[Second Quarter 2024 Financial Results Overview](index=1&type=section&id=Horizon%20Technology%20Finance%20Announces%20Second%20Quarter%202024%20Financial%20Results) Horizon Technology Finance reports its Q2 2024 financial performance, highlighting key financial metrics and strategic operational achievements [Financial & Operational Highlights](index=1&type=section&id=Second%20Quarter%202024%20Highlights) For the second quarter of 2024, Horizon Technology Finance reported Net Investment Income (NII) of $0.36 per share and a Net Asset Value (NAV) of $9.12 per share, maintaining a strong portfolio yield, securing a new credit facility, and declaring monthly distributions through December 2024, while remaining prudent in new originations Second Quarter 2024 Highlights | Metric | Value | | :--- | :--- | | Net Investment Income (NII) | $12.9 million, or $0.36 per share | | Total Investment Portfolio | $646.9 million | | Net Asset Value (NAV) | $328.8 million, or $9.12 per share | | Annualized Debt Portfolio Yield | 15.9% | | Undistributed Spillover Income | $1.28 per share | - The company strengthened its balance sheet by closing a new **$100 million** senior secured credit facility[1](index=1&type=chunk)[5](index=5&type=chunk) - Management noted a prudent approach to new originations in Q2, focusing on sourcing high-quality investments for the second half of the year, and expects a return to portfolio growth[52](index=52&type=chunk) - Declared monthly distributions of **$0.11 per share** for October, November, and December 2024[5](index=5&type=chunk)[27](index=27&type=chunk) [Operating Results](index=1&type=section&id=Second%20Quarter%202024%20Operating%20Results) Detailed review of Q2 2024 operating performance, covering investment income, expenses, and net investment income [Investment Income and Expenses](index=1&type=section&id=Investment%20Income%20and%20Expenses) Total investment income for Q2 2024 was $25.7 million, a decrease from $28.1 million in the prior-year period, primarily due to lower interest income, while total expenses rose slightly to $12.4 million from $11.9 million, driven by higher interest expense Investment Income and Expenses | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Total Investment Income | $25.7 million | $28.1 million | | Total Expenses | $12.4 million | $11.9 million | - The increase in total expenses was primarily due to a **$0.8 million** increase in interest expense[39](index=39&type=chunk) [Net Investment Income (NII)](index=1&type=section&id=Net%20Investment%20Income) Net investment income for the second quarter of 2024 was $12.9 million, or $0.36 per share, representing a decrease from the $16.1 million, or $0.54 per share, reported in the same quarter of the previous year Net Investment Income | Metric | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net Investment Income | $12.9 million | $16.1 million | | NII per Share | $0.36 | $0.54 | [Realized and Unrealized Gains/Losses](index=2&type=section&id=Realized%20and%20Unrealized%20Gains%2FLosses) In Q2 2024, the company recorded a net realized gain on investments of $2.5 million, a significant turnaround from a $16.5 million net realized loss in Q2 2023, but also experienced net unrealized depreciation of $24.5 million, compared to a small unrealized appreciation in the prior-year period - Net realized gain on investments was **$2.5 million** (**$0.07 per share**) for Q2 2024, compared to a net realized loss of **$16.5 million** (**$0.55 per share**) for Q2 2023[54](index=54&type=chunk) - Net unrealized depreciation on investments was **$24.5 million** (**$0.69 per share**) for Q2 2024, compared to net unrealized appreciation of **$0.6 million** (**$0.02 per share**) for the prior-year period[40](index=40&type=chunk) [Portfolio and Investment Activity](index=1&type=section&id=Portfolio%20Summary%20and%20Investment%20Activity) Summary of Horizon's investment portfolio, including its composition, yield, and recent investment and repayment activities [Portfolio Summary](index=1&type=section&id=Portfolio%20Summary) As of June 30, 2024, Horizon's total investment portfolio was valued at $646.9 million, with the debt portfolio, valued at $609.1 million, consisting of 54 secured loans and generating a dollar-weighted annualized yield of 15.9% for the quarter Portfolio Summary | Portfolio Metric | As of June 30, 2024 | | :--- | :--- | | Total Investment Portfolio (Fair Value) | $646.9 million | | Debt Portfolio (Fair Value) | $609.1 million | | Number of Secured Loans | 54 | | Warrant, Equity & Other Investments (Fair Value) | $37.8 million | | Number of Companies (Warrant/Equity) | 103 | - The dollar-weighted annualized yield on average debt investments for the quarter was **15.9%**, compared to **16.3%** for the quarter ended June 30, 2023[1](index=1&type=chunk) [Investment Activity](index=2&type=section&id=Investment%20Activity) During the second quarter, Horizon funded four new loans totaling $11.5 million, experienced significant principal repayments and early pay-offs amounting to $56.4 million, and one liquidity event from a portfolio company Investment Activity (Q2 2024) | Activity (Q2 2024) | Amount (in thousands) | | :--- | :--- | | New Debt and Equity Investments | $12,065 | | Principal Payments Received | ($11,803) | | Early Pay-offs and Principal Paydowns | ($44,610) | - The company funded four loans totaling **$11.5 million** during the quarter[5](index=5&type=chunk) - One liquidity event occurred during the quarter, which can include sales of warrants/equity, loan prepayments, or success fees[23](index=23&type=chunk)[50](index=50&type=chunk) - Divergent Technologies, Inc. prepaid its outstanding principal balance of **$33.8 million** on its venture loan[10](index=10&type=chunk) [Portfolio Asset Quality](index=2&type=section&id=Portfolio%20Asset%20Quality) The weighted average credit rating of Horizon's loan portfolio was 3.1 as of June 30, 2024, with the portion of the portfolio rated 1 (highest risk) increasing to 7.9% of fair value, comprising five investments in this category Credit Rating Distribution | Credit Rating | % of Debt Portfolio (Fair Value) as of June 30, 2024 | | :--- | :--- | | 4 (Highest Quality) | 27.5% | | 3 (Standard Risk) | 60.3% | | 2 (Increased Risk) | 4.3% | | 1 (Highest Risk) | 7.9% | - The loan portfolio maintained a weighted average credit rating of **3.1**, where 4 is the highest quality and 1 represents a high degree of risk[42](index=42&type=chunk) - As of June 30, 2024, there were five debt investments with the lowest internal credit rating of 1, with an aggregate fair value of **$48.0 million**[9](index=9&type=chunk) [Liquidity and Capital Resources](index=3&type=section&id=Liquidity%20and%20Capital%20Resources) Overview of Horizon's liquidity, capital position, and recent financing activities, including credit facilities and ATM offerings [Liquidity and Capital Position](index=3&type=section&id=Liquidity%20and%20Capital%20Position) As of June 30, 2024, Horizon had $150.3 million in available liquidity, including cash and available credit, with its leverage at 100% (debt net of cash to equity), below its target of 120%, having raised $17.1 million in net proceeds from its ATM offering