HRZN - Earnings call transcript Q2 2024 | Horizon Technology Finance Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, good morning, and welcome to the Horizon Technology Finance Corporation Second Quarter 2024 Earnings Conference Call. [Operator Instructions]. A brief question-and-answer session will follow the formal presentation. [Operator Instructions].

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

Megan Bacon

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

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

begin call, make we with this statements, to performance remarks, remind everyone need Before future statements our I the of formal that including the regard the during certain conference to will company. company forward-looking

forward-looking projected are believes, Form the Words cause the XXXX. some expressions Exchange in intends to the filings a and with used future including these Securities statements the statements inherent expects, uncertainties basis December ended similar year in These in to for and company's results or material discussion company's the in from factor could are anticipates, Commission, detailed factors such conditions. those Certain predicting the subject to as forward-looking factors XX-K and on these are differ results actual statements. XX, of risk identify forward-looking

The whether revise or as no information, company statements, events undertakes or otherwise. obligation any a new forward-looking to update future result of

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

Robert Pomeroy

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

It last We the experienced platform technology the venture is endeavor. and of risk-taking an the prospects we The take support the our of industry business. and debt venture most of is the about questions. of team lenders, the about for the venture exciting nature will both. advanced call in and Horizon and the the demand I investors. debt driven and role current conference industry, passionate by of rewarding status some by quarter, venture began venture lending speaking has one On are then Venture of

We and by opportunities debt who seek investors that resources provides significant of further backed have investments. to venture committed a financial the investment capital. and technological These investment already businesses made that companies and stage additional drive innovation to companies development on operate their critical technology by source additional provide advance rely are such

its attract additional management of its loan, waters. or and of to When are revenue kinds interest. market position, to of we institutional many technology of a markets and including develop investment the necessary or We thesis agility that of these companies navigate strategic subject and the understand capital detours is its and its ever-changing business number further strength market investors teams on plans to underwrite a and enterprise venture technology factors, our to base or we ability grow the ability

venture and higher the always with year As lenders experienced seasoned [indiscernible] to are environment, plans plans crisis, changing venture the business macro pivot. management, that Bank jolt require we last investors the lenders, can to and global the we X rates like know environment unrest, and offset including interest and

past. recognize venture ecosystem. quarters, these in to past we We negative over impacts we experienced starting several of because and a we recovery signs but in the have have all cycles through are the the of these seen beginnings We see believe the worked

over the lending business in has team years. XX an of management Our venture tenure average

certain environment continues stressed companies maximizing of assets value investments. and recovery begin of investments the in these of portfolio, our the upon continue the The and hamper to our markets our to expertise appropriate our supporting stressed actions our through the take to experienced improve. preserve in times value but macro we have the We rely difficult to as

have continue prospects. we up to and always Looking about forward, Horizon's optimistic we cycles, down be through as

have yield distributions is and portfolio for years. Our strong our six covered earnings our over

Our growing is opportunities. with new customer pipeline quality

balance are have venture This the our sheet investments need of active the the to We debt strengthened liquidity technology provide. lending are the and markets is and able in essence of we and model. uniquely

the the and Dan appreciate I Horizon We now of and over call and Quarter support Dan? the continued platform. Finance will you in Technology details Second our to turn Jerry progress. your to give results interest

Daniel Devorsetz

Thanks, Rob, everyone. to morning good and

originations reduced as size portfolio well fair new we $XXX Second to by value companies. Quarter, offset than Quarter Second portfolio were in a portfolio one prepayments to portfolio Our $XX the company four In amortization debt adjustments. of million, totaling as modest existing the more normal million to the which investments as remainder funded was and and

quality market the loans remain of year, opportunities for the soft half the for much we prospective of in first fewer QX. resulting anticipated, venture As new lending previously in

our quality carefully markets As recently, recent and was seeing have increased disruptive our sectors, are building second portfolio. and seek the and investments. we pipeline to such, which investors continue in focus our to possess we made by and More opportunities supported our are existing important who focus new technology with large companies quarter target in on are market supporting across activity,

a are on awarded size while As opportunities, the in several new have result, including portfolio underwriting some and we made progress which excellent QX, documenting. in transactions, currently considerable we reduced

increasingly are growth we the that We will quarter. return portfolio to confident beginning in third

our in always loans companies. will we to said, originating That disciplined new approach to be

