HRZN - Earnings call transcript Q1 2022 | Horizon Technology Finance Corporation

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Operator

Greetings, and welcome to Horizon Technology Finance Corporation First Quarter 2022 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 is being recorded. I would now like to turn this conference over to your host, Ms. IR of Director Bacon, and Marketing. Megan ma'am. you, Thank

You may your presentation. begin

Megan Bacon

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

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

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

Rob Pomeroy

which quarter, efforts, Horizon we will interest then and financial and for with then lending will advisor, on the questions. And substantial continued will displayed in XXXX, right left Technology overall where and the our Good business environment. power growth, Finance the up our current our platform In picked of operating we of take us we some events our off our detail in Today, our performance condition. morning. first Management. and operating I discuss portfolio Dan Thank for you update development performance your Horizon. markets. will you joining our Jerry

the the resulted million Our portfolio milestone surpassing in during our growth $XXX quarter.

notable while ensuring we quality have We balance also strong made maintained in our in our the strengthening grow credit we to strides ample further capacity quarters ahead. portfolio's sheet,

of highlights Our a in We our at and which record pipeline venture growth $XXX with million $XXX to portfolio a to win Life million. HRZN, source record portfolio. in York backlog committed strengthened resulted finished expand providing lending the quarter venture and increasing million, our debt grow. million, community. further increased the the further of our of by a New quarterly and is of credit capacity value size brand for a $XX and quality of portfolio the end quarter facility quarter billion We to a an the with first and our the advisers' in sheet $XXX include: of grew base further several Horizon We We high respects. debt balance approved opportunities increasing over to investments outstanding The our power ability $X testament to ability

distribution our at-the-market through and year-end leverage successfully new equity quarter with share, typical this per equity of $X.XX below which we of outlook, nearly $X.XX raising XXXX.We our leverage at million our which level. through up six which years net we a monthly level of due These quarter. end and share, NAV will $X capital, we first $X.XX program lower a completed our towards $XX.XX We generated historically of to significant up XXXX income us capital of QX, at $X.XX premium both of $XX million prepayments, can events provide from to equity per quarter, per target share with the of the offering, amount of from ended declared X.X:X. March, the investment share During distributions in approximately is of a the equity mark XXXX, distributions monthly NAV. per raised September for we on Based follow-on $X.XX of

$X.XX which $X.XX share per per exceeds over last total have distribution We such of quarters, total four the our a share period. earned of for

Our income maintained the of finally, as quarter. We XX. our solid as rated XX.X% stable was nearly three quarter. XX% profile debt end a of or higher yield achieved of March undistributed the spillover share for a $X.XX the per portfolio of our on with credit And of portfolio investments we

remains impact continued the are and of ongoing debt environment. effects macro are industries actively we managing maintain events, the our our environment always, its of to our But for increased challenges of consistently credit supply to within watching transactions, and we geopolitical we for win economy obviously investments demand share portfolio venture and As the scrutiny, Despite pandemic. the we chain on strong. appropriately our the target continue The from structure markets necessary the quality. inflation, for which equity

standout attributable entire the and of portfolio work growth double-digit to its advisor Our is team. our

For in from portfolio We our the debt build industries. all believe early investment liquidity us on its with based the predictive events. platform the quarter, yields from our funded borrowers' million targeted high-quality spread advisor debt enhanced our venture $XXX over of opportunity exits a for investments pricing the adviser's to strategy new continues

positions, and color that headwinds. to been of more million our lending profitability. to in platform members With enhance and and platform of of continued Horizon our opportunities promoting include: has prepared an addition, $XXX additional the macro A that and larger key an execute The of a give efforts, team on and the the expanded cycle-tested on and to access remain power and Jerry milestone. I the never Jerry? our to of future investment now or backlog is that, fully opportunities. details turn to new larger, team's call we particularly experienced continues Dan brand Horizon portfolio generate of will reaching manage the performance. Horizon over investment management number benefits entire the and pipeline investments potential to into platform a you Again, growth enhanced of on through hires ensuring proud In advisor its to with commitments capacity I'm course economic

Jerry Michaud

Rob, to and good morning everyone. Thanks,

in Our for resulted in lending activity milestones of two key Horizon. first the XXXX quarter

First, quarter. our we in the grew million a $XX record by portfolio

the new our mark providing tech Second life new investments, investments, topped our debt new to portfolio first one quarter, $XX $XXX for further of new million investment, first two portfolio. consisting our including the seven the XX portfolio three totaling technology companies, healthcare sustainability and one to science million funded investments transactions time We investment $XXmillion new in in in history. diversification

committed companies. of our nine from portfolio $XX existing funded million backlog also our to We

two of prepayments of pricing quarter million. yield during yield contributing to $XX transactions on-boarding during portfolio such quarter prepayment totaling we produce NII. and continued the loan Our prepayments, expect debt the XX.X% reflected fees accelerated from a the discipline strong XX.X%. that The We experienced income in to

As activity Rob lower experiences discussed, QX than historically of remainder the prepayment the year.

