HRZN - Earnings call transcript Q3 2019 | Horizon Technology Finance Corporation

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Operator

Greetings, and welcome to Horizon Technology Finance Corporation Third Quarter 2019 Financial Results 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 turn the conference over to your host, Megan Bacon. you. Thank

begin. may You

Megan Bacon

and welcome QX call. Horizon website are Representing Chief XX-Q point on Michaud, Chairman and I available Financial quarter like are press would Rob Finance horizontechfinance.com. release XXXX at and to President; Jerry Officer; conference the that Executive Company’s Trolio, to you, Chief Technology Officer. the the out third Pomeroy, Dan earnings Thank the company Form today, and

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

Form actual Certain the Company’s from these the of and projected events otherwise. to in basis for factors differ any factors Commission, Securities filings statements, revise update could Company’s detailed a no material XX, and these cause on in a the those factor of discussion are statements, results XX-K company forward-looking future the with to some including risk December or the year obligation as whether forward-looking new XXXX. The information, Exchange result ended undertakes or in

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

Rob Pomeroy

Good morning, all and us. you joining thank for

across our results business. third every of proud quarter of are facet We our

NII is higher share distributions of have recorded the and investment per As further paid notably and the quarter, beyond. our we period. growth XXXX performance In strong to the through than net approximately continue in we same we for XX position income for XX% September $X.XX, ourselves

from NII liquidity pricing by strategy. as predictive events included anticipated our income Our

will income development or Horizon. our predictive the include is Events and strategy additional a capital. sale which an are experience historical raising that borrower, our on to refinancing dynamic loans reminder in milestones prepayment achieving additional to based of debt, our of experience the that borrowers event, Just pricing results may of

Our and a power the on income receipt basis structuring earning expertise loan of of this validates our event our portfolio. driven overall regular

consistently we’ve of structure our and predictive design are pricing of a of integral loans venture as such and the liquidity these feature As the strategy. events noted, part our

Importantly, even as grow events our to the were able our as sixth September XX. we from consecutive portfolio million were for portfolio, a to experiencing existing liquidity quarter of still $XXX of total we

account investment scheduled liquidity a of as regularly experienced well XX.X% income, for which yield as fee record interest income and takes We debt the from into quarter, events.

During after no balance our the information the reduced agreements. on royalty royalty the we quarter, which of to fair our longer supported value. received a outlook previous of quarter, The updated fair we new one value in two agreement was non-earning small

royalty the agreement non-earning other of we the by collateralized by The adjustments quarter an of effect of the of the was effect end. prior value a from into asset changes $XX.XX and assets, in After our other our convert borrowers this new loan by one Horizon. was to current purchased transaction earning proceeds all with an asset the our to conjunction with from the assets $X.XX quarter these of fair giving up ended borrower. of in NAV with The

our earnings declared perspective, costs, capital was lowering lower board we originate several XXXX. rate our loans, quality, upon power believe objectives markets more we our as key and at asset successfully our our for outlook, monthly portfolio. Looking allowed our portfolio. distributions further financing freeing $X.XX of In credit adding a share once, that the bank through million $XXX are and stable borrowing earnings new our revolving interest fixing in to based profile, a up our us to growth to particularly From our completed busy quarter. accretive increasing accomplish it namely securitization. we a Accordingly, credit maintaining facility capacity This March August, manage continue rate per we of to proactively environment,

a offering we’re during stock million implemented $XX at quarter issuing the at market selling premium in also to active a We common and NAV. and stock the

have As of overall today, from million such proceeds capacity. we improving received of $XX further lending our net issuance,

to by investment increased six funded quarter, and $XX maintain our activity. overall and Turning a debt we to the the our be Demand net debt to look ahead. from our Horizon investments committed XX. forward million growing a portfolio We pipeline June continues in loans In basis strong totaling third $XX new we million strong backlog robust. quarters venture remains and for on the

we confident remain investments drive Demand at and continue XXXX, strong. NII distribution. above our health balance care of technology, sustainable ability to tech, science for remain and to in Looking the active life our

disciplined growth of be to our as XXXX. far and thoughtful to loan steady portfolio continue thus We XX% approach funding in reflected with in our investments

debt-to-equity the X.X our X well and high ratio with and ability grow portfolio. our expand fund we to point at to leverage of our ample investments retain new have below leverage targeted our to the And of X, to X.X capacity

To summarize, facets on to we business. continued all successfully our of execute

our the size generate of continue As that confident the portfolio our profile. maintaining our our once generated to shareholders. remain while again for NII of we distributions, value above credit We would and additional we stability growing

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

Jerry Michaud

Rob. Thanks, morning, everyone. Good

of the Our third first upon quarter the successfully is built the momentum of year. half

in manner. to a profitable grow continue As our discipline, portfolio quality and we

and floating again, achieved record disciplined portfolio new in our while three $XX third we to our onboarding per We portfolio yield $XX.X approach. the quarter maintaining share. our exits million totaling to million, NII experienced of of quarter the totaling XX.X%, transactions which rate an contributed underwriting during newer six added $X.XX loan We

record XX.X%. loan yield portfolio the helped In events of quarter drive addition, prepayment accelerated and these income the for from

the We through quarter, continue venture investment million of to our we $X funded portfolio joint JV. one add as transactions the during to

