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]

Core Points - GT Medical Technologies, Inc. has secured a $35 million venture loan facility to support its strategic commercial and clinical expansion plans for GammaTile® [1][2][3] - The initial funding of $15 million has been provided by Horizon Technology Finance Corporation, which will enable the company to enhance access to care for patients with brain tumors [1][2][4] - GammaTile® is a targeted radiation therapy solution designed to reduce tumor recurrence by delivering radiation directly to the tumor cavity, minimizing damage to healthy tissue [4][6] Company Overview - GT Medical Technologies aims to improve the lives of patients with brain tumors and has developed GammaTile®, which is FDA-cleared for treating newly diagnosed and recurrent malignant intracranial neoplasms [6] - Since its market release in March 2020, GammaTile has been adopted by over 100 leading institutions, with ongoing expansion [6] Financial Partnership - The partnership with Horizon Technology Finance Corporation is expected to allow GT Medical Technologies to invest more resources into GammaTile and expand its commercial teams to reach more patients [6][4] - Horizon Technology Finance specializes in providing capital to venture-backed companies in various sectors, including healthcare [7]

Core Viewpoint - Horizon Technology Finance (NASDAQ:HRZN) continues to exhibit an unfavorable risk and reward profile, with deteriorating financial performance and significant challenges in the venture capital ecosystem [3][4][6] Financial Performance - Q2 2024 investment income was $26 million, down from $28 million in the prior year, translating to $0.36 per share compared to $0.54 per share in Q2 2023 [5] - NAV per share declined from $9.65 in Q1 2024 to $9.12 in Q2 2024, driven by high financing costs and a shrinking portfolio size [5] - The portfolio size decreased as loan repayments of $34 million outpaced new debt investments of $11 million during the quarter [5] Market Dynamics - The venture capital market is facing a significant lack of exit opportunities, impacting the ability of VC-backed companies to return capital to investors [5] - Current yield levels for new investments are lower than the overall portfolio yield, with onboarding yields at 13.7%, approximately 220 basis points below the portfolio average [5] Leverage and Risk - HRZN's debt to equity ratio stands at 1.36x, approximately 18% above the sector average, indicating elevated financial risk [5] - The company trades at a premium over NAV with a P/NAV of ~1.24x, allowing for potential share issuance to pay down debt and fund new investments [5] Dividend Coverage - Dividend coverage is at ~109%, providing minimal margin of safety, with expectations that HRZN may need to revisit its dividend policy by the end of 2024 or early 2025 [6]

Jonathan Kitchen Overview Horizon Technology Finance (NASDAQ:HRZN) operates as a business development company that generates its earnings through various forms of debt investments. HRZN has a public inception dating back to 2010, which means we have over a decade of performance to reference. The BDC is externally managed by its advisor Horizon Technology Finance Management and sports a management fee of 2% of gross assets. Looking back over the lifetime of HRZN, we can see that the price has depreciated by ...

What's Next for Horizon Technology Finance? It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.37 on $27.94 million in revenues for the coming quarter and $1.48 on $110.4 million in revenues for the current fiscal year. This business development company is expected to post quarterly earnings of $0.53 per share in its upcoming report, which represents a year-over-year change of -8.6%. The consensus EPS ...

