Rand Capital (NASDAQ:RAND) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.

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Summary

Rand Capital reported Q1 2026 investment income of $1.2 million and net investment income of $0.18 per share, reflecting a decrease due to reduced interest income from debt repayments in 2025.

The company realized a gain of $1.1 million from exiting the RACC Group and deployed $5.1 million in new and follow-on investments, including a $4 million investment in AME Holdco.

Non-accruals impacted the annualized weighted average yield on debt investments, which was 9.43% at quarter-end, down from 11.3% at the end of 2025.

Rand Capital maintained a regular quarterly cash dividend of $0.29 per share, despite challenges from portfolio non-accruals and repayment impacts.

The company ended the quarter with a fair value portfolio of $51.5 million and a net asset value per share of $17.16, with more than $20 million in available liquidity.

Management emphasized a focus on dividend sustainability, credit quality, and prudent capital allocation, with plans to selectively grow the portfolio and support shareholder value.

Full Transcript

OPERATOR

Ladies and gentlemen, greetings and welcome to the Rand Capital Corporation First Quarter FY 2026 Financial Results Conference call. At this time, all participants are in the listen only mode. If anyone requires operator assistance during the conference call, please signal the operator by pressing Star and zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your Host for today, Mr. Craig Mahalik. Please go ahead. Thank you. Good afternoon everyone. We appreciate your interest in Rand Capital for joining us Today for our first quarter 2026 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@randcapital.com if you're following along on 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 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@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 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 and I'll hand the discussion over to Dan.

Dan Pemberthy (President and Chief Executive Officer)

thank you Craig and good afternoon everyone. We view Q1 as a transition quarter for Rand. Our results reflected the impact of non accruals in a smaller income producing portfolio due to the repayment of several debt investments during 2025. But we have also made progress on several fronts that we believe are important as we move through 2026. Investment income for the quarter was $1.2 million and net investment income was $0.18 per share. Those figures were below the prior year period primarily due to reduced amount of interest income from our current portfolio companies as compared with 2025. At the same time, we generated a realized gain of approximately $1.1 million from the exit of Siberts or the RAC Group, as it's commonly known, and we also deployed $5.1 million into new and follow on investments during the quarter. This includes our new investment in AME Holdco. From a capital position standpoint, we ended the quarter with net asset value of $17.16 per share with approximately 80% of the portfolio invested in debt investments and more than $20 million available liquidity with only $500,000 drawn on our line of credit at quarter end. So while the quarter's earnings reflect the lag from 2025 debt repayments and current portfolio nonaccruals, we believe the quarter also showed continued execution through capital recycling, new investment activity and balance sheet flexibility. With that overview, let's turn to slide 4. Delivering consistent cash dividends remains central to Rand's strategy. During the first quarter we paid our regular quarterly cash dividend of $0.29 per share and in April we declared another regular dividend of $0.29 per share for the second quarter of 2026. That consistency is important. Even in periods where repayments have reduced the size of the earning portfolio and non accruals have weighed on our current income, we have remained focused on supporting the regular dividend while rebuilding the portfolio. The nature of the GAAP versus tax or RIC-based accounting for our dividends has benefited us in 2026 as we work hard to rebuild the portfolio base supporting future dividends. Our dividend strategy remains disciplined and earnings driven. We want to preserve balance sheet flexibility, continue to support the portfolio where appropriate, and deploy capital selectively into investments that can contribute to income and create long term shareholder value. Please turn to Slide 5 for a review of the portfolio. At March 31, our portfolio had a fair value of $51.5 million across 20 portfolio companies. This compares with $48.5 million at year end 2025. The portfolio remained positioned toward income generation with approximately 80% in debt investments, as I previously highlighted, and 20% in equity investments. That debt oriented mix continues to reflect our emphasis on structures designed to generate current income while preserving some potential upside through equity participation. The annualized weighted average yield on debt investments, including PIK interest was 9.43% at quarter end, down from 11.3% at December 31, 2025. That decline primarily reflects the impact of non accruals, including such companies as FSS and MREs, both of which were placed on nonaccrual status beginning in the fourth quarter of 2025. These non accruals drag down the total yield on an aggregated basis. However, keep in mind our individual Transactions are more typically currently being priced with interest in the 13 to 14% range. More broadly, our strategy remains focused on expanding income producing investments over time while preserving credit quality with a disciplined approach to underwriting and valuation. Please turn to Slide 6. This slide summarizes our key portfolio actions in the quarter, both new deployment and follow on capital as well as the actions we took in a workout situation and importantly a strong full cycle realization or exit for rand. We closed a $4.0 million investment in AME Holdco during the quarter consisting of a $3 million term loan at 13% and a $1 million equity investment alongside it. AME provides auto center design and installation services and we believe it fits well within our lower middle market investment strategy. We also remained active with existing portfolio companies. During the quarter we participated with a co investor in the buyout of MRES senior credit position with Rand's pro rata investment totaling approximately $678,000. This positioned the investor group as a senior creditor in the situation. MRES is currently being restructured through a technical bankruptcy through the courts. We are optimistic that given our strong position in both the senior and subordinated debt tranches, we will play a key role in partnering with the company to execute a successful workout plan. We also funded a $400,000 follow on debt investment in FSS bringing our total investment there to a fair value of $4.3 million at quarter end. And lastly we completed a smaller follow on equity investment of $50,000 into Kitec. In addition to those investments, the quarter included the final monetization of Siberts doing business as the RACC Group, which we view as a strong investment outcome for Rand. We had previously received full repayment of our original $7.7 million debt investment and during the first quarter we sold our remaining equity holdings for approximately $1.3 million in proceeds generating a realized gain of approximately $1.1 million. The RACC Group is a good example of the way our model is intended to work, earning income through the life of the investment, providing follow on capital to support growth and participating in upside through equity components more broadly, it also reflects the capital recycling dynamic that is core to our Strategy and all BDCs where repayments and realizations create capital for future deployment into new income producing opportunities. Please turn to Slide 7 which shows our balanced industry exposure across the portfolio. Professional and business services remains the largest area of exposure, followed by manufacturing and then distribution and consumer products, while individual weighting shifted during the quarter due to new investment, follow on funding and repayments and valuation changes. The broader portfolio continues to reflect a balanced mix across multiple industries aligned with our lower middle market focus. We believe maintaining this balanced industry exposure supports the portfolio resilience while preserving flexibility to pursue attractive sector specific opportunities as they do emerge. Please turn to Slide 8. Our top five portfolio investments represented approximately $22.9 million in fair value or 44% of the total portfolio at March 31, 2026. These holdings include International Electronic Alloys or INEA, Kitec Highland, All About People, BMP Food Service Supply and AME Holdco. These investments form an important part of the portfolio and we are focused on working with the companies to preserve creditworthiness and the value in the RAND portfolio as well as to preserve and maintain their income producing base. Some also include equity participation or PIK interest income features that can contribute to additional return potential over time compared with prior periods. The top five also reflect the portfolio transition we have discussed. Siberts is no longer in the top five following the full monetization of that investment and AME has now entered the group following our new investment in the quarter. With that, I'll turn it over to Margaret to walk through the financial results in more detail.

