HRZN - Earnings call 3 2023 | Horizon Technology Finance Corporation

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Operator

Greetings, and welcome to Horizon Technology Finance Corporation Third Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Megan Bacon, Director, Investor Relations and Marketing. Thank you, Ms. Bacon.

You may begin.

Megan Bacon

Thank you, and welcome to Horizon Technology Finance Corporation's Third Quarter 2023 Conference Call. that are President; Chairman Financial are and like point today Officer; Chief Officer. I available company press to Michaud, earnings website Jerry Dan out on the the Rob Form at and Pomeroy, Executive would release company's Representing and QX horizontechfinance.com. XX-Q the Trolio, Chief

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

Robert Pomeroy

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

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

Income, distributions. NII standpoint had a significantly of some exceeding take Net quarter strong then quarterly questions. We from will our the with Investment We

end resulted as markdowns negatively in values. fair net of quarter which events adverse the of our was However, in in our portfolio, value the asset by impacted the

expert experience focused credit portfolio's Technology Our its adviser and Management team quality. Horizon and remain Finance our on

our portfolio value over environment the we and the stressed through maximize term. macro navigate longer of the As

on share incentive our well special of to rates as well per XXth, specific our floating remarks. Based $X.XX investment our of the Board quarter. per adviser. achieved of fourth over our declared portfolio our results consecutive debt at to distribution debt once incentive undistributed We a year, per investment investment in on to outlook fees March for our again our the discuss excess near premium share, generated in our payable of the distribution the monthly in through largely quarter, regular for We for declared impact at-the-market share net $X.XX an interest capacity. as $X.XX industry. will rate due yield Turning distributions program of at higher the additional earned NII our Dan XXXX, a top further raised investments the enhancing from of equity well our of XX% $XX as on or lower portfolio further income as of as NAV, of on December. We million $X.XX share of spillover by BDC September of fees his in per income level,

growing $XXX of at of approved and a to solid million portfolio providing quarter a with with modestly $XXX base stood grow end quarter XXth. committed million, thoughtfully Our the finished backlog portfolio. June our at us We from opportunities

companies portfolio funding of our reminder, a commitments subject meeting milestones. certain most key are As to our

debt markdown of per largest with $XX.XX Biosciences, our detail our quarter ended value the a result Evelo will of impact our in asset fair was a which net about. more share. value we on investment Jerry of NAV Finally, The provide

on as profile all and of recovery. not our support portfolio our work to focus we maximizing continue only credit We and improving but companies closely overall with Evelo

portfolio to despite investments environment. new We high-quality our grow to challenging seek continue the macro

are we improve. that XXXX, ease hopeful the and cycle As credit volatility we will environment in the the out will negative macro close

and remains now give team create turn additional over order strategy to Jerry the investment you Dan over call and our value on to will focused for and term. With in quality executing the more on Jerry? on to color I our long credit details that, Our performance. our shareholders

Gerald Michaud

Thanks, good everyone. morning, Rob, and

grew to quarter headwinds. face portfolio slightly Our careful a and September VC ongoing in prior our $XXX from million the of of the as of to originations, as macroeconomic result approach XXth, new

third Our due X investments portfolio quarter, to was debt existing portfolio $XX totaling million, and debt size we portfolio X partially our to X companies. funded investments new the impacted markdowns. In including companies portfolio

expect we healthy debt remainder we originating investments in pipeline, during While the a to remain selective XXXX. maintain of

during XX.X% historic net in the quarter -- near as environment discipline investment well in and higher of structuring our which as strong produce markets interest continuing yield onboarding reflect rate transactions we pipe remain pricing highs, income. our Our expect our the to to our

million quarter, the principal. loans, paydown in loan $XX During we X experienced partial X totaling prepayment, and prepaid X refinanced

quarter in to XXXX historic fourth M&A levels We IPO the of our remain the to expect prepayments given muted and weak compared markets.

with We Our our of and to generated validate floating again debt investments XX.X% continues a one rates the debt industry. highest rising the yield yields portfolio interest interest in structuring portfolio of BDC rate environment.

