Earnings call transcript Q3 2022

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Operator

Ladies and gentlemen, greetings, and welcome to the Horizon Technology Finance Corporation Third Quarter 2022 Earnings Call. [Operator Instructions].

As a reminder, this conference is being recorded. It is now my pleasure to introduce you your host, Megan Bacon, Director, IR and Marketing. Please go ahead.

Megan Bacon

to Finance welcome XXXX Third and Call. Conference you, Horizon Corporation's Technology Quarter Thank today Pomeroy, Chief are Executive company the Representing Rob Michaud, and Officer; Chairman President; Dan Officer. Trolio, Financial Jerry Chief and

and to like the the press available out I Form at would are horizontechfinance.com. point XX-Q website QX that earnings release company's on

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

Rob this At like would turn over time, I Pomeroy. call to the to

Robert Pomeroy

and Horizon. thank interest everyone, you in Welcome, your for

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

We will take some questions. then

adviser, Finance excellent Technology was despite Horizon macroeconomic challenging for Horizon Management, the environment. and our It another quarter

future the portfolio, and growth improve our capacity we responsibly our quarter fund earnings distributions continue to maintain balance strong Our while sheet. to quality credit our for through exceeded our grow our

our XXXX quarter, declare share $X.XX special to outlook, distribution declare of $X.XX share. For distributions on as payable net above in Based distribution. third a January distributions of investment in to in share, well very and special increase XX% the share income monthly per our pleased $X.XX that results this the per well December. generated a we we are $X.XX per as $X.XX consecutive a have we beginning share per Note per is made year our

maintained $X.XX the as income undistributed of of share per of end spillover We September.

to distributions to generate time We are and over platform's our are our covers NII very earnings our confident to ability that in shareholders. pleased distribute additional

win the over investments. of and and a We $XXX approved value backlog million, venture and in source $XX Horizon our of the of brand venture adviser opportunities a quarter to $XXX a and We continues end resulting pipeline of quarter to grew at finished the continues in resonate community, billion. The million. million portfolio debt debt $X with by high-quality committed

strengthened portfolio As NAV. we selective of our $XX disciplined by new raising at balance the and making environment, look grow We remain through to will further premium program in our investments. capital to we a aftermarket sheet our in equity current million

XXXX. June liquidity as yield rising with strong We the profitable rate debt the a a benefited quarter XX, reduction for ended As on XX.X% yield achieved the $XXX of NAV per events. our share, the quarter environment ended a of from quarter of we with We and million result, portfolio slight investments $XX.XX . our from

loans and nonaccrual. And improved of on finally, with during quarter the as our profile XX with or our XX% of portfolio X higher credit rated no September

debt from and as interest investments raising and exits and our are third Capital strong market equity and the we by market Notwithstanding the IPO all results VCs, recent routes macro for are The rates. tighten is M&A consistently exception. are always, cautious venture recession immune a in headwind. looming higher As follow-on ecosystem, No capital managing quarter, maintain impacted the have quality. we to our venture the by inflation, actively credit months. seen we

We are existing manage opportunities. right macro the issues new and portfolio focused select these we investment on as our

For at the investments adviser's million targeted $XXX across HRZN. quarter, million industries, $XX platform in our our funded new debt including funded

in the our income. debt new higher rate yields and prospect prime, rates the rates, our increases activity interest Expect and as existing rate to higher carry evidenced have the prepayment of benefited All portfolio that and will the growth as be has cautious venture interest We portfolio recent increased as upon by the The prime floating higher floors. by resulted the based economic prime higher in also our for from loans further increases. and adjusts rates tempered as market current well environment. strong remain rates onboarding both

require While backlog, companies many milestones. economic or more The fundraising meeting that have our record committed achieve may portfolio environment, these commitments milestones we a performance of our current be high difficult.

activity the prepayment still portfolio slowed, be from market debt While activity has there and believe significantly our shrunk by refinanced a larger companies facility. sold, equity being that being rounds drastically significant will has IPO new or M&A raising we of for opportunities

we'll choppy levels. lower historically some We level markets, but previous seen a high expect prepayments have recent than this our in at and

current summary, well in In market. has team the Horizon performed the

the of conditions. on going next technology of I dynamics now to to and right with with for have Jerry call of you the current over by fueled execute year balance color optimistic. outlook We our market turn the be will and give resilient. market successfully to more Accordingly, our details innovation through Dan We that are and under our is this that that, experience With is the Jerry? dislocation team periods venture believe the that partially the performance. previous capital,