program and added a new $100 million credit facility during the quarter - Total available liquidity was **$150.3 million**, comprising **$116.9 million** in cash and money market funds and **$33.4 million** available under credit facilities[43](index=43&type=chunk) - A new **$100 million** senior secured credit facility was closed on June 21, 2024, further strengthening the balance sheet[1](index=1&type=chunk)[46](index=46&type=chunk) - The company's ratio of debt net of cash to equity was **100%**, which is below the target of **120%**[49](index=49&type=chunk) - Raised approximately **$17.1 million** in total net proceeds from selling 1,516,249 shares under its "at-the-market" (ATM) offering program[5](index=5&type=chunk)[48](index=48&type=chunk) [Net Asset Value and Shareholder Activities](index=4&type=section&id=Net%20Asset%20Value%20and%20Shareholder%20Activities) Summary of Horizon's Net Asset Value (NAV) per share, distribution declarations, and stock repurchase program updates [Net Asset Value (NAV)](index=4&type=section&id=Net%20Asset%20Value) The company's Net Asset Value (NAV) per share was $9.12 as of June 30, 2024, a decrease from $11.07 per share a year prior and $9.71 at the end of 2023, resulting in a net decrease in net assets from operations for the quarter of $9.1 million Net Asset Value per Share | Date | NAV per Share | | :--- | :--- | | June 30, 2024 | $9.12 | | December 31, 2023 | $9.71 | | June 30, 2023 | $11.07 | - For Q2 2024, the net decrease in net assets resulting from operations was **$9.1 million**, or (**$0.26 per share**), compared to a net increase of **$0.2 million**, or **$0.01 per share**, in Q2 2023[24](index=24&type=chunk) [Distributions](index=4&type=section&id=Monthly%20Distributions) The Board of Directors declared monthly distributions of $0.11 per share for October, November, and December 2024, with the company's undistributed spillover income standing at $1.28 per share as of June 30, 2024 Monthly Distributions Declared | Payment Date | Amount per Share | | :--- | :--- | | October 16, 2024 | $0.11 | | November 14, 2024 | $0.11 | | December 13, 2024 | $0.11 | | **Total** | **$0.33** | - The company's undistributed spillover income was **$1.28 per share** as of June 30, 2024[5](index=5&type=chunk)[27](index=27&type=chunk) [Stock Repurchase Program](index=4&type=section&id=Stock%20Repurchase%20Program) The company's stock repurchase program was extended until June 30, 2025, or until $5.0 million of common stock is repurchased, with no shares repurchased during the second quarter of 2024 - The stock repurchase program was extended to June 30, 2025[12](index=12&type=chunk) - No shares of common stock were repurchased during the quarter ended June 30, 2024[12](index=12&type=chunk) [Recent Developments (Subsequent to Quarter End)](index=4&type=section&id=Recent%20Developments) Key portfolio activities and strategic updates occurring after the second quarter's close, including loan prepayments and new investments [Portfolio Activity After Quarter End](index=4&type=section&id=Portfolio%20Activity%20After%20Quarter%20End) Subsequent to the end of the second quarter, Horizon received principal prepayments from three portfolio companies totaling $30.1 million, and additionally funded a new $25.0 million debt investment to a healthcare solutions company - Several portfolio companies prepaid their outstanding loans after quarter end: - Lemongrass Holdings, Inc. prepaid **$6.3 million**[13](index=13&type=chunk) - MyForest Foods Co. prepaid **$3.8 million**[14](index=14&type=chunk) - Slingshot Aerospace, Inc. prepaid **$20.0 million**[25](index=25&type=chunk) - On July 30, 2024, the Company funded a new **$25.0 million** debt investment to a company providing home-based healthcare solutions[26](index=26&type=chunk) - An Asset Purchase Agreement involving Nexiican and Nexii closed on July 24, 2024, which was factored into the fair value determination of the investments as of June 30, 2024[15](index=15&type=chunk) [Financial Statements](index=6&type=section&id=Financial%20Statements) Presentation of Horizon's consolidated financial statements, including assets, liabilities, and operational results for the period [Consolidated Statements of Assets and Liabilities](index=6&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) As of June 30, 2024, Horizon reported total assets of $787.4 million, total liabilities of $458.6 million, and total net assets of $328.8 million, compared to total assets of $802.4 million and net assets of $324.0 million at the end of 2023 Consolidated Statements of Assets and Liabilities | (In thousands) | June 30, 2024 (unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Investments at Fair Value | $646,862 | $709,085 | | Total Assets | $787,405 | $802,356 | | Total Liabilities | $458,627 | $478,375 | | Total Net Assets | $328,778 | $323,981 | | NAV per Common Share | $9.12 | $9.71 | [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2024, the company's total investment income was $25.7 million, with net investment income of $12.9 million, and after accounting for a net realized and unrealized loss of $22.0 million, the net decrease in net assets from operations was $9.1 million Consolidated Statements of Operations | (In thousands, except per share data) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | | :--- | :--- | :--- | | Total Investment Income | $25,678 | $28,117 | | Net Investment Income | $12,914 | $16,073 | | Net Realized and Unrealized Loss | ($22,047) | ($15,921) | | Net (Decrease) Increase in Net Assets | ($9,133) | $152 | | NII per Share | $0.36 | $0.54 | | Net (Decrease) Increase in Net Assets per Share | ($0.26) | $0.01 |

Core Viewpoint - Horizon Technology Finance (NASDAQ:HRZN) has underperformed the BDC market by approximately 15% since December last year, primarily due to deteriorating fundamentals and risk exposures [1][2] Financial Performance - In Q1 2024, HRZN generated investment income of $26 million, down from $28 million in the prior period, driven by spread compression [3] - Interest expenses increased to $8.2 million from $7.1 million in Q1 2023, attributed to higher financing costs rather than increased debt volumes [3] - Net investment income for Q1 2024 was $0.38 per share, a decline from $0.45 per share in Q4 2023 and $0.46 per share in Q1 2023 [3] - Net Asset Value (NAV) decreased from $9.71 per share in the prior quarter to $9.64 per share [3] Investment Activity - HRZN closed $37 million in new loan commitments and approvals in Q1 2024, funding $32 million, which exceeded $20 million in total prepaid principal from existing loans [3] - The onboarding yield for Q1 investments was 13.4%, significantly lower than the total portfolio debt yield of 15.6% [3] Market Conditions - The current venture capital (VC) transaction environment is challenging, with new loan origination expected to progress slowly [3] - Despite some improvement in M&A and IPO markets, VC deal volumes remain low, potentially leading to negative net investment volumes in upcoming quarters [3] Portfolio Quality - The proportion of "category 1" investments, indicating deteriorating credit quality, increased from 4.1% to 7.6% of total portfolio value [3] - The likelihood of writing off these investments poses a significant risk to HRZN's net investment income generation [3] Investment Outlook - HRZN's current yield of 11.7% is considered insufficient given the associated risks, especially when compared to the sector average BDC yield of 11.6% [4] - The overall assessment indicates that there are better risk-reward opportunities in the BDC sector than investing in Horizon Technology Finance [4]

