In line with that expectation, as previously mentioned, Rand recently declared its regularly quarterly cash dividend distribution of $0.29 per share, which increased 16% from the first quarter of 2024 dividend of $0.25 per share. The cash dividend will be distributed on or about June 14, 2024, to shareholders of record as of May 31, 2024. With that, I will turn the discussion back to Dan.
Daniel Penberthy: Thanks, Margaret. We do remain focused on our commitment to maximizing shareholder value through the sustained rather growth of dividends. We continue our strategic focus on bolstering our investment portfolio, particularly through prudent and strategic investments of income-generating debt instruments. By capitalizing on these targeted opportunities, our aim is to cultivate a consistent and robust stream of income, thus fortifying our ability to not only maintain but targeting an increase in dividends over the long-term. We are confident in our ability to execute this strategy, which is supported by a blend of existing capital resources and the potential influx of funds from the portfolio divestments and future investment yields as well as future portfolio equity churn. Moreover, in alignment with our strategic vision, we recently opted to liquidate approximately $3 million worth of our BDC stocks subsequent to the end of the quarter. This decision is driven by our commitment to safeguarding accrued gains and proactively managing our financial leverage. Looking forward, we are poised to replicate our historical achievements and we are hopeful to deliver compelling returns for our shareholders. Thank you for joining us today and for your continued interest in Rand Capital. We look forward to updating all of you on our second quarter 2024 results, which will be reported in August. We hope you have a great day.
Operator:
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.