Rand Capital(RAND) - 2023 Q4 - Annual Results

Financial Performance Overview Rand Capital's 2023 performance reflects strong growth, driven by a strategic shift to debt investments, boosting income, dividends, and NAV Fourth Quarter and Full Year 2023 Highlights Rand Capital reported strong growth for 2023, with a 27% increase in total investment income to $7.3 million, driven by a strategic shift towards debt investments, leading to a 60% increase in total dividends paid per share to $1.33, and a 5% growth in net asset value (NAV) per share to $23.56 by year-end, while the fourth quarter saw an 11% rise in total investment income to $1.9 million Full Year 2023 vs 2022 Performance | Metric | 2023 ($) | 2022 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Total Investment Income | $7.3 million | $5.8 million | +27% | | Total Dividends per Share | $1.33 | $0.83 (implied) | +60% | | Net Asset Value (NAV) per Share | $23.56 | $22.36 | +5% | | Total Investments | $20.3 million | N/A | N/A | Q4 2023 vs Q4 2022 Performance | Metric | Q4 2023 ($) | Q4 2022 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Total Investment Income | $1.9 million | $1.7 million | +11% | | Net Investment Income | $962,000 | $1.2 million | -20% | | Net Investment Income per Share | $0.37 | $0.48 | -23% | | Adjusted NII per Share (Non-GAAP) | $0.40 | $0.41 | -2.4% | - The company's strategic shift towards income-producing investments resulted in the portfolio's debt instrument composition increasing from 56% at the end of 2022 to 64% at the end of 2023[5] Management Commentary The President and CEO, Daniel P. Penberthy, attributed the strong 2023 results to the successful execution of their strategy, highlighting over $20 million in new investments, primarily in income-producing assets, which drove higher investment income and enabled a 60% increase in dividends, with the company entering 2024 with a strong balance sheet and a solid pipeline of opportunities, intending to continue increasing its portfolio's composition with new debt investments - Management emphasized the successful execution of their strategy, investing over $20 million in 2023, which was primarily directed towards income-producing assets[3] - The increase in investment income directly supported a 60% rise in dividends paid to shareholders in 2023, including a regular quarterly dividend increase and a special dividend[3] - Looking ahead to 2024, the company plans to leverage its strong balance sheet and capital sources to continue executing its strategy, focusing on new debt investments from a solid opportunity pipeline[4] Portfolio and Investment Activity As of December 31, 2023, Rand's investment portfolio fair value grew 25% year-over-year to $77.1 million across 30 businesses, with the portfolio composition shifting further into debt, comprising 64% debt, 27% private equity, and 9% public equity, and the annualized weighted average yield on debt investments increased to 13.6% from 12.6% in 2022, with key activities in 2023 including $20.3 million in new investments, the profitable sale of DSD for $6.7 million, and gains of $1.7 million from selling ACV Auctions securities Portfolio Composition (as of Dec 31, 2023) | Metric | Value ($) / Percentage (%) | | :--- | :--- | | Total Fair Value | $77.1 million | | YoY Growth | 25% | | Number of Businesses | 30 | | Debt Investments | 64% | | Private Equity | 27% | | Public Equity | 9% | | Avg. Yield on Debt | 13.6% | - In 2023, the company invested a total of $20.3 million across nine transactions, focusing primarily on interest-yielding assets[10] - Significant exit activity included the sale of portfolio company DSD, generating $6.7 million in proceeds and a net gain of $2.5 million, and the sale of ACV Auctions public stock for $1.7 million in gains[21] Liquidity, Capital Resources, and Dividends At year-end 2023, Rand held $3.3 million in cash and had significant available liquidity through its holdings in publicly traded BDCs ($4.4 million) and ACV Auctions ($3.0 million), with $16.3 million in borrowings outstanding on its $25.0 million credit facility at an interest rate of 8.9%, and total dividends of $1.33 per share were paid in 2023, with a regular quarterly dividend of $0.25 per share declared for Q1 2024 Liquidity Position (as of Dec 31, 2023) | Item | Amount ($) | | :--- | :--- | | Cash | $3.3 million | | Publicly Traded BDC Holdings | $4.4 million | | ACV Auctions Holdings | $3.0 million | | Credit Facility Borrowings | $16.3 million | | Credit Facility Capacity | $25.0 million | | Interest Rate on Borrowings | 8.9% | - In 2023, Rand paid total dividends of $3.4 million, which