Core Viewpoint - Horizon Technology Finance Corporation is under investigation for potential securities fraud and unlawful business practices following disappointing financial results [1][2]. Financial Performance - Horizon reported total investment income of $23.5 million for Q4 and full year 2024, missing the consensus estimate of $26.1 million and showing a decline year-over-year and from the previous quarter [2]. - The net asset value per share decreased to $8.43 from $9.06 in the previous quarter, attributed to "stressed investments" by the CEO [2]. Market Reaction - Following the announcement of the financial results, Horizon's stock price fell by $0.96 per share, or 9.95%, closing at $8.65 per share on March 5, 2025 [3].

Core Viewpoint - Horizon Technology's steep share price selloff presents a significant buying opportunity for long-term investors, with market trends and financial metrics suggesting that its shares have already reached a bottom [1]. Group 1: Market Trends - The current market trends indicate a limited risk of further financial decline for Horizon Technology, making it an attractive option for investors looking for long-term gains [1]. Group 2: Financial Metrics - Financial metrics support the notion that Horizon Technology's shares have bottomed out, reinforcing the potential for recovery and growth in the future [1].

Financial Data and Key Metrics Changes - The company generated net investment income (NII) of $0.27 per share in Q4 2024, down from $0.32 per share in Q3 2024 and $0.45 per share in Q4 2023 [40] - For the full year 2024, NII was $1.32 per share, covering regular monthly distributions of the same amount [10][40] - The net asset value (NAV) decreased to $8.43 per share at year-end 2024, compared to $9.06 per share at the end of Q3 2024 and $9.71 per share at the end of Q4 2023 [44] Business Line Data and Key Metrics Changes - The portfolio grew to $698 million in Q4 2024, up 2% from $684 million at the end of Q3 2024 [33] - The debt portfolio yield was 14.9% for Q4 2024, down from 16.8% in Q4 2023 [38][21] - New originations totaled $61 million in Q4 2024, partially offset by $12 million in scheduled principal payments and $13 million in prepayments [42] Market Data and Key Metrics Changes - Approximately $75 billion was invested in VC-backed companies in Q4 2024, leading to a total investment of $209 billion for the year, which is an increase from 2023 but still below the highs of 2021 and 2022 [25] - The exit value for VC-backed companies in 2024 was $37 billion, indicating a recovery but still below levels from 2019 to 2021 [27] Company Strategy and Development Direction - The company aims to continue growing its portfolio and generating NII that covers distributions, with a strong pipeline of investment opportunities exceeding $1 billion [28][30] - The focus remains on high-quality venture debt investments, particularly in technology and life sciences sectors [28][30] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the venture ecosystem recovering, supported by a strong pipeline and active markets for venture debt capital [14][30] - The macro environment is gradually improving, which is expected to enhance the fundraising capabilities of VC-backed companies [30][41] Other Important Information - The company closed a new $100 million senior secured credit facility and raised $20 million through convertible debt offerings, strengthening its balance sheet [12][33] - The advisor agreed to waive a portion of its quarterly income incentive fees if NII falls below declared distributions [12] Q&A Session Summary Question: Key drivers to return to $0.33 dividend rate - Management indicated that prepayments and portfolio growth will be key drivers to return to covering the distribution [48][50] Question: Portfolio marks this quarter - Marks were primarily driven by challenges in fundraising and exit markets for some companies, leading to markdowns mainly on debt investments [56][58] Question: Specific credits and their status - Evelo Biosciences has been moved to a recovery asset category, with future recovery dependent on contractual transactions [60] - Swift Health Systems is still in an extended fundraising process and has not yet resolved its situation [64] Question: Impact of federal government spending cuts - The life sciences sector faces uncertainty due to potential spending cuts, but there are also positive signs such as lower drug development costs and increased IPO activity [68][89] Question: Effect of Fed easings on yields - Fed easings had an impact, with the third quarter rate cut having a larger effect than the fourth quarter [80][82] Question: Share repurchases impact on NAV - Share repurchases added approximately $0.02 to NAV per share [90]

Group 1 - Horizon Technology Finance reported quarterly earnings of $0.27 per share, missing the Zacks Consensus Estimate of $0.33 per share, and down from $0.45 per share a year ago, representing an earnings surprise of -18.18% [1] - The company posted revenues of $23.55 million for the quarter ended December 2024, missing the Zacks Consensus Estimate by 6.59%, and down from $28.18 million year-over-year [2] - Horizon Technology Finance shares have increased by approximately 8.7% since the beginning of the year, while the S&P 500 has declined by -0.5% [3] Group 2 - The current consensus EPS estimate for the upcoming quarter is $0.33 on revenues of $25.2 million, and for the current fiscal year, it is $1.33 on revenues of $107.58 million [7] - The Zacks Industry Rank for Financial - SBIC & Commercial Industry is currently in the top 33% of over 250 Zacks industries, indicating a favorable outlook compared to the bottom 50% [8] Group 3 - The estimate revisions trend for Horizon Technology Finance is mixed, resulting in a Zacks Rank 3 (Hold), suggesting the stock is expected to perform in line with the market in the near future [6]

