RAND - Earnings call transcript Q4 2018 | Rand Capital Corporation

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Operator

Greetings, and welcome to Rand Capital Corporation Fourth Quarter and Full Year 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Deborah Pawlowski, Investor Relations for Rand. ahead. go Please

Deborah Pawlowski

and time Kevin, results everyone. certainly We call. Thank for good Rand’s your today financial fourth appreciate you, afternoon, quarter conference XXXX

On the and distributed Chief our Officer. Pete press Pete Dan me release will this our were Financial the be published Dan Officer; the reviewing Penberthy, President Executive that and Grum, Vice Executive and line with results morning. Chief are in

that at will that have it available www.randcapital.com. release, are The website posted slides our If the you don’t also accompany on is today discussion website. our on

you turn our at we If Safe look Slide review the slide and will to deck Harbor statement. X,

and in future found may presentation as, other documents risks and are to that uncertainties our where As and Company you the with be results These factors are as These Exchange well at or These during and we website as on factors uncertainties other well release, differ Securities actual Commission. forward-looking to statements provided risks documents are in by session. cause make earnings the and aware, that can events also from to during could today. either filed we this sec.gov. are subject question-and-answer likely as other the apply some statements

Rand to details. not really week proxy is we're Until so a the SEC. be Friday, it position strategic I Before to can with it We January Asset we filed turn investment that restricted within on point the in by announced XX. or provide out the discuss we into proposed next let that are Management regard me will that anticipate more over to Pete, we in East preliminary filed, what any in the

would, taking we will result call. the to questions any transaction a on today's be relating not As we

follow confrontation and quarter to financial. as the and any ask you our avoid is I regarding it Pete let the companies, some business. regarding for to over of of performance With current highlights the more summarize please portfolio feature Rand will limit me questions well the turn who your year to this, going with today Dan details to that, as to then Pete? and So

Pete Grum

Thanks, Dan. year. on of fourth the update X, start some Good quarter. on to fourth the this you on Rand’s have reflect we Happy XXXX can opportunity quarter and of everyone. We’ll the afternoon to full Slide highlights summarize

As process long demonstrates we confidence Business Small previously Administration. pending leverage that the important States in the SBA’s a in young of role United announced and very an $X serve underserved two commitment secured businesses the cycle December This funding we successfully markets. past Rand over the years, additional million in announced it’s have in from we the

deserving and work. have have opportunities healthy capital We a pipeline putting the already to of some of begun

almost review portfolio $X.XX million next our on the slide. further we quarter, invested investments. as we this During loan details call September. asset you will share value those investments of to certain with appreciation increased was instruments. at them. This these consisting At driven from net the net Dan $X.XX $X.X provide up it NAV or per increase end the details I'll and by the quarter of of end during all on the of discussion

year-end items up are distribution a quarter benefit A considerably above another quarter each a recur including in quarter. don't the pleased see provide distribution dividends. also investment from one-time portfolio one an from increase our to income that of last XX% fourth from which $XX,XXX We of year's quarterly again growing $XX,XXX necessarily and this couple

our in to loan strategy Excluding and XX% those fourth was income instruments more quarter debt investment up the portfolio. from our items, include benefiting

growth on subject Subsequent to January balance quarter XX, to is the quarter for new strategy Rand investment close between to the break investment expected to Management plans that an our end income leverage even, make finished which investments believe of announced greater expand strategic in We or their importantly to is the investment we SBA in cash East well change goal. created available and New to Asset million the our of scale. the Regarding additional of as to a rate expenses. a $XX for facilitate as This $X and support EAM have approximately On that and Buffalo the our commitment additional liquidity in from York. will closing provides step the our per This growth testament we capital will Rand to share. EAMs approval. X.X Western return our price ongoing We strategic combined growing us million and investment company proposed at be Rand with to common shareholder investment provide ultimately purchase stock in in investment a dividend. enable a is shares portfolio, of

we Let’s on also And capital. investment. the focused our worked all of additional the to activity turn Slide was in potential the investing EAM securing as light somewhat XXXX SBA on X,

details five For in quarter X.X portfolio we quarter, I’ll the and provide one fourth off we in the each quarter one companies. the in portfolio existing quarter. and invested investments. our first year fourth company finished new recap third of and you To second into these went year investments investments and eight some the million two the with investments

the invested of additional in in note. Empire form Genomics in XX,XXX we First a promissory

