Horizon Technology Finance(HRZN) - 2024 Q2 - Quarterly Results

Second Quarter 2024 Financial Results Overview Horizon Technology Finance reports its Q2 2024 financial performance, highlighting key financial metrics and strategic operational achievements Financial & Operational Highlights 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][5] - 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] - Declared monthly distributions of $0.11 per share for October, November, and December 2024[5][27] Operating Results Detailed review of Q2 2024 operating performance, covering investment income, expenses, and net investment income Investment Income and Expenses 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] Net Investment Income (NII) 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 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] - 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] Portfolio and Investment Activity Summary of Horizon's investment portfolio, including its composition, yield, and recent investment and repayment activities Portfolio Summary 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] Investment Activity 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] - One liquidity event occurred during the quarter, which can include sales of warrants/equity, loan prepayments, or success fees[23][50] - Divergent Technologies, Inc. prepaid its outstanding principal balance of $33.8 million on its venture loan[10] Portfolio Asset Quality 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] - 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] Liquidity and Capital Resources Overview of Horizon's liquidity, capital position, and recent financing activities, including credit facilities and ATM offerings Liquidity and Capital Position 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] - A new $100 million senior secured credit facility was closed on June 21, 2024, further strengthening the balance sheet[1][46] - The company's ratio of debt net of cash to equity was 100%, which is below the target of 120%[49] - Raised approximately $17.1 million in total net proceeds from selling 1,516,249 shares under its "at-the-market" (ATM) offering program[5][48] Net Asset Value and Shareholder Activities Summary of Horizon's Net Asset Value (NAV) per share, distribution declarations, and stock repurchase program updates Net Asset Value (NAV) 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] Distributions 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][27] Stock Repurchase Program 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] - No shares of common stock were repurchased during the quarter ended June 30, 2024[12] Recent Developments (Subsequent to Quarter End) Key portfolio activities and strategic updates occurring after the second quarter's close, including loan prepayments and new investments Portfolio Activity After Quarter End 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] - MyForest Foods Co. prepaid $3.8 million[14] - Slingshot Aerospace, Inc. prepaid $20.0 million[25] - On July 30, 2024, the Company funded a new $25.0 million debt investment to a company providing home-based healthcare solutions[26] - 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] Financial Statements Presentation of Horizon's consolidated financial statements, including assets, liabilities, and operational results for the period Consolidated Statements of Assets and Liabilities 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 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 |