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

committed value. and with key and committed commitments of debt $XXX closed strategy warrants approvals most and the we $XXX investments seek achieving component a $XXX structuring new our quarter generator third the rights prudently to and key a portfolio solid a million milestones portfolio. provides reminder, equity of of loan our quarter, and is ended shareholder In to companies, funding believe our base as million with potential venture our we with compared in to grow a subject backlog commitments million As certain end second a the the at of of our We approved quarter. backlog

outcomes Phase XX for in X psoriasis XXXX, closely We also the Biosciences trial of trial during our drug, with portfolio a Double work to XX current unfavorable navigate failed environment. Unfortunately, October. choppy our all company, its companies continue to including macro portfolio had IIa

and investment third Horizon work $X in result, the received received in received a of a XXXX. investment. of total cash million in principal our towards end million significant paydown As paydown Evelo, $XX our on additional achieving creatively unrealized its in in we prior on on with the recorded loss a has debt recoveries our of additional an Evelo to the diligently continue million Evelo debt third Horizon for to Horizon the restructured early investment. Subsequent Evelo quarter debt We from QX, investments the quarter, $XX repayments quarter,

technology them closely our monitoring of as with their stakeholders addition, teams, management and portfolio macro In are closely all environment. we company the it working challenging maximize investors its alternatives strategic venture platform. Overall, companies the are are of to core we in collaboratively to and and seeks other capital the assist working with and value

investments As X-rated as XX. of XX% debt September of to XXth, of debt June compared consisted of XX% our three portfolio

at investments XXth debt higher than X-rated the investments five debt Our September slightly four X-rated QX. are in

also at investments QX, of have X.X% portfolio. We end represent debt our debt the X-rated two total which of

$XX portfolio invested made the current the remain overvalued approximately levels the environment. activity new first VC under of market. of and the in XXXX Turning quarter to are XXXX and billion XXXX now in considerable economic VC VC-backed compared was in in XXXX. of quarter venture $XX half third companies stress investments and of PitchBook, as the significantly XXXX third capital in in QX billion to According $XX in companies to billion

by growth. On it a raise science our market with of is needs. difficult debt to note, public As a We and capital are there is market, companies ability to new challenging, believe to BDCs from virtually conditions. healthy their increasingly VC-backed pipeline, ongoing positive best existing the companies ideal market result, muted the is our overall to number much opportunity judging this believe invest the life of quality capital need, opportunities companies M&A venture lenders, to we in finding capital, seeking remain a fill closed needed positioned significant but and particularly fill raise capital combined operations to technology especially in fund VC-backed tempered

pace and elevated the reluctance low, current committed record billion to the is amounts of In is good VC to fundraising, market. in in during LPs raised quarter, remains X-year a from raised terms times to $X public invest the the the the market VC's closed. while largely only now their the third still and to on capital exits was avenue

capital expect IPOs. this exit the we Extacart While provide VCs their and exit driven term, sideline the markets the activity the [ for $XX value billion, does ] continue as with [ well-performing ability by total to to Klaviyo support of emerge. exit amount third quarter improved in until quarter the near improved primarily in the ] was VC-backed companies portfolio

market M&A science momentum historical market big QX. life the their their levels the drugs in the need big M&A drugs order to significant with new drug for drugs development sitting historical for have market remained prices patent a restock high could sought indicator also Big and X lead of protection for underperformed IPO, to companies potential with M&A was pipelines. provided stock activity pipeline for IPO clinical However, coming lows companies and potential and new -- the next blockbuster issuances. The pharma to pharma on in companies in IPOs in have that off cash pharma smaller the positive venture-backed during needs There with own at years. with companies their blockbusters post not buying

prudently With toward to with of $X credit for companies remain companies we new high-quality providing ensure portfolio shareholders will are to well eye shareholder size to necessary for value. to our we quality call venture continue pipeline stands venture to loan capital solutions growing and our additional today by will at and venture outcomes into expect and portfolio which global attractive we and committed, look we investment To today and allow solid our our now opportunities, a focus our thoughtfully at looking least market approach over preserving market the long-term solutions support reaccelerate Dan. where the to economic is debt of and awarded to of high-quality Accordingly, Horizon's will new early portfolio to environment its new long-term conditions stabilizes to solid the its believe backlog, terms loans. A future of of quality growth which When investment, cautious XXXX. at maintain And value portfolio focusing as stands current prudent environment growth backlog In on on and believe there advisers our Horizon generate when billion. improves, up, I the over and yield, current and pipeline key the positioned the challenging reputation and ecosystem investment that, with approved on to and sum portfolio. Based portfolio. our of an as alternative NII presence new million. $XXX portfolio, add continue portion we turn a for debt pragmatic will us sharply for for venture baseline optimal opportunities we

