Rand Capital Corporation

Greetings and welcome to Rand Capital Corporation's first quarter fiscal year 2024 financial results conference call. At this time, all participants are on a listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Craig Mahalik. 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, 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 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 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 reconciliation of non-GAAP measures with comparable GAAP measures in the tables that accompany today's earnings release. With that, please turn to slide three, and I'll hand the discussion over to Dan. Dan?

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 over $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. This strong performance translated into tangible benefits for our shareholders, as evidenced on slide four. 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 8th, 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 five, 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, a net basis, or 7% from the year-end 2023, and reflected these new and follow-on investments and 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 previously noted, 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 six. 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 Sibert's Billiards Corporation, a billiard supply company based out of Michigan. With this investment, our total debt and equity investment in Sibert'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 this sale, we have now monetized that prior appreciation. During the quarter, we also received $687,000 principal loan repayment from PressurePro, which left our total fair value of debt and equity investment at $2.4 million into this portfolio company. The charts presented on slide seven 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 witnessed 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 eight 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. Seibert's moved up to number two following our recent investment, and Madison 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 further review of our financials.