HRZN - Earnings call transcript Q3 2024 | Horizon Technology Finance Corporation

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Operator

Greetings, and welcome to the Horizon Technology Finance Corporation Third Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Megan Bacon. Thank you.

You may begin.

Megan Bacon

Thank you, and welcome to Horizon Technology Finance Corporation's Third 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

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

Robert Pomeroy

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

take some questions. We will then

profile. our As quarter third while we improved grew portfolio our we expected, credit in the

remain portfolio of will credit expert high-quality its term. order value long Our and originating the adviser in and focused investments our quality portfolio's over on the and team experienced our maximize to

the investment per Turning for declared results our share, to distribution our We of specific income level. generated $X.XX $X.XX quarter. below net

grow per we distributions over our to it outlook Based at and on or goal declared NII XXXX. We once investment $X.XX deliver future the again a our March of of the at is investments near in our quarters, above from our by BDC our program. equity We the through of declared time. income, Board spillover on yield raising portfolio our or As achieved enhanced monthly regular portfolio at-the-market industry. distributions share our debt top our undistributed capacity

we increased portfolio our size approved a of further solid backlog, base grow our to us our and X% portfolio. the by providing with grew opportunities and committed of Finally,

to venture the investments. closely on overall support improves macro and and with are stressed we the our credit environment we continuing focus portfolio our and As maximizing work our recovers, value ecosystem of the companies profile as

for As remain Horizon we close the prospects following about XXXX, out optimistic we reasons.

growing, the highest. portfolio was among portfolio remains our and yield industry's Our

opportunities. customer new Our quality is pipeline with full

for liquidity sheet capital balance and and active are growing. is And markets strong. demand venture Our are our finally, debt

We doing to forward capital are providing uniquely and of capable so. such look

that the Monroe strategic comment over, the want I week. on call turn I Finally, before announced to partnership Capital last

remain its the and investment continue Monroe existing to the venture operations strategy Wendel's interest ownership investment Wendel has operate strategies company, Monroe, same. Group, through by its a of purchase know, support an of a new as platform, and in announced and well French As will commitment adviser, debt. investment plans partner to you $X the including billion Capital will as Monroe and extension our capital of to of adviser, independently our process, owner Monroe, with

and and appreciate Technology commitment close Dan partnership in of details results scale I Horizon family, additional we Group. between to transaction the support Monroe expected and the Horizon and Wendel of Monroe of give quarter part of our your XXXX. Again, progress. benefit you first to continued The to over As the the capital the third in Jerry Finance will is turn the interest Dan, platform. and the will call quarter now Dan? from

Daniel Trolio

Thanks, million. offset a Rob, of X most debt equity. the portfolio companies, of amortization. new the more morning raised grew of third prepayments normal were significant to whom We quarter, third In round $XX investments number and these and that Five we investments funded $XXX as portfolio to we totaling of our quarter than loans good everyone. portfolio in in million recently high-quality originated

our on of the second opportunities new an have call, the are high-quality and half opportunities noted and resources we we volume in these XXXX into convert of to increasing seeing investments. As last healthy

also our new volume several under of highest to sectors and We replenish its continue our opportunities pipeline currently build level in across the with target at quarters. review

Thus payments fund That expect quarter growth. already we of that loan in we we will million in in QX, venture much total portfolio awarded approach originating with be to produce new another to pipeline Looking have said, disciplined our our total representing always $XX of to in far X October, been loans. ahead QX. transactions, to potentially

principal. loan additional evidence X and market income. million During are an the $XX quarter, venture payments totaling of prepaid we These prepayments improving generate help experienced in

the strategy of to prepayments. loans early testament on a levels, into take historical structure lower price our we are remain where prepayments our prepayments predictive account Although our and to end pricing

its and its companies, stock to in were that performing is a we Ceribell IPOs While investment debt pleased oversubscribed the continue Ceribell, one prepayments that and M&A October, are we well. or by not have see driven our in activity, in we did quarter any IPO, completed that of portfolio

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

with grow produce continue demonstrating further to and portfolio income. current to onboarding capabilities investment generate expect We strong profitably of our continue pipeline to yields our strong our opportunities, to net