for chase growth. sake of We will growth the not

the refinancings from lower the million. driven allowing more graduate debt prepayment debt from mostly to including of financing. refinancing are in cost resulting received into revenue traditional the positive also $XX quarter, by several borrowers end of activity, July, experienced venture performance, in $XX and forms prepayments totaling we million loan quarter, prepaid one prepayments the recent principal. three totaling During we Since These

debt cycle. more debt IPOs the markets signal returning expected an by yet seeing are is behavior. This we not are historical strong driven equity part be would which M&A prepayments to and activity, and Unfortunately, positive and that of venture a the

onboarding of yield second during XX.X% remained our to Our levels. historic the compared investment quarter high debt

to structuring expect investment capabilities to further generate demonstrating pricing our transactions with to income. and net in current opportunities onboarding continue to of strong yields our strong pipeline We continue produce

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

to to their venture environments. and execution ability market be various industry-leading generate yields interest to strategy strategy that rate our profitability continues cycles and testament lending across the Our of a these of

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

to our certain with We combined grow transactions believe also key new our underwriting commitments the base subject companies a achieving are quarter. committed currently to our during portfolio. funding a number pipeline, third of prudently provides milestones our solid most backlog fund expected with of We to

three end, on of of compared rated XX% March rated to XX% XX. fair of ], and X,X value on debt up four from the our fair XX% our consisted was value As quarter XX% XX. of of investments portfolio [ of March portfolio debt

environment We difficult it are working do to very is historically to in closely stressed and recoveries order admittedly investments a though on our maximize additional so.

borrowers navigate this continue current We in to quarters. collaborate continues we teams, work with to the stakeholders The are period. to to challenging with rate new To benefit summarize, of portfolio from optimistic to sourcing our originating about venture management loans outcomes. the to maximize continue interest we all environment, investors will and and our portfolio coming help grow and our

over it for a look Jerry industry and turn I'll at that, overall venture current the With environment. to

Gerald Michaud

Thank you Dan. very much,

in quarter, the billion was approximately over the Turning companies to total the highest PitchBook, past in $XX to now environment. capital VC-backed quarters. X venture invested According the second

and couple outsized pace to VC principally deals due the was XXXX increase and remained loads. the investment a of XXXX However, of well short of overall

right The managing in Partners LP venture VC-backed VC a getting PitchBook, to venture science Limited and capital tech invest is According life and most companies. access ecosystem opportunities returned more exit capital lack not of are challenging capital. issue to to with funds in presently approximately of now significant trillion reluctant are and the funds. funds $X.X or very are VC have

an months, exits not the backlog over outsized like on to few XX the VC-backed last of are exit. the the and a do overall not of been would enormous find the market needle reflective they have that move companies there While

created the yet of over While past open IPO valuations the somewhat declined front markets on IPO excitement momentum M&A and in will significantly rest they VC not and the investments the until for up months, or XX VC-backed capital muted. including companies, be raising ecosystem, M&A have truly the have

are positive barring the lowering likely of which M&A in result and vastly XXXX. the science inflation will years X% grew [ a July, that interest said, early while or XXXX GDP of QX last To in to That the VC-backed lower the second XXXX. half ] market the companies decreasing combination rates believe second a the recent the valuation rate end, indicators leading reduction over significant may of interest rates economic there into including result X.X%, life half tech we of U.S. of orders in a and in of improved in X in

IPO seek and to companies IPOs. and when optimistic markets more the Generally, IPO as improve, science high-quality life market become participate investors tech and life M&A science in for accelerates tech

environment billion, billion. robust off approximately QX a we and QX well fundraising from lower levels of fundraising a benefits more fundraising increase Additionally, over M&A XXXX of of levels XXXX $XX and significant a did market. in reflect $XX VC rate fundraising interest while see

the Again, it to capital to of should which VC fundraising begin year. VC M&A return activity Partners, Limited improve funds before to the may end could the allow environment improve,

QX, continue activity using service market. technology capabilities care that PC in provide the was firms and services AI health to as health enhanced invest tech did are lower-cost improved new to While in companies to as VC well care health care companies investment slow

in In high-quality the conditions debt potential screened new opportunities venture are the venture loan with optimistic terms us investments of provide months we that we or which weeks vetted, about ahead. new and market investments, have for

at testament robust remains pipeline a sourcing and $X.X to as of brand billion our Our reputation, capabilities. today,

confident back will of half year. portfolio the to return growth increasingly this are in we We that

up, we additional through just our continue optimal ensure the sum providing to and our order solid long-term But To value. sourcing as of we half outcomes. second portfolio investment to to while we quality the in environment, in NII support credit committed are navigate build companies we VC generate with shareholders importantly, for focused XXXX our high-quality ensure portfolio on remain will ever-changing to opportunities and grow to

