HRZN - Earnings call transcript Q3 2020 | Horizon Technology Finance Corporation

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Operator

Greetings. Welcome to the Horizon Technology Finance Third Quarter 2020 Conference Call. [Operator Instructions]. Please note this conference is being recorded. I would now like to turn the conference over to Megan Bacon to begin the presentation.

Megan Bacon

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

basis expects, anticipates, and and to in detailed conference and expressions the inherent the of statements, projected are Securities forward-looking in these formal the XX-K including year ended risk for subject those company's to factor identify the this Finance are December on to from could I will to Technology uncertainties forward-looking company. of our in XX, begin used material results statements to future Certain the Exchange or conditions. company's undertakes At the company discussion statements, including we these Form factors with These Commission, filings some or no as statements Horizon intends update with XXXX. or I need believes, the turn performance actual to remind information, results to similar certain call forward-looking forward-looking as over Rob obligation differ new the Pomeroy. otherwise. a everyone revise Words cause whether such Before statements. any future like remarks, result that The would call of events the forward-looking time, factors statements in predicting regard during future to are this make a

Robert Pomeroy

Thank interest your joining Horizon. Good continued you and for for morning. us in

detail well so an in This Dan market challenges at to our financial condition. current perspective and we during to the as and touch some dedicated downturn. the I And navigate continued our continue night, economic provide acknowledge operating efforts on Horizon's world take to and like then through Horizon as way we it Jerry environment. face business and on as environment, sure am do our was overview would period. some, For they development COVID-XX we'll this late a operating where will benefited commend will but the will goes then Today, and we have the we. have includes performance I our perform on performance I for questions. staff

remotely circumstances. We have seamlessly financial members, been been borrowers, so between a maintain dedication controls have we and work It's able team's communication stakeholders. to and effectively work enhanced able tight and to to under these partners this that well tribute team

fronts. industry-leading appropriate sheet investment We to covered liquidity quarter solid and portfolio result We many for net environment, distributions ample maintained Our moderate current pricing the a leverage earned debt income predictive and third with strong on a maintain yield. We was as our an grow. of our strategy. balance

portfolio, manage our We quality prepayments also higher-than-expected positioned our though to upon and and due of the based portfolio to our closely we opportunities. well our continue portfolio declined quarter grow pipeline in to deep strong third remain

a portfolio equity. $XX over we utilized At companies in achieved investment model. million million the over million and quarter, generated exceeded an gains We XX.X%. quarter, judiciously in capacity important realized of of and During during yield and We income the exercise proceeds share, of to the investments. additional make liquidity per our had investment part sale debt we Horizon which net $X.XX distributions. quarter and the raised our support venture during warrants stock and offering portfolio the lending nearly $XXX the of quarter, our end of to selectively at-the-market $XXX and of from the available We low-cost net accretive

companies. about how Early enter downturn the in with are by our portfolio conditions. associated the economic the negatively shutdown, certain be we thrive learning conditions same quarter pandemic, might impacted while the we others pandemic, and firms the we actually fourth the under anticipated more that As impact COVID-XX could under these

During the portfolio. third quarter, this itself in reality manifested our

downside, route underperforming have a make difficult This or uncertain up investors has have forced to chosen market retreat. pandemic entering for the M&A with been On either an the Those challenged met these a companies. their that the to underperforming put sale. outcome difficult these choice companies support with were to to that for companies companies sale have

capital. these has the third for offset in the outcomes XX, from our reduced quarter. at and uncertain, exit As fourth events them a portfolio sale These value quarter time, also of the portfolio fair of their and in negative X investments companies placed and completed of equity, our M&A are million its engaged efforts fresh At September year-to-date X impacted new partially we raised result, of portfolio investments downgraded raised the over the and same successful in on as in liquidation Horizon debt Because end which in $XXX downgrades. appropriately the have nonaccrual quarter, our companies companies of NAV positive are the negatively one such which NAV. we impact the companies a have