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

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

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

rated of to of on value was XX% X, of of and of current value portfolio a to future recovery X-rated June As portfolio stressed the fair and X% X- create of of our XX. maximize progress potential investments XX% our using for on compared down debt a opportunities We from variety the XX. consists made our June quarter strategies several investments of value. debt on fair to end, XX%

to with returns about grow with We our Jerry will it interest in with management and work our optimistic quarters closely a generate elevated portfolio the remain to to and summarize, continues from companies investments. To overall continue optimal and the outcomes. With from venture to environment. industry look our to teams we'll to collaborating over maximize work continuing rates, portfolio, current continue across borrowers ahead. I'll portfolio current that, turn at investors we to our for The benefit

Gerald Michaud

Dan. much, very you Thank

quarter environment. to capital is XXXX still venture XXXX. the on third billion According the VC-backed pace to Turning in approximately remains highs and PitchBook, was well the XXXX to though the match as industry invested companies off total, in $XX of it

exit continues or opportunity capital-backed last by IPO. technology noted there backlog life to we for and a companies complete venture positioned and way quarter, of M&A to an are be an As science well of an

life IPOs, in total from exit to IPOs QX In quarters, value particular X starting X were have $XX science there science alone. company, Ceribell. in science including market more Horizon's X billion investors. While interest there in indications the renewed is life was draw There the portfolio September positive science lowest been life life knowledgeable that were October, of

as revenue started acquiring equity companies drug million the becoming quarter, need by years and to they discovery a science drugs off Capital's have life were led Sachs few Bain with $X.X more life drugs large blockbuster patent several with private life fund coming science the funds &XXX pharma has fund. Big addition, interested growth In raised potential. next Goldman in in billion science in replace new also high

in on our of of for and life Horizon the and the technology rates billion next very companies $X there provide interest pipeline life is emerging acquisitions the valuations opportunities, they technology of high-quality should quarters, of lower markets. the RPOs company Over improving companies. a growth opportunity the lowering coming science life over to quarters Based few high-quality debt evaluate venture in believes additional of accelerate the debt demand need exit financing strong combination will liquidity science to as or who science existing and

by a we acquiring combined of has extended competitive new fundraising into overall large VC markets lower new rates, XXXX. Accordingly, turning of technology VC-backed the to impacts of are months period, with global VC-backed for interest and for an are about and continuation strong the number ecosystem company showing overall high-quality debt macroeconomic LPs create technologies of investments conditions big venture capital corner. in need VC overall While achievements beginning the believe exit life companies improvement weeks of companies the challenging return and originating to we been pharma the ecosystem for companies science for the for in the tech new the remain for The an optimistic specific tech leading conditions remain companies to ahead. signs and of the market

to our our sourcing optimism testament long-term is we generate build reputation, additional a which up, by pipeline remain to NII and $X.X will XXXX, brand committed of well-priced and value investments sourcing portfolio Our quarter grow sum in sustainable to shareholders. in our bolstered our capabilities. To billion, high-quality, robust about fourth for today the and

and committed maintaining support quality Trolio. credit remain now as outcomes. With I'll needed call companies over We also on that, ensure portfolio to turn to with our investment providing to optimal focus Dan the

Daniel Trolio

everyone. Thanks, Jerry, good morning, and

in continue strengthen October. to sheet into third quarter the balance our We and

shares million to in over over First, quarter, million sold successfully we equity the raising our opportunistically $XX accretively ATM we capital. of X.X continue as program and access

In raised our through convertible X/X The common notes to stock our of addition, NAV. price the issuance million be into converted October, only unsecured XXXX. due may greater $XX debt capital a X equal of we or notes in at

always we notes are our and to seeking and to believe that. We capital sources, achieve the convertible add diversity flexibility

continue enable the in quarters further portfolio. to coming on in the to will sheet strong grow order balance to focus We maintaining a us

