HRZN,HTFA - Earnings call transcript Q2 2021 | Horizon Technology Finance Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings and welcome to Horizon Technology Finance Corporation's Second Quarter 2021 Earnings 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 call is being recorded. I would now like to turn the conference over to your host, Megan Fox. you. Thank

begin. may You

Megan Fox

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 second Pomeroy, Dan earnings Thank the company Form today and

everyone formal subject conditions. forward-looking forward-looking such Before performance this I inherent with remarks, that results material to predicting future we or similar on remind Finance factors to projected Certain certain during in company. as call, to make in the these regard statements. our intends, anticipates, statements. statements Technology are Horizon expressions Words begin to expects, of are the identify uncertainties future and conference used cause need statements from those a believes, forward-looking differ to actual will could the basis results statements These including forward-looking

like update XXXX. the would And forward-looking ended to are information, a result the turn future the undertakes in discussion company's call Factor or Commission, with detailed XX-K of revise no I statements, and the company's obligation to new this some filings At events to any Form whether for Pomeroy. Rob time, as factors Risk the the XXst, or including in December Securities over otherwise. these The of company Exchange year

Rob Pomeroy

during operating markets. will update and strong condition, and and headway detail our take and first continued I and another business year some portfolio. then in joining you second we then in interest Horizon. questions. half its in environment. our you growing Dan for performance our made discuss will the Horizon's will the quarter significant had XXXX efforts the of Thank We our on morning. your Jerry development performance us overall current and of Good Today, for performance will operating financial

our share. investments increase of loans, over outlook marks and portfolio the from December, we $X.XX We income $XXX and spillover our undistributed profiles portfolio of $XXX We and the through stable income of again, grew excess the achieved XXXX. on We our yield X% up once debt no quarter portfolio generated XXth, the record one-rated the ended backlog mark, per the end we a months of end of loans with industry-leading committed a on per finished million million. During We share of the $X.XX monthly XX quarter, with as quarter and non-accrual. share for which June the kept distributions our per Based another net first XX% distribution level our on investment consecutive quarter, $X.XX credit quarter. from our of at no XX.X%. declared of in

fund expanded Management venture the Technology Horizon a fund, $XXX its our Horizon. origination ample with our year, with million ongoing may to the sheet from advisor, the March $XX.XX increase consistently we We credit of a managing the strong XXst. of portfolio maintain a to And with our investments are actively NAV per of which balance in Earlier Finance with $X.XX share, coinvest portfolio. capacity platform portfolio. ended growth We per our debt and quarter quality maintained share

fund of terms growth. in are portfolio Horizon's seeing clear recent the the We new of already benefits

expand venture additional the opportunities. access debt and further $XXX million For enabling investment to control fund Horizon's Horizon potential funded the The quarter, opportunities expansion to record a core business. broaden the in concentration and advisor's markets, has while to risk. reducing its in platform The further platform $XXX to its is million new

grow and our As we of to continue our part expansion, develop team.

and commitments venture capacity for We debt are maintain quality brand balance the industries or continues Chief of new to of future. opportunities; Officer sheet, of will enhanced to targeted I entire in net Devorsetz quarter team, appointment prime for further Operating to is for strong; the opportunities. debt compete continuing the the to remain year, market, investments we call platform, Entering continue With Demand for strong be and continue we and and underwriting as generate the venture other us With second strengthen quarter in income. sheet position Dan promotions solid another investment our believe appreciate levels; to our new debt pipeline following: growing record loan ample team's on new our portfolio to growth balance over and prepare our opportunities. to strong on robust bench we venture and generating committed our we with within due near of generated are And disciplined pipeline we and which the I advisors backlog our shareholders. and now Horizon competing and and diversify our our expand that, NII our Jerry. our investment within remain resulted at execute positioned enabling to backlog our better historically in the our well successfully continue to strong portfolio for half for turn to another recent efforts, of we vehicle

