Rand Capital Corporation

Greetings. Welcome to the Rand Capital Corporation fourth quarter 2021 financial results call. At this time, all participants are in a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Craig Mihalik, Investor Relations. 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 fourth quarter 2021 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 releasing slides that accompany our conversation are available on our website at ramcapital.com. If you're following along on the slide deck, please turn to slide two, 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 that 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 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 readings. With that, please turn to slide three, and I'll hand the discussion over to Dan. Dan?

Thank you, Craig, and good afternoon, everyone. 2021 was an exceptional year for Rand Capital, one in which we achieved exceptional growth and further demonstrated the benefits of transforming the composition of our portfolio. We are proud of the accomplishments we have made and appreciate the support of our entire team, particularly as we implemented our leadership transition and board changes during the fourth quarter. Our multi-year strategy to transition Rand into a dividend paying business development company with a portfolio focus on income producing instrument has proved advantageous. In so doing, our investment income grew 31% to 4.1 million, which allowed us to pay four regular quarterly dividends and a supplemental dividend in 2021. The fair value of our portfolio increased 60% to 64.1 million, And our net asset value was up 32%, or $23.54 per share from year end 2020. We put our capital to work by investing $19.7 million into income yielding investments, which included a shift toward more debt instruments. We paid down the $11 million small business administration loan and distributed $4.6 million in total dividends to shareholders. As a result of paying off the SBA loan and subsequently surrendering our SBA license or SBIC license, we have simplified our reporting and regulatory requirements, which we do believe will help us scale the business in the future. If you turn to slide four, we will highlight the positive progress we have made in shifting our investment portfolio composition. The 60% increase in fair value reflects the impact of new investments and valuation adjustments that fall in line with our overall investment plan. At year end, our 34 portfolio companies comprised of approximately 40%, rather 46% in fixed rate debt investments, 32% in equity investments, and 22% in dividend paying publicly traded BDCs and ACV auction stock. Our strategy includes making larger investments into portfolio companies, which does offer better scaling opportunities. Of the $19.7 million we invested in 2021, $17.6 million was made in only eight transactions. This average investment of about $2.5 million was nearly five times greater than our historical initial investment amounts. The remaining $2.1 million was invested in other publicly traded BDCs during the year, which does yield increased dividend income and provides more liquidity for financial flexibility in future funding transactions. We exited five equity holdings and private companies that did net $2.7 million and sold public equities for an additional $3.1 million in gains. These total $5.8 million in gains during the last year. We also received $4.9 million in repaid loans from our debt portfolio. Our fourth quarter transactions are highlighted on slide five. The largest investment during the fourth quarter was a $2.3 million equity investment in Nailbiter Inc. Though an equity investment, This does have the economic traits of a 10% subordinated secured promissory notes with warrants for preferred stock. Nailbiter captures and converts real shopping behavior into actionable metrics, offering a competitive advantage to global CPG or consumer packaged goods companies. We also funded a $1.75 million investment to Applied Image Inc., which consists of a 10% senior subordinated note and equity warrants. Applied Image in Rochester, New York is a global supplier of precision image optical components and calibration standards for a wide range of industries and applications. The two follow-on investments in the quarter were provided to Siebert's Billiard Supply, a leading global billiard e-retailer, and Filterworks USA. and authorized distributor for leading equipment manufacturers in the collision repair industry. We sold approximately 98,000 shares of ACV during the quarter at an average price of $20.43 per share for a total proceeds of $2.0 million, almost all of which was represented as a gain. As a reminder, any proceeds for us above our $163,000 initial investment will be a capital gain and treated as such as it relates to any regulated investment company or RIC-based distribution calculations. At year-end, we still hold 442,934 shares of ACV, which were valued at $1,881 per share. ACV recently announced what appears to be positive acquisitions and earnings which we are hopeful will help the stock to now recover from its current trading levels. The charts on slide six illustrate the diversity in our portfolio and the change in industry mix since 2020's year end. With the investments we recently made and the impact of investments and fair value changes, professional services and healthcare saw notable changes, while most of the other industries were within a few percentage points. We value the diversity of our portfolio as we feel this mitigates market risk impacts. Slide seven lists our top five portfolio companies at year end, which collectively represent almost half of our total portfolio. Tilson has moved to the top spot from last quarter, largely due to the valuation changes and stock selling of ACV, although ACV still ranks high at number two. With that, I'll turn it over to Margaret to review our financials in greater depth.