Margaret Brechtel (Executive Vice President and Chief Financial Officer)

Thanks Dan and good afternoon everyone. I will start on slide 10 which provides an overview of our financial summary and operational highlights. For the first quarter of 2026, total investment income was $1.2 million, down 38% compared with the prior year period. The decrease primarily reflects lower interest income from portfolio companies following the repayment of five debt instruments over the past year along with lower fee income. Non cash pic interest totaled $244,000 in this first quarter representing 20% of total investment income compared with 31% in the prior. We continue to monitor PIC exposure closely. Total expenses were $642,000 for the quarter down 19% compared with $791,000 in the first quarter of 2025. The decrease primarily reflects lower base management fees and no income based incentive fee accrual. In the first quarter of 2026, net investment income for the quarter was 545,000 or $0.18 per share. Adjusted net investment income per share is also $0.18 per share. Please turn to Slide 11. The waterfall chart on this slide illustrates the drivers of net asset value change during the first quarter of 2026. We began the period with net assets of 52.2 million. During the quarter we generated 545,000 of net investment income and 1.1 million of net realized gain on the sale of our remaining equity position in SIBERTS These positive contributions were offset by 2 million of unrealized depreciation and 861,000 of dividends declared during the quarter, resulting in ending net assets of approximately 51 million and a net asset value per share of $17.16. Now turning to the balance sheet on Slide 12, at March 31, 2026, total assets were 52.5 million and net asset value per share was $17.16. As I just mentioned, our investment portfolio accounted for 51.5 million of total assets or $17.36 per share, while consolidated cash was 331,000 or $0.11 per share. Other Assets and Liabilities Net reduced net asset value by approximately 919,000 or $0.31 per share. We ended the quarter with 500,000 outstanding on our senior secured revolving credit facility and approximately 20.1 million of remaining availability. This facility permits up to $25 million in borrowings subject to borrowing conditions and portfolio eligibility requirements and it does not mature until 2027. The Board of Directors also renewed our share repurchase program authorizing the repurchase of up to $1.5 million of additional rand Capital common stock. The combination of modest leverage, the meaningful availability under the facility and the renewed authorization provide flexibility as we evaluate opportunities to deploy and where appropriate, return capital to shareholders. With that, I will turn it back to Dan for closing remarks.

Dan Pemberthy (President and Chief Executive Officer)

Thanks Margaret. If you would please turn to slide 13. As we step back and look at where RAND stands today, we believe the first quarter continued the transition we began in 2025. We are moving from a period where repayments and portfolio events dominated the narrative into a period where we are again deploying capital selectively into new income producing assets while managing through a handful of challenged portfolio positions. What continues to differentiate RAND is our flexibility across the Business Development Company (BDC) landscape. Investors are focused on dividend sustainability, credit quality and balance sheet strength. We believe our actions from a capital recycling and new investment deployment while maintaining conservative leverage demonstrates that we are managing with that same focus. Looking ahead, our 2026 objectives are straightforward and aligned with the slide. First, we are executing a long term strategy anchored in a resilient income focused investment model. We are seeing early signs of improved sponsor activity and deal flow in our segment of the market and we believe we are well positioned to scale the portfolio prudently as attractive opportunities emerge. Second, we intend to use our liquidity and available credit capacity to support both new investments and follow on capital where we see compelling risk adjusted returns. We are maintaining underwriting standards and active portfolio oversight including in situations like FSS and MREs where we are working to protect and where possible enhance future value. Third, our goal is to support a consistent earnings driven dividend while reinforcing NAV through disciplined capital allocation. We believe our current balance sheet portfolio mix and pipeline give us this flexibility to pursue growth from a position of strength rather than a need to chase volume. We believe the work completed in 2025 and the actions taken in the first quarter of 2026 have positioned Rand to rebuild the portfolio thoughtfully from a position of balance sheet strength. We remain focused on the things we can control prudent underwriting, disciplined capital allocation and long term shareholder value creation. As you all know, the broader BDC market is experiencing significant volatility in private credit has become more challenging for many of the newer public and private funds. RAND is not immune to these dynamics. However, we are confident that our decades of experience, the strength of our management team, these will guide us through what we expect to be a relatively short lived and intermittent period of market disruption. Thank you for your time today and your continued interest in RAND Capital. We appreciate your support and look forward to updating you on our progress next quarter. Have a great day.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.