Horizon Technology Finance(HRZN) - 2023 Q3 - Earnings Call Transcript

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$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]