Tilson Management shares. promissory of The Series subordinated second preferred and for in D form a Technology event note we the $XXX,XXX invested in

Genicon. The of promissory in third our quarter to of the note convertible $XXX,XXX was a portfolio another one investment the in form existing companies

a was a Inc. portfolio companies investment is in feature named XXXX, our on. largest of new discuss that portfolio I more detail will Our later quarter $XXX,XXX one This company Tech and the in

has income, year the which been couple income the in brand has focus several secured over was over remind vehicles Grainful the To of you, our known in also past the quarters. the investment evident investment years $XXX,XXX. investment the last last our the of note Finally, under BeetNPath build of convertible been with that investment our results

few realize income that fourth distributions we income restructuring nonrecurring interest to a mentioned as minutes the ago. addition the loan nonrecurring quarter in I third and In quarter during

Partner investment within income those to was X, Dan XXXX, our technology portfolio the Tech insight with them. I'll offers to in nonrecurring and start the Slide financial training of some I a the I addition into On opportunity items, Tech cover results Excluding take recent XX% Washington over courses Cisco do later companies want will Based XXXX. give and as near our each you information the most more portfolio. up DC XXXX, Training certifications. that discussion. is feature our to quarter, the

generation recently last $XXX,XXX during ago, quarter fourth we work companies As financing. years. our a forefront with they're XXXX satisfaction They and of next training XXX of IT a as with develop part solution I providing moment They on currently perfect invested and XX at the Tech X. training a of rating XXX of solutions. to the mentioned for courses X.XX deliver believe offers learning broader nearly out a Fortune

Tech stage, and revenues Our expected leverage $XX ongoing and is expansion million. recent revenue at them companies to between We our includes plans their support industry expansion $X with allow in categorize which million XXXX investment advance. them to

a metrics They for York the user deliver which If unique full improved end company you applications provider actionable turn for New like provide known. that of insights solution the business City, I'd has are their User SAP the experience about headquartered management solutions and Management needed generate X, that the and They executives Companies investment. end is leading other. optimization of of in Slide Oracle, patent this software. to realize valuation under software SAP the software, including talk a and a by Knoa’s ensure organizations to enterprise user efficiency SAP, CIOs, name users resells Knoa. Experience the to

doubled. their advancement cloud penetration and by number in XXXX of of total of more market cloud than evidence and As technology, it's revenue accelerated XXX% cloud Knoa’s customers

turning, complex dollars others. small since produce in in leading company CNC from of Microcision, many Bone include their Included infusion, now which information XXXX. like tracking can the drilling, and development complex milling in categorized fourth XXXX $X.X Jersey closed Microcision our device, dental that them grade phase system, for through ended plastics. facilitating our near next is and on production X. system neurology, foot, a threading I'd has medical and can Knoa spine they believes Company is their expansion found turn the Knoa's history capabilities to wrist, parts that in township training, maxillofacial, based largest medical metals Microcision millions including in technology to difficult of invested Orthopedics, Slide hand, Philadelphia. allowing From product and they for to its cross-drilling, and seamless made all state-of-the-art, our in the the valued in The We benefits they to in fair XX, million. Small let with $XXX,XXX X.X revenues stage. approximately customers, the quarter. full revenue to in very SAP X, discuss Knoa, can help value enterprise the of implants, to has valued of more implants by was Slide most companies increase such implementation Applications a cost the at companies logos process New million. Knoa Move instrumentation. dedication is by is December us process the of recent financial manner. investment configurations realize cloud. our on approximately Microcision effective most The Rand’s complex portfolio shows in and be results and deal manufacturer XXXX Pennsauken investment this category At all ankle, of cloud of as ensure investment process this system. implementation Additionally,

this traction the right. which on few before in moving left, high for portfolio, a on spoke initial the expansion you to startups category. XXXX, ago our seen investment Tech expansion, The with the You've minutes I within newest revenue on to