Debt Investment Portfolio - As of June 30, 2024, the total fair value of the debt investment portfolio is $609.1 million, representing 94.2% of the total portfolio[244] - The largest debt investments at cost represented 24% of total debt investments outstanding as of June 30, 2024[245] - The biotechnology sector accounted for 18.2% of the debt investments at fair value as of June 30, 2024, up from 16.2% as of December 31, 2023[245] - The medical device sector represented 23.0% of the debt investments at fair value as of June 30, 2024, compared to 20.5% at the end of 2023[245] - The company’s debt investments are primarily secured by first liens, with 85.0% of the portfolio consisting of Senior Term Loans as of June 30, 2024[240] - As of June 30, 2024, 99% of the outstanding principal amount of debt investments bore interest at floating rates, compared to 94% as of December 31, 2023[349] Investment Activity - The company made new debt and equity investments totaling $12.1 million for the three months ended June 30, 2024, compared to $46.6 million for the same period in 2023[244] - The company received principal payments of $11.8 million on investments during the three months ended June 30, 2024[244] - The company’s total portfolio investment activity resulted in an ending portfolio value of $646.9 million as of June 30, 2024[244] - Average debt investments at fair value decreased by $45.3 million, or 6.6%, to $642.2 million for the three months ended June 30, 2024 compared to $687.5 million for the same period in 2023[249] - The company funded a $25.0 million debt investment to a new portfolio company, Hometeam Technologies, Inc. on July 30, 2024[345] Financial Performance - Total investment income decreased by $2.4 million, or 8.7%, to $25.7 million for the three months ended June 30, 2024 compared to the same period in 2023[250] - Net investment income for the three months ended June 30, 2024 was $12.9 million, down from $16.1 million in the same period of 2023, reflecting a decrease of 19.5%[249] - Total investment income for the six months ended June 30, 2024 was $51.8 million, down from $56.2 million in the same period of 2023[262] - Total investment income decreased by $4.3 million, or 7.7%, to $51.8 million for the six months ended June 30, 2024, compared to the same period in 2023[263] - Interest income on debt investments decreased by $3.5 million, or 6.5%, to $50.5 million for the six months ended June 30, 2024, primarily due to a decrease of $65.6 million, or 9.4%, in average earning debt investments[263] Expenses and Income - Total expenses increased by $0.5 million, or 4.6%, to $12.4 million for the three months ended June 30, 2024 compared to the same period in 2023[254] - Interest expense increased by $0.8 million, or 10.6%, to $7.9 million for the three months ended June 30, 2024 due to an increase in average borrowings[255] - Total expenses decreased by $1.2 million, or 4.3%, to $25.6 million for the six months ended June 30, 2024[266] - Interest expense increased by $1.8 million, or 12.6%, to $16.1 million for the six months ended June 30, 2024, due to an increase in average borrowings of $11.7 million, or 2.7%[267] Gains and Losses - Net realized gains on investments totaled $2.5 million for the three months ended June 30, 2024, compared to net losses of $16.5 million in the same period of 2023[260] - Net unrealized depreciation on investments totaled $24.5 million for the three months ended June 30, 2024, primarily due to the underperformance of certain portfolio companies[261] - Net realized gains on investments totaled $2.5 million for the six months ended June 30, 2024, compared to net losses of $16.7 million for the same period in 2023[272] - Net unrealized depreciation on investments totaled $28.5 million for the six months ended June 30, 2024, compared to $6.9 million for the same period in 2023[273] Cash and Borrowings - Cash and investments in money market funds increased to $113.7 million as of June 30, 2024, from $73.1 million as of December 31, 2023[274] - As of June 30, 2024, total borrowings outstanding were $715 million, with $442.7 million net after unamortized debt issuance costs[293] - The Key Facility was amended to increase the commitment amount to $150 million and extend the maturity date to June 20, 2029[294] - The NYL Facility had $181 million in notes issued as of June 30, 2024, with an interest rate of 6.34%[301] - The 2022 Asset-Backed Notes had an outstanding principal balance of $100 million as of June 30, 2024, with a fixed interest rate of 7.56%[307] Regulatory and Compliance - The company is regulated as a Business Development Company (BDC) and has elected to be treated as a Regulated Investment Company (RIC) for tax purposes[241] - The company is required to maintain asset coverage of at least 150% as a BDC, limiting the amount it may borrow[290] - The company intends to distribute all or substantially all of its investment company taxable income to remain subject to taxation as a RIC[290] Advisor and Management Fees - The Advisor earned $3.0 million in management fees for the three months ended June 30, 2024, down from $3.3 million in 2023[323] - For the six months ended June 30, 2024, the Advisor's management fees were $6.5 million, compared to $9.5 million in the same period of 2023[323] - Under the Administration Agreement, the Advisor earned $0.4 million for the three months ended June 30, 2024[325] - The Advisor's earnings under the Administration Agreement for the six months ended June 30, 2024, were $0.9 million, slightly up from $0.8 million in 2023[325] Other Financial Metrics - The weighted average credit rating of debt investments was 3.1 as of June 30, 2024, indicating a stable level of risk[246] - The company believes its current cash and cash generated from operations will be sufficient to meet working capital and capital expenditure commitments for at least the next 12 months[291] - Total contractual obligations amount to $599.216 million, with $197.871 million due within one year[314] - Unfunded commitments as of June 30, 2024, stand at $137.5 million, with no undrawn revolver commitments[314] Performance and Market Conditions - The company anticipates continued competition and potential impacts from economic trends, including inflation and supply chain disruptions[235] - The company expects that rising interest rates could materially affect net income due to increased borrowing costs[353] Non-Cash Income - For the three months ended June 30, 2024, 1.4% of total investment income was attributable to non-cash PIK interest, down from 3.4% in the same period of 2023[332] - For the six months ended June 30, 2024, 3.3% of total investment income was attributable to non-cash PIK interest, compared to 3.8% for the same period in 2023[332] - The proportion of total investment income from ETPs not received in cash increased to 6.6% for the three months ended June 30, 2024, from 3.1% in 2023[334] - For the six months ended June 30, 2024, the proportion of total investment income from ETPs not received in cash was 6.7%, up from 4.7% in 2023[334] Recent Transactions - MyForest Foods Co. prepaid its outstanding principal balance of $3.8 million on July 10, 2024, while Lemongrass Holdings, Inc. prepaid $6.3 million on July 11, 2024[342] - Slingshot Aerospace, Inc. prepaid its outstanding principal balance of $20.0 million on July 12, 2024[343] - The company recorded a fair value of $10.9 million for assets related to Nexiican Holdings Inc. following an asset purchase agreement[344]