Investment Strategy and Focus - The company has originated, underwritten, and managed Venture Loans with an aggregate original principal amount exceeding $3.0 billion to more than 330 companies since 2004[37]. - The company expects to invest at least 80% of its total assets in technology-related companies within its Target Industries under normal market conditions[35]. - The company focuses on structured investments in development-stage companies, providing secured loans that minimize downside risk compared to equity investments[34]. - The company emphasizes direct origination of transactions with technology, life science, healthcare, and sustainability companies, leveraging strong relationships with venture capital and private equity firms[34]. - The company requires prospective portfolio companies to have received at least their first round of venture capital or private equity financing before considering investment[42]. - The company assesses the enterprise value of prospective portfolio companies to ensure it substantially exceeds the principal balance of debt borrowed[48]. - The company may invest up to 100% of its assets in securities acquired directly from issuers in privately negotiated transactions[105]. - The company is classified as a non-diversified investment company, allowing it to invest a significant proportion of its assets in a single issuer without strict limitations[169]. Risk Management and Underwriting - The company utilizes a disciplined underwriting process that includes extensive financial analysis and validation from multiple sources to mitigate risks[41]. - The company maintains a robust investment process that includes thorough due diligence and a structured approval process involving its investment committee[60]. - The Advisor employs a proprietary internal credit rating system to assess debt investment quality, rating portfolio companies on a scale of 1 to 4, with 3 indicating standard risk and 4 indicating improved credit quality[63]. - Portfolio companies rated 1 or 2 are closely monitored for adverse developments, with regular contact maintained to discuss strategic initiatives[64]. - The Advisor's internal credit rating system helps identify unexpected developments in portfolio companies' financial performance, allowing for timely interventions[62]. - The company must diversify its holdings to meet regulatory requirements, ensuring no more than 25% of assets are invested in any one issuer[133]. Financial Performance and Fees - The base management fee is set at an annual rate of 2.00% of the Company's gross assets, decreasing to 1.60% for assets exceeding $250 million[72]. - The incentive fee is 20.00% of Pre-Incentive Fee Net Investment Income exceeding a hurdle rate of 1.75%, with a "catch-up" provision for amounts above 2.1875%[73]. - The incentive fee structure allows for potential payments even in quarters with net losses, as long as Pre-Incentive Fee Net Investment Income exceeds the hurdle rate[75]. - Cumulative incentive compensation accrued and/or paid since July 1, 2014, amounts to $9,000,000[86]. - Pre-Incentive Fee Net Investment Income is 2.10%, exceeding the hurdle rate of 1.75%[87]. - An incentive fee of 0.35% is payable based on Pre-Incentive Fee Net Investment Income[87]. - 20.0% of cumulative net increase in net assets resulting from operations since July 1, 2014, is $10,000,000[88]. Regulatory Compliance - The company is regulated as a BDC under the 1940 Act and must adhere to specific regulatory requirements[103]. - The company must maintain at least 70% of its total assets in qualifying assets as defined by the 1940 Act[109]. - The company must distribute at least 90% of its ordinary income and realized net short-term capital gains to maintain its RIC status[131]. - The company is subject to periodic SEC examinations for compliance with the 1940 Act[107]. - The company has adopted written policies to prevent violations of federal securities laws and designated a chief compliance officer for oversight[108]. - The company must review its compliance with the Sarbanes-Oxley Act and take necessary actions to ensure adherence[125]. - The company intends to comply with Nasdaq corporate governance regulations and monitor future listing standards[126]. - The company is subject to corporate-level federal income tax on all taxable income if it fails to qualify as a RIC, which would adversely affect financial performance[138]. Investment Risks - The company faces risks related to political, social, and economic uncertainty, which could materially affect its business and financial condition[141]. - The company relies on key personnel from its Advisor for investment management, and loss of these individuals could disrupt operations[142]. - The incentive fee structure may encourage the Advisor to pursue riskier investments, potentially leading to higher investment losses[152]. - Elevated interest rates may negatively impact portfolio companies, making it harder for them to raise capital and potentially leading to failures[173]. - Portfolio companies typically require substantial additional financing, which may not be readily available, increasing the risk of loss[175]. - The company may face challenges in making follow-on investments in portfolio companies, which could impair the value of its investments[176]. - Legislative changes regarding taxes could negatively impact the company's ability to qualify for tax treatment as a RIC, affecting stockholders[163]. - Economic downturns may lead to increased non-performing assets and decreased portfolio value, potentially resulting in financial losses and reduced revenues[179]. - The company may face challenges in recovering investments if the collateral securing debt investments decreases in value or becomes difficult to appraise[186]. - The lack of liquidity in investments may hinder the ability to sell at favorable prices, resulting in potential losses[189]. - The unpredictable borrowing needs of portfolio companies may exceed expected funding requirements, impacting the company's reputation and lending activity[197]. - The company may hold debt securities of leveraged companies that could experience bankruptcy or financial distress, leading to uncertainty regarding the recovery of investments[198]. - Bankruptcy proceedings can result in significant administrative costs that are paid out of the debtor's estate before any return to creditors, adversely affecting investment returns[199]. Portfolio Company Characteristics - The company focuses on investments in development-stage companies, which are typically rated below "investment grade" and may face significant risks including volatility and intense competition[183]. - The average selling prices of products from development-stage companies have historically decreased, adversely affecting their operating results and cash flow[184]. - The ability of portfolio companies to commercialize their technologies and products is crucial for investment returns, with failure to do so potentially leading to declines in value[217]. - Portfolio companies in the technology industry face intense competition and rapid changes, which could affect their ability to innovate and maintain market relevance[203]. - Life science companies require significant research and development, and the success of new products depends on various factors including regulatory approvals and market acceptance[209]. - Portfolio companies in the sustainability sector are subject to operational risks such as underestimated costs and potential litigation, which could adversely affect their financial condition[213]. - Changes in government regulations could impact the business and industries of portfolio companies, leading to potential penalties and claims that may adversely affect operations[215]. - Portfolio companies may rely on licenses for intellectual property, which can complicate ownership and claims in bankruptcy situations[218]. - Litigation regarding intellectual property rights can result in substantial costs and resource diversion, negatively affecting the portfolio company's ability to service debt investments[221]. - The company does not expect to control any of its portfolio companies, which may lead to risks if those companies make decisions that do not align with the company's interests as debt investors[223]. - Investments in foreign portfolio companies may involve greater risks, including less publicly available information and varying levels of governmental regulation[224]. Management and Operational Structure - The company does not have employees; all executive officers are employees of the Advisor, which manages day-to-day investment operations[69]. - The Advisor's services are not exclusive, allowing it to provide similar services to other entities while ensuring its obligations to the Company are met[70]. - The Advisor is reimbursed for expenses incurred while providing managerial assistance to portfolio companies, which may include operational monitoring and strategic guidance[68]. - The Advisor can resign with 60 days' notice, potentially disrupting operations and affecting financial conditions if a suitable replacement is not found[167]. - The Advisor's referral relationships are crucial for generating investment opportunities; failure to maintain these could adversely affect the company's growth[166]. - The valuation process for portfolio holdings may create conflicts of interest, as the Advisor's management fee is partially based on gross assets and unrealized appreciation[160].

