HRZN - Earnings call transcript Q4 2021 | Horizon Technology Finance Corporation

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Operator

Greetings and welcome to the Horizon Technology Finance Corporation Fourth 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] As a reminder this conference is being recorded. I would now like to turn the conference over to your host, Ms. Relations for Investor Corporation. Technology Director, Bacon, and Horizon Marketing Finance Megan you. Thank

You may begin.

Megan Bacon

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

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

Rob Pomeroy

discuss for our will and on fantastic and our performance then financial your operating you us environment. Thank business you markets. our Finance condition for our a and balance the having Today, the Horizon. interest continued Dan will most development detail portfolio and a our questions. I successfully of year our year significantly HRZN the morning. Horizon then and lending Technology and was Jerry portfolio of after position into and current aspects pandemic platform our will the our events the will our year operating some navigating efforts, we strong strengthened XXXX challenging update for brand overall in and take Management. performance Good sheet. grown joining We in our began advisor and

excellent professional advisors of in XXXX. proud and are and performance our their We to dedication contributions team, our deep their

predictive we inflation including and broader in the investment strategy our performance unfolding the close world, Like and may including the and turmoil mean this Eastern what disciplined for validated and approach. a us the all you, on in months domestic eye Europe pricing events Our ahead. are economy on keeping around issues

to our in accomplishments Turning XXXX.

million portfolio a Our that from of nearly XX% of the an $XXX end year despite year growth record Consider end at stood XXXX. achieved increase XX% at we in million, of pre-payments. $XXX

a a invest venture quality to venture advisor high this was and power and expanded platform brand XXXX the manage investments the of agreement a debt alongside and debt horizon both our venture to ability during To win testament to source an Our advisors' growth our Horizon. end, to investment community. and debt through that larger, increasing vehicle originate with the private portfolio

or per base spillover pricing backlog June the through continued We for XXXX, at and $X.XX monthly $X.XX strategy. income X.X Horizon's of has our of a investments generated us additional will thanks which the Based achieved that second portfolio nearly of distribution consecutive our of with of finished per mark impact We had distributions part in per to with years largest a share our the of yield $X.XX yearend industry. on profile our opportunities. distributions in which higher ability level or yearend XX.X%. year monthly of committed we a XX% the net larger year. and end approved a income rated investment quarter pleased of year, the share the our are full We a well expand of total, credit of debt on this maintained as and million, for $XXX declared relationship level. portfolio this and the provides portfolio our positive top XX.X% We predictive our year at further stable access with investment our near We significant BDC at undistributed a portfolio share to on to excess of yield in XXXX. success outlook of the three at of

We X% are of of from $XX.XX NAV end with of managing ended the up quarter, our consistently actively slight to quality. XXXX. investments its from reduction credit portfolio prior the and year the but maintain We share per

NAV. sheet in as (“Notes”)] [six year target We respects. leverage raised additional move $XX X.X our million XXXX cost ended closer equity at the to the to traded balance fund to all with with in portfolio growth and capacity our X. strengthened several our our [indiscernible]. reduced as a capital of we to publicly of available in Finally, our liquidity well We We refinancing program, premium of from in approximately aftermarket by our

$XXX our continue we facility We XXXX strong well-positioned positioning with investments growth. an and income. and increasing our week, credit New and for momentum of increase to Live Just capacity excellent with in investment we the across net board producing size entered growing portfolio us remain this million, to our York further the announced believe of

industries quarter. profitability. first including venture our for into we new its burgeoning far Demand and in management Horizon of of still growth to continues share horizon advisor within debt key members winning target and and thus with strengthen continues by new promoting are continued Our team our our is the transactions ensure platform path awards hires This further positions. will their to on

investments of pipeline and backlog robust. remains committed Our

the we capacity maintain platform expanded horizon as the advisors enable to and investment as our larger execute continues lending power on to to commitments of us a to access continue pipeline well brand call for opportunities backlog turn our the advisors of of Horizon, color number of Our and our XXXX Jerry? a to come. to now believe to performance. over the year and I more we will is best opportunities. details Jerry new banner was you yet and give Dan on and