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

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

operating Turning results. to our

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

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

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

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

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

by the no of performance-based cap management our deferral and $X portfolio. million, mechanism. driven incentive was unrealized the a year by fees realized fees was in in period. We prior third to incentive otherwise deferral adviser $X.X continue incentive experience under base and The losses quarter received from as earned we deferral Our on down million fee our in fee quarter net the our

of $X.XX of return to to strategy, the fees investment share per the will third We We per expect in anticipate to as in quarter the $X.XX quarter time. for pricing share our rates our adviser earning $X.XX $X.XX that of and income generating per quarters. Net XX share that per 'XX enable NII spillover portfolio, the us size undistributed coming the income share. quarter was continue with and incentive elevated for that our the the 'XX third second predictive compared of company's along covers The was 'XX. will over September portfolio's interest distribution of

were macro the improve, principal term. To the near pay environment for and While the quarter in totaled in partial prepayment payments new in total portfolio to scheduled which expect partially activities we activities modest million, We offset the principal million $XX prepayments third ended by $XX with is beginning $XXX quarter, summarize remain investment will portfolio of million. million downs. originations our a and $XX

XXX upon of January, with March Board of We February an in fair the committed equity over $XX million. Based outlook, investments our of portfolio portfolio aggregate per with our consisted XX, expect remain XX million a distributions other value quarter. At $XXX portfolio declared by share our aggregate and XXXX. September to for covered and during are to fair of monthly shareholders net companies distributions investments our grow further $X.XX fourth that with our income companies an time. the warrant, debt value investment with providing We and of

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

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

Operator

Instructions] comes UBS. from first And question our [Operator Douglas Harter,

Douglas Harter

about the a for us of those? lines should an give how on resolutions just bit update the could -- loans we you kind think Hoping the and on nonaccrual of time

Daniel Devorsetz

strategies is this different -- working So of Dan for on There Devorsetz. the we're nonaccruals. are a couple

that real of them a are in see numbers, take Some as other of That little acquisitions have that bit more with resolve. will QX, -- resolved we're others time couple transactions. in a you either working or in been time. here There's to the on

of QX, each own the into and it couple I will be think time specific here and that XXXX. might some -- of But resolved its one strategy. line there'll others of be a linger in is first half

Douglas Harter

in Great. just kind little the how resolved could you the And I of quarter? of QX guess, just you on how more are versus going your kind kind those if -- into us a ones that give detail you resolved -- expectations of

Daniel Devorsetz

Sure.

we transaction operating buyer, was assets third-party So And were assets that one the upon them company. the a Nexii buyer, high-quality occurred. to of a company is sold marked and the the based that

company. new in We and equity have the debt

a So that one. talk was want do that Evelo Jerry, bit? about to Evelo, little you

Gerald Michaud

Sure.

are significant life company science life a science looking has assets monetize. as Evelo, to So that they

from those on were so secured of close contractual, Evelo They our in will coming pay continue are lien One company. holding all will quarter. the underway third Horizon loan to number proceeds into There down some over put those senior in actually that based of the proceeds to company. a all right due the transactions, position to flow now. our did to time. be they the are transactions And that a assets And

similar separate of it in QX. this a is due combination assets. Like completed. in we'll a the specifically, that expected the asset then that when will Evelo finalizing then some And there's transaction, contractual So through addition upfront of to we're I where a flow say documentation in those also proceeds one one, to consolidate proceeds, transactions was close kind them, get closing. of There's QX there's for in the another Evelo being in equity positions the And contractual get transactions. a significant process said, -- closed us, QX. of obligations, them, that I some a way are will And to was transaction -- very has us to

a very -- have lot diverse asset a they base. So

to those trying we're to the value of can everything So do assets. we maximize

Operator

question [Operator Rowe, Riley Securities. Instructions] next from comes Bryce B. Our

Bryce Rowe

Wanted to maybe start with the environment.

into kind like you market from about third the looks of and all quarter, an talked improving last quarter. to think backdrop a perspective, in on on an pipeline October. improving that like of it fruition And based I based certainly, and Dan, came continued kind your comments, -- that's sounds

have months, that you've sounds your like building. It wanted it how get quarter, and already a you feel how the fourth deal So flow October, coming and could the the the got little so is and here it's tangible again, up more how a just coming deals trying for together. closed sounds over to -- bit handicap about to if shaping beyond some in pipeline and talk pipeline market's maybe

Daniel Devorsetz

Sure, several signaling Bryce. life of been signs signs the of rounds recently, our Yes, We've improving. early more in valuations, companies, the based saw of upon significant terms portfolio market, calls. we that was in our we and believe, expectation That window. resetting that exit is on equity, some getting last