Jerry Michaud

and to good everyone. Rob Thanks, morning

the to continue at quarter, strong in portfolio million our $XXX growth in generate of end second We QX. resulting the topping

million portfolio - totaling on million again, four we the the of yield among prepayment demand industry. from robust we fund prepayments reflects quarter for disciplined debt, NII XX.X% predictive and the nine accelerated provide strategy. and debt transactions quarter believe onboarding our the strong enhanced to Meanwhile, top during the loan of income venture the that again $XX during experienced fees quarter, We the BDC XX.X%, the increased our quarter. for totaling prepayments our by pricing $XX yield the once will transactions focus during pricing With our

of million we proceeds of of addition, warrants redemption equity. received the In from sale the $X.X and

$XX warrant equity in companies a companies positions warrant XXth, received million XXXX, in value from Since June in with nine portfolio proceeds the XX equity $XX of Horizon of fair portfolio. and over beginning of this and million. we has As held

consistently we with the aspect a totaling loan As we additional value structuring we've a Demand at funded has $X.X pipeline XQ, backlog In of of million of to second a quarter to key the and approvals. investments - we end an venture levels closed repayment. ended commitments and and rights million, equity million. of quarter at $XX our is Subsequent and generator. debt and record quarter, of million million debt $XXX committed million new the compared warrants noted, loans the record strategy venture in approved first $XX We for with a remained year the throughout ended with this opportunities $XXX venture $XX new received debt quarter. loan and

pipeline debt nearly of our approved value, and XX of of quality non-accrual portfolio, $XXX - Our opportunities in million and us our X billion, backlog growth maintained the strong venture of Along of fair of credit is our new and quarter with portfolio, we rated our X XX% debt our base stood no one-rated, are with at with credits. portfolio's or consisting loans providing further another $X solid to portfolio. grow a committed and opportunities

our rated the two migrated quarter, down of investments to - During portfolio bucket. the X

ultimately managing in a achieving aggressively are order we and do, provide stability always them to positive outcome. we As

smash the the the to third to putting capital approximately sector well dynamic. billion pace of in to in industry on last VC-backed record of Turning by environment, now venture continues middle and According the quarter, tracking be was level $XX the last investment with PitchBook, the invested to quarter. companies second quarter year's

VC it mostly fundraising in quarter, be continue billion clear In end conceivable fundraising. the will that year. record VC to increased $XX the will Larger of the terms ensuring was $XXX make billion XXXX fundraising, before funds raised the that pretty and year's last drive milestone to break the second of much

exit venture IPO in of activity, over options second spec total value quarter and and environment. companies created believe from Based well to on window drive liquidity, the in remained of additional to in have quarter, develop XXXX, VC-backed these IPOs, Overall, venture our a for IPOs options specs exit to the Suffice Horizon. billion. there well debt the for capital, companies wide all first results venture-backed for multitude to are $XXX we competition activity. a open we say, funding including helping venture-backed and as as M&A positioned with and of generate science it Regarding life of this opportunity half both in technology to are win available the compete

now markets. to our Turning core

investment our reflected to as and continue backlog opportunities a see robust wealth committed We pipeline. of by

technology new two investments, companies life portfolio. million in debt investments sustainability quarter, and six further two investments - we of $XX to the consisting diversification new investments, science two our During made providing portfolio to

lenders, tech, are existing to debt venture FinTech, current has products portfolio funded companies. Overall, capital our that AgTech, of fueled product VCs, investment for mobility, such industries demand by technology also three met as and amount the tech services new We healthcare and space, are markets. and companies in drug opportunities, million development public $XX specs med a with innovative the from being environment and venture record of produced

portfolio. adding enables to resources grow access expansion, platform opportunities in additional and quality it its Horizon edge including better disciplined remains Horizon a to to rapidly capital As recent considerable its investments advisors' its marketing gives investment portfolio, more

are second in deep As and further Dan. position enter expand - value. we of portfolio prime our our with pipeline turn additional now will over we profitably ample pricing that, long-term the shareholder in With to a year, I predictive call the the strategy to capacity, half deliver

Dan Trolio

and good Jerry morning, Thanks, everyone.

