HRZN - Earnings call transcript Q2 2022 | Horizon Technology Finance Corporation

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Megan Bacon

Thank you and welcome to Horizon Technology Finance Corporation Second Quarter 2022 Conference Call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer; Jerry Michaud, President; and Dan Trolio, Chief Financial Officer. I would like to point out that the Q2 earnings press release and Form 10-Q are available on the company's website at horizontechfinance.com.

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

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

Rob Pomeroy

and interest for your thank in everyone you Welcome Horizon.

you environment; and current will performance our and As condition. our do detail will we Jerry portfolio always markets; operating on business our update events, overall our on development operating quarterly Dan our discuss will then our I our efforts, financial and performance and calls,

take Technology We We hit are the the a our the environment. macroeconomic some lending strong power reporting challenging the second all Horizon quarter platform will cylinders in validating our of questions. adviser, second on in performance then Finance of results Management. despite the we quarter of Today,

to our distributions strengthened earnings our balance grew XXXX, growth. while sheet our and order Our we fund our for further first in exceeded provide significantly quality, credit portfolio, quarter the half capacity ample and of maintained to our

results challenging We interest on portfolio, proud our a execution of are are eye markets in volatile times. rising rates, but and keeping these watchful inflation, and impacts the on we of our

disciplined continues debt and high-quality finished provides momentum of sheet raise grow of and we strengthened further distributions quarter our $XX over $X.XX portfolio We of of distributions outlook, declared in gained $X.XX on share. Horizon at monthly in has $X.XX six with over at investment of million. our we be per million, X.XX%, per our capital This end share quarter, a market the challenging reflecting for generated million our successful HRZN, per distributions income further this of our the the net community end a in venture record year, as quarter in ability at which the results undistributed $XX our maintained committed We record the venture share grew XXXX of to mark above We the share adviser another selective environment. pipeline of and which straight The in to by look of to per notes capability monthly of and traction and to will backlog the with increasing level. June. investments. billion. winning of years quarterly approved sourcing portfolio. value our and $XXX a significant the We a as debt balance resulted be of $XXX spillover through $X For and us by income brand opportunities $X.XX portfolio capacity we Based issuing million investment

million capital during addition to equity our approximately at In through we premium program. the $XX NAV quarter, at-the-market raised of a

higher $XX.XX our the quarter $XXX quarter we ended We X NAV QX up XXth. we We per end of of a over the quarter. As debt the million our with $X.XX profile from And yield portfolio a $X.XX share, XXXX for as ended credit of result, achieved liquidity. a rated XX.X% XXXX. maintained or the XX% portfolio on and June of with XXst, up with March from of of finally, investments stable

to managing actively quality. of portfolio and maintain our credit investments consistently are its we always As

our Looking debt for within as by pipeline. targeted our evidenced committed venture demand strong industries, very continues forward, there backlog to be and

current prudent the structuring of with aware originating respect high-quality are and and investments. We to are new environment keenly

a our adviser's For We spread us including public our our strategy we exits from events for continues investments utilizing predictive liquidity new with income refinancings venture our a accelerated record debt and funded additional to predicts the million enhanced by such opportunity in pricing the believe yields funded This industries the and portfolio income adviser's and the from early targeted strategy. adviser a platform company. received record borrowers' events. build throughout $XXX that the quarter, $XXX million

our to the changing the and to to details continue positioned profitability. generating turn that, this navigate Jerry has well of Dan the and over successfully ever, environment the environment and it over first We of I is past and to color of adviser its and growth address few over and will manage through our not macro half years to Team call sustainable grow for all now portfolio. platform the are proud team than year, we prepared give Jerry? efforts our With more but accomplished believe just the performance. stronger you and on

Jerry Michaud

increasingly $XX $XX Rob to Thanks, our science tech transactions everyone. quarter, new second and consecutive investments one a to investments, two finished XX consisting the companies of life $XXX of environment. another diversification the even debt health the seven million strong providing $XXX growth a was investments record portfolio. in million. investment portfolio face good historically macro in in with We technology new quarter a challenging to including and further We million of Horizon our totaling grew new It for morning and quarterly new four of portfolio quarter funded portfolio million record by care