Regarding just two the we that other feature. companies

Knoa the and You within are Microcision stage. also that see can expansion

As I are market impossible as to start to slowly from It's develop conditions. the such progress all progress on companies may plans dependent to exit mentioned right how they transactions they as predict or quickly portfolio. our before,

portfolio is normal and a in our half five are average portfolio in just on Slide the five you on the at a portfolio. our approximately The how and addition the age over year. Tech years. is only has our company of but company categorized long If XXXX to logos, is look investment based been X period company years past is the same they our

As horizon. XX the the of at are you of sit companies majority there. companies or our five-year above can see, the Today, time

see turn in industries characteristics, software dissect exception you products almost of can We our Tech by within you portfolio our of diverse increase all real a On been industry Slide in over were healthcare due with SOMS the primarily addition category Decreases driven two comparison Genomics Consistent Company. doesn't invest and of and main have diversified year-over-year strategy, drastically Slide with our The as time. to estate, The Empire and into we show the our capital services. financial of If retail, XX, consumer we and with portfolio XX, are December being debt is. XX, equity how the a by industries, change breakdown drastic XXXX. Technologies. and to choices. write-downs

Our heavily always more is for equity grow strategy value. to capital portfolio opposed our to appreciation net has as been weighted asset towards debt. Accordingly, our

However, objective stream mix on portfolio. flow within of our we adjust the investment cash depending our

trended investment generate to As XXXX have focused slide flow more this on to building expenses. since cash We're debt. our we cover to income illustrates,

the debt XXXX, equity XXXX. of XX% debt, virtually related our approximately XX% in and of were in matter the investments about end there a year, were our fact at in As XX% during instruments. nearly were since Consequently, of of unchanged investments

on at We Looking to a Rand. in support the five ongoing of proposed in December. investment the of a can anticipating end dividend. the Slide investments anticipate focus forward, value top debt-related portfolio turn this our based is heavier to Everyone, investments on if an XX, you snapshot EAM the

see, Our portfolio portfolio top million of you $XX.X at XX half towards value our is companies. and and active can weighted they’re five about valued our as of nearly healthcare. investments The includes compromises consistently

medical New in second based been portfolio to an York, largest Genicon, them investment valued Rochester, produce instrumentation. our million images to We've a in support since our provide portfolio platform is still is investor in which design, Our valued Florida. networks proprietary surgical electronic and at $X.X and largest at They Orlando, patient in distribute they XXXX. patented clinical eHealth aggregate referrals. is company million, based $X.X

management, two floor fair exciting million XXXX for have and are are mobile quarter. they The them is Portland, in Our five. Maine. Series our round. title provides their auction. double the X.X in platform they and fourth years America's replacing hire are during operation, They process infrastructure. XX than X.X XXXX. increased Tilson XXXX eHealth largest valuation Fourth in Founded our initial logistics. at since investment ago, by business based on We've value began was estimate a top of car inefficient third There XX construct plan offices They dealer-to-dealer now of information based less XXXX our ACV and XX automobile, auction XXX wireless in them investment December across team and in total construct sale resolved, Auctions. and We XX, XXX to Buffalo software investment investing They the third-party fiber has states. ACV new appreciation headquartered was employment an They’re manage XXX XX,XXX purchasing, investments growing recent And to four funding their physical that is C XXXX nationwide spread end company by platform. great XXXX. per more revolutionizing ACV $XX and on One and an being XXXX doubled million system. building expensive in optic they from the employees. been in information to than the markets. sold additional people million expanded members. investing and defined month cellular automating almost they cars XX now in arbitration since their investors at by

XXXX. the in $X.X was investment end at Tilson million Our valued of at

of we've which detail We investment to in earlier. fifth new XXXX the is as increase them led second and performance our Microcision financial the list of investment, recent began their investing us discussed The year-end. value in to largest in company fair $X.X our million

it Now I’d to results. like our Dan Penberthy, and over the turn EVP cover financial CFO to to