I as Ceribell certainly and think to too consistent saw that predictable, it's there's and it's still some some say with activity, others. you early but

do we're strong we're in that and in some not we is I 'XX, believe vintages think the for So but improving, there 'XX here market yet. and

opportunities, awards clarify I right, equity, pipeline in we process raised the haven't with performers. We're the on remarks through some that did awards I yet. closed had recently -- working those October. -- scripted strong want You're We building to my in those get on we quality had are referenced those.

you some guidance, stage at good level to what delayed those competing for be numbers I be. quarter. -- but position should off. We do for some them growth or can been strongest beyond don't hard fund a But quality in all fall it's of QX while, of this we QX, But a and feel that might would at pipeline might is in the that expect All are growing. It's have and a be its in, opportunities.

Bryce Rowe

Okay. That's helpful.

relation you outlook, I sheet draw And this that about that had level balance the so expect about though sheet the dividend you've last you of is with how thinking about of think year, and NII couple a kind that so to think cash had relative that you Do a of earned going where that you quarters, the the back do murky, think of a of cash do even putting covering as about expense you decent kind how to point? we haven't kind getting fact speak, at or on balance where on incentive possibly incentive I'm to And to last haven't an all the down? it's that work couple dividend? for are really. the the to point in -- going to fee the mean bit and

Daniel Trolio

Yes.

we times, have at we be plan where quarter cash we'll capital equity. will I and every the you the we that into as the late able prepayments. sources, the what best the to raise efficient slip, mentioned, in think way. the possible to think look facilities and look deals look funds, on at as and our when use in expect right, debt go try we'll most come At committed at will I quarter, the to we backlog, mentioned, we And awards as sheet, from ability during So the what balance our look that quarter, to fund

we're fluctuate snapshot the that cash from reporting. a will It's quarter-to-quarter. so just always And

sheet. about how that's balance we think So the

a you fluctuate, we're quarter-over-quarter basis. different does forgotten historically, other debt and the that of year we've may cover I able past your for the in will distribution as I venture quarterly basis reiterate have will our an question, far back the prepayments levels. I do annual again. so think on NII, if would they and good to been at But just a to that to trend months look X As first be X come Where And years, the but... this on generate portfolio on

Bryce Rowe

one path more nonaccruals was here to of that that mark quarter. one that still address the is maybe the value looked or just just in it it, sitting you I status. around, think but Maybe Swift I dramatically on up? about Can back guess, improved Jerry, this, fair pushed I covered it. that, Dan. Dan I appreciate did And No, on nonaccrual. talk you have accrual that's like what assuming the could a

Daniel Devorsetz

a Sure. very couple of where continuing Swift this been strong there a that's fundraising. year is were earlier strong issues with victim company the in very years, portfolio market for our of environment a investors, product,

all So some operational having nonaccrual, the company precarious was been position. along, even on has it though was cash it

through we put while were it So we nonaccrual working on that.

We has this to very We've investors company. are life during in capital -- -- the we working with third to been the in high-quality brought quarter. X come science bring capital

in are that up of the We transaction for stabilize performance. long-term it this company will closing process longer-term a and set

Bryce Rowe

-- it I come potential way hasn't to for Is if the assume it? status? in think some right that, accrual back interest And accrued I back the that about been come paid Okay. does there's that to guess, could

Daniel Devorsetz

So solution. yes, a the picture. variety and strategies, accrued part interest the balances be we're and working will part final of the that and payments of all the But the are of on

Operator

comes question Ladenburg next Nolan, Thalmann. from Our Christopher

Christopher Nolan

been shares pace few What quarters. guys it you of ATM, have The the hitting dictates pretty last hard sold? the

Daniel Trolio

the when balance to we in yes, our we capital quarter, we'll each look that we again, quarter. sources to in out fund So believe at try what comparison

match can't ATM, and other trading how raise facilities' it we we with availabilities, always in the But determine our the that want volume debt with that's ATM. through to You much will dictate perfectly. the capacity