Core Viewpoint - Horizon Technology Finance (NASDAQ:HRZN) has seen a price decline of nearly 10% since the last coverage, prompting a reassessment of its investment potential, particularly in light of its high dividend yield and changing credit quality [1][3][29] Financial Performance - The current dividend yield for HRZN is 11.4%, with monthly distributions appealing to income-focused investors, especially those nearing retirement [3][21] - HRZN reported a net investment income (NII) per share of $0.38 for Q1, with total investment income at $26.1 million, indicating a coverage rate of 115% for its dividend [9][21] - The net asset value (NAV) per share has decreased from $11.34 in Q1 2023 to $9.64, attributed to a reduction in portfolio companies and an increase in non-accruals [12][29] Portfolio Composition - HRZN's portfolio consists of $711.1 million in debt investments, with an annualized yield of 15.6%, and over 90% of the portfolio is in senior secured debt, providing a layer of risk mitigation [5][8] - The largest industry exposures are in life sciences (39%) and technology (38%), with a focus on software, medical devices, and biotech [6][8] - The company has funded five loans totaling $33.5 million in Q1, which may contribute to future interest income and NAV growth [12] Interest Rate Environment - HRZN has capitalized on the higher interest rate environment by focusing on floating rate debt investments, which can increase income as rates rise [7][29] - However, the rising interest rates have also strained portfolio companies, leading to a decline in credit quality, with investments rated at the lowest quality (1) increasing from 4.1% to 7.6% [15][16] Valuation and Market Position - The share price has decreased from around $13 to the $11.50 range, currently trading at a premium to NAV of nearly 20%, which is more attractive compared to previous premiums [26][29] - The average Wall Street price target for HRZN is $10.54, indicating a potential downside of 8.8% to fair value, with the highest target at $15 and the lowest at $8.75 [28] Investment Outlook - Despite the drop in credit quality, HRZN continues to support its monthly distributions, and the current price presents a more favorable entry point for potential investors [29] - Current shareholders are advised to hold, while new investors should exercise caution due to the increased vulnerability of HRZN's investments in a prolonged high-interest rate environment [29]

Financial Data and Key Metrics Changes - The company's net investment income (NII) for Q1 2024 was $0.38 per share, down from $0.45 per share in Q4 2023 and $0.46 per share in Q1 2023 [41] - The debt portfolio yield was 15.6% for Q1 2024, compared to 16.3% for the same quarter last year [38] - Total expenses for the quarter were $13.1 million, a decrease from $14.8 million in Q1 2023 [39] Business Line Data and Key Metrics Changes - The company funded five debt investments totaling $33 million in Q1 2024, all to existing portfolio companies [21] - The committed backlog at the end of the quarter was $168 million, down from $218 million at the end of Q4 2023 [8] - The portfolio size grew slightly to $711 million, with 90% of the fair value consisting of three and four rated debt investments [20][23] Market Data and Key Metrics Changes - Approximately $37 billion was invested in VC-backed companies in Q1 2024, maintaining the pace seen in much of the previous year [11] - VC investment in later-stage companies declined by 36% from the same period in 2023, indicating ongoing concerns about overvaluation [11] - The venture capital exit activity remained low at $18 billion in Q1, but successful IPOs of companies like Reddit and Astera Labs provided some optimism [3] Company Strategy and Development Direction - The company aims to continue sourcing and originating new venture loans to high-quality companies while navigating the challenging environment [9] - The focus remains on credit quality and supporting portfolio companies to ensure optimal outcomes [48] - The company is positioned to take advantage of the improving IPO market and lower interest rates in the second half of 2024 [25] Management's Comments on Operating Environment and Future Outlook - Management noted that while the venture lending environment is challenging, there are signs of recovery and opportunities for growth [18] - The company expects modest prepayments in Q2 2024, driven by IPOs and M&A activity, although these remain below normal levels [4] - The management team expressed confidence in their ability to generate solid NII and build long-term shareholder value despite current market conditions [48] Other Important Information - The company had $91 million in available liquidity as of March 31, 2024, consisting of $71 million in cash and $20 million in funds available to be drawn [36] - The debt-to-equity ratio stood at 1.37 to 1, with net leverage at 1.16 to 1, indicating a stable financial position [37] - The NAV as of March 31, 2024, was $9.64 per share, down from $9.71 as of December 31, 2023 [66] Q&A Session Summary Question: Can you discuss the net unrealized losses for the quarter, particularly regarding the Evelo investment? - Management indicated that the Evelo investment was marked down due to a failed clinical trial, but there are significant opportunities for value recovery as they work closely with the company [53][54] Question: What is the status of the non-accruals, particularly Mexie and Mexcar? - Management stated that they are working to maximize the value of both non-accruals and noted some interest in their assets, with a potential recovery expected in the coming quarters [57][58] Question: Can you clarify the mix of the backlog between existing and new companies? - The backlog consists entirely of committed amounts to existing borrowers, primarily milestone-based [61] Question: How is the company competing in the current venture debt market? - Management emphasized their ability to compete on price and noted that they are not seeing direct competition from other lenders, as they focus on quality investments [82][84]