Dan Penberthy

good and everyone. afternoon Pete Thanks

start value Slide with could I’ll share net or asset per If please you XX, turn to NAV. the

we year with finished mentioned, at share. per net value the Pete As $X.XX asset

This driven per by As offset partially XX. attributable appreciation you on over the share portfolio. see investments, Please and and quarter. by increase certain increase for our trailing Microcision our primarily on the investments to the ACV Slide of other depreciation chart, NAV in increased net of within turn $X.XX valuations portfolio the Auctions recorded is recorded to

in income income the fourth we performance our drove operating increase significantly also the comparable to increased quarter. XXXX and the This a Here, XX% XXXX, periods. quarter. summarize distributions of quarters for a and and fourth year year's $XXX,XXX drove Investment increase. full investment over XX% prior the is Incremental increase nonrecurring a XX%

we over million. years, have more increased instruments mentioned, been has On we income that $XXX,XXX, As in income. previously or investment to few up basis, year-to-date past was and income-producing XX% $X.X a the driven investing investment

nonrecurring the give driven had In for fourth our sense To investment distributions, addition in quarter. third investment loan to strategy. the in income restructuring the we quarter a you our increase income nonrecurring by

above $XXX,XXX investment only items, our nonrecurring or those grew of but XXXX, up Excluding XX% of expenses last expenses year, quarter X%. our in year XX% same income are the full XXXX fourth by over quarter

our up fourth $XXX,XXX investment. to increase in bonus before were our Net income is to valuations by our up changes was difference pending investments The expenses full expenses. income strategic between the refers investment primarily were the Excluding This expenses year professional investment before taxes East. of and higher the by quarter due driven loss and fees, $XX,XXX.

Our goal that is line. to reach break-even level at

SBIC, strong. available basis, the our in This per for the level Slide net on turn increase closer the or year. $XX,XXX with line, significantly fourth in in share per a Please the drove goal the a fourth per that to end the balance are gains and our at a net investing. net year. at to sheet cash have to XX, XXXX overall and unrealized be continues year. Below of On of decline includes or $X.XX the quarter share We the full we $X.XX parent which is investments in for resides NAV share, $X.XX that $XX,XXX $X.XX corporate of realized reaching and $X.XX the quarter for loss and losses which in the loss of

are share the $X.XX investments at the portfolio valued end year. of per Our at

from Our which leverage, SBA. per portfolio we the has the funded has year, $X.XX partially of the the owe share which by end growth been benefited and of we have SBA as to a

We of time the up rather to have other also questions. net With assets liabilities. share share of it's to $X.XX for per value line all adds think or up that, This NAV net I $X.XX. asset per open our of

Operator

you. Thank

be IIU. session. from MJ We a is now will conducting [Operator today first from [ph] My question-and-answer Instructions] Bartlett coming question

Your line now is live.

Unidentified Analyst

up on what call. in to value that liquidation thanks $X just Congratulations I that today? Am NAV orderly a Hello understanding right the gentlemen, you taking generally bringing call the my for is of portfolio under share. the would

Pete Grum

that That's not term we use. a really defined

our term. is and that's GAAP think I value a term fair a

Unidentified Analyst

So you'd $X of share a say or $X.XX share? all that net a the portfolio and that is

Pete Grum

Correct.

Unidentified Analyst

that I'm happen change that $X would to normally So transaction you of at be discount transaction to $X of all at your struggling understand control will when shareholders? highly that discount dilutive and a control change contemplate value to premium why given a of is

Pete Grum

As be out, And should be to to proxy, about once talk described that'll in you. out we I'd shortly. be earlier, talked that's the happy then all which

Unidentified Analyst

company, discount your a share, the any Okay. to your share is information, for NAV is $X issue this not idea it current or? released already I'm the new is accounting at been information which shares asking by own to But that's by the $X per

Deborah Pawlowski

Deborah this here. Pawlowski is MJ,

your question. decision discussions what So to it the we proxy all answer we're the That's exactly go board's the you're to And why the restricted is to. talk until as proxy in kind is regarding price what statement, of can share. will the filed, find per of going on the to through

Unidentified Analyst

Yes.

in don't rules around that's a what now know and clearly think S-X in you're to. you the to answer position rationalization, want my question more all than we are but I

to somebody So I'll the relinquish line else.