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

Daniel Trolio

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

First, our amendments and cost completed and periods. Life increasing of capital, New extending reducing KeyBank our facilities, to we availability credit York our credit investment our

we portfolio allow In our addition, accretively with capacity. us we opportunistically million. $X.X debt increases over credit access the and facility, $XX overall the added we million to quarter, in able We will program the raising ATM as $XXX new to shares in these continue believe coming be match quarters. equity, To grow a successfully million new actions in our sold which capacity to

facility KeyBank our us ample outstanding new to June outstanding Nuveen $XXX million existing be and million million $XXX with cash credit to New outstanding in [ million drawn $XXX million facility, $XXX of York XX, have in $XX under available ] liquidity $XXX the our credit on our no grow million As our credit of we available capacity million credit $XXX facilities. currently consisting We $XX Life million leaving on under facility, portfolio. had and funds the borrowings

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

Turning We to once an NII had solid more from standpoint, NII our distributions. generating covered that again another quarter than results. our operating

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

million as million net at to $XXX net of Our as XX, cost $XXX portfolio compared investment basis on of March stood June XXXX. a XX,

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

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

Quarter for $XX.X Total 'XX. quarter the were in million to compared Second expenses million of the $XX.X

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

million deferral Our our by base to incentive earned in the the performance-based of down incentive from management as in deferral mechanism. period. we million, fee the Second quarter No prior $X.X experience cap the was $X adviser Quarter continue under fee year otherwise fees incentive and fee in

deferral was net portfolio. The on unrealized driven losses by our

income of deferrals 'XX to company's of of the per Investment was share $X.XX $X.XX the The per $X.XX and Second as share share. was 'XX. quarter 'XX expect the in $X.XX spillover for We to Quarter half share per second XX income undistributed back quarter compared end the first for XXXX. of June in per of

portfolio, We and that distribution size predictive continue to portfolio's will covers elevated our rates our anticipate the with that time. pricing of enable interest generating along strategy the over us our NII

the terms and we in term. of did the Given prepayments, remain we current in July prepayment will macro near have activity modest expect a environment solid although

million, Quarter, million. To quarter principal investment summarize our payments a totaled and for ended the million $XX the in which with paydowns. principal activities partial were portfolio offset in New by We $XXX $XX million scheduled of prepayments portfolio originations total $XX and Second

growing a half in year. expect second for the We the to return portfolio the

of an in value net fair in warrant, and June was covered investment with and December of At Based to are distributions committed companies a October, over per XXX board the We of our XXXX. our by XX, shareholders [indiscernible] $XX investments our income monthly share aggregate declared portfolio $X.XX distributions other for November remain time. providing that upon million. portfolio million our outlook, with equity

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

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

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

Operator

now session. will Instructions]. we be gentlemen, question-and-answer and Ladies conducting a [Operator

is question UBS. with the line from Harter first of Douglas Our

Unknown Analyst

is Doug. Corey Johnson for This actually on

loans So just bit X you X the for this X rate X of went downgrades. quarter, Can reasons loans went about from from X. to a little loans and talk the X rate some to

Daniel Devorsetz

This Nice Devorsetz, you. Dan to is speak Corey. Sure, with

challenging in in market to portfolio So get sometimes right and now, it's rounds completed. our the

R&D, technology process and of money deals they're have that list some or normalized the there some to market, our and fund might in in raising in but acquired. is through investors definitely some or innovating, getting and or of the where or of side. are other get on in the products names robust They delays disruptive in and cases Some there delays commercialization that large where more are a markets, in

a rounds challenging different they're those market, come that's where in different multiple to might some today's seeking. the in more by, syndicate, are are particularly that or and priorities true cases have they In challenges investors there bit

invest to or challenges if be in having can some and a rounds So syndicate those investors of X that are the a there's supportive even are willing bit challenge. are there together that if X pulling

capitalized can we're plan. get and working companies on execute so that them seeing to they these that we're properly So with their

of them of are function funding primary most macro kind a that's environment. of the the is overarching reason So

Unknown Analyst

mentioned any you guys in had Are you more seeing activity also And you're that earlier sectors just more there activity? in And which more particular some are one starting markets. see question. to

Daniel Devorsetz

the It's sectors. across remarks, really services, health is, of our life really across pipeline the as It's in science, technology, those said we quite care sustainability. it's sectors really