Gerald Michaud

the debt quarter morning million. X our with finished totaling macroeconomic health providing and in investment, portfolio a of headwinds $XX $XXX Despite funded companies life and transactions consisting further X and by investments, new diversification we portfolio portfolio the new to Rob, in new good in of tech Thanks, $XX million, million million to portfolio. quarter investments, care our QX, tech X $XX X everyone. We X grew science investment including new

to yield yield reflects of the strong loan experienced well as was our produce discipline SPAC during onboarding portfolio rate quarter's the income. and yield of the BDC and continued the quarter $XX during the prepayments in end-of-term investment structuring generates fees XX.X% last and of transactions our one reflects rate income further portfolio's predictive strong of and were totaling We Prepayment pricing payment the industry. our accelerated those transactions floating a result how X debt pricing of portfolio value XX.X% yields rising environment million. Our above in of Prepayments quarter well completing companies net contributed rates to our a transactions. interest portfolio highest X as strategy from in

few indicated macro prior As past quarters, the the may we the we lighter given in than environment, years. over anticipate in prepayments have quarter current be fourth

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

structuring and aspect venture a As investments generator. key additional warrants strategy an is equity and rights with value of debt our we've consistently noted,

portfolio. end record our and funding commitments with quarter, Most of million $XXX backlog third the commitments to a certain investment new thus second milestones. of committed $XXX our only $XXX in the and and of quarter. loan us we investments, but new the compared not these existing ended profile are debt debt our the at credit approved approvals positively for closed companies key portfolio In our meeting investments million de-risking the portfolio Meeting subject quarter and milestones to companies our impacts million unlocks of

of with from That to next there we strong as With our to will quarter committed future backlog. fourth macroeconomic few record our said, the backlog, uncertainty we the closely uncertainty over monitor is enter made outlook conditions. of milestones committed the performance as in portfolio the Horizon that is grow companies the fundings macroeconomic continue and its met be a quarters, responsibly and position a portfolio greater-than-usual

remains X-rated quality of credits loans from an had debt as end of quarter credit solid, XX, the of as our consisting of September value the at the the shown X we portfolio's note, Of by portfolio no and XX% Our quarter. end. of prior fair improvement X-rated

the sale. of and end the ABC of of assets Kite XX fresh are end to the return at of Obviously, and through liquidation a other portfolio follow equity company to the credits completed at QX, out with X-rated them. to we of credit QX, companies at in raise Hill, to a companies of our total with our We continual closely end had continue rating of communication our X And was an able MacuLogix, recapitalize sale X-rated of One QX. X portfolio credit. X-rated a a

Turning venture now the environment. capital to

invested XXXX, $XX a become XXXX. investors as in to lighten to the VC-backed in quarter continues activity environment. approximately quarterly hesitant second investment the still flow was current PitchBook, lowest According VC third the expected, of As quarter the total of since more but in companies healthy billion

fundraising quarter drove quarter-over-quarter VC managers While the third represented with the in has Funds a record VC total, of billion already last raised the the surpassed $XX the fundraising. established year's decline. bulk

of below first Meanwhile, VC-backed window. value exit it's exit value activity for last total. for since just fall billion, Total the environment for time quarter And current exit likely will the the the the billion IPO the XXXX. the that above near $XX and was quarter's given shutting remains muted year $XXX

for investor sentiment remains challenging, growth-stage new opportunities continue levels firms existing maintain provide recently, of which powder, for and but to continue companies. liquidity and While record companies. support we Demand may nearly VC the has environment invest dry opportunities billion, $XXX economic tightened to to investment to see portfolio in debt venture investment

debt closely occur, create also for originate tech-oriented the debt venture our may to Should source and if begin are from venture loans this for away banks us. adviser to watching market. the We opportunity high-quality to additional pull it see

opportunistic and and investment environment. platform we strong Given adviser's well to investments active lending is situated capacity for compete believe win Horizon, the current our of Horizon solid and in the

new $XX we Subsequent to end transactions million. the X third the totaling quarter, of funded

awarded backlog $XXX stands as today of and approved committed, at Our million.

over in a high. new historic Our opportunities today adviser's pipeline remains of billion $X

to pipeline. ahead, environment backlog our looking XXXX, into Looking challenging portfolio, there that an our grow adviser's are a selectively for committed opportunity but are debt carry believe quality to continue to our attractive companies expect This and solutions. still provides venture we

ensure to well focus remain We quality optimal squarely to long-term additional outcomes. credit on will continue deliver value. positioned we believe also continue shareholder We to to

to With call will now that, the I Dan. turn over

Daniel Trolio

good morning, everyone. and Jerry, Thanks,

X.X with maintain grow providing We the further our $XX shares continue capacity the portfolio. and resources million over during raising a successfully we our capital sheet. Through accretive-ly sold and of additional million to strong us an continue balance and enhance program, quarter opportunistically to to stock, ATM

quarter to end, additional the $X.X October priced over-allotment KeyBank July, coupon lock facility we our which exercise securitization closed notes. rate, XX, of free to we received on million of increase make $XXX up proceeds when our X.XX% from capacity the investments. Subsequent new and debt our of a new XXXX a will credit in million

