HRZN - Earnings call transcript Q3 2021 | Horizon Technology Finance Corporation

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Operator

Greetings. Welcome to Horizon Technology Finance Corporation Third Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. the to turn begin. Bacon now will conference Megan over to I you. Thank

Megan Bacon

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

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

Rob Pomeroy

operating for our markets. and events we joining current Horizon. and condition overall our Jerry environment. Good performance us efforts, will then interest performance update discuss will operating some our business Dan your morning. will and in Thank will our our you and on development our financial take portfolio you continued for detail I questions. then Today, and

testament the our the well of our and Finance our of the a third efforts and Management, to we power in platform aspects Horizon of was executed continuing our of We all brand grow the operations Our to as results. quarter portfolio. advisor, are Horizon as proud Technology lending

well our as September outlook we the share. our our of Based million, During of the the to of through from XX% second end consecutive XX% even our portfolio level quarter, committed the XX, than quarter from strategy. are consider up months investment growth. portfolio and XX success prepayments grew and which XXXX million with excess of of $X.XX on quarter spillover quarter, portfolio undistributed declared distribution when end per more a $X.XX per of continued in net to the $XXX the that the These income $XXX income at pricing million, continue the a of numbers We providing thanks with $X.XX generated us more marks March per distributions to third the share, XXXX. $XX share of monthly predictive experienced backlog our in for We our quarter. during impressive of finished you third momentum increase

the payable investments a We of In of debt in special industry. at BDC maintained or of we higher. per a credit our XX.X% portfolio XX% with our profile portfolio on distribution $X.XX top rated portfolio addition, a share stable near We declared yield three the December. of achieved or

XX outearning share some and share increase investments fair combination from it's investments. of $X.XX to portfolio in issuances our accretive from managing maintain our quarter a of per quality. a share, ended actively and We resulting value credit NAV of of consistently the increases June with are We of $XX.XX distributions, our per

more of our or achieved fund at to profile debt portfolio capacity X.X:X. investments portfolio to ample our portfolio stable target move of a with closer and We higher. rated maintained We a BDC our on XX% strong remains credit growth with XX.X% portfolio our of of yield sheet near in or balance our industry. leverage the top Finally, the three

We in of our of increase per resulting credit ended our are share, investments it's of share distributions, outearning quarter and quality. to from consistently accretive investments. June maintain our and We some of a managing actively of XX, combination fair $X.XX the per value NAV issuances a with increases share portfolio $XX.XX from

balance achieved leverage with move target closer capacity ample excellent fund and team, discipline selecting lending X.X:X. in in portfolio due sheet our quality strong advisor's investments our remains strategy, results platform. focused and Finally, incredible We these of our our predictive to expanded to more to growth pricing

For the for platform million advisor's funded quarter, is a in quarter new $XXX in what lighter typically business the record originations. a

reducing venture winning advisor investments, time, portfolio further high-quality larger, Our for is competing concentration continuing the our risk. debt and and while to diversify at same

believe in we remain continue Given to growing quarter, investments portfolio net strong we to income. generated momentum investment positioned third the producing our the and of well continue

investment by new lending venture continues our within target debt strong; Our demand of to ample Horizon to number industries capacity maintain of to the opportunities. recognition remains hires; opportunities of pipeline investments commitments new is access execute we platform increasing our the is still as Horizon us following: our well backlog advisors continue brand the a our pipeline advisor's as our for belief enabling of of advisor backlog our considerably supported and robust; strengthen is and expanded platform to larger committed with the and on

labor future, Horizon's the excited including of pandemic. from supply issues, inflation, and were possible issues While aware we chain, the for and headwinds macroeconomic global we remain optimistic

and economic team's team in details more Jerry and cycles. on advisors' give call us successfully color managed portfolios for the proud performance. our experienced I resulted various Jerry? quarter shareholders. years, our through the has will excellent Over this to and now which our I over entire our am of turn Dan you efforts to

Jerry Michaud

Thanks, Rob and good morning to everyone.

originations for of origination in quarter terms typically more third our performance quarter impressive. the which all third The the quarter makes the is us in lightest

of Our first for million the portfolio at QX. end ever topped $XXX the time

robust funded the venture $XX a the for quarter. we during demand XX transactions million debt, totaling record With

yield the and the of pricing Our and believe quarter, will XX.X% onboarding accelerated totaling top strong We prepayment strategy income industry. during four we loan fees $XX advisers our to the our again, the discipline and predictive produce that experienced continued contributed during pricing NII. million quarter of for transactions in the the prepayments debt among the XX.X%, yield in prepayments portfolio BDC reflected from quarter