While accordance the year we historic averages. for in for experienced anticipate not reach with we expect do the prepayments do XXXX, to prepayment our the activity we level year in historical of its balance

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

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

all the we fund While we transactions are positioned of grow awarded there investment is year. the committed our guarantee during or in portfolio to our will no further well backlog,

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

at was During credits two to had three end the total the downgraded one portfolio better. rating, with we remainingXX two credits quarter, And with three or a one the a quarter, rated of of the a investment or rating.

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

billion we capital very a venture Turning the off of in torrid in but amount now are set the pace According more see beginning a companies first $XX appears toward healthy of invested VC-backed normalized XXXX. it to approximately environment, investment, was quarter to activity. to XXXX, PitchBook, the trend in

raised of VC volatility exit activity, which bulk of was environment to terms portfolio if has In investment are on the underperformance, and volatility any for and first pace Larger slowdown continue first activity. companies. uncertainty. is investors. in XXXX was pre-pandemic the VC closely fundraising, considerable investment VC putting firms exit drive as quarter for to and levels VC active for in geopolitical will be of saw opportunities our to a market quarter, see number to XXXX watching exit fundraising, well quarter, VC-backed on billion, billion Total existing record support the closer provide powder or the future we market of levels of other impact on funds the to liquidity while the value given unsurprising dry $XX the momentum hand, to and year's the fundraising continued inflation maintain signs and the for fundraising, it investments from new interesting slowing $XX record. continue last surpass

a we significant strong situated the we noted $XX competing part exits our eight solid to in strong driving capacity demand on growth investment our advisor last funding totaling and platform momentum, our the SPAC and of venture and reduction debt, lending additional With call, increased transactions in growth of winning in key for active of source of liquidity well the stage and are IPO to tightening April. we million environment. we for first continue market a the As quarter, the Subsequent current is continued in end believe Horizon, companies.

awarded April. Our new today million, of several committed, awards includes grown $XXX during and backlog which approved to has as

debt Our opportunities billion, level of advisors' grow opportunities portfolio again approximately pipeline historic of further to venture $X.X the an today quarters. our coming is over new

investment. $XX experienced also a prepayment debt of We April a in million

and further diversification portfolio underwriting markets, of backlog adding noted a improved tabs advisor's of also close health the pipeline, new on further of from and and health - size now portfolio as markets ongoing to macro-environment qualitatively of investment to our our our our That Turning there quantitatively continue our We but concerns sustainability, committed said, technology we is are by companies when providing grew all quality life to keep of not and to earlier. technology, opportunities new the wealth lending only portfolio. quarter, fill during enhance investments. science, the core mindful we care portfolio our our

to quality credit in as to our our and well and investors their VC with maintain help ecosystem. have the continue dialogue identify order also companies regular an as each changes portfolio of active We us in

continues to markets tighten. attractive especially opportunities class in asset ahead, remain Moving an grow, as core venture a result, as markets. debt our And as equity

We allow Accordingly, will continue now long-term our additional to be over that we disciplined turn to I continue well us to Dan. to and remain portfolio. investments deliver quality will to call value. positioned that, With the shareholder grow seek intelligently

Dan Trolio

Jerry, review We a efforts sheet good everyone. the our of and enhance structure results. with our review and in strengthen steps resources quarter. capital our the I'll start significant balance a and 'll in our provide capital quarter Thanks, took then two to morning, of to first quarter,

facility our period. increased capacity while on million Life our York we lending investment also its by extending New First, $XXX

provide to match we portfolio. will capacity million us in quarter. We a successful to the addition, In raising $XX these equity grow capacity, with the the to believe offering, continue the completed debt actions new

Turning to results. operating our

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

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

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

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

debt total X% investment million, income for period. primarily investment the to compared quarter. For as portfolio quarter, income on higher result we the of a year increased the first of Interest investments earning an increase average earned $XX.X prior

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

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

XXXX. was year's yield million XX.X% quarter compared compared portfolio first last of first to quarter were Our the Total loan for for quarter. for expenses in $X.X quarter the the to XX.X% first million $X.X

last for first incentive to $X.X million year's performance-based was fee compared Our million quarter. $X.X

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

due $X.X year's share quarter million, for 'XX We of our strategy, increase undistributed quarter fourth portfolio, with $X.XX management and investment our per quarter anticipate $X.XX first 'XX. us Net per larger fee share. $X.XX for $X.X average per last The compared enable should share first XX in the along our of million size in income as predictive an share of that 'XX base spillover time quarter generate to the income the per was the portfolio. NII up the pricing $X.XX March that from of was Our first over covers solid was of to to distribution. company's in

will prepayments we throughout As the year. the we said have experience in past,

first To occur, portfolio the first lowest. summarize with it difficult predict typically is the in However, our will quarter they for being quarter quarter. activities the to which

fair $XX equity other per principal payments investment July, XXXX, quarter in with The warrant, companies $X $XX and in $XXX portfolio monthly distributions our of which million; $XX with ended in XX million. and Based for originations of debt prepayments. fair with value totaled August offset partially a scheduled of million $X.XX upon consisted and companies We New of an XX aggregate million portfolio in for of investments a 'XX. were aggregate declared an million. and September principal million, by the value of outlook Board our total share $XXX investments portfolio