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

fees a $XX net transactions quarter We such expect pricing strong experienced top XX.X% included industry. prepayments which reflected to in totaling strong loan among a that once of refinanced. again, to from income yield of the of The portfolio the repayment portfolio we loan prepayments contributed investment debt yield and onboarding XX.X%, during during the BDC accelerated million, three quarter produce we income. that the the continued discipline Our

may we've typically prepayments the remainder the macro we seen Given year lighter second than the in years. anticipate of environment, prior current of half be for the

fair As of $XX we value held positions million. XX, in with June companies XX and a of equity warrant portfolio

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

guarantee further year. investment in grow well-positioned all of portfolio committed our transactions or While we second will half backlogs the there is no clearly to our these we fund are and awarded the

solid value as XX% and of debt of our fair portfolio quality our credit consistent consisted of remained as XX of prior portfolio's three end. June the with quarter Our four-rated loans

Since from well better. our future quarter an to sold of and a as one was we on sales. investment was to two MacuLogix of with or five credits a one end company a two with rating one and the credits we downgraded rating royalty received quarter its had and rating. credits remaining At of one a value quarter, payments investment the the potential one-rated AR the During and one initial acquiring collection of as assets three the total payment equity rated future the downgraded the end portfolio or XX in cash

now Turning the to venture capital environment.

billion, as invested year. quarter, in $XX momentum we compared record will current of VC-backed was investment XXXX. According fundraising continued environment to fundraising. than given to in in quarter. exit activity the the flow. quarter prior surpassed year's VC and record-setting but Larger As entire PitchBook near that continued the approximately fundraising of expected, lowest quarter, the second quarter be quarter was billion reduction IPO the second since was VC-backed companies making markedly the in activity third it of the the still year $XX the last to a XXXX VC the was for drive a raised, total full saw exit window. healthy funds value lower less Total first likely shutting the in the bulk Meanwhile, billion $XX VC

we and firms half new for portfolio environment economic opportunities of powder again the continue sentiment the first that levels of maintain liquidity VC and that support to in note dry provide existing shifted for While clearly may companies. record of have XXXX, investment investor

recent evident significant tightening severe a exits market companies. source of key part As liquidity in reduction stage driving is in performance, the and in increased of additional venture growth debt, the IPO for SPAC our is for demand

to and its the lending ecosystem, most fund as we and and follow-on expect new portfolio closely and anticipate While debt support With venture platform community position necessary to competing expect experience to we long-standing second debt quarter, successfully Horizon, four equity collaboratively community alongside winning Based environment. community and with are our the the remain debt firms to and the adviser's on their with we as funding provide favorable companies VC well strong in portfolio work strong to in new our demand companies capital M&A to for to liquidity solid XXXX, through companies. in in of second totaling in of situated the investments funding venture we in transactions, participate portfolio the knowledge to to order current will growth the and that appropriate current VC markets. venture additional July. continue the the we runway $XX.X our will capacity Subsequent well reach better and Horizon's The order believe million to and fundings investment equity need VC environment. work navigate of we to end momentum, active continued half and also provide

approved July. $XXX and during today of new committed, which awarded at stands Our includes backlog awards as million,

opportunities billion is grow opportunities our portfolio levels adviser's over further today Our new historically coming still $X of quarters. the of to high pipeline venture approximately among

venture we are from to the to backlog where selective which investments. position, in new afford Looking adviser's current and environment very we for making can companies our pleased our be attractive remain in committed of debt be and quality abundance with a an pipeline, for ahead, solutions to mindful grow demand of

their We also believe and an shareholder because call order of companies VC dialogue With will our deliver Accordingly, manage each now in I we continue continue in quality with Dan. additional to portfolio that over our credit and to turn efforts, to and remain to investors we value. changes the ecosystem. the well to hold long-term regular such of positioned identify active

Dan Trolio

and good Jerry morning, Thanks, everyone.

and our further During resources. our the of year enhanced capital the beginning from built we on second quarter the efforts

exercise our million includes quarter, lending First, July from $X.X the increased in $XX.X and six capacity issued of early the over-allotment. million issuance at through XXXX we notes the a of which of

portfolio. ATM our us to program, over grow with capacity accretively XXX,XXX million. These through further Second, we raising the shares opportunistically $XX sold of stock and actions successfully provide