[PART I: FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%3A%20FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements for Horizon Technology Finance Corporation, including statements of assets, operations, cash flows, and investment schedules, along with explanatory notes [Item 1. Consolidated Financial Statements](index=4&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Horizon Technology Finance Corporation as of March 31, 2024, and for the three months then ended, including detailed schedules of investments and accompanying notes [Consolidated Statements of Assets and Liabilities](index=4&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) As of March 31, 2024, total assets were approximately $802.3 million, total liabilities decreased to $470.2 million, and total net assets increased to $332.1 million Consolidated Assets and Liabilities (in thousands) | Metric | March 31, 2024 (Unaudited) | December 31, 2023 | | :--- | :--- | :--- | | Total Investments at Fair Value | $711,116 | $709,085 | | Total Assets | $802,288 | $802,356 | | Total Liabilities | $470,167 | $478,375 | | Total Net Assets | $332,121 | $323,981 | | Net Asset Value per Common Share | $9.64 | $9.71 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2024, total investment income decreased to $26.1 million, while net investment income was $12.6 million, or $0.38 per share Q1 2024 vs. Q1 2023 Operations (in thousands, except per share data) | Metric | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Total Investment Income | $26,129 | $28,037 | | Total Expenses | $13,145 | $14,842 | | Net Investment Income | $12,605 | $13,011 | | Net Realized and Unrealized Loss | ($3,952) | ($7,705) | | Net Increase in Net Assets from Operations | $8,653 | $5,306 | | Net Investment Income per Share | $0.38 | $0.46 | | Net Increase in Net Assets per Share | $0.26 | $0.19 | [Consolidated Statements of Changes in Net Assets](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets increased from $324.0 million at December 31, 2023, to $332.1 million at March 31, 2024, driven by operations and stock issuance, partially offset by distributions Changes in Net Assets for Q1 2024 (in thousands) | Description | Amount | | :--- | :--- | | Balance at December 31, 2023 | $323,981 | | Issuance of common stock, net | $11,972 | | Net increase from operations | $8,653 | | Issuance of common stock (DRIP) | $619 | | Distributions declared | ($13,104) | | **Balance at March 31, 2024** | **$332,121** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended March 31, 2024, net cash provided by operating activities decreased to $4.0 million, while net cash used in financing activities was $8.4 million Cash Flow Summary for Q1 2024 vs. Q1 2023 (in thousands) | Cash Flow Activity | Three Months Ended Mar 31, 2024 | Three Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $4,041 | $12,730 | | Net Cash (Used in) from Financing Activities | ($8,430) | $3,333 | | Net (Decrease) Increase in Cash | ($4,389) | $16,063 | | **Cash, Cash Equivalents and Restricted Cash, End of Period** | **$71,333** | **$46,529** | [Consolidated Schedules of Investments](index=8&type=section&id=Consolidated%20Schedules%20of%20Investments) As of March 31, 2024, the total investment portfolio had a fair value of $711.1 million, primarily composed of debt investments concentrated in the Life Science and Technology sectors Investment Portfolio Composition by Type (Fair Value, in thousands) | Investment Type | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Debt | $670,773 | $670,172 | | Warrants | $23,928 | $24,594 | | Other | $9,192 | $6,430 | | Equity | $7,223 | $7,889 | | **Total Investments** | **$711,116** | **$709,085** | Investment Portfolio by Industry Sector (Fair Value, in thousands) | Industry Sector | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Life Science | $285,896 | $262,800 | | Technology | $294,367 | $300,661 | | Sustainability | $71,068 | $80,383 | | Healthcare Information and Services | $71,385 | $71,641 | | **Total Investments** | **$711,116** | **$709,085** | [Notes to the Consolidated Financial Statements](index=36&type=section&id=Notes%20to%20the%20Consolidated%20Financial%20Statements) The notes provide detailed explanations of the company's accounting policies and financial statement items, including fair value measurement, related party transactions, borrowings, and distribution policies - The company is an externally managed BDC that has elected to be treated as a RIC for tax purposes, primarily making secured debt investments in development-stage companies[78](index=78&type=chunk) - As of March 31, 2024, **four investments were on non-accrual status** with a total cost of **$96.0 million** and a fair value of **$51.0 million**[98](index=98&type=chunk) - The company sold **1,053,796 shares of common stock** under its At-The-Market (ATM) sales agreement during Q1 2024, receiving net proceeds of approximately **$12.0 million**[115](index=115&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=63&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and results of operations for the first quarter of 2024, covering portfolio composition, investment activity, asset quality, operating results, liquidity, and capital resources [Portfolio Composition and Investment Activity](index=65&type=section&id=Portfolio%20composition%20and%20investment%20activity) As of March 31, 2024, the total portfolio fair value was $711.1 million, with debt investments constituting 94.3% and net new investments totaling $23.3 million during the quarter Portfolio Investment Activity for Q1 2024 (in thousands) | Activity | Amount | | :--- | :--- | | Beginning Portfolio (Fair Value) | $709,085 | | Net New Debt and Equity Investments | $23,319 | | Principal Payments & Paydowns | ($19,643) | | Net Realized/Unrealized Changes | ($3,952) | | **Ending Portfolio (Fair Value)** | **$711,116** | [Debt Investment Asset Quality](index=66&type=section&id=Debt%20investment%20asset%20quality) As of March 31, 2024, the weighted average credit rating of the debt portfolio was 3.1, with 90.2% of the portfolio by fair value rated 3 or 4, while four investments were rated 1 and on non-accrual status Debt Investment Credit Rating Distribution (by Fair Value) | Credit Rating | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | 4 (Highest Quality) | 29.5% | 22.4% | | 3 (Standard Risk) | 60.7% | 67.6% | | 2 (Increased Risk) | 2.2% | 5.9% | | 1 (High Risk) | 7.6% | 4.1% | [Consolidated Results of Operations](index=67&type=section&id=Consolidated%20results%20of%20operations) For Q1 2024, total investment income decreased by 6.8% to $26.1 million, while total expenses fell 11.4% to $13.1 million, resulting in net investment income of $12.6 million - The decrease in performance-based incentive fee expense was due to the Incentive Fee Cap and Deferral Mechanism, which resulted in a **$2.3 million reduction in expense** for Q1 2024[243](index=243&type=chunk) - Net unrealized depreciation on investments was **$4.0 million in Q1 2024**, an improvement from a **$7.5 million depreciation in Q1 2023**[247](index=247&type=chunk) [Liquidity and Capital Resources](index=70&type=section&id=Liquidity%20and%20capital%20resources) As of March 31, 2024, the company had $68.8 million in cash, total outstanding borrowings of $452.5 million, and an asset coverage ratio of 173%, indicating sufficient liquidity Borrowings Outstanding (in thousands) | Facility | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Key Facility | $60,000 | $70,000 | | NYL Facility | $181,000 | $181,000 | | 2022 Asset-Backed Notes | $100,000 | $100,000 | | 2027 Notes | $57,500 | $57,500 | | 2026 Notes | $57,500 | $57,500 | | **Total before debt issuance costs** | **$456,000** | **$466,000** | - As of March 31, 2024, the company had unfunded commitments to portfolio companies totaling **$168.2 