a result, expected a credits. of record better level our portfolio or XX% we performing well than at the have of underwriting of time As as and top-rated

and managing new transactions. a approach our continuing with measured thoughtful to to portfolio are and We originating respect take

approach. and appropriate, with communication stool portfolio a the realistic and liquidity. achievable X-legged constant our to expenses first, our are maintaining to in teams they rightsizing portfolio their where remain ensure including, companies, approach involves, That with staffs employing preserve management by we outlook, Importantly, engagement

reality. borrowers We have this are encouraged responsible by the our way faced

positive. they third, are easing new has or challenged capital covenants willing future. with loans. making means, $XXX investors the seeking companies various portfolio at our with and ensure now new would I support capital in companies million raising Second, to through are in investors over additional including when from the XXXX, and response portfolio note been that overwhelmingly in their companies to aiding additional most And deferrals, able

and support with We in part investors. have to done our these management concert companies

efforts, beyond. portfolio mid-XXXX, into have of portfolio business companies and XX% XX% over their over our of XX% combined cash cash As a these runway to has into have resources adequate of execute plans. Over Over XX% result the have of and quarter, support during and investors. backlog pipeline continued raised to again remain the capital our companies the the committed continue showing XXXX overall fourth of portfolio Entering our late active. XXXX,

to for target venture debt funding. liquidity We strong simultaneously continue additional companies see as demand within explore paths and industries for various our

The distributions, selectively to to board's remainder through we of make With XXXX that investment our continue March the policy respect outlook level our of is the be distribution our distributions by in beginning will We $X.XX covered for reflects can maintained at over per our amounts to at new level distribution XXXX monthly income and XXXX. and It pursue XX. of opportunities. September NII time. spillover share

very We a our XXth covered We're public success our well company. with over NII team's anniversary the years marked shared of we have distributions constructed performance for with the have our the now we collectively the and portfolio as as X our week, past Last proud as years. we've shareholders.

measured shareholders. our generate call investments fund the We turn and new with opportunistically additional our expand as With and look diversify to further over we for long-term to ultimately portfolio remain will our to value Jerry. respect I portfolio and that, to will proactive

Gerald Michaud

Rob. Good morning. Thanks,

both in continued hope did We of the quarter, improvement the by overall, the health in all a be caused to healthy economic are and conditions pandemic. see continue factor. uncertainty and the We COVID safe but all you economic some impact begin to as traverse third we to

of our cautious venture underwriting analysis. a lending As new investments including strategy, to result, approach elevating we COVID-XX impact a maintained our to include a

the for of into see that we continue the On companies the originated well However, to with $XX that made million to have knowledge-based Thus, I the tech-oriented cycle. to COVID-XX, understanding portfolio call, and technology benefiting provide quarter. are our to growth that committed investments teams, significant certain existing have in as uncertain even third we just opportunity. yield Both technology demonstrated to investments the XX.X%. life our new management current platforms. were quarter, continued that mentioned comes ample strong through we we a onboarding impact selectively of see X X software quality such in we science companies total beginning and In where invest companies brand, market companies. risk from economic noted last of developments sectors positive The investments Utilizing we liquidity investors, strong trend as was strength.

transactions. As to Rob overall of strong M&A we the which equity prepayment had mentioned, activity the reflects in portfolio strength our complete or additional raise quarter, of borrowers

of quarter The $XX from experienced drive our we prepayments, pricing quarter, contributed economic to these the portfolio X strategy, for challenging yield accelerated a totaling to helped NII prepayments notwithstanding validate debt and which million, and continued our loan the During the predictive income events environment. significantly XX.X%.

