Rand Capital Corporation

Greetings. Welcome to Rand Capital Corporation third quarter fiscal year 2025 financial results conference 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 Craig Mihaljevic, Investor Relations. Please proceed.

Thank you. Good morning, everyone. We appreciate your interest in RAND Capital and for joining us today for our third quarter 2025 financial results conference call. On the line with me are Dan Pemberthy, 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 with the slide deck, please turn to slide two. I'd like to point out some important information. As you are likely aware, we may make 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 scc.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 three. I'll hand the discussion over to Dan.

Dan? Thank you, Craig, and good morning. I want to emphasize how we've been navigating a market that continues to present challenges. New deal origination across the BDC landscape, those remain sluggish, and borrowers are still contending with tighter senior credit conditions and higher financing costs. Thus, we have had to be patient and selective in our deal origination. However, I believe we are seeing some positive turns now in our favor. We've remained somewhat active in the quarter and deployed 2.9 million in new and follow-on investments. We are also seeing, as many peers have noted, a greater use of PIK or PIC interest by borrowers as they adapt to today's financing environment. This is something we monitor carefully and will need to reduce over time, but it also reflects the flexibility that our capital can provide and helping companies bridge through tighter credit markets. Most importantly, we finished the quarter with nearly $28 million in liquidity and no debt outstanding under our senior credit facilities. That kind of balance sheet strength is our real differentiator in this environment. It gives us the flexibility to support our dividend, remain patient when deal flow is muted, and quickly move when compelling opportunities arise. Even though total investment income declined year over year, the steps we have taken to control expenses enabled us to grow net investment income. This quarter really underscored our ability to execute with discipline and maintain a resilience in our dividend for our shareholders. Please now turn to slide four. I want to highlight the consistency of that dividend. We declared and paid our regularly quarterly distribution of 29 cents per share, marking the third consecutive quarter at this level. We recognize how important this income stream is for our shareholders, and we are proud that we have been able to sustain it, even as new investment activity has slowed. One of the advantages of our model is that it is built to support this dividend through different parts of the economic cycle. Even in periods when repayments outweigh new originations, our expense management and strong liquidity allow us to maintain the payout. Many BDCs talk about dividend stability as a marker of portfolio strength and the strength and quality of the BDC. We believe our results demonstrate exactly that. Moving to slide five, Let's take a closer look at our portfolio. At September 30th, our investments had a fair value of $44.3 million across 19 companies. That represents a decline from year end and sequentially, largely due to significant repayments from our portfolio companies and some valuation adjustments. Our mix at quarter end was 83% debt and 17% equity, with a weighted average yield of 12.2%. That yield reflects the sub-debt investing nature of our portfolio structure. As we move to slide six, I will touch on the puts and takes in the portfolio this quarter. We stayed selective, yet active, adding one new investment, and we supported an existing portfolio company. First, the new investment, We committed $2.5 million to BlackJet Direct Marketing, structured as a $2.25 million term loan at 14% plus 1% PIK interest. We also contributed, or invested rather, a $250,000 equity investment alongside our debt instrument. BlackJet focuses on targeted direct mail for the travel and tourism, home services, and legal services verticals. These are areas where precise customer acquisition remains critical and where our capital can support growth while also delivering an attractive risk-adjusted return for RAND. Equally important to the financial aspects of the transaction was the involvement of the lead equity sponsor and our sub-debt co-investor, both of whom we had partnered with and our deal team had on prior transactions. We also funded a $400,000 follow-on investment in a debt instrument to food service supply. That business specializes in design, distribution, and installation work for commercial kitchen renovations and new builds. It does remain a contributor to our income, which supports our dividend. After quarter-end valuation adjustments, our total debt and equity investment in FSS stood at a fair value of $4.3 million. On the realized side, activity was meaningful. Sieverts, or the RAC Group, repaid $7.6 million of principal. We continue, rather, to hold an equity position in Sieverts with a value of $500,000. That preserves our participation in the business's long-term potential. Sieverts, or the RAC Group's repayment, illustrates the natural progression of a growing enterprise. As operational success within the portfolio company translates into their sustained revenue and profit growth, the business becomes eligible for a more favorable commercial bank financing, which is often taken on to refinance prior obligations, such as RAND's debt. This does support further development and growth in the company, and that is a key critical item to why we hold these equity interests, which we will directly benefit from. We also exited LUMMIUS, receiving $713,000 in loan and principal, recognizing a $77,000 realized loss. It is a small step back, but it does return capital in excess of our prior quarter's valuation, and we can redeploy these funds into new opportunities. And finally, we recognized a $2.9 million realized loss on Tilson Technology Management, following its Chapter 11 process and asset sale. We had valued this at $0 during the prior quarter, so this was posted as a realized loss now. While Tilson's outcome was disappointing, it's important to note that our separate investment in SQF Holdco, which is now called Virta, is not part of the Tilson bankruptcy. This remains on the books of Rand at $2.0 million and continues to operate independently. VERTA stands for vertical infrastructure. Think 5G antennas on telephone poles or cell towers or on the top of water towers for businesses like T-Mobile. Stepping back now, this mix of new deployment, supportive follow-on, and repayment is exactly how our model is designed to work, recycling capital from maturities and exits into yield-orientated structures. It does keep the portfolio resilient while preserving the optionality to lean in as origination conditions improve. With that context, let's look at how these moves reshaped our industry mix for the quarter. On slide 7, you will see how our portfolio is spread across industries. As repayments and adjustments came through this quarter, the mix shifted modestly. The most notable change was within consumer product, as that exposure came down following the Cybert's or Rack Group repayment. That business is in the niche industry of billiard supply. While individual positions may change, what is important is that our portfolio remains balanced, which we believe reduces overall exposure to any single sector and does give us the ability to participate in growth across a range of industries. Slide eight. highlights our five largest portfolio companies, which together represent about half of our total portfolio value. Each of these investments is structured to deliver attractive yields, generally between 12 and 14 percent, with features such as PIC that provide for flexibility for borrowers while still supporting RAND's income stream. Following the RAC group repayment and the FSS valuation change, INEA or Affinia, and Kitech now rank among our largest positions. The strength and consistency of these holdings is what gives us confidence in our ability to support the dividend and protect shareholder value. With that, I'll now turn it over to Margaret, who will walk you through our financials in more detail.