million**[200](index=200&type=chunk)[280](index=280&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=82&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to interest rate risk, with 94% of its debt investments having floating interest rates, and a 100 basis point increase in rates would increase annual net assets from operations by approximately $5.1 million Interest Rate Sensitivity Analysis (Annual Impact, in thousands) | Change in Basis Points | Change in Net Assets | | :--- | :--- | | Up 300 | $15,295 | | Up 100 | $5,116 | | Down 100 | ($3,597) | | Down 300 | ($9,770) | - The company's credit facilities have floating interest rates, while its 2026, 2027, and 2022 notes have fixed rates, creating a mixed exposure to interest rate changes on the liability side[314](index=314&type=chunk) [Item 4. Controls and Procedures](index=83&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures as of March 31, 2024, and concluded they were effective with no material changes in internal control over financial reporting - The CEO and CFO concluded that disclosure controls and procedures were **effective** as of the end of the period[318](index=318&type=chunk) [PART II: OTHER INFORMATION](index=83&type=section&id=PART%20II%3A%20OTHER%20INFORMATION) This section covers other required disclosures, including legal proceedings, risk factors, and various other items such as equity sales and defaults [Item 1. Legal Proceedings](index=83&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings, nor is it aware of any threatened material legal proceedings against it - The company reports **no material legal proceedings** as of the filing date[320](index=320&type=chunk) [Item 1A. Risk Factors](index=83&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - **No material changes to risk factors** were reported for the quarter ended March 31, 2024[321](index=321&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=84&type=section&id=Other%20Items%20%28Items%202%2C%203%2C%204%2C%205%2C%206%29) This section covers other required disclosures, including no unregistered sales of equity securities, no defaults upon senior securities, and no director or executive officer trading plan adoptions or terminations - The company reports **'None'** for Item 2 (Unregistered Sales of Equity Securities) and Item 3 (Defaults Upon Senior Securities)[322](index=322&type=chunk)[323](index=323&type=chunk)

[Financial Performance](index=1&type=section&id=Financial%20Performance) This section details Horizon Technology Finance's Q1 2024 financial results, including net investment income, net asset value, and key operating metrics [Q1 2024 Financial Highlights](index=1&type=section&id=Q1%202024%20Financial%20Highlights) In the first quarter of 2024, Horizon Technology Finance reported Net Investment Income (NII) of $0.38 per share and a Net Asset Value (NAV) of $9.64 per share. The debt portfolio yielded 15.6%, and the company ended the quarter with a committed backlog of $168 million and significant available liquidity Key Financial Metrics | Metric | Value | | :--- | :--- | | Net Investment Income (NII) per Share | $0.38 | | Net Asset Value (NAV) per Share | $9.64 | | Annualized Debt Portfolio Yield | 15.6% | | Total Investment Portfolio | $711.1 million | | Undistributed Spillover Income per Share | $1.30 | | Liquidity (Cash + Credit Facility) | $230.3 million | - The company funded **five new loans totaling $33.5 million** during the quarter[8](index=8&type=chunk) - Raised approximately **$12.0 million in net proceeds** from its "at-the-market" (ATM) offering program[8](index=8&type=chunk) [Operating Results](index=1&type=section&id=Operating%20Results) Total investment income for Q1 2024 was $26.1 million, a decrease from $28.0 million year-over-year, primarily due to lower interest income. Total expenses fell to $13.1 million from $14.8 million, largely driven by a $2.7 million decrease in performance-based incentive fees. This resulted in a Net Investment Income (NII) of $12.6 million, or $0.38 per share Consolidated Operating Performance | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Investment Income | $26.1 million | $28.0 million | | Total Expenses | $13.1 million | $14.8 million | | Net Investment Income (NII) | $12.6 million | $13.0 million | | NII per Share | $0.38 | $0.46 | - The dollar-weighted annualized yield on average debt investments was **15.6% for Q1 2024**, compared to 16.3% for Q1 2023[5](index=5&type=chunk) - The decrease in expenses was primarily due to a **$2.7 million reduction in performance-based incentive fees** resulting from an Incentive Fee Cap[6](index=6&type=chunk) - The company recorded net unrealized depreciation on investments of **$4.0 million ($0.12 per share)**, an improvement from the $7.5 million ($0.26 per share) recorded in the prior-year period[9](index=9&type=chunk) [Net Asset Value (NAV)](index=4&type=section&id=Net%20Asset%20Value%20(NAV)) As of March 31, 2024, the company's Net Asset Value (NAV) was $332.1 million, or $9.64 per share. This represents a slight decrease from $9.71 per share at the end of 2023 and a more significant decline from $11.34 per share as of March 31, 2023. The net increase in net assets from operations for the quarter was $8.7 million Net Asset Value Trends | Date | Net Assets | NAV per Share | | :--- | :--- | :--- | | March 31, 2024 | $332.1 million | $9.64 | | December 31, 2023 | $324.0 million | $9.71 | | March 31, 2023 | $321.7 million | $11.34 | - For Q1 2024, the net increase in net assets resulting from operations was **$8.7 million, or $0.26 per share**, compared to $5.3 million, or $0.19 per share, for Q1 2023[22](index=22&type=chunk) [Investment Portfolio](index=2&type=section&id=Investment%20Portfolio) This section provides an overview of the company's investment portfolio, detailing its composition, activity, asset quality, and liquidity events [Portfolio Summary and Investment Activity](index=2&type=section&id=Portfolio%20Summary%20and%20Investment%20Activity) The total investment portfolio was valued at $711.1 million as of March 31, 2024, consisting of a $670.8 million debt portfolio across 54 secured loans and $40.3 million in warrant, equity, and other investments. During the quarter, net new investments amounted to $23.3 million Investment Portfolio Activity (Q1 2024) | Portfolio Activity (Q1 2024) | Amount (in thousands) | | :--- | :--- | | Beginning Portfolio | $709,085 | | New Investments | $34,569 | | Principal Payments & Pay-offs | ($19,643) | | Net Unrealized Depreciation | ($3,960) | | Ending Portfolio | $711,116 | - As of March 31, 2024, the debt portfolio consisted of **54 secured loans** with a fair value of **$670.8 million**[10](index=10&type=chunk) - The company held warrant, equity, and other investments in **103 portfolio companies** with an aggregate fair value of **$40.3 million**[10](index=10&type=chunk) [Portfolio Asset Quality](index=2&type=section&id=Portfolio%20Asset%20Quality) The loan portfolio maintained a weighted average credit rating of 3.1 (on a 4-point scale, with 4 being the highest quality). 