Investment Portfolio - Horizon Technology Finance Corporation announced its investment portfolio update for the three months ended December 31, 2024[5]. Financial Performance - The press release was issued on January 8, 2025, detailing the company's financial performance[5]. - The financial information provided is not deemed "filed" under the Securities Exchange Act of 1934[6]. Company Information - The company is listed on The Nasdaq Stock Market under the ticker symbol HRZN[3]. - Horizon Technology Finance Corporation has 4.875% Notes due 2026 and 6.25% Notes due 2027 listed on the New York Stock Exchange[3]. - The report does not indicate any emerging growth company status for Horizon Technology Finance Corporation[4]. - The report includes a cover page interactive data file embedded within the Inline XBRL document[7]. - Robert D. Pomeroy, Jr. serves as the Chief Executive Officer of Horizon Technology Finance Corporation[9].

Investment Strategy - The analyst specializes in uncovering strategies to utilize various investment vehicles, including high-quality dividend stocks, Business Development Companies, REITs, and Closed End Funds, to boost investment income while capturing total returns comparable to the S&P 500 [1] - A hybrid system between growth and income is created to manage a total return that is on par with the S&P 500 [1] Business Development Companies - Business Development Companies are favored for generating a high-yielding stream of income within the portfolio due to their simple business models and diverse range of exposure [3]

Group 1 - Horizon Technology Finance (NASDAQ: HRZN) is a Business Development Company (BDC) that has been actively covered since late December of the previous year [1] - The previous article on HRZN was published following the release of its Q2 2024 earnings report, which was deemed significant [1] Group 2 - Roberts Berzins has over a decade of experience in financial management, assisting top-tier corporates in shaping financial strategies and executing large-scale financings [1] - Berzins has contributed to institutionalizing the REIT framework in Latvia to enhance the liquidity of pan-Baltic capital markets [1] - His policy-level work includes developing national SOE financing guidelines and frameworks for channeling private capital into affordable housing [1]

