Rand Capital(RAND) - 2025 Q2 - Quarterly Results

Executive Summary & Highlights Q2 2025 saw net investment income growth due to a non-cash fee reversal, despite declining total investment income and significant PIK interest, with strong liquidity maintained CEO Commentary The CEO highlighted Q2 2025 net investment income growth from a non-cash fee reversal, despite total investment income decline due to loan repayments and significant PIK interest - Net investment income growth in Q2 2025 was primarily driven by a non-cash capital gains incentive fee reversal tied to the write-down of an investment in Tilson[3] - Total investment income declined due to continued portfolio loan repayments not yet offset by new investments, and slower deal origination amid economic uncertainty[3] - Over $1.2 million of interest was added to the principal of portfolio obligations (PIK) in the first half of 2025, representing approximately 34% of total investment income[3] - The company ended the quarter with approximately $25 million in total liquidity and no debt outstanding, positioning it to support dividends and pursue new investment opportunities[3] Second Quarter 2025 Highlights Q2 2025 highlights include a 25% decrease in total investment income, a significant increase in net investment income to $2.5 million, and strong liquidity with no outstanding debt Second Quarter 2025 Key Financial Highlights | Metric | Q2 2025 | Change YoY | | :------------------------ | :---------- | :--------- | | Total investment income | $1.6 million | -25% | | Net investment income | $2.5 million | N/A (from loss) | | Net investment income per share | $0.83 | N/A (from loss) | | Total liquidity | ~$25 million | N/A | | Debt outstanding | $0 | N/A | | Quarterly dividend (Q3 2025) | $0.29 per share | N/A | Financial Performance Analysis Q2 2025 financial performance shows a decline in total investment income, a significant expense benefit from incentive fee reversal, and a substantial increase in net investment income Investment Income Total investment income for Q2 2025 decreased by 25% year-over-year, primarily due to a 24% reduction in interest income from portfolio debt repayments Total Investment Income (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | Change | | :---------------------- | :---------- | :---------- | :----- | | Total investment income | $1.6 million | $2.136 million | -25% | - The decrease was primarily due to a 24% reduction in interest income from portfolio companies, reflecting the repayment of five debt instruments over the past year[6] - Lower dividend income also contributed to the year-over-year decrease in total investment income[6] Expenses Total expenses in Q2 2025 resulted in an $864,000 benefit, a significant improvement driven by a $3.1 million reduction in capital gains incentive fee expense Total Expenses (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :-------------------------- | :---------- | :---------- | | Total expenses (benefit) | $(864,000) | $2.7 million | | Capital gains incentive fee | $(1.5 million) (benefit) | $1.6 million (expense) | | Adjusted expenses (non-GAAP) | $626,000 | $1.0 million | - The improvement in total expenses was primarily driven by a $3.1 million reduction in capital gains incentive fee expense, with Rand recording a $1.5 million benefit in Q2 2025 compared to a $1.6 million expense in Q2 2024[6] - Lower average outstanding debt balances led to a $368,000 reduction in interest expense, and base management fees declined by $105,000[6] Net Investment Income Net investment income significantly increased to $2.5 million, or $0.83 per share, in Q2 2025, reversing a prior-year loss, though adjusted net investment income per share decreased Net Investment Income (Q2 2025 vs. Q2 2024) | Metric | Q2 2025 | Q2 2024 | | :------------------------------------ | :---------- | :---------- | | Net investment income | $2.5 million | $(517,000) | | Net investment income per share | $0.83 | $(0.20) | | Adjusted net investment income per share (non-GAAP) | $0.33 | $0.44 | - The Q2 2025 per share amounts were computed using 2,969,814 weighted average shares outstanding, reflecting a higher number of shares following a Q4 2024 dividend paid partly in common stock[7] Portfolio and Investment Activity Rand's investment portfolio fair value decreased by 26% in Q2 2025 due to repayments and valuation adjustments, despite a follow-on equity investment Portfolio Overview As of June 30, 2025, Rand's investment portfolio fair value decreased by 26% to $52.4 million, primarily due to loan repayments and valuation adjustments Portfolio Overview (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 | Dec 31, 2024 | Change | | :------------------------------------ | :-------------- | :------------- | :----- | | Portfolio fair value | $52.4 million | $70.9 million | -26% | | Number of portfolio businesses | 19 | N/A | N/A | | Debt investments | ~86% | N/A | N/A | | Equity investments | ~14% | N/A | N/A | | Annualized weighted average yield of debt investments (incl. PIK) | 12.2% | 13.8% | -1.6% | - The decrease in portfolio fair value was primarily due to portfolio company loan repayments and valuation adjustments in multiple portfolio companies[8] Key Investment Activities (Q2 2025) Q2 2025 saw a follow-on equity investment in Carolina Skiff LLC, but a $9.5 million decrease in Tilson Technologies' valuation due to its Chapter 11 bankruptcy - Funded a follow-on equity investment of $35,000 in Carolina Skiff LLC, bringing Rand's total equity investment in Carolina Skiff to a fair value of $800,000 at quarter-end[13] - The valuation of Rand's investment in Tilson Technologies decreased $9.5 million after it filed for Chapter 11 bankruptcy[13] Capital Management Rand maintained strong liquidity in Q2 2025 with increased cash and no outstanding debt, while consistently declaring quarterly cash dividends Liquidity and Capital Resources Rand ended Q2 2025 with $4.4 million in cash and no outstanding debt on its credit facility, which has approximately $20 million in unused availability Liquidity Overview (June 30, 2025 vs. Dec 31, 2024) | Metric | June 30, 2025 | Dec 31, 2024 | | :------------------------------------ | :-------------- | :------------- | | Cash | $4.4 million | $835,000 | | Outstanding balance on credit facility | $0 | N/A | | Unused credit facility availability | ~$20 million | N/A | - The company has the capacity to increase its credit facility availability to a total of $25 million, subject to certain borrowing criteria[10] - No outstanding common stock was repurchased during the second quarter of 2025[10] Dividends Rand declared and paid a regular quarterly cash dividend of $0.29 per share in Q2 2025 and subsequently declared another for Q3 2025 - On April 30, 2025, Rand declared its regular quarterly cash dividend of $0.29 per share, which was paid during the second quarter[11] - On July 28, 2025, Rand declared its regular quarterly cash dividend of $0.29 per share, to be distributed on or about September 12, 2025[11] Company Information & Disclosures This section provides details on Rand Capital's Q2 2025 webcast, company profile, forward-looking statement disclaimer, and investor contacts Webcast and Conference Call Rand hosted a conference call and webcast on August 4, 2025, to discuss financial results, with replay and transcript information available - Rand hosted a conference call and webcast on Monday, August 4, 2025, at 1:30 p.m. Eastern Time, to review its financial results[12] - A telephonic replay was available through August 18, 2025, and a transcript of the call will be posted once available[14] About Rand Capital Rand Capital Corporation is an externally managed BDC focused on maximizing shareholder returns through debt and equity investments in lower middle market companies - Rand Capital Corporation is an externally managed business development company (BDC) with an investment objective to maximize total return to shareholders through current income and capital appreciation[15] - The company primarily invests in privately-held, lower middle market companies with sustainable, differentiated, and market-proven products, revenue exceeding $10 million, and EBITDA in excess of $1.5 million[15] Safe Harbor Statement This legal disclaimer indicates the press release contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - The press release contains "forward-looking statements" regarding the Company's strategy, outlook, dividend growth, and market improvements[16] - Actual results may vary materially due to factors such as evolving legal, regulatory, and tax regimes; changes in economic and industry conditions; and other risk factors detailed in SEC filings[16] Contacts Contact information is provided for Rand Capital's President and CEO, Daniel P. Penberthy, and for investor relations through Alliance Advisors IR - Company contact: Daniel P. Penberthy, President and CEO[18] - Investor Relations contacts: Craig P. Mychajluk and Deborah K. Pawlowski of Alliance Advisors IR[18] Financial Statements This section presents Rand Capital's consolidated financial statements, including statements of financial position, operations, and changes in net assets for Q2 2025 Consolidated Statements of Financial Position The Consolidated