QX as strong for to As we Rob a our quarter and grow strong sheet. mentioned, balance and overall portfolio maintain continue Jerry was Horizon another

our the cost notes. our successfully capital quarter reminder, the we a of As X.XXX% redemption reduced to during to

accretively through we raising ATM and $X successfully million. shares, program, sold Additionally, XXX,XXX nearly our opportunistically

our had liquidity, $XX June available cash in to be million of existing of available Horizon million funds of in and under As facilities. XXth, million drawn $XX $XX credit consisting

As Life portfolio. was credit million credit ample $XXX On extends capacity there million the of with facility on draw with June the KeyBank June amended and XXnd, we credit which leaving York facility, $XXX other million our grow outstanding our under outstanding things, us $XX to $XX and facility XXXX among maintain the to June million XXth, KeyBank, with us relationship. forward compelling period We and to income. amendments to will our longstanding investment date maturity appreciate allow that continuing and net the portfolio The our ability our and capitalize to to our Key to partners on yield this syndicate strengthens grow high opportunities look XXXX. relationship June New

X:X than our at credit revolving to stood facilities, position our June million. of target debt which and capacity investment our ratio of capacity potential on at our X.X:X. leverage XXth, and XXth as cash equity Based was borrowing Our lower was our June $XXX new

times, X.X our NII would of leverage target our towards we expect grow increase. we As will also that

For portfolio higher a with the earning investment lower income Horizon of Interest quarter, total million income result income on $XX.X investments for average primarily as debt earned investment earned of second comparable period. prior the prepayments. quarter, decreased the were on and fee fees as increased

as stood Our basis cost portfolio XXth, on March at XXXX. from net $XXX X% debt XXst, investment increase a million June a of

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

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

to Turning expenses. our

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

Our million fee generated from year's quarter second based in $X.X the second a last reduction quarter XXXX. NII on incentive of lighter $X.X performance-based million, was for

year's million from borrowings. second in $X Our million $X.X to last quarter, due interest increase average to in increased an expense

Board up $X.XX $X.XX quarter June NII fair Our of our per undistributed principal XXXX. payments of share, million. portfolio $XXX fair in $XX new income principal equity quarter activities totaled with was of total the for value liquidity and debt in declared prepayments. our a forecasts the share. an portfolio. offset spillover outlook and in investments million. Net compared to company's the of million the of by portfolio scheduled $X.X and $XX second $X companies last with first for million quarter in our investment was with and To quarter from XX investments $X.X million, value in the income second share summarize for other million, originations base $XX partially November quarter, $X.XX per investment and was per to portfolio consisted XXXX, per million, size million due average We $X.XX for share Based our The second which aggregate our second distributions of in ended a as of share of XXth income in October, our companies increase warrant, an quarter, aggregate per $X.XX management of upon for of XXXX, The portfolio spillover and year's XXXX. December $XXX fee monthly an the levels, XX for are

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

June program. of increase the on of XXst, as from $X.XX was June through ATM and share $XX.XX as investment portfolio to net the our exceeding accretion as of NAV our XXth to our Our basis $XX.XX NAV paid of per March due $XX.XX in primarily XXXX our a shares and XXXX. sale compared quarterly XX, distributions, was appreciation of income

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

of our be take have happy their have a As of opening time. may This June remarks. portfolios questions We'll to at specific XXth, our floors. XXX% this you concludes

Operator

question-and-answer be Instructions] At B. question. Sherbetchyan this time, with we'll proceed Riley conducting first comes [Operator from Our your with Please question session. a Securities. Sarkis

Sarkis Sherbetchyan

question good for here. Hey, taking and everyone thank morning, you my

Rob Pomeroy

morning. Good

Jerry Michaud

Good morning.