Jerry Michaud

transactions everyone. good totaling substantial and We record activity. of fourth Thanks, million Rob another $XX number quarter XX quarter, a the in funded morning, of

advisors' the yield from power quarter, pricing accelerated second onboarding five prepayment NII. Our totaling XX.X% to contributing yield $XX debt XX.X% it once to portfolio industry. our fees the of quarter, predictive income consecutive again million, the strategy, and its BDC produce the strong experienced that of pre-payments for a quarter of during pre-payments reflected expects discipline top among the the and with loan We pricing and the transactions and such during continued

In a equity our addition, of warrants additional testament and to method structuring from portfolio. to of equity, growing generate to receive proceeds the of yield investments further $XXX,XXX and warrant our sale from

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

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

award While in million funded there we fund new guarantee the a venture million loans the for committed received funding end loan supports XXXX. year, we is the debt to Subsequent of and of all and no positive backlog, are will pre-payments. to outlook XX in $XX the total transactions

in million, as Our new has committed XXXX. grown includes $XXX to and approved today backlog which awards of

today In the million, advisors' approximately $XXX new quarters. solid base further coming addition, to pipeline our portfolio grow opportunities debt venture with a over of of us our opportunities providing is

of quality four as rated fair debt three portfolio's robust yearend. loans as portfolio remains of of and the XX% of Our credit consisted our value nearly

quarter or with two downgraded one and a of one we rating. the the quarter, to the one During credits rating, had end of total investment a two was at a

managing are achieve one the in outcome. order and fully QX we we our QX the exited In and two aggressively to best MVI rated recovered rated credit credits in principle. possible always, As one a

doubling Turning environment. invested XXXX's According $XXX now billion essentially venture XXXX. record prior It companies year to capital the was record in of $XXX a billion. to XXXX, in in VC-backed approximately shattering was PitchBook

the bulk was In VC fundraising fundraising for as terms increased $XXX and mark quarter in funds fundraising. for raised. the the billion the VC fourth was $XXX the ever billion billion drive VC $XX year, to Larger continue first time eclipsed raised of of

helping $XXX billion. and to nearly exit during VC-backed window exit remained IPO of open quarter, drive Regarding total a for value SPAC activity. The the the year

investments. However, support in finance exit new important we has for including with opportunities other plans. firms half the development and their environment. transactions venture generate opportunity science, have liquidity powder sustainability, to well-positioned backed an the To be market XXXX for provide lending match end, additional capital technology, value. to expect record remain, start strong for Numerous with active by public of and in to XXXX the for it liquidity VC underperformance technology venture tool second growth as we advisor provide and to are in XXXX for options which believe With companies current XXXX dry performance some portfolio biotech levels record companies for we particularly market, as win investment healthcare will and respect a that and to venture will where to challenging existing companies. compete stage decline seen debt, well VCs life in platform, to recent SPAC will competition that the of we our become

to lending quality continue further our Turning to our backlog markets. They enhance committed investment our and fill pipeline. to now opportunities and many advisors offer

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

companies. million our portfolio existing to also We funded $XX of XX

macro We continue eye on the underwriting in mind. close and new environment our those to with concerns a investments keep

to continue our of have to also the with We in dialogue portfolio order regular quality companies all maintain credit of portfolio. active and our

public is equity venture progress tightened, biotechs. we have technology As and in valuations markets some significantly like the capital to which for markets science, opportunities and impacting and debt access remain sustainability XXXX, attractive

to alternative firms looks Pharma of funding collaborations to and tighten, powder for strong sources, and market life the opportunity clinical dry Historically, the biotech both be an valuations with pipelines. find private debt. when science companies M&A However, lower Big capital biotech venture as for as venture as companies plenty selectively public invest in have such public markets and well

description. that fit are We that to come debt seeing the venture opportunities market

remain underwriting With long advisor value and in We in seek will rationally remain investments and XXXX shareholder to beyond. well-positioned call quality Our Dan. to term disciplined that, over its our continue will deliver that we marketing grow will continue to turn I now the portfolio. and additional believe to