$X.X as million method investments, termination to or additional received from we investments $X.X the of proceeds exercise fees related debt million further success testament structuring of proceeds of from to yield. addition, of a two In generate as warrants well to our

warrant $XX from held in a value equity positions million companies As of and proceeds of company equity investments. fair XX has $XX million. in Since received September the with XXXX, XX, portfolio warrant of approximately the we beginning and

aspect the committed $XXX consistently an venture third value loan of we've we with million strategy ended and of compared noted, $XXX As additional quarter. second with quarter approved new generator. and the warrants in and a approvals In backlog $XX investments of structuring the commitments is to the our end and rights debt million at a and key equity quarter, million closed

an also advisor in quarter additional awarded with the $XX million ended Our newly transactions.

backlogs, funding fund committed or will no of While total there in the outlook. the the all transactions awarded a is we supports positive guarantee

including end which ended prepayments, addition, pipeline million to with early our quarter. grow we $XX In to opportunities committed million to the to a $XX venture a the NII portfolio received advisor in of our our prepayments will at efforts debt $XXX to end totaling was as in in $XXX and QX, the Topia fourth loan awarded $X.X in advisor's million. our million. full has of the has Nonetheless, our new quarter during our rated in of loan provide today, but million backlog of backlog a grown investment of also benefit Subsequent QX. the funded two quarter the debt prepayment obviously and These increased will challenge QX

robust the a three and achieved company's pipeline rated portfolio of to loans providing in XX, an advisor's while our portfolio portfolio the end. solid credit addition, it's further new $XXX of million, coming prior debt fair of our significant consisted as opportunities of grow approximately base over The is four growth In today the quarters. has venture us opportunities debt of value with September as increase quarter's our quality the XX% maintaining been from of

third further As portfolio, public transactions our completed of our entered into and SPAC of portfolio of transactions. have companies portfolio one and of our two portfolio indication quarter, CVRx OutboundEngine's the of companies our Diagnostics companies, the Bardy during M&A three credit went quality

rating. three while bucket, down rated During to the two the a migrated upgraded rated smaller quarter, to credit one investment larger was a one

achieve As in are outcome. to remaining always, rated and two we and our managing the best the aggressively advisor credits possible one order

hit beginning the of $XXX in increase double companies highs capital the third $XXX year approximately the record Turning to now was venture board, the nine billion. approximately year's months. in new across invested total. the to It last full capital venture record on putting From invested, third of through quarter's in over billion of the been last environment. to an VC-backed $XX billion PitchBook, quarter, has According it pace quarter, only almost,

VC last year. year and third XX, of was $XX of record and the the of full milestone to will clear Larger fundraising continue terms bulk funds September the end billion virtually through $XX billion has In VC fundraising, raised quarter the before the raised in billion breaking fundraising. $XXX increased assuring VC been already drive year's the

quarter IPOs $XXX value and quarter and IPO of third to activity, the VC-backed billion. Regarding total exit window the a venture-backed in over SPACs with in stayed open the helping SPAC excess drive

recent through platform, life us wealth as underperformance value There to companies both to billion and compete are strong an options liquidity and we well the alternative environment. shadowed a whether technology are raising for questions with provides September the which to to and positioned believe and the competition lending SPACs $XXX opportunity With exit SPAC science IPOs. additional has a some win advisor For are mark, XX, investments. year by active our viable this combinations generate is for we in venture-backed long-term of although

markets; Turning many pipeline. our lending now they backlog and our to committed advisor's our to restock to offer investment quality continue opportunities

one new consisting quarter, life new investments, to diversification we new investments million further in our eight companies to providing sustainability $XX and the portfolio. new science technology investment During four three debt investments portfolio of made

all existing markets. sustainability companies. Accordingly, new disrupt Supply We challenges, That in impact investors. said, companies risks of $XX million also their seven companies. impact of funded discussions concerns, demand portfolio with markets portfolio our life are potential as COVID and each venture science, we technology to and and the taking the our issues inflation to investments and our have potential the remains portfolio including chain transparent underwrite account for into abundant these we of debt our prospective

Our we entering advisor long-term remains well deliver quality disciplined will and onboard our I pricing to ample QX continue in over over with we predictive value. that, positioned additional strategy, expect it's now to deep turn underwriting and grow capacity, will Dan. to pipeline a portfolio time With the and a to shareholder marketing which remain investments new call

Dan Trolio

good Jerry morning, everyone. and Thanks,

As Rob sheet. and as generated strong grew QX our balance NII a in mentioned, overall Jerry we performance strong we portfolio and excellent while maintaining had significantly another

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

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

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

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

As towards expect we leverage, NII increase. target also our our go you that would will

debt the on earned investment year to income portfolio income income investments investments. from prepayment fee a due third the increased of for primarily and quarter, average two $XX.X higher period. and the million, the investment result received also quarter increased For of XX% of prior company to total earning success of our as fees higher Interest compared an increase debt

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

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

from points portfolio year's the loan was Our XX.X% quarter, basis XX.X% for third yield XXX third last for up quarter.

our Turning to expenses.