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

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

investment net out borrowing stood our was and X.XX:X. debt-to-equity sheet, our our slightly XX, X.X:X. position on at our Based target new Netting our balance facilities, was of ratio capacity on credit million. at September the $XXX potential cash and leverage September below X.XX:X XX Our as cash of capacity our debt-to-equity

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

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

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

for XX.X% year's yield for quarter. the compared was quarter to last XX.X% third Our loan third portfolio

the in quarter expenses third million quarter to $XX were Total of compared million for the XXXX. $X.X

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

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

third million, base fee the increase was management to of year's million size from an portfolio. due Our our in last in $X.X $X average quarter up

us second for company's third with the that portfolio, share undistributed our time our $X.XX per over predictive along and will that to September was share. for spillover covers increased of income XX $X.XX larger pricing income strategy, the quarter as quarter per distribution. The was investment XXXX enable compared $X.XX in per We NII to Net of third anticipate our generate the share $X.XX 'XX quarter of of share XXXX. per

$X the third scheduled million. prepayments. portfolio To a in which summarize ended partially net of million, with principal were and $XX activities new $XXX in originations our principal $XX for the quarter, quarter by million million portfolio total We offset totaled investment payments

Given limited the have the would portfolio macro environment, growth to we fourth expect quarter. in

on well December our per for aggregate At in a of share $X.XX a the January, for investments portfolio declared debt Board value other a million outlook our portfolio XX $XXX and an special XXXX companies of of and and September our date fair to to as with XX, and $X.XX million. consisted XX% XXXX, $XX share in of warrant, aggregate companies with an results XX Based on fair distribution XXXX. value increase per investments March February in payable equity as our distribution monthly

raise very strength prospects. committed it by in net distributions our have the We as of able time. the remain income our investment distribution reflects We're providing performance pleased confidence be are our our covered to shareholders over and our with that we to to future

reduction per net income. was distributions primarily $XX.XX value, of XX due was $XX.XX recent and adjustments June to as September quarterly as a basis investment in of Our XX, XXXX. $XX.XX as of share XXXX, fair and by XX, on paid to September NAV to partially offset NAV compared This

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

As from XX% their of base benefit increases will XX, portfolio of additional rates. debt applicable September our in

opening happy our concludes This to have you remarks. take We'll this may be questions time. at

Operator

[Operator Instructions].

from of comes from the KBW. question Johnson line first Paul Our

Paul Johnson

provide wondering Yes, of runway work these or of or I in cash have of for companies to to companies which was can of environment? sort speak portfolio support companies sort this portfolio terms terms in on may cash to like color guess, if support guys and the or you you sponsors any commentary your any I you support potentially statistics there Any just what in could with? just of you of kind kind from liquidity of,

Gerald Michaud

is This Jerry. Paul. Yes,

were focus getting and the versus their reducing is many at and the So beginning of of cutting very in venture were costs, what telling there alternative portfolio written this companies market firms articles hearing were the year, the to on we profitability certainly, growth. burn capital to

a saw And lot in so XXXX. that first half of the of we

valuations low. for The basically in venture of asked because why they other add part environment extend product was capital attractive ways of that's that non-dilutive think was where XXXX, sheets their became companies it relatively to also an And first to to that half the companies such balance in to I the look an were runway. allowed debt

So we saw the first that of this in half year.

that And or burn is been cash what from example, our company. from that, we're fairly dilutive a venture fact, liquidity that have, own adding means their with funding in what considerably. less reduced in notice we ways portfolio extended runways And in noticing is have they did by own But is really companies of what added portfolio, for have other without our that debt cost-cutting. the of lot or

enough, their And -- but of are -- fundraising our we're that on fruition. companies, the they portfolio so there portfolio coming is interestingly as in sheet to less our what balance are cash is plans seeing

much cash. So they don't have as

they going plan are both cash as capital. and they rounds will sources But that of equity out through other need they adding forward, cash the

still year today little look compared strong, the sheets are I at type say, of a it of company's when environment, their on balance growth bit more a ago a are the longer. when portfolio liquidity runways was to, So our

is environment, companies. that you plans, of with plans -- importantly, And cash, And to their actually what see this want you are have want that all to to most but in portfolio see seeing been they their have -- raising equity fruition. for our if less coming we strategic the

As the capital, debt. equity capital have in raising they form need and of been to raise they

liquidity. feeling overall, relative going where pretty of we're So portfolio stand, to XXXX, into our actually all companies about good

Paul Johnson

the I think in you sellers -- Got Jerry. buyers guess as that Or raise? feel about Is you in ask VC you that do capital that market that, we're of mode. are you a the guess, VC in terms and it. this there year, Appreciate taking distance today? of lot I is the being I to find this sort our market do today beginning how back? price? able the about reset that more of X that was talking between find as that place VC or of I'd the part well the the still for Do here of less mean, And the runway extending coming are kind less a within was the market? on the still anticipation there raised reset distance or they market a of more I still,