90.2% of the portfolio by fair value was rated 3 or 4, indicating a standard or better level of risk. However, the fair value of loans rated 1 (highest risk) increased from $27.6 million to $51.0 million during the quarter Loan Portfolio Credit Quality | Credit Rating | Fair Value (Mar 31, 2024) | % of Portfolio | Fair Value (Dec 31, 2023) | % of Portfolio | | :--- | :--- | :--- | :--- | :--- | | 4 (Highest Quality) | $198.0M | 29.5% | $150.4M | 22.4% | | 3 (Standard Risk) | $407.2M | 60.7% | $452.9M | 67.6% | | 2 (Increased Risk) | $14.5M | 2.2% | $39.3M | 5.9% | | 1 (Highest Risk) | $51.0M | 7.6% | $27.6M | 4.1% | | **Total** | **$670.8M** | **100.0%** | **$670.2M** | **100.0%** | - As of March 31, 2024, there were **four debt investments with the highest risk rating (1)**, with an aggregate cost of $96.0 million and an aggregate fair value of **$51.0 million**[12](index=12&type=chunk) [Liquidity Events](index=4&type=section&id=Liquidity%20Events) During Q1 2024, Horizon experienced liquidity events from three portfolio companies. These included full loan repayments from Ceribell, Inc. and Engage3, LLC, and a principal paydown from NextCar Holding Company, Inc - Ceribell, Inc. paid its outstanding principal balance of **$11.2 million**[20](index=20&type=chunk) - Engage3, LLC paid its outstanding principal balance of **$7.5 million**, plus interest and fees[21](index=21&type=chunk) - NextCar Holding Company, Inc. made a principal paydown of **$1.1 million** on its venture loans[20](index=20&type=chunk) [Capital Management and Shareholder Returns](index=1&type=section&id=Capital%20Management%20and%20Shareholder%20Returns) This section covers the company's capital structure, liquidity position, and shareholder return initiatives, including distributions and repurchases [Liquidity and Capital Resources](index=3&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2024, Horizon had $90.7 million in available liquidity, comprising $71.3 million in cash and money market funds and $19.4 million available under its credit facilities. The company's net debt-to-equity leverage ratio was 116%, below its target of 120%, with an asset coverage ratio of 173% - Total available liquidity as of March 31, 2024 was **$90.7 million**, consisting of **$71.3 million in cash and money market funds**, and **$19.4 million in available credit**[13](index=13&type=chunk) - Total borrowings outstanding were **$441.0 million** as of quarter-end, including balances on a revolving credit facility, a senior secured debt facility, and Asset-Backed Notes[14](index=14&type=chunk)[15](index=15&type=chunk)[16](index=16&type=chunk) Capitalization Ratios | Metric | Value | | :--- | :--- | | Net Debt to Equity Leverage Ratio | 116% | | Target Leverage Ratio | 120% | | Asset Coverage Ratio | 173% | [Shareholder Activities and Distributions](index=1&type=section&id=Shareholder%20Activities%20and%20Distributions) The company raised $12.0 million in net proceeds via its ATM offering in Q1. The board declared monthly distributions of $0.11 per share for July, August, and September 2024. As of quarter-end, undistributed spillover income was $1.30 per share. The stock repurchase program was extended, although no shares were repurchased during the quarter Declared Monthly Distributions | Ex-Dividend Date | Record Date | Payment Date | Amount per Share | | :--- | :--- | :--- | :--- | | June 17, 2024 | June 17, 2024 | July 16, 2024 | $0.11 | | July 17, 2024 | July 17, 2024 | August 15, 2024 | $0.11 | | August 16, 2024 | August 16, 2024 | September 13, 2024 | $0.11 | - The company's NII of **$0.38 per share** for the quarter exceeded the paid distributions of $0.33 per share[3](index=3&type=chunk)[28](index=28&type=chunk) - Undistributed spillover income was **$1.30 per share** as of March 31, 2024[28](index=28&type=chunk) - The board extended the **$5.0 million stock repurchase program** until June 30, 2025. No shares were repurchased in Q1 2024[23](index=23&type=chunk) [Outlook and Corporate Information](index=1&type=section&id=Outlook%20and%20Corporate%20Information) This section outlines management's perspective on the venture debt market, future investment strategy, and recent post-quarter developments [Management Outlook](index=1&type=section&id=Management%20Outlook) Management characterized the current venture debt environment as challenging, prompting a selective approach to new originations. Despite this, they observe positive market signs, such as increasing demand from quality companies, and intend to grow the portfolio cautiously while maintaining a primary focus on maximizing Net Asset Value (NAV) - The company was **selective with new originations** due to the challenging venture debt environment[3](index=3&type=chunk) - Management sees positive market signs, including an **increase in demand from quality companies**, and seeks to grow the portfolio[3](index=3&type=chunk) - The primary focus remains on **maximizing NAV** and working through stressed investments[3](index=3&type=chunk) [Recent Developments (Post-Q1)](index=4&type=section&id=Recent%20Developments%20(Post-Q1)) Subsequent to the quarter's end in April 2024, the company raised an additional $5.8 million through its ATM program. It also received principal paydowns from Provivi, Inc. ($4.7 million) and Camp NYC, Inc. ($1.0 million), and made a $0.5 million equity investment in an existing portfolio company - In April 2024, raised an additional **$5.8 million in net proceeds** from the ATM program[24](index=24&type=chunk) - Received a **$4.7 million principal paydown** from Provivi, Inc. on April 1, 2024[25](index=25&type=chunk) - Funded a **$0.5 million equity investment** to Better Place Forests Co. on April 11, 2024[26](index=26&type=chunk) [Consolidated Financial Statements](index=6&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's consolidated balance sheet and statement of operations, detailing assets, liabilities, and income for the period [Consolidated Statements of Assets and Liabilities](index=6&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) As of March 31, 2024, Horizon's total assets were $802.3 million, slightly down from $802.4 million at year-end 2023. Total liabilities decreased to $470.2 million from $478.4 million, leading to an increase in total net assets to $332.1 million from $324.0 million Consolidated Balance Sheet | (in thousands) | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Total investments at fair value | $711,116 | $709,085 | | Cash and money market funds | $71,333 | $75,722 | | **Total Assets** | **$802,288** | **$802,356** | | **Liabilities** | | | | Borrowings | $452,490 | $462,235 | | **Total Liabilities** | **$470,167** | **$478,375** | | **Total Net Assets** | **$332,121** | **$323,981** | | **NAV per Share** | **$9.64** | **$9.71** | [Consolidated Statements of Operations](index=7&type=section&id=Consolidated%20Statements%20of%20Operations) For the three months ended March 31, 2024, the company generated $26.1 million in total investment income. After total expenses of $13.1 million, net investment income was $12.6 million. A net realized and unrealized loss of $4.0 million resulted in a net increase in net assets from operations of $8.7 million for the quarter Consolidated Income Statement | (in thousands) | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total Investment Income | $26,129 | $28,037 | | Total Expenses | $13,145 | $14,842 | | **Net Investment Income** | **$12,605** | **$13,011** | | Net Realized/Unrealized Loss | ($3,952) | ($7,705) | | **Net Increase in Net Assets** | **$8,653** | **$5,306** | | **NII per Share** | **$0.38** | **$0.46** |

