Rand Capital (RAND) Q1 2026 Earnings Transcript

Image source: The Motley Fool.

Date

Wednesday, May 6, 2026 at 1:30 p.m. ET

Call participants

• President and Chief Executive Officer — Daniel Penberthy
• Executive Vice President and Chief Financial Officer — Margaret Whalen Brechtel
• Director of Investor Relations — Craig Mychajluk

Need a quote from a Motley Fool analyst? Email pr@fool.com

Takeaways

• Investment Income -- $1.2 million, a 38% decline due to fewer interest-generating assets after five debt repayments in 2025 and reduced fee income.
• Net Investment Income -- $0.545 million or $0.18 per share.
• Realized Gain -- $1.1 million realized gain from the sale of remaining Cybertz equity, with $1.3 million in proceeds after full repayment of the associated $7.7 million debt in prior periods.
• Portfolio Size -- $51.5 million across 20 portfolio companies, up from $48.5 million at 2025 year-end; 80% in debt and 20% in equity.
• New and Follow-On Investments -- $5.1 million deployed, including $4 million in AME HoldCo (split: $3 million term loan at 13%, $1 million equity), $0.678 million into MRES’ senior credit participation, $0.4 million follow-on debt into FSS, and $0.05 million additional equity into KITECH.
• Yield on Debt Investments -- Annualized weighted average yield was 9.43%, down from 11.3% at previous year-end, attributable to nonaccruals in FSS and MRES.
• Nonaccruals -- Both FSS and MRES on nonaccrual status since 2025, impacting aggregate yield and current income.
• Cash Dividend -- Regular quarterly dividend of $0.29 per share paid and declared for next quarter, with management stating, "That consistency is important."
• Net Asset Value -- $17.16 per share, after $2 million unrealized depreciation and $0.861 million dividends declared during the quarter.
• Liquidity and Credit Facility -- $0.5 million outstanding with $20.1 million remaining available on the $25 million senior revolving credit facility, maturing in 2027.
• Share Repurchase Authorization -- Board renewed authorization to repurchase up to $1.5 million in common stock.
• Expense Reduction -- Total expenses decreased 19% to $0.642 million, driven by lower base management fees and no income-based incentive fee accrual this period.
• Portfolio Concentration -- Top five investments total $22.9 million (44% of portfolio); Cybertz exited, AME HoldCo added to top five.
• Noncash PIK Interest -- $0.244 million, representing 20% of investment income, compared to 31% in the previous year.
• Industry Allocation -- Largest exposures: professional and business services, followed by manufacturing, with a balanced mix supported by ongoing capital recycling.

Summary

Rand Capital Corporation (NASDAQ:RAND) reported a transition period marked by reduced investment income from prior repayments, substantial new deployments, and a realized equity gain from a major portfolio exit. Portfolio activity included material investments across debt and equity, while nonaccruals in FSS and MRES continued to pressure yield and income. Active liquidity management and a newly renewed share repurchase program underscored disciplined capital allocation. A consistent $0.29 per share dividend was maintained despite portfolio turnover and unrealized depreciation. Portfolio concentration shifted with the addition of AME HoldCo and the full exit from Cybertz.

• Management highlighted the capital recycling model, stating it is "core to our strategy and all BDCs," enabling deployment of repayments and realizations into new investments.
• Leadership articulated a focus on "preserve balance sheet flexibility," to support future dividends and selective new investments.
• The credit facility’s low utilization alongside substantial availability may indicate capacity for incremental deployment or opportunistic repurchases.
• Rand Capital Corporation reported monitoring its PIK exposure closely, with PIK interest declining as a share of income compared to last year.
• The share repurchase authorization reflects an active willingness to return capital to shareholders where appropriate.
• Management described the broader BDC market as experiencing "significant volatility" and framed current portfolio management efforts as grounded in experience and resilience.

Industry glossary

• PIK (Payment-in-Kind) Interest: Noncash interest income where interest is paid by issuing additional debt or equity rather than in cash.
• Nonaccrual: Status for investments no longer recognizing interest income due to borrower financial distress or payment delinquency.
• BDC (Business Development Company): Regulated investment company structured to provide debt or equity capital to lower middle-market or small businesses.