Dan Trolio

morning. Good

Sarkis Sherbetchyan

given million. to Dan, about I just to for to you'd - new kind $XXX for you you. helpful. can investment think mentioned strong Any that thought want of time, of sense you would And debt kind of just to at equity capacity wanted the color close into I debt be cadence on, a venture the get or was that your help on investments, with environment new Yeah. that Thank understand kind process give X figure. capacity like to grow the

Dan Trolio

the for thanks Yeah, question.

we're Here the to million close on know, you're, correct. to and X:X, is The capacity getting today $XXX X.X:X. focused you being at

equity. we to the - how our at beginning so determined And the of the we through know, through and that leverage the you quarter, portfolio analyzed fund leverage or

equity we we'll the leverage ATM. between And build how and the on to continue so, we get portfolio, drawing as X.X the determine to the

Sarkis Sherbetchyan

prepayments kind just And you're Or will? the back it. kind more that you front? that you patterns, come be know, your still going in prepayment unusual to to here the to of of you if activity on kind started kind what's to on Just get that the Have cycle. currently? of do sense think Got of Anything elevated? happening some prepayment get near-term, real-time normalized seeing want

Jerry Michaud

question. is this Yeah, good Jerry. Very

pretty now. mentioned in As dynamic right I the script, a market it's

that portfolio we're us that paid companies signed had which a public, have seeing quarter agreements. one we So, parts] of We've our off last spec number [ph]. - went had two [three of companies

has We have in public this that a M&A very and go company companies couple at of discussions. we to least we are know have stage quarter one confidentially that already filed late

we historically given, to think of plenty So still of second certainly to two our high during level expect be for year. room opportunities, backlog, from half approved at we backlog, That portfolio the for be new backlog the this the elevated second prepayments somewhat of of the the half year previous and grow said, you quarters. committed look if there'll

Sarkis Sherbetchyan

it. Got

thought to so in still elevated, So kind Is that half. the the But have to portfolio? room net-net for right process, you going the look just of think grow you specific right, here recap summary? more outlook that it's to enough than more your prepayments second

Jerry Michaud

that's think correct. I

Sarkis Sherbetchyan

driving little a your bit then - to up of the prepared driver up? And underwritten the And more what's you want just yields. biggest right? Is yields What's kind touch were was know, sounded of good. quarter-on-quarter. like It that? that then, in the going Okay, they of on onboarding kind remarks

Jerry Michaud

quarter-to-quarter really actually it at you as look in because I What the because you changes we're really perspective, deals, to not know, that, the debt yields, pleased through, and held venture to - competition know, always significant amount that of debt tell a you I equity be And, transaction funding - compared like. really, of so was being about compared raising just very, think onboarding overall we're VCs a don't that know, part being that, there know, equity well. not you have can basis, one that of you for significant we it's funds kind though cost know even Yeah, market, of could in pretty on it other the skews very is we're from the number. yields you up through is

And so, company. the you part additional know, when companies the were how to liquidity out get they're that - of that's figuring kind comparison into of that doing

second again year. overall, continue expect of that think response our pretty know, the I up be So, think see and to that well have the during to you to I half yields held kind we would of

Sarkis Sherbetchyan

Okay, great.

So changing as that one here. you or but usual. with, nothing more are so business things from maybe that think a two generally It's perspective, skew - like macro systemically transactions you

Jerry Michaud

- at That's exactly Yes. how look we where That's are that's today. we it today.

Sarkis Sherbetchyan

I'm going fantastic. answering questions. Okay, the Thank much you queue. to hop the on for so

Rob Pomeroy

you. Thank

Dan Trolio

Sarkis. Thanks,

Operator

[Operator Instructions] comes Our your question. from question Ryan Lynch with KBW. proceed Please with next

Ryan Lynch

Hey, good guys. morning,

something to taking companies? in I your X sometimes will that they know would a downgraded longer. be on what's quarter capital loans prepared I you at to those - First downgrades? you on in question was the run going mentioned comments two cycle to know that's Is any love those two as get fundraising cycle give fundamentally I had just to downgraded the level companies start cause rating. more raise deteriorating Or credit that? color to were closer or is at there these

Rob Pomeroy

is Yeah. Rob. Ryan this

are are, process fundraising know description transact that protracted. the a to you is or to your companies former it's the becoming trying company, So - where in these they bit

are in we experience, of these but will second of them into two we downgraded new that hope half, because that to with sense So our was fruition the we for put felt of have bucket, it them sources appropriate to capital come bucket. into a potential caution working of both