Klaus VedfeltHorizon Technology Finance Corporation (NASDAQ:HRZN) is a well-managed business development company with a strict focus on technology and life science investments. The BDC’s stock has suffered weakness in 2024 as the market has grown more concerned with investment losses in the sector. With that being said, though, I think that the dividend is well-covered by net investment income and that the BDC makes a much better value proposition today than it did at the end of 2023, primarily because ...

Financial Data and Key Metrics Changes - The company generated net investment income (NII) of $1.98 per share for the full year 2023, exceeding the declared distribution level of $1.37 per share, primarily due to higher interest rates on floating rate debt investments [10][41] - The net asset value (NAV) declined to $9.71 per share as of December 31, 2023, down from $10.41 per share as of September 30, 2023, and $11.47 per share as of December 31, 2022, mainly due to fair value markdowns of investments [23][72] - The company declared monthly distributions of $0.11 per share for April, May, and June 2024, along with a special distribution of $0.05 per share payable in April [24][72] Business Line Data and Key Metrics Changes - The portfolio size decreased slightly to $709 million in the fourth quarter, with new originations of $63 million offset by prepayments and markdowns [25][71] - The debt portfolio yield was 16.8% for the fourth quarter and 16.6% for the full year, one of the highest in the Business Development Company (BDC) industry [13][54] - The company funded six investments totaling $63 million in the fourth quarter, including debt investments to three new and three existing portfolio companies [12] Market Data and Key Metrics Changes - Venture capital investment activity in 2023 was the lowest in four years, with approximately $171 billion invested, reflecting ongoing market issues related to valuations [60] - VC fundraising also hit a six-year low at $67 billion in 2023, as the exit markets remained largely closed [61] - The company expects a gradual increase in demand for venture debt in 2024 as market conditions improve [63] Company Strategy and Development Direction - The company aims to prudently grow its portfolio of debt investments while maximizing the value of its current investments [24][34] - The focus remains on sourcing and originating new debt investments to take advantage of market opportunities, particularly in sectors like AI and life sciences [30][34] - The company plans to maintain a disciplined approach to structuring and pricing transactions to continue generating strong NII [13][41] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenging venture capital environment in 2023 but expressed optimism for gradual improvement in 2024, particularly in sectors with strong investor interest [30][99] - The management highlighted the importance of maintaining close relationships with portfolio companies to navigate the uncertain macro environment [59][100] - There are indications of improving market conditions, with an increase in public life science IPOs and some M&A activity observed [99] Other Important Information - The company raised nearly $39 million in net proceeds from a common stock offering in June 2023, strengthening its balance sheet [37] - The debt-to-equity ratio stood at 1.4:1 as of December 31, 2023, with a target leverage of 1.2:1 [68] - The company completed its first co-investment with Monroe Capital in December, which is expected to enhance its ability to originate quality venture debt investments [55] Q&A Session Summary Question: Update on portfolio companies and recent sales - Management confirmed that Nexii is undergoing a restructuring process and is expected to find a new home soon [77] Question: Outlook for leverage ratio and ATM use - The company plans to assess capital needs and activity levels to determine the use of ATM and leverage going forward [80][93] Question: Comments on stressed assets and market dynamics - Management noted that both market-wide issues and idiosyncratic problems within portfolio companies have contributed to the stress observed [96] Question: Potential for G&A cost savings from Monroe acquisition - Management indicated that there may be incremental G&A cost savings from the acquisition of the Monroe platform [101] Question: Consideration of excise tax in spillover distribution - The company considers the excise tax implications when planning spillover distributions, but it is not a significant expense [108]

Investment Strategy and Portfolio Management - The company intends to invest at least 80% of the value of its total assets in technology-related companies within its Target Industries[36] - The company employs a disciplined underwriting process that includes extensive financial analysis and validation from multiple sources to mitigate risks[39] - The company aims to balance its investment portfolio to reduce risks associated with market cycles by regularly reviewing investment criteria[39] - The company has a robust direct origination capability, sourcing transactions from various industry contacts and referrals[39] - The company’s ability to achieve its investment objectives depends on the Advisor's origination capabilities and disciplined underwriting process[160] - The investment strategy focuses on development-stage companies, which are typically rated below "investment grade" and may face significant volatility and competition[177] 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[71] - The incentive fee is 20.00% of Pre-Incentive Fee Net Investment Income exceeding a hurdle rate of 1.75%[72] - The incentive fee includes a "catch-up" provision, allowing the Advisor to receive 100.00% of the Pre-Incentive Fee Net Investment Income above the hurdle rate[75] - Cumulative incentive compensation accrued and/or paid since July 1, 2014, amounts to $9,000,000[84] - Pre-Incentive Fee Net Investment Income is 2.10%, exceeding the hurdle rate of 1.75%[85] - An incentive fee of 0.35% is applicable as Pre-Incentive Fee Net Investment Income exceeds the hurdle rate but does not fully satisfy the "catch-up" provision[85] - 20.0% of cumulative net increase in net assets resulting from operations since July 1, 2014 is $10,000,000[86] Regulatory Compliance and Governance - The company is regulated as a BDC under the 1940 Act, adhering to specific regulatory requirements[100] - The company must ensure that qualifying assets represent at least 70% of total assets at the time of acquisition[106] - The company must distribute dividends at least equal to 90% of ordinary income and realized net short-term capital gains to maintain RIC status[128] - To avoid a 4% nondeductible federal excise tax, the company must distribute dividends equal to 98% of ordinary income and 98.2% of capital gains[128] - If the company qualifies as a RIC and satisfies the Annual Distribution Requirement, it