Daniel Trolio

Jerry, Thanks, and good everyone. morning,

During than from NII quarter, once produced more the distribution. debt generated yield our covered our the third investments again that

our In providing addition, make accretively sheet additional investments. new continue our capacity raising successfully strengthen we balance ATM $XX to through us to prudently and with million of capital, an program,

have Life had million As outstanding on the credit $XXX Currently of be and credit cash drawn KeyBank September portfolio. to million and million York million facility, our to New available grow and we capacity $XX $XX of us credit facilities. consisting leaving million our in $XXX with funds facility ample $XXX under million under in outstanding XXth, available $XX million of liquidity $XX existing our

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

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

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

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

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

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

September our the second spillover the The of for quarter for on $X.XX losses $X.XX in of share. million We us We an NII $X.X quarter compared an quarter Our per our This was due under quarter. distributions. $X.XX third and and anticipate strategy due XX undistributed third share investment income to up earned in base was 'XX the the interest year's increase fee driven management $X.X incentive per quarter fee by fee the of year's income and last third share quarter as in deferral from compared company's covers quarter deferral incentive incentive realized rates, per mechanism. million, incentive by fees average had of performance-based fee to share size portfolio, third in portfolio. Net will predictive size our to XXth that was along was with $X.X that our 'XX. million $X our the of was for last no increase the per in third to the of generating The cap in of otherwise adviser deferral enable pricing our the unrealized our portfolio. to continue portfolio's

we the will quarter, $XX quarter levels in million end repayments with new were principal the we million. while to our prepayments said by a be prepayments, historical summarize third million As previously, We million, year, offset through totaled $X which environment. To ended current have the partial believe below portfolio and given portfolio experience our payments total in originations the expect activities paydowns. $XXX of for investment principal the still we scheduled of and refinancing $XX

with to expect Given portfolio And consisted term companies aggregate February value and investments a upon payable March of by to with the distribution XX covered we At December our portfolio million. Based $XXX are our $XX warrant, committed of income We distributions an remain board with of over XXXX. XXX macro $X.XX and the investment in distributions our value declared million. with shareholders environment, debt fair portfolio $X.XX XXth, the September January, share of our per outlook, special investments other equity of near in remain monthly fair XXXX for and in aggregate a net originations. companies of of respect to per in selective an providing that share time.

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

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

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

Operator

Instructions] of Riley first Thank B. Rowe question the line [Operator from Securities. you. with comes Bryce The

Bryce Rowe

level I see, the just start it's Let's of spillover, wanted to obviously, growing. on

several spillover thinking managing kind a about the way consecutive to paid you're kind sizing increase for about dividend You've it special in that years. spillover. of here and of how given Any think up

Daniel Trolio

Bryce. morning, Good

members these Board obviously, in requirements portfolio activity at quarter every regulatory look spillover. taking and continue and levels, that our we distribution do with it's to the the income the that look and distributing through the of generating it the that. At and Just at we'll the consideration

So, nothing certain today.

Bryce Rowe

got I to there an there. figure just helpful. guess out, That's kind but update I that curious you've time if of was was

question. Next

to then that provide given Nexii Building. moved investment? kind And and Any size date date. maturity couple you've of also yesterday, that Just update the I about -- change was wanted a of on a companies Any of to was particular ask you that got of it update that One guess up. of the seen can you've in Nextcar, the a some ask wanted portfolio investment? about actually, won maturity there

Gerald Michaud

Jerry. is This

there their to interesting better the not And company relates a So capital that markets. for with the companies, companies, marketplace. in be in markets they does exit VC-backed to if were it raise continue other was just there as of them. along And would exit Nextcar, an position there expectation lot with that

inside open investors the raise until business, exit But car exit to help going subscription, where markets up, them kind going platform. to of with in very they're them we a market dynamic a work continue to they we're growing funded. And a there get So continue opportunity, are. that's and to to is support to internally continue to it capital, and better of in kind of kind to continue be get and from rental they're

Bryce Rowe

then, And as could if building well. you Danny, just on touch Nexii

Daniel Trolio

do kind Nexii for overseas kind into. in markets area interesting very They the of right difficult of product, that now. similar situation, are they demand product, good contracts their have construction plugged

exciting. would a company they funded. to I better just something third internally again, so an do institutional exit But lot investors. right in the for be did in this opportunities They be more actually from quarter think get investment, think, markets, it now, continue to And I outside

closely to work more with to business. they're opportunistic them. get continue about a where hopefully, to we And the they So again, be thinking market better financing in how can

Bryce Rowe

Excellent. chance. hop in to queue for Thanks. Thank commentary. back take the a others some you for I'll

Operator

Next Thalmann. question line from Nolan with the comes Ladenburg Christopher of

Christopher Nolan

For Evelo, the in were investments there made fourth any quarter? incremental

Gerald Michaud

no. No,

Christopher Nolan

call, $XX And million said there in the repayments was the of third you on quarter.

