Rand Capital Corporation

Greetings and welcome to the Rand Capital Corporation Third Quarter 2020 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during this conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Deborah Parlovsky, Investor Relations. Thank you. You may begin.

Thanks, Diego, and good morning, everyone. We certainly appreciate your interest in Rand Capital and for joining us for our third quarter 2020 financial results conference call. On the line with me today are Pete Grum, our Chief Executive Officer, and Dan Pemberthy, our Executive Vice President and Chief Financial Officer. You should have a copy of the release across the wires this morning discussing our results, as well as the slides that will accompany our conversation today. If not, you can find them both on our website at randscapital.com. If you are following along on the slide deck and would turn to slide two, I would like to point out some important information. As you are likely aware, we may make some forward-looking statements during this presentation and during the question-and-answer session. 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 materially from where we are today. You can find a summary of these risks and uncertainties and other factors in the earnings release, as well as in other documents filed by the company with Securities and Exchange Commission. These documents can be found on our website or at sec.gov. Now, if you'll turn to slide three, I will hand the discussion over to Pete to begin. Pete?

Good morning, everyone. Thank you for your time today. As you all know, the COVID pandemic remains as part of our daily lives. We continue to work remotely and alternate everyone's presence in the office for the health and safety of our personnel. But I am pleased to say that even in this environment, we delivered solid financial performance during the third quarter. That investment income was $280,000, or 11 cents per share. We had announced in September that Rand Capital established a 10B51 stock repurchase plan to facilitate the purchase of shares under our 1.5 million share repurchase program. The 10V51 trading plan allows us to repurchase shares at times when we might not otherwise be able to because of self-imposed trading blackout periods and other securities laws. Under the plan during this quarter, we repurchased 2,090 shares of Rand stock at an average price of $11.29 per share. We are in a strong position with relatively significant liquidity of $22 million, which is a compromise of $19 million in cash and $3 million in available leverage from the SBA. With this liquidity, we intend to build our portfolio and to continue to execute on our strategy. I would mention that last week we filed a preliminary proxy with the SEC for a special meeting of shareholders to approve a new investment advisory and management agreement. The agreements are being renewed as a result of the change in ownership of RAND's investment advisor, RAND Capital Management. The terms are not changing and the services provided by RCM and investment processes are not changing. You can find the details of the change in ownership in the filing. If you could all turn to slide four, you can see that the debt investments now compromise 44% of total investments, an increase of 33% from a year ago. The shift in our portfolio is intentional, and we intend to elect to be a regulated investment company for tax purposes, which requires us to distribute at least 90% of our qualified income to our shareholders. The intention is to grow our investment income to support a regular distribution. The remaining 56% of the portfolio are equity investments and primarily our legacy investments. As we continue our transformation, we will reduce these assets over time through various exit strategies. On the investment side, during the quarter, we invested $1.9 million in a 12% fixed rate promissory note, with Science and Medicine Group, a new portfolio company. The note is due in 2023. Science and Medicine Group is a leading research and advisory firm serving the life science, analytical instrument, diagnostic, healthcare, radiology, and dental industries. The group uses business intelligence and market research to help build their clients' product, strategy, and marketing plans then leverage their digital audience to help grow their clients' business. We also invested $1.1 million in three more publicly traded BDCs. This brings our total BDC portfolio to eight investments. These investments are in companies that are much larger than RAND, and they provide a dividend and are liquid instruments that we can readily access for other opportunities that we find them. If you turn to slide five, this demonstrates the increasing diversity and growth of our portfolio. With the investments we made this quarter, healthcare is a percentage of total investment increased four percentage points from the trailing sequential quarter, and the BDC investment funds increased three percentage points. We believe the increased diversity of our portfolio reduces our exposure to market risk and benefits us during the challenging economic times we find ourselves. While we may not know the total impact nor the duration of the pandemic and resulting economic downturn that may be in our portfolio companies, we continue to actively engage with them and monitor their liquidity and operational status. The resiliency of our portfolio is encouraging, frankly amazing. Turning now to slide six, You can see now our top five portfolio companies, and this has not changed since last quarter. With the addition of the four companies I mentioned earlier, our portfolio value is $41.7 million, with 42 companies a quarter in. If you turn to slide seven, I would like to give you an update on some of our portfolio companies. We have several companies that are actually performing quite well. and perhaps even benefiting from the COVID-19 environment. Of course, there are a few companies that have been challenged as well. As you might expect, some of the companies that are doing well are directly tied to fighting the pandemic, and I would like to share more about two of them, SIAPS and Rheonix. As I discussed in the call last quarter, SIAPS is a Boston, Massachusetts-based company that is a leading manufacturer of handheld analyzers that provides instant elemental analysis of many individual materials. They have partnered with Allied Bioscience, who have developed an EPA-approved surface coating that can provide protection against viruses and bacterias on the surface, including the virus that causes COVID-19. CIAPS has been chosen to examine the amount of coating present on surfaces and determine whether the coding is still present and active. Reonix, which we've talked about in the past, is an Ithaca-based company, and it's developed in Compass workstations that are fully automatic systems providing molecular testing for use in clinical research and applied testing laboratories. One of their recent developments is a COVID assay that is a fully automated test test to detect the SARS-CoV-2, the virus that causes COVID-19, directly from respiratory samples. The test is designed to operate on the Rheonix and Compass MDX workstation and facilitate same-day test results for small and medium laboratories. I would encourage all of you to access their website as a way to keep up to date with their accomplishments. Others have benefited because of the global work-from-home efforts to contain the environment. For example, the Open Exchange has helped public companies, investment banks, and professional investors keep their vital investor information flowing through with virtual video conferencing and video streaming solutions. Their solutions have been used by some of the largest investment banks and have been the platform for many investor conferences. Demand for Carolina SCIF has been driven by the surging consumer interest in outboard activities. They offer lower price range fiberglass outboard motors. The challenge has been keeping up with the demand with the challenges of manufacturing with reduced and staggered staff, addressing health and safety and managing their supply chain. As a closing thought here on our portfolio, we're advancing the portfolio of competition, including determining actions to take on our equity-only investments as we pursue yield-producing investments and also dividend-paying equity investments. With that, I will turn it over to Dan to review our financials in greater depth.