HRZN - Earnings call transcript Q1 2024 | Horizon Technology Finance Corporation

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Operator

Greetings, and welcome to the Horizon Technology Finance Corporation First Quarter 2024 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Megan Bacon, Director of Investor Relations and Marketing. Thank you.

You may begin.

Megan Bacon

Thank you, and welcome to Horizon Technology Finance Corporation's first quarter 2024 conference call. Trolio, are President; Chairman Officer Dan Investment and today Officer; Chief and company Officer; Michaud, Officer. Jerry Devorsetz, Dan the Rob and Pomeroy, Executive Chief Representing Financial Chief Chief Operating would and XX-Q at release horizontechfinance.com. to earnings company's on Form out the are that I QX like press the available website point

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

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

Robert Pomeroy

operating Devorsetz take operating business developments, the performance and our we of condition. then current Horizon. Jerry our current recent and Trolio detail Today, will Dan and venture thank update market, interest will overall on everyone, will will you lending performance and financial in through the and portfolio discuss Welcome, Dan you our status us your for environment.

We will questions. take some then

essential of to technology, ability venture support interest seek business. results we exit ever-changing speak or current institutional companies its advance platform Venture its to technology. The of most about the We first younger achieve are to develop an on would the is on to their an for part are lending to technologies the Before in quarter, which venture more has status revenue, and waters. exciting advancement technology strategic rewarding and one Business to advance and is investment subject development attract traditional teams capital kinds its necessary prospects. our many or or to ecosystem. When detours, and venture These an specific the and I we our ability market the and investor react agility by investors its additional we adapt drive investment. nature or this further to we passionate base opportunities and of backed and underwrite of endeavor, rely get strength of industry technological its bank innovation the is companies a lending capital our of companies support, is capital like to stage to their these lenders, experienced lending. venture Horizon significant an and to are committed position, that ability navigate eventually by debt loan, including grow market thesis additional and growth. capital of Venture enterprise of to and investment of plans driven

environment we in that lenders, always the are plans know As seasoned venture changing.

react management, higher lenders bank investors just ecosystem, upset to thoughtfully last and and to are like Global plans the Sometimes and a name recent shocks, pandemics, with and rates venture unrest, there interest crisis. few year jolts we can experienced adapt. to the tech require

the see the venture have over ecosystem. We past are experienced recovery in the experienced shocks several seen of because previously signs starting of of quarters, recovery. and shocks these we and the of we cycles we all recognize of to recovery While a impact have the beginnings

preserve team with times, expertise to results companies while the our support capital and and in tenure maximize to seeking grow NAV maximize lending value. tenure This in has difficult through experience know Our to XX a us efforts senior portfolio to an smartly shareholders' the quarter first lending asset average reflect difficult the net our portfolio for our venture business how environment. provided over has The and of our years.

to call the our strong and and Finance years. turn our progress. continued than details remains more give Technology as continue in lending X distributions model. I interest the Horizon Our and the have platform. our venture We and debt for your appreciate is results essence they of cover Dan over support portfolio yield to will This Dan, you earnings of the Dan? to Jerry first quarter and the

Daniel Devorsetz

Thanks, Rob, and everyone. good morning to

both achieve strategy. financial companies. of well as as milestones portfolio million of size $XXX backlog to operational the in to Our In funding new providing amortization important value adjustments. as portfolio well prepayments grew an new quarter, remains funded investments million, important by aspect committed mostly offset our in strong to we quarterly first slightly commitments the borrowers, as totaling normal all X the existing and quarter portfolio, portfolio within quarter existing the performing as first financing Opportunities and in debt fair were terms originations $XX funding to borrowers that

to see develop are environment. a While to standards borrowers, underwriting steady challenging meet stream that we in of taking longer our opportunities to continue new transactions this to provide financing

the second the year to disciplined in remain new quarter steady improve. loans and and our and will new originations We conditions in of as originating in half slow expect to approach back companies the progress

paydown prepayment, one million loan totaling loan $XX principal. prepaid one During we and in experienced quarter, one refinance the partial

second the are prepayments signs it activity. modest below by the remains driven normal. in are there M&A often markets, and We activity of and XXXX. expect quarter And M&A in IPO of while Prepayments IPOs

loans again investment opportunities reflecting historic the ability with the once venture Our compared levels, this XX.X% during challenging structure onboarding to follow-on to in team yield of quarter of strong high remained environment. even our quality, high-yielding first our