Financial Data and Key Metrics Changes - The company generated net investment income (NII) of $0.32 per share, which is $0.01 below the declared distribution level [9] - The net investment income for Q3 2024 was $0.32 per share compared to $0.36 per share in Q2 2024 and $0.53 per share in Q3 2023 [42] - The company's net asset value (NAV) as of September 30 was $9.06 per share, down from $9.12 as of June 30, 2024, and $10.41 as of September 30, 2023 [45] - Total investment income for the third quarter was $25 million compared to $29 million in the prior year period [38] Business Line Data and Key Metrics Changes - The portfolio grew to $684 million, with 9 debt investments totaling $93 million funded during the quarter [15] - The debt portfolio yield was 15.9% for the quarter, down from 17.1% in the same quarter last year [39] - The company closed $173 million in new loan commitments and approvals, ending the quarter with a committed backlog of $190 million, up from $138 million at the end of Q2 [23] Market Data and Key Metrics Changes - Approximately $38 billion was invested in VC-backed companies in Q3, indicating a stable investment pace compared to 2023 [26] - The total exit value for Q3 was $10 billion, the lowest in five quarters, but there were signs of renewed interest in the life sciences market [27] - The company has a pipeline of over $1 billion in debt opportunities, indicating strong potential for future growth [29] Company Strategy and Development Direction - The company aims to grow its portfolio while maintaining a strong credit profile and maximizing the value of stressed investments [11] - A strategic partnership with Monroe Capital and Wendel Group is expected to enhance capital and scale, benefiting the company's investment strategies [13][14] - The company remains committed to sourcing high-quality investments to generate sustainable NII and build long-term shareholder value [32] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the venture lending market, citing a growing demand for venture debt capital and a strong pipeline of opportunities [12] - The macroeconomic environment is beginning to improve, which is expected to positively impact repayment activities and investment opportunities [43] - Management noted that while the overall VC ecosystem has been challenging, conditions are showing signs of improvement, particularly in the life sciences sector [30] Other Important Information - The company experienced 4 loan prepayments totaling $38 million, indicating an improving venture market [18] - The onboarding debt investment yield was 13.2%, remaining high compared to historical levels [20] - The company has no borrowings outstanding under its KeyBanc credit facility, providing ample capacity for portfolio growth [36] Q&A Session Summary Question: Update on non-accrual loans and timelines for resolutions - Management is working on various strategies for non-accruals, with some expected to resolve in Q4 and others potentially extending into H1 2025 [47] Question: Details on resolved non-accruals - One non-accrual, Nexii, was sold to a high-quality buyer, and the company retains debt and equity in the new entity [49] Question: Outlook on the improving market and pipeline - The market is believed to be improving, with a strong pipeline of quality opportunities, although it is still early to predict consistency [55] Question: Balance sheet management and cash utilization - The company plans to utilize cash on the balance sheet efficiently, balancing committed backlog and funding expectations [58] Question: Improvement in fair value of non-accrual Swift - Swift is undergoing stabilization with new capital, and management is working on strategies to maximize asset value [60] Question: ATM share issuance pace - The pace of ATM share sales is dictated by capital sources and funding needs, with expectations of fluctuations based on market conditions [63] Question: Strategy for improving stock price - The focus remains on delivering performance and growing the portfolio, which is believed to positively impact stock price [65] Question: Consideration of off-balance sheet vehicles - The company consistently evaluates off-balance sheet vehicles but currently has no plans in place [66] Question: NII generation and distribution coverage - The company aims to cover distributions with NII, factoring in costs and expected growth in the balance sheet [68]

Company Performance - Horizon Technology Finance reported quarterly earnings of $0.32 per share, missing the Zacks Consensus Estimate of $0.35 per share, and down from $0.53 per share a year ago, representing an earnings surprise of -8.57% [1] - The company posted revenues of $24.56 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 3.22%, and down from $29.14 million year-over-year [2] - Over the last four quarters, the company has surpassed consensus EPS estimates two times but has not beaten consensus revenue estimates [2] Stock Performance - Horizon Technology Finance shares have lost about 23.1% since the beginning of the year, contrasting with the S&P 500's gain of 22.1% [3] - The current consensus EPS estimate for the coming quarter is $0.32 on revenues of $25.62 million, and for the current fiscal year, it is $1.23 on revenues of $102.81 million [7] Industry Outlook - The Financial - SBIC & Commercial Industry, to which Horizon Technology Finance belongs, is currently in the bottom 19% of over 250 Zacks industries, indicating a challenging environment [8] - Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact stock performance [5]