Rand Capital Corporation

Greetings, and welcome to the Rand Capital Corporation First Quarter 2021 Financial Results. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during a conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deborah Palowski, Investor Relations for Rand Capital. Thank you. You may begin.

Thank you and good afternoon, everyone. We appreciate your interest in Rand Capital and for joining us today for our first quarter 2021 financial results conference call. On the line with me are Pete Grum, our Chief Executive Officer, and Dan Penberthy, our Executive Vice President and Chief Financial Officer. You should have a copy of the release that crossed the wire this morning, as well as the slides that will accompany our conversation today. If not, they are available on our website at RandCapital.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 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 the Securities and Exchange Commission. These documents can be found on our website or at sec.gov. During today's call, we will also discuss some non-GAAP financial measures. We believe that 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 GAAP. We have provided reconciliations of non-GAAP measures with comparable GAAP measures in the tables that accompany today's release. With that, please turn to slide three, and I will hand the discussion over to Pete to begin. Pete?

Thank you, Deb, and good afternoon, everyone. We started the year on a strong note as we continued to transform our portfolio from equity investments to income-producing investments. For the quarter, the number of companies contributing to investment income nearly doubled over the prior year period, resulting in total investment income growing approximately 60 percent to $1 million, or 39 cents per share. That asset value was up 16.9 percent to $20.87 per share, and this was primarily attributable to the increase in fair value of our investment in ACV Auctions, which completed their IPO at the end of March. We did report a gap net investment loss of 84 cents per share. This is because during the quarter we accrued $2.6 million in non-cash expenses related to capital gains incentive fees, which were primarily attributed to ACB's unrealized appreciation. Absent this expense, adjusted net investment income was $0.16 per share, demonstrating the success of our transformation into an income-producing, dividend-paying BDC. As you know, we announced and paid our first regular quarterly dividend of 10 cents per share during the first quarter. This was the culmination of our transformation that began in 2019. At the end of April, we announced our second quarter dividend, also at 10 cents per share. This year, we have paid out $1.53 per share in dividends, including the $1.33 per share that was declared at the end of last year. Please turn to slide four, and we can discuss the progress we have made regarding our evolution of our investment portfolio to support our strategy. The 31% increase in fair value shown here demonstrates the impact of ACV's IPO. We first invested $163,000 in ACV in 2016. It now has a fair value of over $15.8 million. Our shares are now restricted until September 20th of 2021. At quarter end, the portfolio was compromised with approximately 56 percent in equity investments, 34 percent in fixed-rate debt investments, and 10 percent in dividend-paying, publicly traded BDCs. We had a lot of activity in our portfolio for the quarter. We made $6.7 million in new investments, which included 4.6 and new portfolio companies. We also received 4.5 million from exits and loan repayments. Turning to slide five, you can see how we invested the quarterly record of $6.7 million. The largest investment during the quarter was a $2.8 million term loan with warrants from Sievert's Billion Supply. Founded in 1998, Seabirds carries a wide variety of premium billiard equipment and is the largest distributor of predator billiard cues in the U.S. They have developed one of the leading e-commerce platforms for the billiard category and are known for their quality products and service. With the capital infusion, Seabirds is planning to expand its social media presence and grow its e-commerce marketing and customer service platform. Rand also participated with other investment partners to provide acquisition and growth capital in connection with the formation of a full-service fire protection platform under the name of BMP Swanson Holdco. The merged companies have offices in Jacksonville, Florida, and Waldorf, Maryland, and offer a suite of end-to-end fire protection products and services for the commercial and residential facilities. Our $1.8 million investment consisted of subordinated debentures and preferred equity. Lastly, we increased our investments in publicly traded BDCs, which totaled approximately $2.1 million. These investments continue to provide dividends that put our capital to work and are liquid instruments that we can readily access for other opportunities as we find them. The fair value of all our BDCs investments at quarter end was $5.1 million. Slide six illustrates the diversity of our portfolio and the change in industry mix since 2020. With the investments we recently made and the impact of exits, software and healthcare saw sizable increases, while manufacturing declined to 10 percent of the total portfolio. BDCs now make up 10 percent, reflecting recent investments and changes in fair value. We believe that this diversity of our portfolio reduces our exposure to market risk. Slide seven lists our top five portfolio companies a quarter in. Sieverts replaced SMG as they paid off their note and exited the portfolio. There were no changes within the ranking of the top four besides a measurable increase in ACB's fair value given their IPO. Their valuation in our portfolio increased to $15.8 million and represents 29% of our net assets. As I mentioned, Rand was an early investor in ACV, acquiring Series Seed, two preferred stocks, in August of 2016. Following the IPO, Rand now holds 590,580 shares of ACV common stock. Any proceeds for us above our initial investment will be a capital gain and treated as such as it relates to any dividend or distribution. While there are very impossible changes to time, we are now subject to a 180-day lockup agreement. With that, I will turn it over to Dan Penferthy to review our financials in greater depth.