HRZN - Earnings call transcript Q2 2019 | Horizon Technology Finance Corporation

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Operator

Greetings, and welcome to the Horizon Technology Finance Corporation Second Quarter 2019 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief 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, Megan Bacon, Marketing Support Manager. you. Thank

begin. may You

Megan Bacon

and welcome call. Horizon are Representing Chief Michaud, Chairman and Financial quarter Rob Finance XXXX and President; Gerry Officer; conference the Executive Trolio, to you, Chief Technology Officer. the second Pomeroy, Dan Thank company today

like that the to and press QX company’s the out available are XX-Q on point website would earnings release I Form at horizontechfinance.com.

company. Technology regard statements, formal or remarks, of during uncertainties the call, Words statements Horizon that including to performance statements. anticipates, I this forward-looking results such certain with are everyone our Finance remind begin the make as believes, we predicting to forward-looking in similar identify expects, intends, conditions. These Before future inherent used expressions statements and will are the future subject conference to forward-looking

could forward-looking statements. from to a differ Certain actual results these on those in factors material cause projected basis

including filings for update XXXX. the some undertakes to Securities or and factors events, discussion a And these no whether result forward-looking future The of revise Commission, as in company’s or detailed in new factor December of statements with obligation XX, the year risk ended information, the the otherwise. Form company’s company are any Exchange the XX-K

to would turn like this At I time, the Rob call to over Pomeroy.

Robert Pomeroy

and $XXX and consecutive second $XXX million of the you quarter, fifth grew a Today, quarter Good we including performance the us. morning, the with debt our thank quarter In Board. in all portfolio total investments. results, highlighted million, strong we joining for across which showed ended our venture portfolio for

active income, strategy. quarter for the XX.X%, fee of We investment scheduled part well was for liquidity aided an is events. weighted takes yield a $X.XX $X.XX, as the debt interest from which into of and share regularly as liquidity portfolio income NII events, investment of by had our and record account distribution. average net pricing predictive which earning recorded We per our of income a design quarter larger an integral above

Our we our of June was $XX.XX, distributions Board maintained stable manage XX per the driven from by year. investment continue up our net performance terms We $X.XX earnings NAV and $X.XX And share portfolio. quarter-end, of in quality. our as monthly income stability the prior end declared and our to as quality, outlook, of of asset through our based proactively the upon credit

our current build positioned we on and second-half to success the continues well, in beyond. perform to Overall, portfolio our of XXXX remain and

a totaling In activity. funded million XX. from million investment $X quarter, the net basis loans, new and eight our to portfolio March our Turning $XX we by on second increased

million We of commitments million backlog quarter. the also in $XX end and committed the maintained closed $XX on at and new of approvals the

While to normally growing and our slower to venture the the investments, strong, quarters in for ahead. summer Horizon pipeline the venture are demand be new terms robust, forward of remains debt overall in continues and look we portfolio months funding joint our

one continue we proactive our portfolio, debt asset stable quality to portfolio. keep of of overall X% and management, of ongoing a our than the continue fair During had loan one-rated our Odyssey it represents years, X.X% This in value the placed a and first of quarter, two and to of our our on debt less comprise as we our basis. the credits quarter-over-quarter Because is the one rating non-accrual. to credit to [ph] on it we’ve two-rated total downgraded portfolio

XXXX. have this from level We reduced year-end

proactive be We management to in portfolio our continue activities. will

of to ability our confident balance XXXX, we dividend. sustainable continue in drive the at NII Looking above our remain to

for robust technology, are and and science remain demand backlog pipeline healthcare investments tech life active and Our and strong.

in growth funding our of through We investments, steady loan as disciplined thoughtful portfolio continue XXXX. our the with to be and XX% to of reflected approach first-half

range leverage to to at us new stood ample equity with of ratio the June our of have to range, the at our capacity XX. places as targeted higher-end we towards This X.X:X. expand that fund ability to X.X:X and the debt of investments low-end Thus, X.X:X portfolio. grow Our of further

reminder, management million. $XXX This gross our NII, grows. that assets becomes premium on base expands, fee As base enhance a less fee cash our our X.X% further yield as loan lower as management further portfolio exceed marginal will portfolio

stability To size conclude, we credit well growing of the evident predictive we We of remain confident profile. our maintaining the value quarter, that power our our still will was our continue shareholders. of pricing portfolio as while for generate the second above NII in distributions, and strategy generated the to additional our

to environment and over our the on who efforts condition. call to will Dan, you our update I financial operating business now and development will performance then Gerry, who will market turn and detail

Gerald Michaud

Thanks, Rob. morning, Good everyone.