Christopher Nolan

had just seems the becoming calls. and I of call. guys. you market like so And It for stronger early is -- the missed the part overlapping I guess I

given forward, loan indications the from so demand? And issuances expect we share your improving should ATM going of more

Daniel Trolio

about past fluctuate. that year to I think doing have been barometer think, forward. will this again, going we probably is good What a

Christopher Nolan

off year. price come down Okay. highs is, the final And in question stock I your earlier sort the of has guess

strategy have to trying You please? that, terms in of improve any plan guys or

Daniel Trolio

stock you price. We affect on NII, price. are to price. about that price, at focused growing generating a for people that have talk care consistent more the do we and stock always our take things believe that shareholders, the really will There performance different We're can opinions stock delivering look of the portfolio, stock

Christopher Nolan

doing sheet question, vehicles anything Final like off-balance or or of RIAs consideration that? any Great.

Daniel Trolio

do We look that one look will consistently, at we it's forward. going and at to continue

right of have in we As now, don't anything plans. the

Operator

And comes Johnson, our question next Paul from KBW.

Paul Johnson

just a Just going Bryce's to back little covering NII generation and distribution. the bit question on

So when you say of your the be accrual with the include goal is clear to cover kind the the fee distribution does to with looking accrual of full that incentive of NII outlook, that. incentive on or when want forward you're fee? -- the Just your

Daniel Trolio

Yes.

we full So period sheet back balance we at forecast the that the of of back think yield, capital, of time where we'll to cost and consideration, everything year the the we fee incentive towards amount. earning out, growth when do that our next end a take over in in get

Paul Johnson

it. Got

Okay.

is -- to end full year of the rate? potentially kind back of accrual next at you're the getting So looking

Daniel Trolio

the the To end full gradually next the quarters probably amount, about of we'll or adviser earning start gradually We think back over XXX% start to incentive building fee towards next the would year. few the yes.

Paul Johnson

you income I to on of like to $X.XX kind Do then what think said. would And kind you that of minimum? the any guess, at it. you a for at? of sort have you like spillover it spillover I where I carry be at, target income, Got mean, was would

Daniel Trolio

at target. those what at look shareholders contractually we it manage look can through to We distributions as look to carry and supplemental distribute be a it don't to at through try to able the X. We that out forward. ways We

Paul Johnson

the did the I quarter-over-quarter. of I investments, spillover quarter, losses complicated. it's do realize restructuring mean, to then surprising level have taken which of again you. with may quarter, little of this losses But realized the just of might see get kind some not it really to I Got given this level much and And of a higher change realized guess the more the

flowing resolved through I spillover estimation? anything, guess, of they're as those affect level there would to is So investments your kind that

Daniel Trolio

Yes.

very $X loss loss spillover the generated Dan had from Net of impact on So unrealized impacted for realized compared quarter. to is for the really about a transaction down that the where an flipped completion Then little just the realized the income, NII million quarter-over-quarter. was large quarter operating it distribution. And realized/unrealized the was to mentioned. NAV by Nexii the from the loss,

Paul Johnson

question like on new It you're for guys this quarter. compression Where a core guess, a investments? spreads There's seeing, decent kind sounds are I last me, coupon yields into the yields, guess, amount amount you in any yields I And on you investments. of rate expecting going -- yields good activity quarter. fourth growth of new Have seen there?

Daniel Devorsetz

have transaction compression consideration So maintained overall on cut market a point is each own But in traditionally pretty expect in nicely. portfolio, that haven't XX rates yields affecting its time, seen portfolio consideration. -- have Certainly, a trade necessarily yields to basis in venture yields. we've earlier basis. we merits been spreads pricing over and structural But the index the the seen. Obviously, the across

-- continue expect across a that's the the far, been to on we portfolio basis. case, so and And yields that

year-over-year portfolio remain been to a I our of many for strong, strength has quite think that's years think many, going yield I ours. and

Operator

I like Pomeroy, for There CEO, Robert are now no floor further questions. the and back closing Chairman remarks. would to turn to

Robert Pomeroy

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

Operator

thank teleconference. participation. your you you. We today's This does Thank for conclude

this your disconnect time. You at lines may

Horizon Technology Finance (HRZN) 30 Oct 242024 Q3 Earnings call transcript