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

in third from Our fee third the on higher performance-based last million, quarter based million $X NII year's for an generated incentive quarter was increase 'XX. $X.X of

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

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

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

investment drove our increase NAV and of $XX.XX exceeding shares compared of $XX.XX companies per and closing income Our of NAV June due rounds our at basis as net which XX, warrants, was XX, to to higher quarterly from accretion September as $X.XX valuations investment on XXXX XXXX. and of September sale a distributions certain portfolio our in higher $XX.XX XX through share valuation as paid program. ATM was The primarily the

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

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

Operator

[Operator Instructions] first question Sarkis Our from Sherbetchyan B.Riley. with is Please proceed.

Sarkis Sherbetchyan

given just like I and morning from quarter. want in of the kind continue your origination the just are seems good standpoint. kind know the that? it thoughts developments, was highlighting wanted in backlog? But expect to clearly to off if into that level recent maybe around disclosed going your of I for origination release prepayments you the what activity get third outpacing quarter, and strong committed an Hi, any thank on taking my to you the the here. fourth comments just question by start Maybe

Rob Pomeroy

Yes. good A question. very

a definitely of prepayment higher I think activity. level are we experiencing

of companies forward it's options finance debt a as lots equity investments. that talked significant their and as IPO being going they venture being market well and of private to them, portfolio capital Our how many SPAC, part relative or about the open have whether we've obviously through of businesses

their develop those significantly products are been. is historically to So it liquidity and raising than products fund market exits their and companies using the to which velocity has money, at get higher

kind companies basically an strategies I financing have And in of great that holes that nowadays. fill technology, menu venture life has think so place for us science both creates opportunity to debt a because that in

far couple. and and had into this going we year prepayments do while already certainly quarter, we've expect experienced fourth a even the that so So, higher

substantially debt $XX We the venture billion. a around $XX that today, market also to market has we which see grown relative to sizing somewhere the billion size

and are when older probably with size paying probably plenty much up So, historical versus new that standpoint, opportunity the is that of deals about portfolio from off those And makes to think portfolio, we market there -- transactions market I replace to relative deals. portfolio. how our a think new has the of in

complete think replace are regularly able newer on I to we side, where to transactions. we the were

we a had with see grow we than opportunity higher the So that see of and have we can historically lot -- have. continuing. we believe to expect to We portfolio still prepayments continue that

in And have We the also the terms in at in I our so of platform top year, far, that of would of originators And capability. certainly is during this that. right their the the And of expanded the just number expanded of course that advisor we think their field, has think we origination the finally I mention experience, relative knowledge have. our pack we're reflected have to -- considerably market. we

Sarkis Sherbetchyan

And provided company; September, release think in of and venture just where recent kind a that through for Nexii. believe the certain loan of million some I you releases, had I you a a thinking was to Capital Trinity $XX

underwriting and part partnership you dip often? this partners, going of kind you more around of Would transactions with get thoughts back forward? this that? kind step think about potential opportunities your strategy of into want potential Just or is If to the

Rob Pomeroy

Yes.

the what's companies to going partners overall we going transaction, right. the a that's -- the that partners end day, -- of catch. That's of the represent market, and transaction got we forward don't that that's potential related it's look we're of the think both to But in we competition at are not So of the knowledge market, both best is lenders so in name the the And much good that. win historically, specific a partnered customer we with we has types the historically. think That I and -- been. believe number I day. a good have strategy after the our -- because for having to competition you marketplace and the going

transactions. participate manage will we our company portfolio. so, to certain of to look helps concentration always talk It risks kinds And public our and in

And don't in there's shift so I think strategy. any there

historically at you our We that back look have history. if done

level. expect we So some to that at continue

Sarkis Sherbetchyan

one for me and back Great. final queue. hop One into I'll

there's of new opportunities As kind plenty your in do regarding you of mind the of with environment? you've models companies, business have But the you're you think at a the popping history any looking companies at Or concerns existing pretty the flush or some debt, underwrite opportunities kind as valuations? underwritten. to look that of liquidity that pipeline up you of good given clearly