Dan Trolio

Thanks, morning, Jerry. good everyone. And

credit by We stable our million. XXXX XX% excellent we position mentioned, an while significantly and our generate we distributions as portfolio maintaining and our shareholders. As a term off fourth Rob value long quality. covered sheet additional NII than our year capped to and and for strong entered the $XXX Recap overall our Horizon portfolio and believe expand Jerry XXXX, for to generate quarter portfolio we more grew balance strong grew

in investment equity venture million to our the debt in and opportunistically we successfully private to landmark creation program raised shares fourth advisor quarter, firmly receiving and reduced value to markets. accreatively was our [indiscernible]. Our its Horizon a to XX demonstrating approximately program shareholder on million of XXXX XXXX. our believe grow growth the puts by net for portfolio to in a XXXX proceeds and portfolio it for We expanded from in and managing transactions the additional which our ability year included year million for ability And path capital which the us XXXX. ATM XX our we and access a the platform sold X.X cost our and during win vehicle, redeeming originating expands

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

was credit X.X outstanding our XX, of December facility. $XX ratio $XX debt-to-equity our and our York As X target to which position credit KeyBanc lower New of X.X under to facilities. as million at borrowing X. December stood there million was our on capacity our on than Life of XX, and cash our Based outstanding credit and facility, leverage

capacity increased at have investment our capacity. facility, on XX, incapacity With today million. $XXX invest $XXX in new potential Our was December New our million York we new credit

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

year earned total income higher of quarter, For investment Interest XX% the higher to to income quarter of debt on prepayments. compared amount increased increase a the of and a $XX.X fourth result primarily company average investment fee earning prior as period. the due portfolio of income a larger the an for investments

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

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

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

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

year's last the quarter on incentive Our fourth of million, fee higher XXXX. increase based in generated quarter from million performance of was $X fourth based NII an a

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

management quarter, the to last $X.X $X.XX the of increase size the to was and quarter million an $X.XX per share, share share was fee of fourth per quarter fourth investment million fourth base average XXXX. for $X.XX per XXXX Net in year's Our of from quarter third up $X income in our for the compared due portfolio. in

For per per distributions our during covering as per $X.XX spillover XX, we year share share. December was than the NII $X.XX of $X.XX XXXX more of total share. XXXX undistributed of company's The income full generated

quarter in to XXXX we in be is typically As historical norm. first and with line the lightest expect that terms a reminder, activity of first prepayment of quarter the

and portfolio our However, to by other investments $XXX predictive enable over with for average fourth the with We strategy which our our $XX offset share $XXX our along prepayments. XX activities in upon June value of consisted portfolio principal and that fair portfolio larger April, time million, pricing XXXX, new a significantly investment debt in companies warrants, an XX XXXX. ended in and us monthly investments of payments Portfolio solid of our covers our NII board distributions fair per million principal portfolio To were totaled an million. Based value for partially outlook of million. for should quarter XX generate X with distribution. originations XXXX XX May and of with and declared a average of equity, million, total million scheduled summarize companies $X.XX

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

to accretion net XX $XX.XX December reduction special of due $XX.XX sale was losses A basis per XXXX. XXX quarterly as the primarily on and a and and compared our in to distribution and September distributions, strong offsetting NAV NAV pay unrealized share realized investment income from $XX.XX including the ATM as XX, of December Our of was shares as program. to XXXX $X.XX of XX, our

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

XX, portfolio was And that's December floor. of increase what the an benefit prime prime the of rate. As from XX% at our in rate

should remarks. fact, the would of begins have rise. increase couple prime spread We'll us least our positive happy rise a you In basis have for our of This rate this the to XX at take points time. a prime potentially concludes with to quarters to at cost providing before may questions rate opening debt be

Operator

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

Sarkis Sherbetchyan

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

in the as perhaps that well And new on environment lower the of opposed how $XXX to about kind how the anticipate in relevant talked more valuations conversations equity providing and of deploying talked guys invest selectively debt are here seeing then you in of as some also in you VC for you the capital today of opportunity Are some to light the the can an companies. stack? talk about Maybe capacity. becoming that, You stronger million about growth. you

Jerry Michaud

Yes. Hi, this is Jerry.