Full Conference Call Transcript

Craig Mychajluk: We appreciate your interest in Rand Capital Corporation for joining us today for our first quarter 2026 financial results conference call. On the line with me are Daniel Penberthy, our President and Chief Executive Officer, and Margaret Whalen 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 are following along on the slide deck, please turn to Slide two. I would 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 sec.gov. During today's call, we will 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 will hand the discussion over to Daniel Penberthy. Daniel?

Daniel Penberthy: Thank you, Craig Mychajluk, and good afternoon, everyone. We view Q1 as a transition quarter for Rand Capital Corporation. Our results reflected the impact of nonaccruals and 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 a 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 Cybertz, or The Rack Group as it is 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 of available liquidity, with only $0.5 million 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 us turn to Slide four. Delivering consistent cash dividends remains central to Rand Capital Corporation’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 2026. That consistency is important.

Even in periods where repayments have reduced the size of the earning portfolio and nonaccruals 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 five 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-orientated 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 12/31/2025. That decline primarily reflects the impact of nonaccruals including such companies as FSS and MRES, both of which were placed on nonaccrual status beginning in 2025.

These nonaccruals dragged 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 six. 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 Capital Corporation.

We closed a $4 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, 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 Capital Corporation’s pro rata investment totaling approximately $0.678 million. 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 $0.4 million 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 $0.05 million into KITECH. In addition to those investments, the quarter included the final monetization of Cybertz, doing business as The Rack Group, which we view as a strong investment outcome for Rand Capital Corporation.

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 Rack 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 seven, 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 eight. Our top five portfolio investments represented approximately $22.9 million in fair value, or 44% of the total portfolio, at 03/31/2026.

These holdings include International Electronic Alloys, or INEA, KITECH, Highland All About People, BMP Foodservice 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 Capital Corporation 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.

Cybertz 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 will turn it over to Margaret Whalen Brechtel to walk through the financial results in more detail.

Margaret Whalen Brechtel: Thanks, Daniel Penberthy, and good afternoon, everyone. I will start on Slide 10, which provides an overview of our financial summary and operational highlights for 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. Noncash PIK interest totaled $0.244 million in this first quarter, representing 20% of total investment income compared with 31% in the prior-year period. We continue to monitor PIK exposure closely. Total expenses were $0.642 million for the quarter, down 19% compared with $0.791 million in 2025.

The decrease primarily reflects lower base management fees and no income-based incentive fee accrual in 2026. Net investment income for the quarter was $0.545 million, 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 2026. We began the period with net assets of $52.2 million. During the quarter, we generated $0.545 million of net investment income and $1.1 million of net realized gain on the sale of our remaining equity position in Cybertz.

These positive contributions were offset by $2 million of unrealized depreciation and $0.861 million 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 03/31/2026, 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 $17.30 per share, while consolidated cash was [inaudible] per share. Other assets and liabilities, net, reduced net asset value by approximately $0.919 million, or $0.31 per share.

We ended the quarter with $0.5 million outstanding on our senior secured revolving credit facility and approximately $20.1 million 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 Corporation common stock. The combination of modest leverage, meaningful availability under the facility, and the renewed authorization provides flexibility as we evaluate opportunities to deploy and, where appropriate, return capital to shareholders. With that, I will turn it back to Daniel Penberthy for closing remarks.

Daniel Penberthy: Thanks, Margaret Whalen Brechtel. If you would please turn to Slide 13. As we step back and look at where Rand Capital Corporation 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 Capital Corporation is our flexibility. Across the 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 perspective while maintaining conservative leverage demonstrate that we are managing with that same focus. Looking ahead, our 2026 objectives are straightforward and aligned with the slides. 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, 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 the 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 2026 have positioned Rand Capital Corporation 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 and private credit has become more challenging for many of the newer public and private funds. Rand Capital Corporation is not immune to these dynamics. However, we are confident that our decades of experience and the strength of our management team 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 Corporation. We appreciate your support and look forward to updating you on our progress next quarter. Have a great day. And go Savers.

Operator: Ladies and gentlemen, the conference call of Rand Capital Corporation has now concluded. Thank you for your participation. You may now disconnect your lines.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.