Jerry Michaud

certainly enthusiasm can, the of think, market. Well, the of tenants venture at -- pretty we're value, liquidity transaction. relative well environment be skew flush the a I I But looking that transactions have you for the grounded to underwriting in to loan think debt we're basic we'll kinds

do think anybody something market and that as we in do. well I that as continue will the to that's we

in think that in aware portfolio opening I mentioned those are regularly all COVID, our about Rob have we And my obviously that with contact issues managers if are regularly I to we well As see these directly of of are issues the are companies impacting day -- there mentioned may companies. out macro issues particular market. these those hiring in types hear of remarks, every some and we our to portfolio relative chain, are of supply

we those And we're transaction. of we're as to play factors certainly, into deals, certainly stay underwriting all underwrite the that. of new so And trying ahead come when

Sarkis Sherbetchyan

That's me. thanks. all Great, for

Operator

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

Ryan Lynch

my taking for thanks and questions. morning Good

high that -- thing nice raised had returns landscape obviously from you're guys level how those capital are that, competitors really which look starting those present does of just And I'm one First is good be competitive your the levels can bit off those getting fairly of levels money how being prepayments high kind strong of potentially route big going it wondering route. for getting experiencing loans. third in because top quarter the time versus of But because today. a mentioned equity look from the in debt quite quarter, a growth in that on and was for has competitive back of you on record standpoint is it we've I seen which of the and certainly well. like a headwind how fourth as capital sort they're the landscape that are that BDC can space fairly obviously, venture the of portfolio today, you impacted and one

Rob Pomeroy

good there. question Yes,

a story. a And into to of a gone So double-edged capital has since growth substantial it's venture Obviously, led tenfold. mean, as in also our well. literally, amount Ryan, demand started, debt that's marketplace. venture we grown tenfold there's I has that

So market $XX venture debt. to of billion our size billion around $XX kind today relative to we

so a And we historically market that's much than bigger have.

in it's in into we're -- bigger there as there marketplace a competition of so debt venture lenders plenty so there. much people are And the marketplace is of seeing yes, from well; coming new demand sized more market but terms the

and of don't the historically lower that also I'm part, relates true if as the we're been especially expand to I getting company, most when going those companies went most money Most came to of either never repayments that. into into Venture This as our came can a like repaid capital and those has time an venture it but from if runway the venture we're it capitalist important, when quarter a fourth put of the equity at part, example, obviously Most debt all who happens. you capital. repay this debt. really venture what saying the the repayments is activity for not maybe up entrepreneurs venture to little the to think give is capital look public. the -- M&A want As in capital, that's is company coming less bit to cost capital, really doing they're overall finding companies that company augment with basically today additional that of the

would credits refinanced our as cheaper could bankable. SPACs IPO by more have got cost potentially of out and capital paid we and of potentially impact. could getting last we be -- some So become and that. the get matured X-rated then That and like done being And there from that one was an then, things

activity the has they're of velocity where most So going the using liquidity from grown bit. companies those these quite into capital sources. repayment The comes also venture their is a of which

and believe, they're So now as liquidity the nice, faster. and that They're in to They're need the their money means order market debt faster venture developing they getting do a we them of has faster. which to using more products all and today, -- space a today in on right a been our basis big there's it's market debt sits a comparative it's historically. venture for pretty to what space nice it really

Ryan Lynch

Got backdrop on and you. helpful That's commentary that.

at look end and already what what we payments you income from -- the sense quarter? was standpoint $XX accelerated fees. your prepayments have received of we As already an talked that of received you so total, in term have just million the guys you a fourth fourth quarter, in release, of quantify those about prepayment Could

Dan Trolio

Yes.

end the So about prepayment other and is X.X% as can very term far for quarter And is of fees, you income of the you in to different. impact to every in accelerated similar X% payments each back kind of into X%, average, fees estimate the But as prepayment there, of quarter. X.X%. on kind can the from

Ryan Lynch

out? that's those? one it unrealized this recognized of quarter, gains wide Okay, you your that being the one. kind companies? written And just of and driver it realized Was just then final you what a behind guys guys was Are main Or or two can describe was helpful. variety companies a

Dan Trolio

both. was it Yes,

realized two there's then on raised that where that a valuations side, And three gains. companies warrant have the each gains, fair had we capital the we warrants handful that had events unrealized drove value substantial realized For of mark at that hold. our higher to for we one of companies

Ryan Lynch

really time appreciate Okay, quarter understood. and the I nice today guys.

Dan Trolio

you. Thank

Rob Pomeroy

Ryan. Thanks,

Operator

questions turn the and to at closing Chairman back comments. There are more CEO, would I time. Pomeroy, no Robert like call to over this for

Rob Pomeroy

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

Operator

today's concludes you. This Thank conference.

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

Horizon Technology Finance (HRZN) 27 Oct 212021 Q3 Earnings call transcript