again yield portfolio income income top at and per of helped the to deliver BDC spillover share. further debt undistributed distributions, in of industry excess our Our us $X.XX increasing the remains our once

quarter, the M&A also and exercised we New sold from Ontrak, of experienced $X.X and received proceeds our warrant million an warrants where transaction, we of which public in holdings. a strategically Signature, company During in out

and our is generated a be value-generate. as warrants aspect continue of and our an XXXX, overall including our structuring an that strategy clear venture Year-to-date to further noted, investments we've as indicator structure of successful As strategy. additional value-generating debt proof in warrants, well key the equity investments business our $X.X with from in we've proceeds rights million warrants a of of of strategy aspect in warrants important

closed commitments XX, second in quarter As of quarter, In compared portfolio at we approvals of loan a the million, backlog XX million $XX approved companies, and $XX committed end $XX the equity and $XXX of and with positions held of to and in ended a million new million. quarter. the September the value with we warrant third fair

as development. Moving companies which ahead, portfolio in million they science committed million in of $XX meet committed we to have value drivers current approximately and $XX backlog, key previously as milestone their life our is mentioned,

to have In in new transactions $XX added awarded addition, million and our approved in backlog October. we

Our fourth as portfolio we Thus, pipeline today opportunities growth of believe well quarter. the the to million. generate in $XXX is positioned of are we new in

manage portfolio continued a proactively to our very challenging portfolio Turning to we environment. debt economic management in venture our activities,

Some have value companies solid growth have enhancement, of our debt and some demonstrated challenged. been portfolio while

of activity that took place So to time specific some portfolio notable the discuss during I want the to quarter. take

Encore and to Dermatology, one by the materially which, downgraded; X was thus, impacted addition X nonaccrual. COVID In were earlier, placed was, of portfolio on mentioned exits credits positive

M&A was effort after to Another, NanoSteel, a complete failed downgraded an transaction.

with impacted and quarter NanoSteel downgrades credits, NAV highest credit in rating of we also ended quarter, While the the a record [indiscernible]. level Encore our with

the in capital environment. quarter despite companies year According the COVID, relatively of the an fairly in remained invested approximately Turning number on of companies which billion quarter, the the to PitchBook, and third to steady, prior deals with VC-backed was increase now was in with late-stage venture funded. $XX par number

In funds $XX XXXX's total funds to The to terms in below VC the third mostly already fundraising, billion are pace, and total $XX quarter, date was the closed billion. raise funds billion year's number in of of raised raised of large that $XX surpasses current the to last able meaning in continues be well of environment. XXXX

VC-backed value second of $XXX IPO up venture-backed in of third opened record. XX terms window on a IPOs the contributing billion, with the considerably total exit exit In quarter, highest to activity, the total

at With the path seeing other looking we to still IPOs liquidity. generate IPO additional are as window another open, firms

technology, to We to healthcare remain opportunities. investment technology selectively where seek now our life on focused continue Turning markets, we and the core science markets.

loan portfolio X insurance. venture companies: developer During to property software, and global casualty Topia, provided and venture for a software a to $X $XX loan developer million the quarter, new a of million we a BriteCore, mobility cloud-native of to talent funding

the Dan. us We will through well and existing environment liquidity our funded growing selectively lower and last now enter portfolio the while portfolio $X current turn investment value. an a strong that, pipeline delivering call with positions also additional of of new sheet, XXXX With over opportunities. and companies. this additional a leverage, quarter to by believe our ample shareholder balance navigate to million We I long-term X the strong characterized of We to

Daniel Trolio

will I questions. for our provide XXXX opening Thanks, quick up third review Jerry, of results before and a everyone. good morning, quarter

our part, drawn the successfully September $XX of available which cash year, we had provides on under of mentioned of consisting to capacity. efforts balance position sheet As in Horizon In last strengthened led $XXX be our the a end in On facilities. quarter. us call, sheet, increased strong balance liquidity these available and during million lending at liquidity existing the million credit liquidity, million $XX funds in as our to XX, and