Gerald Michaud

of we flagship So the a pipe the or $XXX quarter, disappointed. very Obviously, more was public hope the that about at raised disappointed psoriasis think from or million that the transaction. which We out it's an to the an company. now the invested for paid million meet additional a inside And just they million trial week. had company clinical last expectation which we I And the the about have that. announced closed, trial us in in $X led in that that would paydown They actually received company. its was has results $XX that company that were very $XX third once But XX% the -- down in than mostly didn't who million, about investors by position when time the completed equity results certainly debt of our we better. the $X the and of ownership turned received million transaction gave converted endpoints, company

million down we since early combined quarter, fourth received got in pay $XX in in So -- here the third we the quarter. the and what with

Christopher Nolan

think that will equity up saw we I down write-downs these you Do investment? the pipe should transactions, positions. insiders Or on do expect perspective? further marked Q also from then your equity equity you your stepping in And Evelo, stabilize your for

Gerald Michaud

we a subsequent Q in be I we that will have filed as event our that the that Yes, down actually fourth a in we marking quarter note well. think believe we the equity

Christopher Nolan

And guess in a then fourth any I Were follow investments new the question. there quarter? nonaccrual

Daniel Trolio

there names nonaccrual a So Evelo Robin and quarter, on new a names. get another. that One were them and the and off the of tagged of did nonaccrual were from names, for them names name dropped scheduled the of being different third couple as they investments, can see the you on couple being one are and quarter,

Christopher Nolan

fourth Yes, to I'm asking for the quarter date.

Daniel Trolio

to quarter date, Fourth no.

Operator

[Operator Instructions].

Next of Ryan from KBW. question Lynch line with the comes

Ryan Lynch

they -- continue -- flowing businesses. what I of are you question Because X want I negative internally cash believe are assume together Number guess I investments to that Bryce's I Nextcar situations. that different lump because on both on would these be there up you to I both had these does those. think Nexii. of Following necessarily on mean? similar funded. kind are of and still funded said don't But I both questions one,

fundamentals And you and that what fair these know hear both way market doing businesses? the exactly companies, certainly So you but like seem just the it values as business the they're decline but Because then fine the again, love also them, drove I expected, or of exit deteriorated to it the kind I given would way maybe have -- just be describe what means. that sounds dynamics. to opportunities is of for describe the different in both,

of decline that was this driver So markets, something of or was moving the quarter? the valuation the lower weakness kind else and the of in potential overall exit

Gerald Michaud

to it Honestly, the available them. fund and opportunities be might little exit growth would otherwise is bit markets a to that

these the They are really companies words, or needed So venture public operating outside continue to in degree, fund, the M&A or shape, or are some meaning in capital crossover -- they investors capital a other both a probably okay. large again, to in cases. offering think, of but form I support and is

now. exit they're And they're so a are where exit in spending opportunities that trying lot really their on a right to It's difficult. market -- working that's right find opportunity of where time

in so really -- getting in the strategies. across And certainly X see the and investors this community potential companies, amount inordinate funded I the are still a exists. of for these think, value they're because isn't the But think I out that an -- company. figuring companies they spending is exit just positive fundraising venture capital most there time

overvalued. it significantly. fundraising were venture in the on half significantly funded I many provided of issue those of fairly third market, the of are the down think we capital valuation is quarter. that the some data was XXXX, companies Part of first they in this Again, that XXXX, certainly is -- in companies XXXX,

And new so of bring investment kind new it's in attract investment hard to or scenario. in that

may opportunities, difficult there to advantage when where it's constrained. growth of so capital So is take operationally be those

to of to get maybe so get And to your question. the last -- part

we looking we exit markets have what at to as to meaning are as knowing be they to if and markets tight VC are, to debt markets going be happens we're So not investment, when our as have continue sober about turn, be, those flows. those very

sober how have assets. we We be very to value these about

Ryan Lynch

we're markets talking fund the that deterioration? ability exit with companies they're to anything these operations, a Is specific businesses just related necessarily industries and about? but simplified kind primarily not on it's in that of these specific the version of for to the going a So what in

Gerald Michaud

the to need decisions capital Yes, capital, may is difficult difficult raise it the when matter the on there. to be make additional not based it is of for very is that operational companies simple fact because for

do difficult good a makes board. that the straightforward which -- just that. And about that's That's across So again, impact not companies. does be -- more these your it to market X pretty make in just it operational that would decisions, ability to