Ryan Lynch

that's understood, Okay, helpful.

with last know, know, your platform BDC. the the of well as You pretty year so the outside over you on has grown both, the balance fund or know, as additional growth you raised, meaningfully sheet

dry you that you know, guys are kind now you or investing capital kind know, powder you deploying and industries that into you with you platform? of the you additional guys and fund going know guys the the You or way the shifted Have across companies alongside targeting capital, to guys are BDC. are are of that the approaching contributing is guys deployment

Jerry Michaud

Jerry. is This

years the market went the So, kind that And a significant a effort venture our we you the doing go be future. And been know, identify we've has closely. And came to for that markets believe a that. and strategy, did identified, to out we subsectors we to would two diligence ago, it of up research follow about to where due that capital putting money their basic in sticking decided very markets to us. extremely with within ahead successful been we

that they Horizon to sectors, within new for relying in new We providing on are companies. have developed these those investing relationships and that sectors including investors debt those are and large funds

- So very effort it has really worked we well feel like an for a that been has us. quite out

allowed of these other as to that market they a of of ago in that relative ahead subsectors not little where us think years the are today. some So lenders debt I has three we're some were transactions, more well-known were access as to bit the

a with side. is have added ahead XXXX our where origination we that's that curve, of on we've ahead again, the depth - in opportunity little the that XXXX, growth team, so combined significant expanded through bit - the and started And that fact marketing

So coming the that's is from. growth where

we're in position think ability has stable Dan in about obviously, relative our terms pretty capital within strength is, our the to grow, our position of bench to relative a advisor. both, to but now also So we talked

from. where So is to it come that's where coming that growth will continue from. That's

Ryan Lynch

as Okay, US know, of some as just you be US of market to - And market makes broader VC the The going strength venture been the and as nicely. know, showing today. you pretty things ecosystem high specific guys' economy well know, sense. even mentioned you economy, know, is talked the also COVID And The the far about resistant, then, and recovering as market really you is seem your well. know, you numbers know, debt has demand you you the a know know, for lot really general during as venture, you today. is you VC you fundraising

know, to So you very things your broadly. and seem business going well, be more in

today capitalist quarter are worried the the So, for? look guys you guys what What as guys that keeps at risks the you kind about are guys know, What looking of you you today? and are around you worries market? you looking to

Jerry Michaud

doesn't COVID the of becoming is we, continue so probably But none you'd clear at up again. - it focused and winter, to Okay, see the things think vaccinated that and there increases we variants significant on COVID impact Delta are me and which three - follow. a concern night. in quite point. people I potential getting to new and I that Obviously, happen of that at keeps when in on fall that want could is the see are if know, look be the potentially by and you

I know, So we're which in we talking in and things see been that with it don't thing also own some concerned following that But VCs, terms it that. something to are that. looking get concerned you up three talking able clearly little to parts to market costs at, can of and supply is is just kind we're something number our we of which being tell we chips overly driving is be you and a about today. as companies the with, to being have are problems there like Inflation bit

hear tracking. these our kind we anecdotally in does. see more obviously market the on broader customers are you So of I than we think issues we, know, from, that know, that concern any you those the don't are things. we that But

opportunities our right also consideration. we due so of now. looking that on taking part at are Those things are you as And into diligence new we know, are we're

Ryan Lynch

time are my the questions. morning. I all Those appreciate this Okay, understood.

Dan Trolio

Ryan. Thanks,

Operator

Chairman now CEO further turn There the Rob call like and comments. to would Pomeroy, questions. to closing are back for I no

Rob Pomeroy

this appreciate your interest you and all the you call. in to Thank us we and a great to We your continue again you summer continued look for Horizon. concludes remain with families forward and healthy. soon. safe speaking We - joining hope support for morning. This Have and

Operator

conference. today's concludes This

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

Horizon Technology Finance (HRZN) 28 Jul 212021 Q2 Earnings call transcript