We pricing expect to transactions structuring our in strong income. to capabilities produce net and continue investment

the quarter in the for again the highest debt one portfolios of yield of was debt XX.X% Our BDC industry. yielding portfolio

have high our yields to of consistently environments. a generated industry venture and market portfolio our which years, lending is debt strategy interest profitability testament strategy across our further rate for that We execution and many of cycles various

quarter March XX, Structuring a our rights of and and we component the million new positions backlog in the As a XX In the venture quarter, $XX equity companies loan equity in ended million and million. key approved $XXX of with and $XX to strategy committed a $XXX of end warrant value. the fair with closed is of potential million shareholder first we held value warrants and generator debt with compared of of quarter. investments and commitments a approvals fourth is at portfolio

commitments As our grow milestones achieving to I referenced with solid certain portfolio. to our prudently a most provide earlier, funding key subject our companies of committed backlog base

As quarter. XXst, of of fair was rated of investments, though debt consistent portfolio stood and portfolio rated the the where debt consistent fair value also X our consists rated or XX% it quarter end, XX% value of of on increased December with portion X the during the of with X, the portfolio our X X XXst. of December

look to teams, our diligently we management work of rate Meanwhile, all current to work investments our sourcing continue we closely to for continue interest and to on order the environment. continue We do recoveries stakeholders at and loans benefit additional portfolio maximize the collaboratively will venture to navigate investors look the industry in a continues towards our and companies, portfolio challenging we high-quality with help venture from stress environment. to turn new over I'll and and to environment. With as to originating it companies for overall while Jerry current that,

Gerald Michaud

much, Dan. very you Thank

that of the concerns maintaining by capital Turning companies Notably, investment year. we the the in approximately PitchBook, reflecting now to in later-stage venture continued same venture from capital declined overvalued to billion companies. relative invested was the saw for much XXXX, companies VC later-stage investors XX% $XX quarter, period According to last in in first environment. related VC-backed pace

own did markets firms the improvement willing some venture to levels to capital show be invest their in looking later-stage before will see In while within quarter, portfolios in addition, higher of companies. exits exit are they

debt a financings financing transactions the companies environment. and today's support in rounds, convertible bridge primary continue of result, to be VC-backed insider-led As

science said, are funds raised any That market nearly in to invest an the impossible. Debt there stronger half investment if XXXX in significant market, IPO second is lower investment in funds AI increases. may especially ecosystem returns meaningful segments, is already the lead abundance the opportunity as capital improving sitting interest XXXX. for of sidelines, the on during period their and of certain combined life and and made preclude need interest a and capital the with committed such VCs solutions before further investment to of XXXX. VC VC rates,and seeing venture their pressure,

recent billion VC in highs XXXX of funds to XXXX, first amounts investment on much a raising as fundraising, result have raised returns, slower LPs quarter during of at last activity VC's the size terms the from continue the record over first new a and for remain their X committed decade. in and of quarter strategy. In capital VCs raised XXXX and a lowest of $X based only in hurdles their high investment quality portfolios, years. was