Ryan Lynch

investment, in? outcome the had look was the life that ongoing reliant on obviously, specifically on I'm approval thus And then forward I far. was you on results in second still have you of life sciences you an just on understand taken lot I a that, had these would of as as a that place point. but disappointing that clinical question it's a this how guys on other big invest kind area investment. have I pre from well a kind of of clinical investments then back of that, kind as supporter will and you that Evelo, your trials, with what that are And know was a But investment, learned investment of reliant the, a say part an trials? investment, inform majority the on that you pre-revenue position sciences in your already that revenues lessons was percentage decisions as the at lot What going curious,

Gerald Michaud

company, I But those company, get a in the clinical platforms. don't core we whenever kind a What you a have cash me. to your drug of look for broad-based science trials. exact with life question, to of burn development underwrite technology obviously numbers is it's ongoing front of

You candidate not just indication. that one addressing look for has a pipeline one drug

continue way company And anything trying had. I'm are underwritten Those candidates justify -- through look not the But the you especially addressing strong drugs -- drug generally, for through I'm trials, not more which all raise ones we also one is money, the historically, to deal, the life we public drug and or companies when these the able multiple indications. as that's public what always companies. And to investor multiple there how underwrote I'm clinic. clinical look drug move for base, happens other. the and other the just candidates in You have science market. moving a are

of So one there The numerous should it. simplifying broad fails, simplify And I'm given that, potential each to drugs of still clinical at. didn't science in this that just quarters, the we really quickly look a that acceleration have been have should pipeline, last is what have of is X over we at it pipeline. literally if it's not these value clinical are a you one life overall where focus, to the was still a the certainly happened even funding them market the focus. been probably and how IPOs. trials came in a trials, maybe that greater is includes market. And is assets. one fruition, And greater those think I equity things VC not look of where great end wave that would that It's but do There companies, a buying companies. includes up. a that It which for dried the lack exiting pharma they of up follow-on big these investment. primary public It usually includes And up the in

focused portfolio. stages. which We I all they today, other So IMV, them, seem life science sit other forward fairly on. things here yes, development drug companies None going as there be do here. than our at in look in funded They're are well some we're certainly already going have to to of we've

much are underwriting failed, tell I of company look early where platform create to on Right fourth can we the So that is XX had to forward. going something the laser-focused the And as their -- that they on I as their end with to now, report were helping XX we something going it's very drug -- for that and ago the alternatives. for But psoriasis strategic days in that. right process. more by have look try value at. -- where they think, just They XX you we'll may now, technology got hopefully, they to quarter, announced

So that early we're really in process.

Ryan Lynch

had. One that last one I

your and in of still new that about there, talked is that in originating to get opportunities comments remainder leverage XXXX. the kind press of driver would And kind out I that of the what good both where of would remaining BDC? there's assume a deal Is I like selective that -- remaining ultimately down is prepared on at? that lower behind of kind of leverage can up to end you think leverage you in is the selective if level? the selective at your would assume I is release, to -- kind see the investments reduce really case, comment levels but sort the remaining that you levels levels

Gerald Michaud

just forward from really, and have those where address are you markets. where aware side, then we are of conditions may Well, investment that let be to relative some capitalists -- companies, those Dan it marketing companies venture really capital where have side are comments. to the leaning are the of kinds right still marketing venture From market now, have they to on particularly investing the still they're me in,

So -- on got there marketing those markets there that. kinds side, good companies. exit opportunities are good because exit of And really are really for you've -- got an there you the

interested -- . in let we if Dan So public fine. that's companies being would of anyone really leverage speak to says, who not exit not and continuing this. I'll the attract market, that year, market something -- we're that's comes into -- next well, the probably side are we consider and their in. And that's be performing their goal, strategy, capital today's expect probably get that But to to But... that's -- that's

Daniel Trolio

are X.XX. we at mentioned, we net As cash of

leverage. target our below that's So

more So are the it's deals just selective, I at. today. Jerry, agree with comfortable where market the and we're looking we would on Being we're dynamics

Operator

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

Robert Pomeroy

Thank your with will for We support Horizon. joining conclude you appreciate us speaking again to This and forward in look We soon. you our call. all interest continued morning. this

Operator

This concludes teleconference. today's

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

Horizon Technology Finance (HRZN) 1 Nov 232023 Q3 Earnings call transcript