AI of in a lot sectors. number seeing those of of We are use a

lot You it enabled but technology AI using science. sustainability careful life of and buzzword, seeing business they're health care, not make actually as using that in have that certainly, in reasons for sure to a we're a and be just to

markets. really a cross-section of So it's our

Operator

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

Paul Johnson

the of kind been available what the the lack opinion, deterioration earlier, that this up has this driven disruption lack et been that is or of that refinancing for companies you cetera. exit potential has I terms or challenged of In mentioning really of opportunities your as you holding LP of Is of has have were seen, kind in it portfolio. rounds, mean, part? most kind in -- just the it financing

the been new some of with challenge these I kind has biggest, accruals? What guess, of

Robert Pomeroy

you The into capability a IPOs, markets, lack reduction nail fund on bunch So lack and the we And but in of their more. portfolio. the M&A need they're of of VCs although strategic starting there. think hit happen, to to again continue the I the across head bleeds to willingness the exit

ecosystem drive of behavior So of to being funding, that LPs, it's need able companies in in terms markets are terms of exit a lot of across terms the cash it. of access the in really in

So deal-by-deal the and the into that specifics. exit markets leads are then macro .

Paul Johnson

of I the I in challenges? current all And how recovery Is under the would a or later kind its big same terms terms perhaps difference all you, guess, there? in describe it is difference mean, state in that, earlier-stage of I companies. here performance of the stage there of Or mean, versus kind of

Robert Pomeroy

but are have the means. growing more say, So bit basis, Those exits, would unit any that's business in their are not that be have products, universal successful a strong yet tend by question. general, capital. to model bit that's and that are capital a but traditionally have which economic still companies I'd having companies earlier-stage on later-stage interesting economics prove the really a burning a supported in than but challenges be raiser more unit to

Paul Johnson

quarter not kind And the you without Appreciate on M&A, although hurdle if the as that expect if that. kind this downward results, potentially quarter $X.XX recovery at I maybe guess, until should from we return on Should up Got that to next could below I think earnings of the put the about over were year, potentially moving about to forward? we fee, I into And dividend, of kind then and we be total how incentive may play mean, that about pressure to investors how it. investors, should thinking we NII thinking you're back should how works the given what in . But less earnings, get move guess how come add pick valuations. talking out. of be earnings here? depending that? in, about Or we

Daniel Trolio

quarter, So would and been to prepayments portfolio debt couple of it quarters last we've prepayments assumes the based than at the talked what year. the been up from is prior -- on picking look yes, we've the have side every and year-over-year venture that I about compared model

kind this determined where based it, expect it's you prepayments. but on run rate is could of So definitely

it quarter-over-quarter. fluctuate So could

Paul Johnson

in there of would just I lost here. I ask one in general. is Last notes kind my my place

end Let's That's just me. for it all there.

Operator

the with question next B. from Riley Securities. Rowe line comes Our Bryce of

Bryce Rowe

you some had here Maybe second made to the in pickup of some could prepayment mean, trying time you've look like. ask third prepared up I Appreciate quarter. terms that here. in what wanted and size half the obviously, activity of maybe about to remarks the

to half rate I that questions Is for couple how answer feel wanted look? the other strengthening on pickup then get And it after economy. it of dependent to or of wanted that. is a could ask of you So -- cuts kind second a

Gerald Michaud

numbers to with I'm let is going then actual Bryce, jump to answer Jerry. partially here. going some right Dan in this I'm

done. wanted basically we second ecosystem. first and we capital hold markets So signaling make to a been significant actually the to the And in quarter and our fire starting we're that's to relative venture make turn what sure have we've that where

far. what And seen have you so so that's

again, noted we've also be remarks, let I'll already prepayments in going in give you in indicated exceeded but but already fundings regard, $XX our to Dan in However, lending. about here, better numbers think and believe significantly as have a had in some that for that venture we overall half I July. we've the million second had July, we environment we is And that

So and a good we pipeline. very have

about a our awards, in to reasonable transactions more over portfolio. at underwritten Horizon. So fairly I'll growth let fee so here environment. put at just Dan also second in quality which do additional We're the in mentioned, both income, activity, Dan What talk portfolio to prepayment stronger half much seeing we're in investments. generate as we're commitments the a again, does we being additional relative that. We And own Trolio expecting doing little bit But second half. expect the addition

here half go in So the think start if the it almost of saying, I'll it the we're say year. rates but I without mean bullish lower much year. second more I anyway, do as interest goes we of the half second

have I think up and we late-stage a We VC the overall looking companies better open of to to own going start that our know seeing that lot we're ecosystem, portfolio are exits. for in that's going exits. really