disciplined quarter, Our new growth. and second far $X million eight reflected profitable momentum $XX continued We venture towards funded additional the third we portfolio, quarter transactions to rate million. floating our loan. quality in added an totaling Thus

approach. second underwriting these disciplined experienced quarter loan of our XX.X%, highest million. we exits the as $XX.X yield the and from prepayment the quarter totaling an income maintained achieved accelerated our resulted of loan inception. in yield a portfolio for We XX%, yield in We quarter, during quarterly The events seven portfolio since onboarding our portfolio

by investments funded million was facility. debt our which totaling New addition, joint funded fully Life of In in venture $XX portions our York portfolio two QX,

as add predictable yielding We ATPs, BEC continue portfolio and prepayment the and investments yield reflected warrants. a new where debt opportunities grow our portfolio, stream, in to to income continue leading our we position generates by premium with which industry, maintain a

[ph] with a end the with backlog $XX closed million, line $XX approvals XXXX. $XX loan new We in roughly of quarter million of second quarter first the at committed backlog commitments and of the of in million and a ended

to of continuing June enhance while accelerated us growing was approved backlog and to a opportunities and This XX pipeline and million. backlog robust to million of committed, well NII our $XXX sets income as and companies over Our of awarded XX execute $XX.X and up new prepayment with pipeline committed portfolio income. stream, on

and warrants and we of Powerhouse equity As equity value companies, the with received of the in June XX our of proceeds portfolio with fair our a connection million. TruSignal. in Dynamics warrant positions investment and in termination sale $XX.X of we QX, In XX, held

Subsequent investment QX, totaling to approved and the of backlog at funded At million, momentum providing awarded, end new of committed XXXX. million. portfolio our the with $XX of $X the balance sits to end our one grow July, we us additional for

to was $XX and billion for leaving second of quarter Turning a VC year PitchBook, environment. a of consecutive second the activity, now to the million to in in first venture track still industry over well in companies According VC-backed the down investment quarter capital XXXX, from quarter overall $XXX but approximately strong investing. very invested achieving on

terms in quarter story, of the positioning was In first from was rebounding VC course, The slowest of for quarter. start five-year activity raised the billion in activity second average. VC-backed fundraising the fundraising, and the XXXX big quarter record exit a the XXXX, level to of full-year within $XX in fall of the

the XXXX. in and venture-backed I’ll second billion end Uber, These helped which [ph] by Zoom, IPOs potentially VC returns previously shattering capital, reinvest XX IPOs the to led of allow Pinterest, fundraising $XXX quarterly into value generate record. lead quarter which and in higher VCs XXXX, their the opportunity of lead of to Slack quarter in exit over the second-half with the to and XXXX

to the to life healthcare there show the large high-profile and science IPO by future. continue overall companies, headlines Horizon the this segment strength Importantly, were many dominate IPOs will while over believe sector made comp, continues foreseeable

technology a and financing we now healthcare venture the focused demand funded quarter, loan core markets a remain of markets. pharmaceutical beginning million quarter, market. the $XX on for In to life to in the Turning Dermatology, our dermatology specialty science the Encore strong. At U.S. second company the second

loan one million portfolio portfolio a companies, medical a company, additionally of a our we $X Medical, million venture leading loan We quarter, tech-enabled the our existing develops CSA healthcare science to patent to funded AI during Catasys, devices. $X protected venture Also, publicly-traded funded which and company. existing cryotherapy life

$X on diseases. sector company, genome a Subsequent treat technology funding The to portfolio to LogicBio loan medicines company new new to rare companies. million a we active funded the with continues growth-oriented very to broader developing focused and Therapeutics, venture be specialty editing quarter-end,

venture able to for been to of relationships and to million and BXB that new debt use marketing. meet portfolio $X provided effectively During Demand of on the focused funding and we’ve generally company quarter, our has Solutions remained we a portfolio brand product, as a strong, platform consistently company existing our standards. our tech BridgeX and for compete OutboundEngine, to SaaS million name deals underwriting specifically, $XX.X aggressively

respect to a select Horizon. with the However, – for significant remains focus selectivity tech companies,

requests significant positioned we’re be selective, where the for the technological to are technologies, debt continuing is innovative transactions large opportunities we achieve to seek as advancements. we borrower for Given seeing

the venture in with Overall, investment environment. we’re results pleased our debt

value We continue for exits, new to for and shareholders. many have for our investments opportunities creating

knowledge-based to to win to continue strategy capacity ample while identify to opportunities and long-term our apply and source will well-priced additional our to We ability portfolio attractive pricing our add predictive deliver growth. pipeline, utilizing investments, our