$XXX facility us credit capacity million As portfolio. under with grow on was September million million facility, million of leaving our there outstanding KeyBank XX, New York outstanding and credit the our to ample $XX $XX $XXX Life

million we program, issued proceeds. the receiving third shares ATM under our net during $XX X.X million quarter Additionally, in

than debt-to-equity on of our $XXX Our position at capacity ratio revolving XX. September our which our facilities, of targeted leverage September as XX, capacity and cash is on lower million potential X.XX:X credit was stood borrowing our Based X.X:X. our at

quarter, in primarily our increase third Horizon income compared the increase prior This income total due an to in interest X% period. $XX.X million a to $XX.X the size the investments given For was million, investment average XX% of earned increase on of larger loan portfolio. year

XXXX. portfolio net $XXX June from XX% reduction at of stood million a on September basis Our XX, cost debt investment XX, as a

compared XX.X% For we achieved the third second in to quarter of onboarding of yields XX.X%, the quarter. XXXX, achieved

XX.X% last third quarter, the Our year's portfolio loan quarter. for was yield versus third XX.X% for

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

was to partially up to by reduction prior the due the in our debt. an $XXX,XXX primarily expense in cost a year interest of offset average increase compared period, Our borrowings, effective

Our investment $X.XX for income 'XX. per base the $X.XX XXXX the $XXX,XXX, share third was third the an average of share in per quarter per increase rose compared by second management portfolio. in share, size our of the driven $X.XX to and of quarter Net quarter for fee

of we in originations spillover of which offset million, for mentioned, was September as $X.XX in were NII now company's To As totaled and just an in an for quarter Based our our January, debt of equity and of board activities $XXX the February for other million prepayments. payments $XX in a have million. companies, aggregate $X.XX, million aggregate fair our with million. investments portfolio upon the Rob March our The portfolio with income NII, X $XX our warrant, XX fair distributions new value portfolio $XXX principal outlook $X.XX by of The for as $XX $X third years. of companies, the with levels, distributions million, and portfolio investments We share quarter, monthly value of of XX. investment XX principal covered our from with spillover XX increase an liquidity under and June past ended an and forecast declared income summarize XXXX. undistributed consisted per

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

XX, Our XX, reduction NAV exceeding to to XX loss our investments a investment due was a realized September share, distributions as per basis $XX.XX primarily and net of was on compared of in and income on XXXX, $XX.XX $XX.XX The gains. $X.XX as net September and net unrealized June NAV as our XXXX. quarterly of

increase rates, floors. amount noted, XXX% bear consistently structured the of are outstanding rates we've that investments our principal interest to at As interest floating of debt rate as with coupons with rise, interest

our have at their this portfolio of our As at happy be may specific of opening questions is to floors. We'll take XX, you XXX% remarks. September time. This concludes

Operator

[Operator Instructions].

from is Mike Securities. B. question Smyth, first Riley Our with

Mike Smyth

is, I you originations your outpaced guess So currently early first my payoffs for And and mentioned in around growth in fourth sits expectation pipeline question the the million quarter. $XXX really quarter.

growth in So for to that quarter. bit the I about for just relates repayments your could your of was portfolio little wondering a how kind if and expectations you expectation fourth talk

Gerald Michaud

companies at by the is raises the X quarter. exits cheaper Mike, equity. equity were actually higher of those we X, out We this significantly through of valuations; out pleasantly Actually, paid basically we Jerry. them in did were X at so surprised the had

got Actually, to we one in our companies. of repay those of So warrants companies. hold in both we've debt. those that them warrants And allowed

positive. So those Signature, And a completed previously announced New M&A they transaction. were then

was that So very also a positive event.

expecting So equity to lower but were a for companies off, great. really it paid ones those unexpected. probably was little The leverage. their were prudent be We weren't those to

And so was fine. that

million added in We by so funded that and our -- say us. process. we quarter. to slowed look would that underwriting definitely fine have I forward was we $XX As that the process

underwriting. get transactions then that's and taking a through to prescreens through longer bit little So

