Horizon Technology Finance(HRZN) - 2024 Q1 - Quarterly Results

Financial Performance 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 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] - Raised approximately $12.0 million in net proceeds from its "at-the-market" (ATM) offering program[8] Operating Results 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] - 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] - 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] Net Asset Value (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] Investment Portfolio 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 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] - The company held warrant, equity, and other investments in 103 portfolio companies with an aggregate fair value of $40.3 million[10] Portfolio Asset Quality 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] Liquidity Events 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] - Engage3, LLC paid its outstanding principal balance of $7.5 million, plus interest and fees[21] - NextCar Holding Company, Inc. made a principal paydown of $1.1 million on its venture loans[20] Capital Management and Shareholder Returns This section covers the company's capital structure, liquidity position, and shareholder return initiatives, including distributions and repurchases Liquidity and Capital Resources 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] - 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][15][16] Capitalization Ratios | Metric | Value | | :--- | :--- | | Net Debt to Equity Leverage Ratio | 116% | | Target Leverage Ratio | 120% | | Asset Coverage Ratio | 173% | Shareholder Activities and Distributions 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][28] - Undistributed spillover income was $1.30 per share as of March 31, 2024[28] - The board extended the $5.0 million stock repurchase program until June 30, 2025. No shares were repurchased in Q1 2024[23] Outlook and Corporate Information This section outlines management's perspective on the venture debt market, future investment strategy, and recent post-quarter developments Management Outlook 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] - Management sees positive market signs, including an increase in demand from quality companies, and seeks to grow the portfolio[3] - The primary focus remains on maximizing NAV and working through stressed investments[3] Recent Developments (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] - Received a $4.7 million principal paydown from Provivi, Inc. on April 1, 2024[25] - Funded a $0.5 million equity investment to Better Place Forests Co. on April 11, 2024[26] Consolidated Financial Statements 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 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 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 |