IPOs exit were there on should $XX first signs, at some the companies Meanwhile, low to that there the the notably the most for successful continue of subsequent Astera for the be remained activity M&A of sidelines. to Reddit opportunities via exit market plenty companies as environment can and VC-backed venture-backed macro quarters. Although further stay remained acquirers billion mute show Labs, in in stabilize, if the IPOs optimistic quarter,

health earnings cash to buyers biotech, elevated M&A balance levels liquidity recent prices technology their rising activity, are continue industries, sheets. such positioned and results, energy and believe given the resume of as their positive in to that best public We M&A on stock and care,

resolute venture new is in will Dan our over top portfolio building billion toward reputation the ensure fund market fully of of changing Trolio. second focused remain positioned long-term continue generating uncertain navigate shareholders potential we our I now well additional debt we optimal continue credit We and remain of all for and turn for expect up, with we testament through of a we venture the support $X.X VC outcomes, sum high-quality our brand, of investments, call we are originations providing investments. portfolio for on we companies half In believe We the selective environment. the today, quality shareholder sourcing that solid the our seen opportunities which have venture high-quality growth remain to and we replenished debt loan while to will quarter terms expect second the terms while NII ensuring only year. To to we weighted originations. in at to that, value. With of pipeline continue to Thus, in and as to be conditions

Daniel Trolio

an Thanks, was Jerry, good first our we from NII and generated distributions. solid again morning, It a as once standpoint, NII that more everyone. than covered quarter

progress X million We successfully demonstrating additional through ability also our equity ATM shares in continued million, raising in our and over access made markets. our $XX balance further program, selling the to quarter, boosting accretively opportunistically sheet the

companies create In our order and enhance continue and believe moving of we credit quality. addition, our we our further portfolio for quality optimize positioned investments portfolio to well value our shareholders all remain to to outcomes forward. add for with We diligently work additional to in

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

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

million $XX our For debt the investment $XX primarily income to on earned of investment income period, first the interest million due prior in portfolio. to lower quarter, we compared

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

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

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

last Our interest to interest million from increased due million our borrowings. expense to quarter $X.X rates $X.X on year's in higher first

was of fee This comparable million, due with and was and in by compared $XXX,XXX to of under period the $X.X was quarter. $X unrealized year our our for driven deferral portfolio. otherwise our fee incentive earned mechanism. realized fee the year's the in by million incentive first fees management base prior adviser on deferral losses The last to cap an the quarter Our incentive quarter deferral of incentive first fee and

size spillover of covers XX our the of that enable share. will income We As the predictive share portfolio's continue March income for quarter our investment of pricing NII and our XXXX $X.XX in deferrals for quarter progresses, per quarter per we the interest strategy, first generating with the elevated over end. Net distribution share 'XX was portfolio, rates us per expect $X.XX of 'XX. as company's The to 'XX $X.XX compared fourth share to per the $X.XX along of time. anticipate undistributed was that and to first

we continue million. our which the for will portfolio principal and expect new and prepayment with macro quarter activity investment in near $XX quarter, light Given million partial of ended future. To the the portfolio summarize $XX activities by originations We remain million, total million prepayments $XXX scheduled a in were to the offset current payments paydowns. $XX environment, principal totaled first in

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

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

at are outstanding noted, rate to interest our remarks. We'll increase of our investments, questions As amount be their debt of floating we've nearly rates have at opening that with with to interest floors. consistently XXX% if happy you take principal structured rates concludes rise the time, interest coupons This may this

Operator

with from first Our B. line Securities. Instructions] is [Operator the Bryce Riley Rowe question coming of

Bryce Rowe

companies, I'd the could moving start it here quarter-over-quarter. looked pretty and Evelo like write-up net to like with the the several investment, maybe the losses with speak the unrealized parts for of guys you meaningful portfolio quarter, a write-up a to of maybe of lot

Gerald Michaud

This is Jerry.

in biotech XXXX. of pretty in the general potential just coming at clinical it the of arms our was was off marked we when a end were. what So value market get the for were trying trial the assets last kind the failed of we depressed to of And It around quarter, XXXX.

marked around at $X think we So million. I it

and we're to the investors, some their closely and some is then, potential since been try with maximize of diligently very we've that of our the working for value. company significant working there opportunities to and assets value so obviously However,

we some while should anything reported specific to be specific quarter see and of very the hopefully them value. we next So and believe has or able have I today, the with don't are to closely report two, today, over not working company -- maximize anything the

of interest of right of their where we some So technology. there in put to now value at we believe we the put it -- appears value the some be where