We generates warrants. a to ended million stream, yielding a and third $XX which closed new debt portfolio the backlog a the grow commitments end of prepayment we income add our BDC $XX continue and the at continue committed to maintain $XX quarter with industry, million and quarter investments in an the from portfolio leading by our approvals loan predictable yield ETPs, in premium We second and opportunities reflected new with million, of position as of XXXX. increase

awarded pipeline $XXX million. Our $XX.X was as XX companies million XX of new opportunities committed, approved of our was and September and backlog to

and our portfolio and continue with with NII of while show, growing backlog income predictive pipeline to our numbers stream, prepayment these it and As we pricing income, well are characteristic positioned our strategy. is committed enhancing accelerated

and the warrants we held with fair termination equity portfolio value positions our in XX, proceeds a As in XX $XX.X of million. of connection received companies also of September in we with In warrant QX, FoodXX.

we warrant subsequent from it’s XXXX. in company loan Solutions, to quarter the Verity million that addition, loan In have received a sale portfolio repaid of end, $X.X our former exercise and Horizon in

According of $XXX industry months VC second the a overall leaving achieving now was investment Turning in quarter still to to the over another on environment. quarter XXXX, year consecutive the to with invested venture in three PitchBook, and for approximately strong third of go. companies doorstep in billion billion the VC $XX to capital investment

bringing total average. XX was will billion in of as nearly fundraising in near VC raised the third the the activity of of and terms be quarter fundraising, raised In five-year $XX year XXXX essentially to for XXXX the $X billion full ensuring XXXX, September of

exit were value there of activity, XXXX, exit generate the and VC-backed which in and allow third to to year-to-date VC XX of over $XX potentially total the reinvest These as their to terms in exit we value $XXX fundraising to the head quarter and XXXX. of billion quarter In first lead venture-backed helped ever. returns over into to billion IPOs opportunity bringing for the lead time investing higher IPOs VCs capital, which

Importantly, will and while either be dominate the the failing underperforming life price, been science count high foreseeable sector overall future. for has IPOs to discussion IP continue we much or believe IPOs sustainable the healthcare to this spring there regarding profile

life strong. Turning markets our to third quarter, in markets. core technology the and care remains demand the science financing now for In health

rare a funded to $XX to million device MacuLogix, funded During hypertension the we life an $XX.X addresses of quarter, existing diseases the advanced Therapeutics, such that Also cardiovascular LogicBio editing treat a diseases. science quarter, we company funded to an loan developer medical genome pediatric as company and implantable developing million venture FDA-approved to portfolio $X medicines CVRx, publicly-traded million loan focusing venture during and we on heart a failure. a

The asset. by Finally, technology $X.X an venture a converting portfolio formerly loan non-earning into earning asset existing funded million Espero to royalty remains a sector into agreement then our company a turning and we active. broader

provider portfolio quarter, $X.X companies of During Horizon we business venture to funding two BridgeX a provided at million existing $X.X to leading communications portfolio million of loan X-rated Solutions, funding a the company. and to our IntelePeer,

our venture and active Demand XXXX, debt for product strong life in specifically sciences. consistently particularly and has generally throughout remained

to for standards. deals our our relationships compete As underwriting that we utilize aggressively continue and name brand meet to

internet-related investments, We particularly valuations posture also selective elevated potential for given continue to take and companies. with respect to a cautious tech-related

Overall, of we’re portfolio. quality very our the with and performance our pleased quarter third

has our our placed identify We including to knowledge-based will capital cost our to long-term position apply Further, ability attractive to and to investments. continue us in capital and activity, a source this competitive deliver growth. pipeline of portfolio our well-priced opportunities lowering year additional add to win stronger markets

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

Dan Trolio

and good Thanks, morning everyone. Jerry

million interest as third given to quarter, the Horizon in primarily prior-year activity. our results as Let’s earned turn is the due from size financial XXXX. quarter increase investments our to income increase This the the the $XX.X prepayment loan third a for generated of income on investment $X.X larger of total portfolio average higher income to million well XX% of for compared period.

debt had million, As of XX% year-over-year $XXX investment our XX, grown increase. September to portfolio

with of quarter the XX% quarter. of XX.X%, achieved line in third in we second XXXX, the achieved yield onboarding Since essentially

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

were expenses, total million expenses net our in the to Turning to quarter quarter compared third the $X.X million XXXX. $X.X of third

borrowings. interest primarily increase in up compared the $XXX,XXX period, to expense was Our prior to due average year the

in primarily by average portfolio. Our of fee investment net rose increase while the due net size higher pre-incentive our to $XXX,XXX our driven an management $XXX,XXX base fee increased income, incentive fee

third a Horizon fee the million, we second under from management the in share per shareholders As quarter $X.XX $XXX rate and XXXX. above the of for non-cash fee Investment are which increasingly per fee grow third our assets will investment non-cash XXXX on Net the $X.XX With share of benefit paid our income $X.XX share to assets reminder benefiting assets. million. X.X% quarter was quarter as lower for the Agreement, management compared a $XXX of and Management X-tier over now includes management new our

The upon company’s September June for declared undistributed board spillover of March, Based compared January, for NII, per $X.XX as increased our outlook income XX, $X.XX our as share XXXX. and distributions to $X.XX monthly February of of with XX.