Turning to our results. operating

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

was target million $XX New our capacity there at XX, net to million outstanding slightly cash June the credit position on our $XXX out $XXX borrowing XX our June As higher facility outstanding and our as was was facilities, $XXX leverage debt-to-equity June leverage our under at our credit ample Debt-to-equity $XXX million. capacity Based ratio which X.X:X. on us Life facility, of sheet, our than leaving million our portfolio. and ratio on potential But cash with X.XX:X balance credit our capacity stood KeyBank million grow X:X. of with investment of the XX, on netting was new York

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

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

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

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

Our to fee $X.X million for $X.X million second increased performance-based incentive last quarter. year's from

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

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

to of million predict. second new the throughout the the quarter, principal We in were ended principal scheduled totaled experience is timing offset prepayments by As million, with our summarize the million. we and past, portfolio the activities and a To have we $XX million $X said prepayments in for year, quarter will originations in net difficult principal payments total but $XXX partially $XXX which paydowns. investment portfolio

per investments first and the $XXX consisted monthly macro aggregate from would of million portfolio the we fair equity our companies, XXXX Board $XX in and companies of and our October, million. for debt fair aggregate distributions warrant other XX share half environment, investments portfolio Given XXXX. portfolio November Based a an outlook of of to normalize with levels. expect an of The and value XXXX, XX growth value upon in $X.XX of with declared December for

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

June $XX.XX fair of investment $X.XX to as Our March XXXX, compared NAV quarterly as share June The a distributions to as per by offset XX, and to on adjustments NAV $XX.XX due partially $XX.XX XX, basis increase of XXXX. in XX paid our income, net was of primarily and value. was

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

may over rate. of to portfolio This questions this the from We'll happy As XX% additional remarks. be at our prime time. opening of increases take XX, will concludes June benefit our in have you

Operator

Thank you.

first a [Operator question-and-answer proceed. question Instructions] with We from comes Johnson Paul Our session. Please conduct KBW. now will

Paul Johnson

have guys. Good my morning, for you several Thanks Yes. I for this questions. taking morning.

little you likely first this growth mean, I not talking to to first But, are basis, next ability just robust, the grow for out there's roughly basically expectations, of year? end be know around the said maybe you over the growth to continue year the half looking we to is is BDC, no bit first The a flat of, do kind what think of as could about a or net we so. kind on half as the expect, through portfolio the of or year. I of

Jerry Michaud

this is I is think room there growth. for Yeah, Hi, Jerry. still Paul

and what more bit at predict business. a half. what's think look on is you If our over -- we numbers to We that grow do what's they just the awarded prepayments But backlog certainly think of second our to been the that demand recently, is course we there will to committed the little slow. continue difficult

now in and think couple slowdown I we've a of the for general. been pretty the given equity markets much of the indicating in the that choppiness quarters environment

So it robust room growth half. We second potential prepayments first in for think half. not I could maybe there some as in here have the be was as do the do

be there's happen half. indication -- some along couple a which of And that in over to prepayments. second are of We get process, the seems well might be were then the those have if prepaid transactions companies SPAC we also a there that probably we'd others couple that

I will some with do do be given in think given level first strong continue did backlog, prepayments. to the be -- think though marketplace, in to our what some hearing the the at even the will grow opportunity that we're half. from not portfolio, we some probably strong but there demand we So level there

Paul Johnson

that that activity demand would you're the it venture is companies a that that in just that. here essentially today are down Thanks avoid I potentially general like and companies how say essentially and for by much today? capital, raises of in lower quite already just those second quarter-to-date? it. seeing, seeking for financing as as driven tax quarter capital good in of are the And versus recently far Got the of mean, need companies burn valuation runway types longer to earlier-stage frankly higher just rounds or looking equity companies you

Jerry Michaud

Yeah.

wanted Venture That's recently this some to the idea. that's replace is Most and equity. today think kind on question comments, just what important had I are mentioned it have articles I this, based and too. of debt that think. because we're environment right of, really seen So I this I not the into of doesn't some in I seeing get my --

if we're Now and it's really high certainly we're in strong one, a providing significant if at looking is good demonstrated -- that's quality to and they've it's interested with funding. what A continued along support equity. point investors your of with company a something seeing today debt and amount we're

than fact market. M&A companies to more good continue the the over do and VCs actually. some to down. to the have that support because the that fundraising to are to into of money are still couple experienced to better in a going valuations need yes of has to VCs years to of have very But community ability the put portfolio So don't And their companies them. they're they get want they last VC

