Rand Capital Corp 2026 Q2 Earnings Call

Thank you. Good afternoon, everyone. We appreciate your interest in Rand Capital and joining us today for our second quarter 2026 financial results conference call. On the line with me are Dan Penberthy, 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 at randcapital.com. If you're following along with 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 some 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, 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'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. I'll hand the discussion over to Dan.

Dan? Thank you, Craig. Good afternoon, everyone.

We view the second quarter as a period of meaningful portfolio activity for Rand. During the quarter, we accelerated deployment into new income-producing investments, realized a gain on one exit, and maintained our regular dividend while continuing to work through the income and valuation impact of non-accruals and the full write-down of BMP Swanson. Total investment income for the quarter was $1.4 million, and net investment income was $0.24 per share. Those results were below the prior year period, primarily because portfolio investment non-accruals continued to weigh on interest income and on the portfolio's reported yield. At the same time, we invested $6.9 million into two new portfolio companies during the quarter. The first, Feature Healthcare, also known as 4 Seasons Home Care, and Termite Guy Corporation.

We also completed the exit of Applied Image, which did generate a realized gain of $959,000. From a capital position standpoint, we ended the quarter with net asset value of $17.33 per share, which was an increase from the prior quarter. A portfolio that remained overall approximately 79% invested in debt instruments and about $12.4 million of remaining availability on our credit facility. While current earnings still reflect pressure from portfolio investments, the quarter also showed progress by recycling capital through realizations and continuing to shape the portfolio around performing income-producing lower middle-market investments. Importantly, we think the quarter reflected progress on both sides of the portfolio equation. We continued to address challenged positions directly while also adding new investments. With that as the quarter's backdrop, let me turn to shareholder returns and our dividend strategy on Slide four.

Our regular cash dividend remains an important part of our strategy and our value proposition to shareholders. During the quarter, we paid our regular quarterly dividend of $0.29 per share for the second quarter of 2026, and we also declared a $0.29 per share dividend for the third quarter of 2026. While earnings remain affected by portfolio non-accruals and portfolio turnover, we continue to manage the business with a focus on supporting the dividend through recurring income, liquidity management, and steady portfolio rebuilding over time. Our approach is to balance current shareholder returns with long-term portfolio development by identifying new investments and supporting the current portfolio where appropriate. We believe preserving flexibility and maintaining discipline today does give us a better foundation for supporting both earnings and shareholder returns over time. From there, it's helpful to look at how the portfolio itself has changed.

Please turn to Slide five. At June 30, our portfolio had a fair value of $56.5 million across 21 portfolio companies, up from $48.5 million at year-end 2025. The portfolio remains primarily debt-oriented with, as I mentioned, 79% invested in debt and 21% in equity at fair value. That mix continues to reflect our emphasis on current income while preserving selective upside through equity participation. We continue to believe that a predominantly debt-orientated portfolio is the right positioning for Rand as we rebuild in earnings assets and manage through a mixed market backdrop. The annualized weighted average yield on debt investments, including PIK interest, was 8.98% at quarter end. This compares with 11.3% at December 31, 2025. As we noted in last quarter, this reported yield continues to be dragged down and affected by those portfolio non-accruals.

We think it is important to distinguish between the reported portfolio yield and the return profile, rather, on newly deployed capital because the new investments we are underwriting are generally priced in the low to mid teens, which we believe is a more representative sample of the earning power of capital that we are putting to work today. Importantly, the overall portfolio is larger than it was at the end of 2025, that reflects the investment activity we've executed in the first half of this year. We need to continue to build a portfolio of income-producing assets while staying disciplined on credit quality, structure, and overall portfolio construction. That broader portfolio backdrop sets up the specific investment actions we took during the quarter, including new investments, an exit, a repayment, and the write-down of a challenged position. Please turn to Slide six.

We closed on a new $4.5 million investment in Feature Healthcare, which does business as 4 Seasons Home Care. You may see it referenced under both names on the web or in certain public filings. That investment consisted of a term loan carrying 12% cash interest plus 2% PIK, and we believe it fits well within our strategy of financing lower middle market companies in sectors where we see attractive risk-adjusted return potential. We also completed a new $2.4 million investment in Termite Guy Corporation consisting of a $2.1 million term loan at 13% plus 1% PIK and a $300,000 equity investment. For this investment, we again partnered with the past deal sponsor of a prior successful Rand investment, that being The RAC Group or Cybert, as we are comfortable with their underwriting and how they assisted companies once they invested into them.

We believe that the structure of this investment is consistent with the way Rand seeks to combine current income with selective participation in the long-term equity upside. On a realization side, Rand received full repayment of its $1.7 million debt investment in Applied Image, and we also recognized a $959,000 realized gain on our warrants. We also received $250,000 repayment on another debt investment, which further reflects the capital recycling dynamic embedded in our model. At the same time, BMP Swanson ceased operations. This resulted in a full write-down and a $2.5 million quarter-over-quarter fair value decline. While that clearly was both an unexpected and disappointing outcome, we think it is important to address it directly and to note that it was a specific portfolio event recognized through the valuation during the quarter rather than a change in our broader investment approach.

Unfortunately, this does demonstrate the ongoing challenging economic and business environment in which our companies operate. One in which just a supplier interruption or a senior lender's action can quickly disrupt and cause chaos to a business. We're hopeful that things will continue to improve in the overall portfolio, but these portfolio businesses can still experience volatility along the way. More broadly, this slide shows how we are managing the portfolio in real time, adding new performing assets, monetizing successful realization, and confronting challenged situations directly when they arise. That is a core part of a disciplined portfolio management for a company like Rand. Stepping back from individual transactions, slide seven shows how those actions are reflected in the portfolio's overall industry exposure. Professional and business services remains the largest area, followed by health and wellness, distribution, manufacturing, and consumer-related investments.

While weighting shifted as a result of new investments and valuation changes, the broader portfolio continues to reflect balance across multiple end markets within our lower middle market focus. We believe this balance remains an important part of supporting portfolio resilience and more consistent income generation over time. We are not trying to build a portfolio around any single sector theme. Instead, we are focused on identifying companies with sound structure, cash yield, management quality, and a strong deal sponsor. Within that base, slide eight highlights the investments that currently have the greatest impact on our portfolio value. Our top five investments represented $24.1 million of fair value or 43% of the portfolio at June 30th. These holdings, rather, include INEA, that is International Electronic Allies, Chi Tech, Feature Healthcare or 4 Seasons as I mentioned, Hyland's All About People, and BMP Foodservice Supply Holdco.

The top five reflect both continuity and change in the portfolio. Feature Healthcare entered the group following our new investment in the quarter, while the remaining names continue to represent a meaningful portion of portfolio fair value at quarter end. Our objective is to preserve value in these larger positions while continuing to build additional portfolio investments around them. Over time, that should support a broader and more balanced base of income-producing assets. With that portfolio context in mind, I'll turn the call over to Margaret to review the quarter's financial results in more detail.