Statements of Financial Position show a decrease in total investments and assets, alongside a significant reduction in total liabilities and stockholders' equity Consolidated Statements of Financial Position Highlights | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------ | :-------------- | :---------------- | | Total investments, at fair value | $52,364,254 | $70,818,041 | | Cash | $4,419,813 | $834,805 | | Total assets | $57,639,539 | $72,457,433 | | Total liabilities | $925,585 | $7,124,913 | | Total stockholders' equity (net assets) | $56,713,954 | $65,332,520 | | Net assets per share | $19.10 | $25.31 | Consolidated Statements of Operations The Consolidated Statements of Operations show decreased total investment income but significantly improved net investment income due to an expense benefit from capital gains incentive fees Consolidated Statements of Operations Highlights | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total investment income | $1,602,297 | $2,136,149 | $3,610,201 | $4,203,368 | | Total (benefits) expenses | $(864,159) | $2,652,782 | $(73,094) | $3,879,638 | | Net investment income (loss) | $2,478,234 | $(517,195) | $3,696,349 | $322,390 | | Net (decrease) increase in net assets from operations | $(7,736,154) | $7,737,773 | $(6,894,707) | $9,137,154 | | Basic and diluted net (decrease) increase in net assets from operations per share | $(2.60) | $3.00 | $(2.36) | $3.54 | Consolidated Statements of Changes in Net Assets The Consolidated Statements of Changes in Net Assets show a net decrease in net assets from operations, primarily driven by a significant net change in unrealized depreciation on investments Consolidated Statements of Changes in Net Assets Highlights | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :---------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net assets at beginning of period | $65,311,253 | $61,569,339 | $65,332,520 | $60,815,213 | | Net investment income (loss) | $2,478,234 | $(517,195) | $3,696,349 | $322,390 | | Net realized gain on sales and dispositions of investments | — | $428,108 | $925,332 | $3,878,200 | | Net change in unrealized appreciation/depreciation on investments | $(10,214,388) | $7,826,860 | $(11,516,388) | $4,936,564 | | Net (decrease) increase in net assets from operations | $(7,736,154) | $7,737,773 | $(6,894,707) | $9,137,154 | | Declaration of dividend | $(861,145) | $(748,496) | $(1,723,859) | $(1,393,751) | | Net assets at end of period | $56,713,954 | $68,558,616 | $56,713,954 | $68,558,616 | Non-GAAP Reconciliations This section provides reconciliations of GAAP total expenses and net investment income per share to their non-GAAP adjusted counterparts, excluding capital gains incentive fees Reconciliation of GAAP Total Expense to Non-GAAP Adjusted Expenses This section reconciles GAAP total expenses to non-GAAP adjusted expenses, excluding capital gains incentive fees, showing a significant year-over-year decrease in adjusted expenses - Adjusted expenses is a non-GAAP financial measure defined as GAAP total expenses removing the effect of any (credits)/expenses for capital gains incentive fees accrual[27] Reconciliation of GAAP Total Expense to Non-GAAP Adjusted Expenses | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total (benefits) expenses (GAAP) | $(864,159) | $2,652,782 | $(73,094) | $3,879,638 | | Exclude (credits) expenses for capital gains incentive fees | $(1,490,000) | $1,641,000 | $(1,565,000) | $1,753,300 | | Adjusted total expenses (Non-GAAP) | $625,841 | $1,011,782 | $1,491,906 | $2,126,338 | Reconciliation of GAAP Net Investment Income (Loss) per Share to Adjusted Net Investment Income per Share This reconciliation adjusts GAAP Net Investment Income (Loss) per Share by excluding capital gains incentive fees, showing a decrease in the non-GAAP adjusted measure year-over-year - Adjusted Net Investment Income per Share is a non-GAAP financial measure that excludes the effect of any (credits)/expenses for capital gains incentive fees[29] Reconciliation of GAAP Net Investment Income (Loss) per Share to Adjusted Net Investment Income per Share | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net investment income (loss) per share (GAAP) | $0.83 | $(0.20) | $1.27 | $0.12 | | Exclude (credits) expenses for capital gains incentive fees per share | $(0.50) | $0.64 | $(0.54) | $0.68 | | Adjusted net investment income per share (Non-GAAP) | $0.33 | $0.44 | $0.73 | $0.80 | - Weighted average shares outstanding for Q2 2025 were higher (2,969,814 for three months, 2,920,135 for six months) compared to Q2 2024 (2,581,021), due to a dividend paid partly in common stock[30]