seeing So we're high that for -- most are and and a kinds are is debt are have coming To really and we, equity. of on capital, transactions what those level part what reduce both their market obviously, need we the in – companies is the of quality most of definitely to put raise And seeing. VCs that interest of companies the to that costs, of seeing burn, we there's a to reduce that to your we portfolio lot second pressure are companies definitely been – that. of have

what those many equity. be of that probably put debt transactions really of to For should additional are seeing either prepared are we them to fairness. up the that in in, part, most some in replace not though step not We're

and very is as what – close are paying selective doing we But can it are doing. to of numbers fairly had we we capitalists but be is a pretty some opportunities. one choppy year. staying our are actually attention time really and paying the they to attention the come we're debt a specifically it that what market be opportunistic, of We very hope probably still And us strong companies already the this what got high. okay. point. meet just so last market. is, those is of portfolio because probably valuations to demand companies companies we It's not new leverage, that community relative was another and from at most in growth have in away close is remainder we're given But I So, guiding the relative it general at probably, is we is, the looking at VC the think area, refinancing – the our interested thing, have they probably for We're to would venture to mentioned, over-leveraged down add

Paul Johnson

as investments looks as of assets? investments that guys kind Curious like far interested, And anything of of they that? NAV the quarter. kind Right. and quite for exposure. you kind I'm that. in Makes public particular really do drove a way all not us quarter Dan quarter. there this this we book VCs digits venture of just quarter, the appreciate through at there higher can Was My is with, as end higher some walk your sense kind of mark question the to this has aren't go other the the for to have were equity marked look you probably expect on large as understand, just also equity equity of at there. as Jerry just the either BDCs out But how for on having next headwinds to where or more color mid-single for marks I just with

Dan Trolio

quarter. fair no index fair us debt a is really What is investment that this for the There adjustment really be every board is at Paul, our that we to class the specific Dan. a we of one allow take across said quarter value Yeah, for would each wouldn't asset value value. every portfolio, venture fair look

between the have adjust three and we reflected up go the Q. information value until basis our two, we – changes. and were through one-rated in we There And migration normal time that And at on that based the on we a fair the and and so file, quarterly is make credits. and day we each four-rated our investment

debt a the the side portion our the that fair don't the to been of hold on right, handful our equity. warrant has specific So we increase reflected of fair is that warrants portion in significant But piece, you're yes, deals. and public value And on of warrants value. in did then

this the companies able portfolio raise you're were to that drove round at in fair environment, significant up equity a value that looking at. and in Our pretty increase the

Paul Johnson

and the we I'll it. this. Got around for answers my commitments commitments question. you the guess I in much had it. earlier unfunded that over that's touched of But the visibility building just yes visibility queue investment I from quarter that do around curious guys But after get Appreciate back many I that drawn how this I have so apologize last imagine I last down all on questions. you've That how question activity mean few the it's the quarters? you much the to new just any with unfunded had, getting quarter? around quarter. about have

Jerry Michaud

Yes.

So, a to backlog great they on projections we some visibility companies have committed based have we our because those certain milestones. on meet is when they based given of milestones. expect know us meeting portion And actually

terms when down. opportunity of the for company do an we in visibility have would be there draw good it So, to

is, meet be that they of it milestones is not clear those certainly course would a in market in whether something as probably as Now this environment. better

to the in is, that meet able actually capital. our So draw milestone their really be will to company is the order question requirements

a Now look we second funded. if portfolio you we that active -- companies at terms existing portfolio in the pretty had quarter

with forward. a raised result company the and package were debt they've a and to able were along significant companies refinanced equity runway their those raised of actually our we we debt meeting we company refinanced package. which pulled also the extended of get the significant payment Other round very the equity -- milestones. final Some They one for

from it an was actually So, well. transaction that as event income

if milestones we That's when But will in milestones to even milestones. visibility they'll little met? is expectation meet more have a a little market, those is pretty whole in it -- certainly be not market bit determine, but a a be have more better different the better that would probably that lot we necessarily confidence difficult bit good than met? So, a

Paul Johnson

for taking thank that. Thank you you question. my for

Jerry Michaud

Yes, thank you Paul.

Operator

further would time. [Operator turn in like the Rob queue closing I questions Mr. this to comments. at floor over no Instructions] There back for to are Pomeroy

Rob Pomeroy

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

Operator

Thank you. This teleconference. concludes today's

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

Horizon Technology Finance (HRZN) 3 Aug 222022 Q2 Earnings call transcript