I'm little optimistic we're info that. So about you on let more a that. going Dan give to pretty But

Daniel Devorsetz

pipeline either near-term through new yesterday, add middle the weeks. will make that good in so number for And all think we some over total out million, as they Jerry. of QX to of we've doing well, there a Bryce, portion last it or I or for portfolio X a portfolio $XXX across companies so coming June proposal well as way our that awards $XXX fund million previous would of million sectors. fund -- of total really A of deals, received opportunities since month we have that the just process. X current It's deals our . Those earlier, the deals. Sure, a to said that X as combination are over commitments. kind of if over or $XXX could the of specifically,

weeks. are scheduled the So we coming a funded that more in There's to fund X few yesterday.

we a So basis. some pipeline additional from put that where specifics some just around that's are detail

Bryce Rowe

Excellent. That's helpful.

I so cash. structure from a percentage raising know on mean, think the -- I kind don't level equity in ATM. on is terms been capital all about it's of of close I of assets, sitting when have a imagine but you mean of record And would pretty this a I perspective, we still if proactive pretty bunch cash of

new the facility. credit got You've

with So use Will would that. trying how you potential equity about just will push down? about to With those facilities ATM? raise to curious we the sheet, to fundings, should think balance the continue And/or you credit all Just the you dynamics. to think on cash how the it draw some those on fund?

Daniel Trolio

Yes, probably, all say, sure, Bryce, of that would would I the above.

And part that to the of available look our have have balance about for would our when we think and equity cash we use First what the we up we process funding capital and then debt and need. in lined the quarter on what be to capital sheet. we what

And each so needed. . as to one of we'll pull levers those continue

Bryce Rowe

the to out a for Or in versus be transfer Dan. with subsequent Did of obligations terms you are get to talk one there? a in investment. what you queue or event then Okay. Can still like going last debt swap look some that's there equity? a There's restructuring look maybe And Nexii -- about to the of equity? debt the

Daniel Devorsetz

Devorsetz. So again, Dan

group court buyer technology by construction that of So the yes, process investor is of and Nexii acquired operator experienced out companies. really Canadian was

buyer going the debt, we supporting they but their primarily positions, and and as both equity are senior execute Our amount loan cash plans. a some we is, have forward, we common and got preferred small of

Operator

question the of next [Operator Nolan Instructions] Ladenburg with is line Our Christopher from Thalmann.

Christopher Nolan

you . Bryce's Life or On this what York on New to question flexibility ] use have [ facility to pay Nuveen do leverage, down facility? cash the

Daniel Trolio

the These is do but there again. financing. in in ability New facility, and down up structured more facility are pay a There's the draw [ ] Life we . than Nuveen York flexibility have to

Christopher Nolan

but -- you XXXX extra XXXX of market? to pieces, lot the opportunity notes the given your buy cash a and then any or have And Okay. some from moving all

Daniel Trolio

that. we have opportunity do mean I to the do Yes.

X, the ] nicely, those XX However, price [ X.XX. are and fairly

investments the makes So on spread our getting it leave out we're those. what it today more and debt between to sense putting we're based on

Christopher Nolan

guys spillover did quarter? was you And the Okay. in what the mention .

Daniel Trolio

Yes, it's $X.XX.

Operator

next KBW. Johnson with from is Paul Our question

Paul Johnson

for just guess, in tell in companies of more And partner a I the one lender perhaps? company portfolio, sole you lender what or the me me. your that versus Can being percent just

Robert Pomeroy

couldn't a that? You little you I question. didn't Can Paul. sorry, -- there broke up hear I the repeat I'm

Paul Johnson

just sole asking what or your to of portfolio partnered being lead the companies? percent you company as lender another I of was Are kind that with opposed in lender?

Robert Pomeroy

the of But in our So there's bank about sole always are there XX% to approximately are our of or revolvers. terms position, our primarily no are deals a portfolio partner. in or partnered we where lender, are where particular sub lending, of -- table we portion cap almost senior with the XX% bank

Operator

ahead, over Ladies Chairman and Pomeroy, and gentlemen, there CEO. to conference are go the Please no sir. further questions. hand I would Robert now

Robert Pomeroy

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

Operator

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

now may your lines. disconnect You

Horizon Technology Finance (HRZN) 31 Jul 242024 Q2 Earnings call transcript