their unusual try does when I that yes, It's when biotech talking happen, runway, debt are capital, doing extend using the of uncorrelated a biotech a happening life market. doing Oftentimes, that companies cash venture about to am things which the to or the deal Big tightens, So transaction. that science phenomenon other will an market be with markets, based global in sources not market. capital, can on like non-dilutive Pharma specifically

biotech but and for XXXX. runway quarter out Just the would us first their quarters, financing XXXX, of about that quarter had as to recently us two in come we an extend ask XXXX, public quarters a last some the example, company it's and two

So draw obviously place biotechs ATM in they're didn't now, the looking do. forward, this by on market. have impacted was tightened because had right being an most company, biotech markets They public price their tightened public to want that

market. we that So to see marketplace a relative tightening to equity opportunity in expect do

Dan Trolio

Sarkis, Dan question deploying of quarter. to do related X.X our have continually sheet, and that to your capacity. at and times raising into facilities to debt and look second equity in combination this we on our Trolio. cash grow availability our a target continue through balance the is leverage of On capacity and the the part the We'll opportunistically the of

Sarkis Sherbetchyan

that Right, I follow And sense. makes a up, also if may.

quarter-on-quarter. increasing, onboarding rates income, fees, the of yield etc.? out think Looking level it's factor the expect Is of the And fairly and when rate, accelerated you kind of the the are to into prepays that then considering ‘XX interest fiscal incremental obviously correct or some the XX%. or in topping at guys talks at backdrop on the consistent we yields kind of I

Rob Pomeroy

always quarter been historically too. lot this if year for fourth over quarter the they've look Horizon, of had generally time in then a they the and and in the and you lower prepayments first especially in think grow speaking, quarter, we at I fourth prepayments

think attention really have activity. you to to I So do least pay kind that kind we of of

said, to how historically at bit been has activity lower out are done quarter whatever. transactions their generally at us, approval But predict in a that or board the relatively, on financings getting IPOs getting quarter we've first it's look companies difficult As more a financing worked or prepayments. little you M&A if or still always first for has figuring as prepayment closed the plans, comparatively still

thing, year yes, speaking, the somewhere generally expect will yield but the we an portfolio and course it's XX% So not of between over even our to XX%.

has of regard I if we think of pretty do that's lot a look we've the been in basis see not historically based annual back that in just onboarding exits, do it that is priced you of with you'll footings been that go a again, the to how consistent on have our you and data quarter-on-quarter but the on a portfolio, financing we a and we're on an especially pretty transactions specific company that expectation just at that on that basis yield, that. if

try allows maximize that pricing transaction. anticipate can there an a to we when to exit the us So from be will

Sarkis Sherbetchyan

Thank you. the in to back hop helpful. going I'm That's very queue.

Operator

from KBW. Thank of Our question. question next [Operator with Please your Instructions] Lynch Ryan the you. proceed with line comes

Ryan Lynch

it participate growth my kind just of the and market, high of Hey, questions. the maybe debt attractive for these I'm or for capital the the the as and pullback some guys are available is go good in warrant go pullback, new balance have well as like kind to of venture morning. for where areas needing of valuations good more more of source But additional some that source have appropriate like of regarding that you the for equity currently you on worry out that's just about that. Thanks businesses. valuation which portfolio fundraise up opportunities wondering, and and on a don't follow maybe was capital, it. I guys more guys maybe are on the I at so have a well of valuations probably discussion sounds It it book positive to there in. becomes on given taking the does seeing side difficult as that them and guys it, you pressure other aspect sounds making doesn't balance you wondering companies raise you a

pullback to full pros So guys are your of on hear in just and -- cons both side? kind the impacting you of valuations circle viewing your business, kind how discussion of love on kind a

