Horizon Technology Finance Corp Q1 FY2024 earnings call

Key Points

• Portfolio size reached $711 million in Q1, with new originations offset by prepayments, amortization, and fair value adjustments.
• Funded 5 debt investments totaling $33 million to existing portfolio companies.
• Onboarding yield was 13.4%, and debt portfolio yield was 15.6%.
• Committed backlog stood at $168 million, primarily to existing borrowers based on milestones.
• 90% of the debt portfolio's fair value was 3-4 rated, and 10% was 2-1 rated.
• Worked on stress investments and collaborated closely with portfolio companies to navigate challenges.
• Venture lending business is driven by an experienced team, with signs of recovery in the venture ecosystem.

Portfolio size grew slightly to $711 million in the first quarter. New originations totaled $33 million, funded to existing portfolio companies. Onboarding yield was 13.4%, and the debt portfolio yield was 15.6%. Fair value of warrants and equity positions in 99 portfolio companies was $31 million. Committed backlog was $168 million. The debt portfolio's fair value consisted of 90% 3-4 rated debt investments and 10% 2-1 rated, consistent with prior periods.

Forward-Looking Statements

• Expect slow and steady progress in new originations during Q2 and the back half of the year as market conditions improve.
• Modest prepayments are expected in Q2 2024.
• The Board declared monthly distributions of $0.11 per share for July, August, and September 2024.
• Anticipate net investment income (NII) to continue covering distributions over time.

Risks Identified

• Uncertainties in predicting future results due to factors like global unrest, higher interest rates, and pandemics.
• Prepayment activity may remain light in the near term.
• Valuation challenges with certain portfolio companies (e.g., Evelo, NextCar, Nexii) where efforts are ongoing to maximize asset value but may take time.

Q&A Exchange

• Q: Discuss net unrealized losses and write-up of Evelo investment.

A: Jerry Michaud stated they were working closely with Evelo, which had faced a failed clinical trial, and expected to maximize value in the next couple of quarters.

• Q: Update on nonaccrual loans NextCar and Nexii.

A: Dan Devorsetz said similar to Evelo, efforts were underway to maximize asset value for both, with parties interested in their assets, likely taking a couple of quarters to resolve.

• Q: Origination and repayment activity mix.

A: Dan Devorsetz noted backlog was committed to existing borrowers, and repayment activity was projected to be modest to light.

• Q: Deal flow from tech companies seeking debt financing from other BDCs.

A: Dan Devorsetz said they preferred refinances that weren't problem accounts, avoiding straight swaps where existing lenders didn't want to re-up.

• Q: Competing in the venture debt market.

A: Gerald Michaud said they were competitive on price, used an ATM for capital, and collaborated with tech banks to provide attractive financing.