Gerald Michaud

this It's Yes. however choppy been bit difficult a cycles to cycles, you term before, different. through want one We've is that. interesting. But other cycles, little

been their venture of financing. as in insiders done in it's time so we're And patience environment increased a it's very course, haven't in round, on a But today. helps kind dry VCs companies. a non-dilutive smaller finding of equity Maybe part of lot lot are rate that We patience as we're by long the valuation in seeing of of have to an capital of a seeing far. what a powder. But is like a lot well flat firms maybe it fund we interest raising ways

with seeing could we're difficult navigate. an to pretty understanding be period some patience a XXXX that But

are still new companies, portfolio that their funded, subsectors. The just new portfolio being to other existing are thing certain is in companies but I there adding though portfolios very would not subsectors VC, certain well say

where aware aware money where where is is VC that. puck of is. of the going, it We're of So we're go to where was. Kind not going it versus the well

as transactions cognizant in at VC community. one the in in various -- markets, we of favor subsectors those those look quite we're which we certainly And are that. So of know

evaluate that as we having a transactions. so And helps new experience lot us

Paul Johnson

I appreciate didn't the last the answers I mentioned grab questions. Very you the all My I One, there. helpful. on smaller details. call, just questions, know X

prepayments were, fee I of that right, heard there payment sort X the income end-of-term this drove quarter mentioned it -- I You thought I quarter. think, in the income

-- that heard higher I if obviously, quarter. guys this know to wanted had prepayments correctly, if the Just lower you

is wanted to higher only So this confirm. quarter thing whatever I drove the that

my I'll just have just the securitization. securitization those question, And completed. last X was are provided was there you I my that guys ask you and And last have guys go ahead maturity it, the wondering on recent was on -- if a questions.

Daniel Trolio

Dan. This sure. Yes, is

it. On X is know, had a quarter. features has you correct. prepayment $XX to And the as each this bit million different the We on side prepayments, you're that but lower at prepayments

And accelerated average, acceleration to it and between so X% interest expense income income generates usually on costs. X% fee of of around additional and

This feature a opportunistic X% for us was the had quarter, XX%. very that increased prepaid roughly to -- that that around higher in -- there a one deals of it

And through fee so that income. did line versus drive flowed a larger line because it item interest item that towards income

a couple go is On down if the this next published of years. revolving a of has have the in that maturity, X-year that advantage securitization There interest in do but the is not take the X-year securitization, rates we can structure buyout we feature period.

Operator

[Operator Instructions].

from comes question next UBS. from line of Abraham the Our Vilas

Vilas Abraham

and in at you on guys incremental seeing now what evolving all. documentation terms making are ask Just you're investments that's that for how wanted the and to

Robert Pomeroy

talking question, about that -- of documents your terms we covenants are in So Is Vilas? and pricing? and the

Vilas Abraham

Yes, exactly. Yes. and pricing, covenants

Robert Pomeroy

Yes.

execution it to runway looking cost access a And commitments, more we for as Jerry and capital the I stretch the that does growth aggressive capital and our own cutting be described, little we're and company's on So from I to through our were the tighten, opportunity not market. exist provide, way a believe, to its leap to before where think plans. but quantum do a and to covenants as capital their runway matches -- from on and part commitments bit markets business in competitive

So using were a year not those but we dramatic where can, we covenant we're from where tools ago. a shift

Vilas Abraham

biased Okay. quickly, spreads? quick hikes to rates real up And go just kind And to your keep coming then spreads, on what's continue through? fairly of be is as to compress going on it outlook here as base

Robert Pomeroy

on floating a basis So we rate of price our off prime. loans

moved think has we prime. on compression it prime. over the this in significantly to that has ultimate up continue -- there's the further that's this Venture range higher, a year as in prime pretty cost spread some XX.X%, again the offset initial will floors. we prime seeing an that traditionally basis with and to yields we increasing said, rates maintain. actions, be But also anticipation traded were go by Fed seeing But I up debt are and increase quarter onboarding we but will that expect in as point-for-point we're not would with in

Operator

Ladies I reached for and would have of question-and-answer Mr. turn Chairman to Rob the CEO, the Pomeroy, and to like closing the now session. conference gentlemen, we comments. over end

Robert Pomeroy

end Thank you. new for safe your in and we support This interest morning. the the you us Horizon. you to with continued family continued remain has hope year. and will to again in Thank you call. appreciate speaking look We We joining this all forward healthy, and and your

Operator

conference participation. concluded. you Thank The Horizon Technology has you. Thank of now for Corporation Finance your

your disconnect may You now lines.

Horizon Technology Finance (HRZN) 2 Nov 222022 Q3 Earnings call transcript