Horizon Technology Finance(US:HRZN)2022-03-02 17:11Financial Data and Key Metrics Changes - The portfolio at year-end stood at $458 million, an increase of 30% from the end of 2020, despite nearly $175 million in pre-payments [8][10] - Net investment income (NII) for the year was $1.41 per share, exceeding the distribution level of $1.25 per share [9][35] - The company achieved a portfolio yield on debt investments of 16.2% for the second consecutive quarter and a full-year yield of 15.7% [10][33] - The net asset value (NAV) was $11.56 per share, a slight reduction from the prior quarter but up 5% from the end of 2020 [10][37] Business Line Data and Key Metrics Changes - In Q4, the company funded a record number of 17 transactions totaling $80 million [14] - The onboarding yield during the quarter was 11.3%, reflecting the effectiveness of the predictive pricing strategy [14][33] - The committed and approved backlog at year-end was $127 million, the largest year-end total to date [9][16] Market Data and Key Metrics Changes - The venture capital environment saw approximately $330 billion invested in VC-backed companies in 2021, nearly doubling the previous record [19] - VC fundraising for the year surpassed $100 billion for the first time, reaching $128 billion [19] - The total exit value for VC-backed companies was nearly $775 billion, although recent underperformance in SPAC transactions was noted [20] Company Strategy and Development Direction - The company plans to continue expanding its portfolio and generating strong NII, leveraging its predictive pricing strategy [12][26] - The advisor is actively strengthening the Horizon platform through new hires and promotions [12] - The company aims to maintain a disciplined approach in underwriting and seek quality investments to enhance shareholder value [26] Management's Comments on Operating Environment and Future Outlook - Management expressed caution regarding the impact of global events, inflation, and supply chain issues on the broader economy [7][66] - The demand for venture debt is expected to remain strong, with a robust pipeline of investment opportunities [13][21] - The company believes it is well-positioned to compete in the current environment, despite challenges in the public markets [21][55] Other Important Information - The company raised approximately $30 million of equity in 2021, all at a premium to NAV [11] - The company ended the year with available liquidity of $71 million, consisting of $46 million in cash and $25 million in credit facilities [29] - The debt-to-equity ratio stood at 1.1 to 1, lower than the target leverage of 1.2 to 1 [30] Q&A Session Summary Question: Is venture debt becoming more relevant in current conversations? - Management noted that in tightening markets, companies often seek non-dilutive capital like venture debt to extend their cash runway [42][43] Question: What is the outlook for deploying the new capital capacity? - The company plans to deploy debt to grow towards its target leverage of 1.2 times, utilizing both cash and available credit [44] Question: How does the company view the impact of valuation pullbacks? - Management acknowledged that while there are opportunities due to companies seeking liquidity, caution is necessary as some companies may struggle to raise equity at appropriate valuations [52][55] Question: Will Q1 prepayment activity be affected by current market dynamics? - Management indicated that while Q1 is typically slow for prepayments, current market conditions may further temper prepayment activity [56][58] Question: What is the outlook for credit quality and loan-to-value ratios? - The company continues to underwrite to low loan-to-values and is cautious about macroeconomic impacts on portfolio companies [64][66]