And so X I portfolio. grown think we've the quarters previous

that So the in the transactions that good concerned is a fact we lot pipeline, were of didn't But and in too portfolio there the news. weren't about the quarter. grow the third

new I million have As just October. and approved think in I mentioned, we in awards $XX transactions about just

So our expectation positive for to the fourth relative quarter looks growth. very

We expect to growth in see quarter. the fourth

say up the to the But obviously, that that have we expect sit to relates in it As at those later I here prepayments would come right going forward, as now quarter. third had we in tend level today. to prepayments, quarter, the I don't

So am in portfolio that will we'll see fourth the confident grow quarter. But the I what happens. fairly

Mike Smyth

And on Has you're the the helpful could COVID et are how then some looking spread looking kind kind Any helpful. of That's marketplace premium of you of color. investments cetera yields, disappeared? on new be would at? the covenants, color provide

Gerald Michaud

not pricing, look speaking I'm of whole much obviously really; but consistent for been be thing. pretty pricing we has has at up COVID-XX change. terms to just pretty competitive, And continue well. and marketplace. the Horizon, In through not And competitive Everything not the held we

I also a actually a we we new mentioned at kind looking only do as the at earlier, for look we on transaction, not every COVID markets now do analysis prospect they that transaction, think of have that company that but serve. I the as

cautious our things we're of be, And had don't really because still so covenants, is as We the we're in We of storm like little covenant like is yet. it over be position uncertainty feel historically than has that I stronger like to would need We -- that a COVID-XX. relates say it. to it to given feel it.

bit do protection. of the And moving are transactions, covenant forward so higher require level of little with we a most

Mike Smyth

helpful. That's

talk how that Can of down term, kind came origination be And think activity? your repayment so given just leverage another you near you for question about and in the bit. a would about expectations

Daniel Trolio

Mike, this appreciate is that. Dan. I

originations And the quarter. facilities with the down ample cash, to costs. maximize paid this mentioned, you the for our exceeded As prepayments we

leverage And forward, X.X:X. so our to looking the within is X.X:X still target

and capacity ample have We liquidity.

need And when we so fund the tap facilities pipeline. to we will our

So our target within is X.X. still to the X.X

Mike Smyth

Gotcha. That's were to I just And forgive more ratings. me missed but for one "X" X And this, companies me. helpful. if downgraded

and wondering color I think some just you I mentioned was provide more Encore. third if could you on the NanoSteel one.

Robert Pomeroy

was third Pharmaceuticals. Titan one The

Mike Smyth

provide with color And could is there Titan? any specific regards to you

Robert Pomeroy

Yes.

was Titan So our had actually, a that books. deal we on

at owed I cost. $X.X we think about million,

right the at all value and process, account, fair signed settled We have it actually carried in that September but we it's delivered, the XX. at

other notes we've right Â–- One right now. of our settled we're the nonaccrual also of process in settling

have in we've we all quarter. we the of place to them So marked of settle where to most marks these take these, on and agreements the expect fourth

Operator

Instructions]. [Operator

Our next Securities. Bryce is with from Rowe, question National

Bryce Rowe

wanted Dan, base about Life the I availability you ask based that York on to the facility. borrowing New with

was availability Just $X.X in Q that saw just million. the

kind comparative $XXX So curious a kind what low of purposes? the And million for of was of why it's line. June, end at relative just to that it

Daniel Trolio

New new the if recall, facility place second we Life quarter. the York in a in you facility So put is

off started of close with Availability $XX it facility. to so And that assets that. million north of was specific in

have available. $XX about we million maybe So $XX-ish million,

number that to in that this in were the of the factors happened quarter the prepayments availability came specifically a that One down quarter relating reason the of facility. the is

until the quarter. in later and quarter, didn't So after assets fundings get the down, in there assets came going of in and movement the the the were pool completed of just

that's the come But that the to availability reason will why originations, it so we and the position. pool will good a add new add availability facility in June. as And is up. is down And from the