Jerry Michaud

it's Jerry. Ryan,

got you it think right. I So

ways Your growth, as for comment It on balance companies liquidity is correct. outside definitely creates more probably to raising other opportunity, equity. provide for look of their

aspect something that that our So positive is business. very is of a

that of the we us raise or reasons instances, the is they're want that ignore some importantly, can't to coming However, to equity. in more they one fact can't, don't

are in is up. no how of we to to the historically I so market higher have There equity. invest portfolio you're do it. than XXXX into been. to actually looking The And question of forward existing amount about things balance have their you ever are companies funds are and the And funds valuations support VC relative But new looking, think positive VC down. opportunities how going liquidity that at has coming is one

these So is us. liquidity It available are have to for going is be companies. some about They realistic opportunity valuation. create to going to there to

public them. start kind inevitable they some looking tighten at markets of to especially thing their do. happens It's of We firms is ranking valuations markets tighten, kind inevitably there when start VC just also that companies a human tighten and what is portfolio

our at. investors the in pretty every we -- we're the that portfolio they much a they we're do looking looking of a how that dive much still the how we market, companies this companies, want a have, time dive not of that do of but and strongly on -- have reserved deep deeper we capital those new so kind are, transaction And portfolio for to all are make supportive obviously, sure much investors don't all at that of who the otherwise and transaction

and us of experience a for forward that to us. be as a It balance create certainly on our thing. And moving tells there caution more level so But opportunity positive well. it's has will

Ryan Lynch

Is on that. we quick kind discussion a for kind Okay, talk of going the of just that's just prepayments. discussion of had recover? though maybe magnified probably hopefully looking valuations with dynamics? there even the evaluations even more can about that seasonal helpful, I kind capital at use had companies So was some can you is magnified that being be slowness to until quarter given hold to pullback market slow One-one question even of longer given that on QX QX prepayment that be for open the seasonally and

Rob Pomeroy

Yes. what Ryan our norm, project prepayments, today it's we [to will to comparison prepayments feel back always hard come some] that high prepayments but is XXXX were balance currently we the historical sheet. XXXX do probably level to in and

quarter, we're $XX income similar and positive was we year, As first 'XX, if go you overall quarter and Jerry prepayments at the in produced what mentioned also back NII XXXX, the periods, we years. first producing 'XX those very where specifically the And and during million throughout but very look had today. have NII

prepayments of And always portfolio so of as hard it's predict. timing say we picture, venture it's it, the the part to debt just

Dan Trolio

until it to we methods the all tempered are have Jerry the other markets that that Ryan, now the that the prepays M&A when spoke seasonality Rob. and add normal this as markets magnifying you stabilized. I'd right have Dan is just exits to like produce and and relates

just on we quarter by not our underlying over fundamental a for So basis. results that's quarter remain QX strategy predictive the should time, outlook but pricing produce

Ryan Lynch

today. I Understood. appreciate time Yes. the

Jerry Michaud

Thank you.

Rob Pomeroy

Thanks Ryan.

Operator

from and Securities. line gentlemen, proceed with with a up question next Please Ladies follow the of is Sarkis B.Riley question. your our you. Thank Sherbetchyan

Sarkis Sherbetchyan

you Hi, thank taking for up here. follow the

for me. Just two more

refreshed value here I one as you please us If a And credit up. some more follow for of quality fiscal or provide to in ‘XX. loan update can an ratios outlook have a and sort

Rob Pomeroy

So the Rob. this Sarkis is strategy fundamental continues. underwriting

are part underwrite managing to No second to going to on have being continue that the we the about of We difference and the try that. inflation, as to values environment, these debt. look make supply cautious those we of portfolio our are Dan of the to your of low sure maintain way companies fundamental macro we was? What's the chain, capacity we companies at and of Jerry question the in although, things our service impact impact to loan in the all noted,

Sarkis Sherbetchyan

what there trying historical was kind was norm. in today's I Thank Got underwriting anything tease That's tease what to of out. your trying Horizon were in you. Yes. also was you. especially if environment mindful versus to is guess I I of out that credit

Rob Pomeroy

Yes. Okay.

are So we're do would to Eastern have we Impact direct kind any impacting the anything or exposure chain things at. those be supply looking portfolio. our that on investments directly not of global, inflation Europe

Sarkis Sherbetchyan

for That's all thank you. me. Great,

Operator

concludes and Thank I'll to you. our comments. Mr. final Pomeroyfor Ladies and gentlemen, question this session. the answer turn floor any back

Rob Pomeroy

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

Operator

today's you. Thank conference. concludes This

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

Horizon Technology Finance (HRZN) 2 Mar 222021 Q4 Earnings call transcript