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

PART I: FINANCIAL INFORMATION 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 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 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 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 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 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 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 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] - 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] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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 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 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] - Net unrealized depreciation on investments was $4.0 million in Q1 2024, an improvement from a $7.5 million depreciation in Q1 2023[247] Liquidity and Capital Resources 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][280] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] Item 4. Controls and Procedures 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] PART II: OTHER INFORMATION 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 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] Item 1A. Risk Factors 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] Other Items (Items 2, 3, 4, 5, 6) 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][323]