With that, Dan. now the over call to will I turn

Daniel Trolio

everyone. good morning, Gerry, and Thanks,

level on well a period. generated This our higher prior average compared as the due for total was for investments, investment to of in $XX.X to increase million of income size earned primary the results the given million higher interest income XXXX, turn as income financial $X.X loan increase to XX% Let’s prepayments. Horizon our quarter second the of a portfolio, the larger of from of XXXX. quarter second

of XX% March XX, investment and had X% XXXX, June XXXX grown from from in As the our $XXX growth portfolio a to XXXX. debt increase million, year-end

the of XXXX. a XXXX, For slight of achieved the XX%, yields second quarter to quarter in onboarding first of compared increase XX.X% we

second record quarter last and XXXX, Our quarter the XX.X% compared first of a year’s loan in second portfolio for to quarter. XX.X% yield XXXX was for of XX.X% the

to Turning expenses. our

expenses compared in second net total $X.X XXXX. quarter million, $X quarter, million the of second the For were to

up in one-month Our and the to to borrowings interest the average year due increase was $XXX,XXX LIBOR. additional expense period prior compared the

higher Our $XXX,XXX, due increased fee fee incentive primarily income. investment net to pre-incentive net

by base of our $XXX,XXX, While increase our driven size fee in the portfolio. management an rose average

Horizon Investment As million a above which pays less the assets. a Agreement, two-tiered fee, in management of new includes $XXX a fee gross X.X% assets management under reminder, cash Management of

our our and asset have the shareholders deployment rate. our raise, from With the equity most management of are lower hurdle recent successful we fee exceeded benefiting

have our waived. now the receive this the waived incentive quarter, fees $XXX,XXX previously was of a entitled performance-based with recouped deferred As previously fees, past been note, and deferred fully to incentive advisor all

As a advisor. be are recouped the our fees previously of beginning may XXXX, result, no deferred third performance-based remaining that incentive by with there quarter

$X.XX as was to spillover of $X.XX, per for The share June $X.XX compared undistributed quarter company’s and investment quarter compared Net income $X.XX to second XXXX. the XXXX XX, first XXXX. per with for per increased of March income $X.XX of XXXX in the of quarter share, second XX, the share as

of distributions per October, November monthly upon our share declared $X.XX outlook NII, Based XXXX. for our Board and December for

We months. have $X.XX monthly share declared of XX per for distributions now consecutive

We are remain committed investment to currently that our spillover an per maintained providing over $X.XX covered our by support distributions future undistributed share of in of time with distributions. shareholders and income net

of XXXX the quarter, June of NAV as $XX.XX the Our offset partially basis XX, by net per investments. net June quarterly XX, XXXX. unrealized loss on primarily in to was higher share, realized investment and March NAV as income due a XX and compared was increase to in $XX.XX $XX.XX on as $X.XX generated

quarter, $XX by Summarize $XX principal million, and were million prepayments. $X funded activities offset second payments the JV in at new our portfolio principal totaled loans originations, our in million for including which

in with in $XX which and second fair portfolio of other an $XX million, quarter investments an with an and an million companies ended in three of fair fair consists a portfolio We companies million. million, $XXX investments million, interest value of with of of our companies aggregate value XX debt positions equity aggregate value aggregate the value JV a fair with of investment of $XXX warrant XX XXXX equity $X in of with

nearly XXX% with having structured our place. investments principal of interest in to rates of while specific at amount noted, outstanding a that bear consistently coupons rates increase floating the we’ve interest floor are rise, As debt as

points basis As investments the our floor rate above debt of rate average interest LIBOR is KeyBank basis XX, the the XXX only points and current of is a below our XX June floor on facility.

$X.X sheet, Horizon cash available under million to our available balance had million $XX.X existing of the credit On of liquidity $XX.X in in facility. consisting redrawn in XX, as and million June funds

and was there outstanding million our credit based under to at pointing $XXX our and KeyBank potential XXXX. a was June the facility with our facility, XX, June on ratio of liquidity one position leverage cash capacity million our $XX at million As $XX XX, key

Life the remainder at it company Lastly, to to and both the grow of XXXX. facility accessing our with investments venture, portfolio quarter by our two joint New during additional we ample for York capacity the respect continued JV our and the funded have with to

remarks. at opening concludes to take questions This time. happy have our may We’ll this you be

Operator

Thank you.

conducting session. to appears a at you time. will be questions back over Instructions] [Operator I We question-and-answer this to no have like now would for call it Mr. further comments. closing Pomeroy, turn we the

Robert Pomeroy

thank we with soon. and and all speaking the look this joining your We and continued you you, Thank end appreciate again us interest Horizon, you call. support This in to morning. will forward for

Operator

Ladies this does teleconference. and gentlemen, today’s conclude

may and disconnect have for your lines you at You time. participation, Thank a day. this wonderful your

Horizon Technology Finance (HRZN) 31 Jul 192019 Q2 Earnings call transcript