We now our over declared distributions income XX time. covered of consecutive distributions monthly with net are our share for per $X.XX that We investment to shareholders committed have providing months. by remain

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

$XXX companies fair two positions positions value of value of JV an of with aggregate million, new investment portfolio warrant in $XX in aggregate portfolio investment originations, and which XX principal our quarter, ended $XX activities million, payments with value with aggregate principal million. XXXX equity third $XX in an the with XX million of offset fair summarize an an a million. interest We were $XX value million equity and debt of third of prepayments. $XXX portfolio of for $X Other fair of quarter companies To in totaled $X the consisting fair investments by our with in an companies million, and in million, a

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

of floor is to the LIBOR LIBOR our and debt rate, reference our facility. current of September floor above day our the rate As basis points LIBOR XX XXX XX XX, is average investments of XX KeyBank equal day reference day on

our XXth, had sheet, available and a existing to On million in $XX.X $XX million facility. credit million consisting drawn in balance under as liquidity of Horizon be in of funds September available $XX.X cash

outstanding million $XX XXth, our facility. there September of As credit under $XXX was million KeyBank

capacity X.X:X ratio cash our XX. potential target KeyBank a upon position Our XX, and on debt September liquidity at than million our as lower and leverage stood the $XX was to equity based X.X:X at our our September facility, at

this As capital Rob mentioned, the we were quarter very active markets. in

XXX August, thereby by loans secured A+ million in Notes successfully further and by X.X% million of rate capital originate originated to capacity a backed Horizon. and we Morningstar loans. overall First, The points reducing of venture bear interest of issued our year, at rated increasing a $XXX by cost per fixed Notes, XXX basis our by new of

debt primarily to of The used outstanding proceeds our KeyBank down were facility. pay the

XX quarter, Second, at-the-market an the up we also issue stock sell into in from offering during to and time-to-time. to entered program million common

the premium to approximately to company we additional of sold shares, proceeds. shares $XX.X and million for program stock issued an million. X.X October, at net during netting additional an this And XXX,XXX of total the of common proceeds utilized NAV a in We XXX,XXX quarter

with respect JV and it into venture, to have quarter continue grow an joint this our both ample to further of additional during our with XXXX. portfolio Lastly, funded and the the company to we the year and capacity investments

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

Operator

My At with proceed with a first Johnson we’ll question. this Please your question-and-answer comes Paul Instructions] from be time, conducting [Operator session. KBW. question

Paul Johnson

that hesitation questions. more is from, since, the sort I Thanks that to sponsors portfolio Good mentioned on a taking for tech this that, IPO the that how fallout little as bit your also approach seen to maybe the DC in WeWork to the the any I of just of a you market. my on Maybe could more you’ve in from market, any potential something think just hoping following guys. or you a guess little maybe sector your pertinent affected as morning, sector further origination the companies bit your speak tech I was talk well sector? impacts little

Jerry Michaud

frankly is been and ecosystem this life technology been strong Jerry. funding to Hi, sectors. close Sure. actually has the pretty have overall attention Paul, have of public go more still is think even life seen noise a been the decided sector paying technology the – expected we companies about that pretty out the though they science of absolutely them last there Yes, lot finally few large IPO the side. play It’s a quarters. and in type for offerings to on kind of tech Unicorn lot science we for a that when some we’ve issues to We the here quite and

private stay are generally We the are life to XX% go and represent when pretty to demand just in science would relative not, and mention the in continuing in more the are point life often IPO strong these IPO companies of that transactions sector for proceeds, XX% I between they to invest. still that investors the than they IPOs. offering public seeing science continuing

to relative our to like portfolio we something see that’s certainly So companies.

plenty drug private not device. the investment and life we’re both public also of development investment on still side. to companies technology powder And dry the right seeing healthcare seeing private medical is science for much question it side the we’re the in in your plenty the mark. Does relates sector, on so tech also And on on side, of

anticipation valuations cautious of very looking We that are an companies an have internet-related high at with particularly about IPO.

the at that market those more relative somewhat companies just that becoming are moving looking in than is growth. profitability conservative think I’m I companies and toward interested to

are watching our so something we that’s underwrite as quite transactions And that we carefully.

Paul Johnson

a were good color. my Those insight Thanks really That’s all Great. that. for questions.

Operator

to for comments. this closing back call at are to There Instructions] like Pomeroy time. no turn Rob the [Operator I’d questions

Rob Pomeroy

Thank your to Horizon. you joining We us in continued support morning. for interest with soon. appreciate And we and look this again forward all speaking you

Operator

concludes conference. This today’s

thank disconnect you your lines your at may You this we and time participation. for

Horizon Technology Finance (HRZN) 30 Oct 192019 Q3 Earnings call transcript