included four regular quarterly dividends and a special year-end dividend, amounting to $1.33 per share[5][16] - The company declared a regular quarterly cash dividend of $0.25 per share on February 26, 2024, payable in March 2024[17] Consolidated Financial Statements Rand's 2023 financials reflect asset growth from investments, increased liabilities, and a net increase in assets from operations Consolidated Statements of Financial Position As of December 31, 2023, Rand's total assets increased to $81.0 million from $63.5 million in the prior year, primarily due to a 25% growth in the fair value of investments to $77.1 million, with total liabilities rising significantly to $20.2 million from $5.8 million, driven by a substantial increase in borrowings on the line of credit to $16.3 million, consequently, total stockholders' equity (net assets) grew to $60.8 million, with NAV per share rising to $23.56 from $22.36 Balance Sheet Summary (Audited) | Account | Dec 31, 2023 ($) | Dec 31, 2022 ($) | | :--- | :--- | :--- | | Total Investments, at fair value | $77,125,712 | $61,504,259 | | Total Assets | $81,021,982 | $63,481,192 | | Line of Credit | $16,250,000 | $2,550,000 | | Total Liabilities | $20,206,769 | $5,759,872 | | Total Stockholders' Equity | $60,815,213 | $57,721,320 | | NAV per Share | $23.56 | $22.36 | Consolidated Statements of Operations For the full year 2023, total investment income rose 27% to $7.3 million, driven by higher interest from portfolio companies, however, total expenses surged to $4.2 million from $1.1 million in 2022, mainly due to a $1.8 million swing in capital gains incentive fees (from a credit to an expense) and a nearly $1 million increase in interest expense, which led to a decrease in net investment income to $3.0 million from $4.4 million, and a significant net realized and unrealized gain on investments of $3.6 million resulted in a net increase in net assets from operations of $6.5 million, a sharp reversal from the prior year's loss Full Year Income Statement Summary (Audited) | Account | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Total Investment Income | $7,338,163 | $5,765,181 | | Total Expenses | $4,178,319 | $1,119,229 | | Net Investment Income | $2,967,733 | $4,430,410 | | Net Realized/Unrealized Gain (Loss) | $3,558,917 | ($5,312,259) | | Net Increase (Decrease) in Net Assets | $6,526,650 | ($881,849) | Q4 Income Statement Summary (Unaudited) | Account | Q4 2023 ($) | Q4 2022 ($) | | :--- | :--- | :--- | | Total Investment Income | $1,930,119 | $1,732,986 | | Total Expenses | $1,013,797 | $371,090 | | Net Investment Income | $961,604 | $1,230,104 | | Net Increase in Net Assets | $1,088,979 | $320,175 | Consolidated Statements of Changes in Net Assets Rand Capital's net assets increased from $57.7 million at the beginning of 2023 to $60.8 million at year-end, with growth driven by a $6.5 million net increase from operations, comprised of $3.0 million in net investment income and $3.6 million in net realized and unrealized gains, partially offset by $3.4 million in dividend distributions to shareholders Changes in Net Assets for the Year Ended Dec 31, 2023 (Audited) | Item | Amount ($) | | :--- | :--- | | Net Assets at Beginning of Year | $57,721,320 | | Net Increase from Operations | $6,526,650 | | Declaration of Dividends | ($3,432,757) | | Net Assets at End of Year | $60,815,213 | Non-GAAP Financial Measures Non-GAAP measures, such as Adjusted Net Investment Income per Share, offer a clearer view of operational performance by excluding volatile incentive fees Reconciliation of GAAP to Non-GAAP Adjusted Measures The company provides non-GAAP measures, Adjusted Expenses and Adjusted Net Investment Income per Share, which exclude the impact of capital gains incentive fees, with adjusted expenses for the full year 2023 at $3.4 million, and Adjusted net investment income per share for 2023 at $1.46, an 11% increase from $1.31 in 2022, which management believes better reflects the underlying operational trends by removing the volatility of incentive fee accruals - Rand presents non-GAAP measures to provide investors with information management uses to measure financial and business trends by excluding the effects of capital gains incentive fee accruals[32][34] Adjusted Net Investment Income per Share (Non-GAAP) | Period | 2023 ($/share) | 2022 ($/share) | Change (%) | | :--- | :--- | :--- | :--- | | Full Year | $1.46 | $1.31 | +11% | | Q4 | $0.40 | $0.41 | -2.4% | Adjusted Total Expenses (Non-GAAP) | Period | 2023 ($) | 2022 ($) | | :--- | :--- | :--- | | Full Year | $3,373,619 | $2,167,989 | | Q4 | $949,797 | $539,090 |