will not be subject to entity-level income taxes on distributed investment company taxable income[129] - The company has adopted written policies and procedures to prevent violations of federal securities laws and designated a chief compliance officer[105] - The company intends to comply with Nasdaq corporate governance regulations and monitor compliance with future listing standards[123] - The company must derive at least 90% of its gross income from qualified sources to maintain its status as a BDC[130] Risks and Challenges - The company is exposed to risks associated with changes in interest rates, which could impact investment returns[138] - The company may face challenges in raising additional capital, which is essential for growth[138] - The lack of liquidity in investments may adversely affect the company's ability to meet obligations[138] - Economic downturns may lead to increased non-performing assets and decreased portfolio value, potentially resulting in financial losses and reduced revenues[174] - The company may not be able to manage future growth effectively, which could adversely affect its business and financial condition[160] - The unpredictable borrowing needs of portfolio companies may exceed expected funding requirements, impacting the company's reputation and lending activity[191] Portfolio Company Characteristics and Risks - The company’s portfolio companies typically require substantial additional financing, which may not be readily available, increasing the risk of loss[170] - Portfolio companies may incur debt that ranks equally with or senior to the company's investments, affecting repayment priority[186] - Portfolio companies in the technology industry are subject to intense competition and rapid technological changes, which may affect their ability to innovate and meet user needs[197] - Life science portfolio companies must navigate extensive government regulations and face risks related to product development, including the need for significant R&D and regulatory approvals[200] - Intellectual property rights are crucial for portfolio companies, and failure to protect these rights could harm business prospects and investment value[213] Advisor and Management Relationships - The company has developed strong relationships with venture capital and private equity investors, enhancing its competitive position in the market[41] - The Advisor maintains a "hands on" approach, contacting portfolio companies at least quarterly for operational and financial updates[61] - The Advisor's allocation policy may limit the company's ability to invest in certain issuers, potentially restricting investment opportunities[155] - The company relies heavily on the Advisor's referral relationships to generate investment opportunities, and failure to maintain these relationships could adversely affect its business[162] Investment Characteristics and Valuation - The company may invest in foreign portfolio companies, which could involve greater risks such as less publicly available information and varying levels of governmental regulation[217] - The company is subject to risks associated with investments having original issue discount (OID) and payment-in-kind (PIK) features, which may reflect increased credit risk and unreliable valuations[221][222] - The value of collateral securing debt investments may decrease, leading to potential losses upon foreclosure[180] - A substantial portion of assets securing investments may be in intellectual property, which could lose value if rights are challenged[181]

Financial Data and Key Metrics Changes - The company reported net investment income (NII) of $0.53 per share for Q3 2023, an increase from $0.43 per share in Q3 2022 [101] - The net asset value (NAV) decreased to $10.41 per share as of September 30, 2023, down from $11.07 per share as of June 30, 2023 [104] - Total investment income for the third quarter was $29 million, a 25% increase compared to the prior year period [14] Business Line Data and Key Metrics Changes - The loan portfolio yield was 17.1% for Q3 2023, compared to 15.9% for the same period last year [15] - New originations totaled $88 million during the quarter, with a total investment portfolio of $729 million at the end of Q3 [16][25] - The company maintained a healthy pipeline with a committed and approved backlog of $202 million, up from $159 million at the end of Q2 [88] Market Data and Key Metrics Changes - VC-backed companies faced challenges in raising new capital, with only $9 billion raised in Q3 2023, marking a nine-year low [98] - The exit market for VC-backed companies remained largely closed, impacting the ability of companies to fund operations and growth [9][28] - M&A activity in the life sciences market is expected to increase as big pharma companies seek new drugs, potentially leading to significant acquisitions [99] Company Strategy and Development Direction - The company plans to remain selective in originating new debt investments due to the challenging macro environment [6][11] - Focus on preserving the value and quality of the current portfolio while seeking high-quality new investments [12][29] - The company aims to generate solid NII for shareholders and additional long-term shareholder value through disciplined investment strategies [12][95] Management's Comments on Operating Environment and Future Outlook - Management expressed a cautious outlook, anticipating continued challenges in the investment environment into early 2024 [99] - The company is focused on credit quality and providing support to portfolio companies to navigate the current market conditions [4][12] - Management noted that the ability of VC-backed companies to raise capital is under significant stress, impacting their operational decisions [9][76] Other Important Information - The company raised an additional $14 million through its ATM program, enhancing its investment capacity [13] - Interest expense increased to $7.1 million from $5.3 million in the previous year due to higher average borrowings and interest rates [15] - The company has a potential new investment capacity of $241 million as of September 30, 2023 [14] Q&A Session Summary Question: Update on NextCar and Nexii Building investments - Management indicated that NextCar continues to raise capital but is facing challenges due to closed exit markets [35][36] - Nexii is also internally funded and has overseas contracts, but is seeking better exit opportunities [42] Question: Incremental investments in Evelo - No incremental investments were made in Evelo in Q4, and the company received an additional $11 million paydown following disappointing trial results [40][41] Question: Fair value decline for NextCar and Nexii - The decline in fair values for both companies was attributed to deteriorating exit opportunities rather than operational issues [64][76] Question: Lessons learned from Evelo investment - Management emphasized the importance of a broad-based technology platform and multiple drug candidates when underwriting life science companies [68][70] Question: Selectivity in new investments - The company is remaining selective due to market dynamics, with current leverage levels below target [71][72]