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

our March Our NAV due XXXX, primarily in the $X.XX $XX.XX per by XXXX. XX, March compared XX, net offset share partially a increase and was as unrealized was of paid income, and $XX.XX offering basis of The from of equity to on NAV $XX.XX as XX December accretion to as and distributions losses. investment successful quarterly

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

of in prime As additional increases XX, rate. will portfolio of XX% our the from over March benefit

a the with concludes of you addition, current to happy spread We'll our have us to take in XX rate, In spread basis prime time. be cost rises. positive point our This debt prime questions at when may we a remarks. rate have the providing opening this

Operator

line with Our first [Operator KBW. of Johnson Instructions] question comes the Paul from

may You your proceed question. with

Paul Johnson

taking just my expectations slowdown how of of preference for into for sort a that's more for investments I'm questions. curious VC Thanks maybe and guys. maybe of what equity obviously potentially - with in available. morning, any Good kind this just your are guys' your debt tapping commitment a VC commitments environment unfunded unfunded and under

Rob Pomeroy

I one. it's Well, our that's environment the so think right good question now, really a for

environment, to adjust kind As companies in that to own its company you capital, today's move strategically milestones probably to to And strategy valuations course, of of both of our for whether know, forward key their for backlog the on is are as based they most committed basically markets. provide milestones outlook subject adjust additional ability higher meeting would is company. their certain able key a to economic the those raise own meeting understanding

so we close to And be milestones to we that met. very close and attention pay to very pay need the them attention

of as In our covenants addition, have well. many course, transactions of

and as in additional through capitalists market a say quarter - capital. been think liquidity themselves are to have first would volatility the able venture bit are I and the cycles these to able is who companies. little certainly lot that difference balance funding I today we of that on compared on other their focused capitalist a probably very a raise this sheets we're So have to the of have are venture had firms that

They're So there of seeing of in is that strongly a companies. And our lot dry VCs. discussions we're powder. the their supportive with portfolio still

having are more our often investors. more and now conversations right portfolio We both the with companies

of kind heightened to we'll we that XXXX. the of how a kind so certainly that's at rest level through the And market. And are do monitoring continue of

Paul Johnson

had and is of over great the do you've of at your of maybe looking pretty are That's a this we're sort color. when net growth kind at good next you net looking BDC just the actually high relatively obviously you that. appreciate pipeline to quarters? where think growth a for I due few quarter, lower guess I scenario quarter prepayments

Rob Pomeroy

Yes.

saw spent we to So at that in certainly time And a fair looking amount like levels of we we expect actually. prepayment see don't XXXX.

We're a don't the taken aware some there of ongoing as predict, couple much are course, on We continue that existing indicators. that difficult to Certainly X. has we to I of companies. prepayments the be debt there year Our refinance prepayments. of, have events will But term, in obviously. last the will in our are expectation within near of of portfolio or think, significant think more been is

those little a think they of to level venture capital that don't of I willing of - by activity. the have to in being provide they of way, for of refinance a were of for that and part you're be refinance amount going During were companies. a banks, where that, now big to see periods, maybe of XXXX. venture the a the awareness aggressive bit course debt taken terms know to - and lenders companies more certainly heightened kind going Horizon, strategy looking not of that have that's our on lot are we during I

wouldn't So other well. no true be lenders that, reason that to with as think

not albeit But we're for well public activity. to historically. and some opportunity still raise companies there's to been going be the it capital and has seeing lesser sure, that as in as markets, be public some for will as there So M&A activity,

Paul Johnson

just nonaccrual, just the specific I you additional appreciate small a Yes, there? looks quarter. it And investment question one like company color. credit. more guess, curious, on that. great this only the It's Could MacuLogix, it's a I you this little just in portfolio just lastly, or really made I'm an an bit there? quarter. idea lower I maybe talk a Is marked of of What's the on that idea what's about going a additional for with recovery hope company? turnaround investment know a there with

Jerry Michaud

Thanks, Paul.

level middle of As on to get credits when a in of we the lot is it process. in the this putting nonaccrual, case of a it is these

amounts that X. resolve have providing small expectations next liquidity of that or make And in can it the to we're happen. We itself quarter

Operator

[Operator further this closing would this over call Mr. turn for Chairman at Instructions] to and Thank questions Pomeroy, back CEO, There to time. you. I like no are Robert comments. our

Rob Pomeroy

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

Operator

today's concludes This conference.

You may time. at rest of this your day. Thank Enjoy lines participation. disconnect you for your your the

Horizon Technology Finance (HRZN) 4 May 222022 Q1 Earnings call transcript