Deborah Pawlowski

you. Thank

Operator

Our coming Sam is Rebotsky from question [Operator from you. Instructions] Thank next S.E.R.

Asset Management.

Your line is live. now

Sam Rebotsky

Yes, and that investment will Dan. Good there be the and quarter, prior Pete dividend, dividend the I a assume $X. understanding question, previous dividend $X.XX my hi. To of to new the gentleman's $X.XX is

I Pete? incorrect Am was that, I previously. think described on that

Pete Grum

and you're reading Sam, on weighting right proxy. think I the

Sam Rebotsky

Okay.

a annual $X, have my don't understanding. we or if and a date on putting investors was to That's buck proxy in vote for not just back. we the that a getting That yet? were my understanding Okay. meeting the new have because they're the half – the Do

Pete Grum

the have gives feedback… don't We that and until and reviews SEC us

Sam Rebotsky

ACV we $XX The a Auctions, values that is company Okay. fair assumption? Is million. and have million, they raised X% so that at that $XXX

Pete Grum

I that. think higher than it's

Sam Rebotsky

Okay.

this in because the increase valuation came The of Okay. only million about raise. $XX

Pete Grum

web, had primarily our to investors. new don't that This that basis they’ve not you at was as you can value. Yes, a I and is get Google on can on insiders with the previous primarily is This look raise, it increase money it. – we and think

Sam Rebotsky

have have where we to other investments going this putting the similar raises Do possibility transaction? money to or Okay. is be any ACV there happen that's in might the and needed been insiders

Pete Grum

Sam, it not as common. the and and the fund very you it when or will a insiders up do, and I than continue write we a we to at do to Yeah, they three, The have do valuation. it insiders handful not reflect higher talked there two is

Sam Rebotsky

the good. of Alright and expect towards be two all, we and $X.XX file. weeks, which what write-downs the that's filed will in there is this whatever all proxy week, to very covered something, basically this Well was were that Okay. this transactions a because is or or increase,

Pete Grum

good a Yes, answer. I think that’s

Sam Rebotsky

forward looking Alright, to it. Okay. receiving

Pete Grum

Thanks Sam.

Operator

from is Scott. Instructions] Reiss you. question from next Our Thank Montgomery [Operator coming Janney Brett

live. now is line Your

Brett Reiss

Yes, Hi hi Dan. Pete.

Pete Grum

Hi Brett.

Brett Reiss

what make capital? that? with use million is And you from then cost are you to much $X or the can getting how you're that And to equity leverage of investment? that SBIC, debt able The the employ

Pete Grum

our instrument XX-year and So price And really in. I in This portfolio to the for you on a mid what priced treasury. it three, can technically along a four And interest the done done all It's you’re full be in would borrowings on happens against deal-by-deal not is on maybe with XX-year the and use all closer our we it's it general, guess also in agency would it the is portfolio SBAs investments. basis. other get any market. a gets say basis. of

answer for or debt we enough the can is I to for have this yes, pay that mindful interest So guess equity. you use We're expenses. income though

Brett Reiss

the restrictions Any Right. on leverage?

Dan Penberthy

leverage. sure what Not mean by you

Brett Reiss

$XX if you’re $X only can or borrowing investments? Well, make million in $X investments million million, make you in you can

Dan Penberthy

really have $X borrowing you’re If million, only to $X deploy. million you

Brett Reiss

SBA? Okay. that's And SBIC the the as the same

Dan Penberthy

Yes, them phenomenally. we use

Brett Reiss

Okay. you. thank Alright,

Operator

session. our reached you. question-and-answer We Thank of end

Let's further floor any over management back the or closing turn for to comments.

Pete Grum

we We're lot Thank attention and excited you you value to and and take stakeholders. of have can really for with progress EAM the Hope for you Look time in believe of see lot a level us we going about benefit as all updating this with new by evening. on of excitement Rand forward and afternoon. our a your will a great this a to our process underlying investment portfolio. that

Operator

teleconference. today's conclude does That you. Thank

may time. You at day. wonderful your a And disconnect lines have this

Rand Capital (RAND) 7 Mar 192018 Q4 Earnings call transcript