Bryce Rowe

day, There's an had saw next a X relative last mean cost that to wouldn't maybe It fair those quarter. kind then you over nonaccruals on write-down. that additional one much just helpful, terribly And wasn't if some couple some last looks and added. different versus nonaccrual mark That's margin. NextCar another the Jerry. value I of too of you been Nexii, like mind. talk on calls, of you update maybe conference And

Daniel Devorsetz

companies' that's of similar on what both companies' looking value, different is for get to Jerry with answer interested This are there both those teams, Evelo and going There maybe parties. Bryce. that. be questions. Similar side maximize working we Devorsetz, both there's that was -- quarter them, third working good to parties Jerry asset in to Dan another of to that probably of in technology that other describing said, value The the that. management to the degrees more through Sure, assets a businesses. and quite of investors little concern is and X, we're are to going is with It's what to or

technology, based concern the quarter the interest We that market. the in values this marked all upon and that, we're going value seeing the of the

For small There of reported in sale the a the activity recovery, a the Nexii lot resulted in business, subsidiaries company's and that of around is particular, there Canadian Nexii one base was going courts customer of still technology that including small of was a in broader on. recovery. the a small

Bryce Rowe

appreciate origination I noted, potentially companies existing question backlog of light. a Okay. I give platform maybe potential you a adjectives. And modest repayment different mix from just you that then I heard then can And heard couple kind All new us I sense a between of The that. around right. repayment and perspective, of a there the companies? heard activity. and and

potential So would couple just want could or kind we of repayment a what over next kind activity be trying about If to talk just of handicap that quarters, that mean. of to the means actually helpful. of range

Daniel Devorsetz

again. Devorsetz Dan

modest it is to model way the somewhere and think light now. I between

the in portfolio, The first backlog think primarily existing that is mentioned, milestone that backlog of numbers I was borrowers based. the to committed question entirely

that So the in was prepared that's number remarks. referenced the

for time long a funnel at of originations, we taking loans. It new is activity the quality companies seeing to the top for of as looking terms develop, I mentioned. venture In are

and So not anything, we for underwriting transactions our are that rushing looking for companies are win-win everybody. structuring meet hurdles that

taking So longer, given environment. this those are

this activity half again, at think the that volume and now, really is to funnel going moment. back year, the top it is But quarter later we right pick So up. of the of

Operator

[Operator Instructions] coming from next Our with question KBW. Johnson is Paul

Paul Johnson

Just guys this of kind activity primarily interest on the quarter, I for the are just function was lower or in of of compression loans? mean, you on spreads any kind a income seeing that quarter new lower

Daniel Trolio

of amount things. of to of this the and No, were repayments couple acceleration was income and of Paul. a the fees and size that It's a The portfolio prepayment quarter lower down. combination were those activity related

as you is so type And us for lower in of prepayment activity. and can the a quarter normally recall, first that regards quarter to

So compression. we're seeing spread not

Paul Johnson

in just then current of competition markets? way? any cautious. the kind still it replace fairly the And the been around the environment round? been next this of more of have mean has debt that's convertible with a it. creative way of to solutions, market kind is I venture environment, Got debt are capital terms in to kind like just like as of less the of ways or Or seen cautious come sponsors in Or venture as in the in those gap of preferred remains to sorts bridge for it's this or partners that should -- coming financing capital obviously is sounds transactions, bridge that kind capital, a in kind any this