Bryce Rowe

last being to X-rated helpful. the answer I the just wanted that asked contract. That's to credits clarify, just the Okay. was them question under guess, and Rob, about And I

the quarter them So expect that and resolution there's back to moved get to here in whatever some come in got Or resolved on status expectation fourth place? with out? they'll you've you do accrual

Robert Pomeroy

actually in cash and and accounts, on in a for to So accrual liquidation sale as to process settle these status. comments, not I introductory we're we said them expect return the

So in we'll assets. have cash to new redeploy

Operator

with KBW. question is Ryan from Lynch, next Our

Ryan Lynch

had I of ones. couple just a

that failing correctly. still you status that comments company, down pursuing that company that that the that marked fourth on to one was And you a the NanoSteel, due of are was you Did of quarter? status? wanted that Did Is placed but make sort outlook your said prepared accrual M&A of that on in the heard say Just in to that process nonaccrual say what's the down with sure this a that? was different marked is to guys I kind was you investments M&A? complete Or on transaction? still

Daniel Trolio

That's to came And downgraded NanoSteel of one end the current required information of it. accounts the X, Ryan. Thanks, to was downgrade that the a quarter. was quarter that point. the good but a it was got through that us after

process was accrual it quarter as that fourth on nonaccrual in so to we through account. but XX, settling it continue as work of is of And on the the September

Ryan Lynch

for cost. XXX% on still Okay. the remind And you you has another other potentially in one you that is a nonaccruals. high one some are a IgnitionOne, why current marked your while. I I guys some me of been investment guys' of so had said to just you know exiting nonaccruals? marked That's relative of process nonaccrual, Can at That nonaccrual on of

Robert Pomeroy

is this Ryan, Rob.

they private of the are difficulties, And secured was the stock debt. holds IgnitionOne parts refresh which that multiples IgnitionOne, the to of some acquiring of company. we to that a of Unfortunately, also amount IgnitionOne our creditor secures value remaining the loan. up estate illiquid. The stock had of company creditors process, the it's our paid substantial but is company company private of against that which were a only in in your secured were ended and -- memory, Just selling we another down,

opportunity that for to more that waiting or effect either would secondary stock transact And that an we're that a make transaction for a company in liquid. to so sale stock

that believe our we do is So secure. balance

credit. getting a So to we've we rated that paid that rate rated anything, credit, because not although nonaccrual two as it's continue we're on

Ryan Lynch

Can about then finally more. I very equity well originations. You just this guys' you guys raise outpaced that in talk had strong just ATM had capital And the Gotcha. third one quarter? prepayments the you quarter sense. Makes

third So in portfolio you quarter. the the guys had in net repayments

So just you that push came about this and can capital quarter? equity top additional to down guys' why on leverage guys raise you actually chose further talk [indiscernible] of you

Robert Pomeroy

given the It's of I'll ATM put have for One, place it but been all answer a and good has together question, already, and parts in you. the operating. been

the to when we to advantage stock trades so that's shareholders. opportunity our And stock well, existing take the accretive of issue

that raising a We going money were was a bit they raised existing we on the loans. a little that were very or terms during valuations quarter. the there new our equity either So were little actually we surprised repay at bit, loans would said, extend that high chance as Jerry thought companies the us. that to roll We by

little a by very said took strong us a So Having we have bit pipeline. surprise. that that,

obtained good We we're debt expect well. that support additional portfolio, raising facilities the trying to equity advantage we've the well and grow as to when can of to take as we

Operator

the to back you. and Thank With further statements. would CEO, like closing questions, over no Chairman for I turn call Pomeroy, Robert to

Robert Pomeroy

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

Operator

Thank you.

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

Horizon Technology Finance (HRZN) 4 Nov 202020 Q3 Earnings call transcript