Horizon Technology Finance Corp Q4 FY2024 earnings call

• Portfolio grew for the second consecutive quarter, expected to continue in 2025. • Net investment income in Q4 2024 covered regular monthly distributions, but net asset value was lower due to underperformance of stressed investments from ongoing venture ecosystem stress, tightened capital, muted IPO/M&A, and portfolio valuation pressure. • Advisor focused on credit quality and originating high-quality investments. • Full year 2024: net investment income $1.32 per share covered distributions, portfolio yield near top of BDC industry, committed and approved backlog $207 million, net asset value $8.43 per share. • Strengthened balance sheet with $100 million senior secured credit facility, $20 million convertible debt offering, and over $66 million raised via at-the-market program. • Board declared $0.11 per share monthly distributions through June 2025, advisor may waive portion of incentive fees if NII is less than distributions.

In the fourth quarter, the portfolio grew to $698 million. For the full year 2024, net investment income was $1.32 per share, and the portfolio yield on debt investments was nearly 16%. The debt portfolio yield in Q4 2024 was 14.9%. As of December 31, 91% of the fair value of the debt portfolio consisted of three and four rated debt investments, while 9% were two or one rated. The portfolio of warrant, equity, and other investments had an aggregate fair value of $59 million in 109 companies.

• Expect portfolio to continue growing in 2025. • NII expected to cover regular monthly distributions. • Board declared regular monthly distributions of $0.11 per share payable through June 2025. • Advisor agreed to waive a portion of quarterly income incentive fees if NII for the quarter is less than distributions declared.

• Ongoing stress in the venture capital ecosystem. • Tightened capital availability. • Muted IPO and M&A market. • Continued pressure on portfolio company valuations. • Uncertainty in exit markets for some portfolio companies, leading to fair value markdowns.

Q: Hoping you could walk through what you think the key drivers to get from the $0.27 back above the $0.33 dividend rate, how you think about that path back to covering the dividend?

A: When looking at NII, prepayments fluctuate. Fourth quarter was light on prepayments and associated fee income, so key drivers are harvesting prepayments and growing the balance sheet in 2025.

Q: How do you think about normalized level of contribution from repayment income?

A: Normalized, probably about anywhere between $2 million to $4 million of accelerated fee income.

Q: Kind of what primarily drove the portfolio marks this quarter in terms of investments, as well as just kind of maybe more broadly, if you can, what - how much of that's from the debt portfolio versus the equity?

A: Marks were due to several companies in fundraising or acquisition uncertainty, primarily on debt investments in the portfolio, with continued challenges in fundraising and exit markets for some companies.

Q: I noticed last quarter in the Q, I think that portion of Evelo Biosciences was on PIK accrual. I noticed that was taken off this quarter. Just wondering what happened there, and if there was any income recorded at all, from Evelo in the fourth quarter?

A: Moved Evelo to other asset bucket; any recovery based on sale or contractual transactions, and there are expectations of further recovery over time.

Q: Just was on non-accrual last quarter, Swift Health Systems. Looked like it might have been restructuring. I'm wondering if you could just kind of talk about, what the outcome of that was, and how you were able to resolve that company?

A: Not resolved; it's in an extended fundraising process with new investors but still ongoing.

Q: How much did the Fed easings in the fourth quarter affect your yields?

A: The third quarter rate cut had a bigger impact in the fourth quarter; 43% of the portfolio is at or above today's prime rate, so further rate movements will have a smaller impact.

Q: How much did share repurchases add to fourth quarter NAV per share, please?

A: About $0.02. Remaining spillover was $1.06.