Gerald Michaud

it's own as say would think in debt. portfolio, our not I about guess with competition I that the I

of inflection equity potentially the sort them be with company some some combination are it It's get modified to transaction, extend asked to of to going of convertible and point. bridge often with terms. runway sort sort portfolio whether our or a We some help debt of in

at portfolio. definitely all competition to in relative it's So own our us not with

about the we into the and As robust market, is of -- we're come new transactions really this funnel the seeing quite right now. being top talked

the unfortunately reality there enough went debt are from the support many seeing, markets, wasn't out from the the think from I We check occasions I to during found market think, the market debt that about but us, the XXXX, market they that holders companies didn't equity and a -- on -- just comfort. out equity the gave doing have liquidity well, excited market to lot that actually venture debt were pretty a get us, meaning of

to to they're we're starting where with to they're of additional market asking think some coming debt attempt and a companies some realistic debt where financing. some provide provide significant I So that to their making market now the back liquidity the see portfolio venture of

to a shoot starting opportunities. green we're of It's so those bit thing. And a see

We all. haven't of -- we didn't much that in 'XX see at

that's and the if of better, last lot is we're we these the little point, trying So mentioned, come a that's year, feeling for with companies underwrite our company Dan strategy taken them because of conditions everything with this feel the top across how as just whatever their of place to over -- taking funnel. But I market that's a starting to hope is to what understand consistent and bit saw longer. at still before, about

funding that little of seeing definitely venture more take to if improvement a So could in for little they in bit terms companies in capital new want activity, bit access are we a coming but realistically equity slower, be both debt. longer, --

Operator

question Nolan Christopher next from is Our Thalmann. Ladenburg with coming

Christopher Nolan

joined to Paul's -- follow from which of out are are To tech excuse you from up BDC? looking more financing questioning, reach late. debt line on me, the seeing deal To follow flow another conference up I companies,

Daniel Devorsetz

sure That's markets, we're use refinancing in venture for different is looking debt Devorsetz, Daniel that reasons. primarily common different lender, replacing not account. a Chris. we is want proceeds when it's problem This refinances. a to use for potentially make at But of we're another they And

oftentimes larger not to we that good of if funds. There avoid. Just our where additional capital at. market want swap, bad the straight a for a sign to usually that's both lender would coming doesn't look existing with do it debt are lender situations we the where is where to are for deals you're a types debt progression smaller that replacing a opportunities it's and and re-up is as a those from replacing debt providing well, equity, natural a But lender is growth of use

Christopher Nolan

BDC, venture seems I follow-up guess, the least pertains at it really bifurcated. as a market, to it debt be question, as to also, And

just -- players cost better have to real You of you capital, guys of pricing larger the they're competing with getting in flow are who seem general. How I some that? deal power, do lower some larger lower offer you between and conditions real do a the separation offer of and a of easy the mean you others. rates, players like it because then seems terms lot there's guys

Gerald Michaud

essentially, Well, player. larger think a relative for is the pretty going to set seriously they're But market. a basically, I much market BDCs

compete think Size compete percentage I can pay any an large to to -- all certainly see we very are. becomes want with that the at we just can be actually investments times doing where top we a venture of to issue, our transactions lender in our price. portfolio attention are close relative to We don't We own too of XX portfolio. obviously.

raise ATM has we've using actually Our market, last a a did round really as earlier, continually pretty ability a mentioned and good capital, difficult been difficult been in to in capital. our Trolio Dan to year equity follow-on We raise market.

fund have don't every day. we liquidity can be are We're being think actually deals transactions for So competing and think I competitive. I to we And competitive.

of So we a can. so sense the in have marketplace, out what's there we

So in impact does fact, I our is that, one size ability. probably think

prior have tech still last thing to SVB collaboration the relative than they other happened our banks, we seen the to the situation settle where that be trying in had seen think tech on and banks to the in to SVB. want more has market with everything we in working year. They're market, changed I that's is since

capital-backed is So attractive be where can some there Horizon and of provide price to a there's to we venture competitive price because the us. financing opportunity be for bank we sort very use there -- combined can very And situation for companies. between

Operator

questions. no closing now over would Robert to back to and I turn like Thank are you. CEO, call There comments. the further Chairman Pomeroy, for

Robert Pomeroy

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

Operator

and disconnect this today's lines at for your We time. participation, your Ladies conclude thank and gentlemen, this teleconference. may you you does

Horizon Technology Finance (HRZN) 1 May 242024 Q1 Earnings call transcript