Horizon Technology Finance Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 28, 2024

There are 10 speakers on the call.

Operator

Greetings and welcome to the Horizon Technology Finance Corp. 4th Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.

Operator

I would now like to turn the conference over to your host, Megan Bacon, Director of IR.

Speaker 1

Thank you, and welcome to Horizon Technology Finance Corporation's Q4 2023 conference call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer Jerry Michel, President Dan Dvorsef, Chief Operating Officer and Chief Investment Officer and Dan Trolio, Chief Financial Officer. I would like to point out that the Q4 earnings press release and Form 10 ks are available on the company's website at horizontechfinance.com. Before we begin our formal remarks, I need to remind everyone that during this conference call, the company will make certain forward looking statements, including statements with regard to the future performance of the company. Words such as believes, expects, anticipates, intends or similar expressions are used to identify forward looking statements.

Speaker 1

These forward looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on a material basis from those projected in these forward looking statements. And some of these factors are detailed in the risk factor discussion in the company's filings with the Securities and Exchange Commission, including the company's Form 10 ks for the year ended December 31, 2023. The company undertakes no obligation to update or revise any forward looking statements whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to Rob Pomeroy.

Speaker 2

Welcome everyone and thank you for your interest in Horizon. Today, I will update you on our performance and our current overall operating environment. Dan DeBorsitz, our Chief Operating Officer and Chief Investment Officer, will then take us through recent business and portfolio developments. We welcome Dan to the call, and he will now be a regular participant on our future calls. Jerry will then discuss the overall venture lending market and Dan Trolio will detail our operating performance and financial condition.

Speaker 2

We will then take some questions. 2023 was a challenging year for participants in the venture debt market, including Horizon. While we were able to finish the quarter year with our net investment income again exceeding our quarterly and annual distributions, as well as achieving record NII for the year, our net asset value declined due to the underperformance of certain stressed investments in our portfolio. The stress in the venture capital ecosystem, including the collapse of Silicon Valley Bank, the tightening of capital availability, the closed IPO markets and the decline in valuations contributed to the unfavorable performance by some of our portfolio companies, resulting in the reduction of the fair values of our investments in such portfolio companies. You'll hear this theme throughout our call, but we continue to work diligently maximize the value of all of our investments, including where necessary from the sale of our portfolio companies or our collateral.

Speaker 2

Recapping our full year 2023 results. We generated net investment income of $1.98 per share, well in excess of our declared distribution level for the year, due largely to higher interest rates on our floating rate debt investment portfolio and lower incentive fees earned by our advisor. Based on our strong NII performance and the confidence in our outlook, in 2023, we paid regular distributions of $1.32 per share and a $0.05 per share special distribution. Our December special distribution marked the 4th consecutive year we paid such a distribution. We achieved a portfolio yield of more than 16% on our debt investments for the full year, once again at or near the top of the BDC industry.

Speaker 2

We finished the year with a committed and approved backlog of $218,000,000 We ended the year with a net asset value of $9.71 per share, primarily as a result of fair value markdowns of our investments. We supported our balance sheet during the year, raising equity from an overnight equity offering in June and raising over $26,000,000 of equity at a premium to NAV from our at the market program. We also expanded the capacity of our credit facilities with New York Life and KeyBanc. And importantly, our advisor Horizon Technology Finance Management completed its sale to Monroe Capital, now providing our advisor with access to Monroe's platform and resources, which we expect to benefit Horizon through increasing access and capability to originate quality venture debt investments. We were pleased to complete our first co investment with Monro in December with the origination of a loan to Vero Biotech.

Speaker 2

Finally, based on our outlook and our undistributed spillover income of $1.25 per share as of year end, Last week, our Board declared monthly distributions of $0.11 per share payable through June of 2024 together with a special distribution of $0.05 per share payable in April. Entering 2024, we continue to actively manage all of our investments, while we support our borrowers and seek to maximize capital recovery in a difficult venture market. Looking ahead, we will remain prudent with respect to growing Horizon's portfolio of debt investments, while we work to maximize our NAV. With that, I will now turn the call over to Dan DeBorsitz to give you more details and color on our performance. Dan?

Speaker 2

Thanks, Rob, and

Speaker 3

good morning to everyone. I'm happy to join today's call and look forward to speaking to you all in the quarters to come. Our portfolio size is slightly down in the 4th quarter from the prior quarter at $709,000,000 as new originations in the quarter were 6 investments totaling $63,000,000 including debt investments to 3 new portfolio companies and 3 existing portfolio companies. This combination is a reflection of our long term portfolio strategy of lending high quality venture loans to new borrowers with additional financing to existing borrowers that achieve important operational and financial milestones. While we maintain a healthy pipeline of new opportunities, we expect to remain selective in new originations for the near term and we expect the potential growth in the portfolio to occur towards the middle and back half of the year.

Speaker 3

During the quarter, we experienced 3 loan prepayments and 1 partial pay down totaling $48,000,000 in prepaid principal. Similar to past years, we expect modest prepayments in the Q1 of 2024 with this normal seasonal trend compounded by the weak IPO and M and A markets at the end of 2023 continuing in the 1st month of 2024. Our onboarding yield of 13.8% during the Q4 remained near our historic highs, reflecting the ability of our team to source and structure new quality venture loans even in this challenging environment. We expect our discipline in structuring and pricing transactions to continue to produce strong net investment income. Our debt portfolio yield of 16.8% for the quarter and 16.6% for the full year was again one of the highest yielding debt portfolios in the BDC industry.

Speaker 3

This further validates the profitability of our venture lending strategy and our execution of that strategy in an elevated interest rate environment. As of December 31, we held warrant and equity positions in 99 portfolio companies with a fair value of $32,000,000 As a reminder, in addition to the high debt investment yields I just spoke about, structuring investments with warrants and equity rights is a key component of our venture debt strategy and a potential generator of shareholder value. In the Q4, we closed $124,000,000 in new loan commitments and approvals and ended the quarter with a committed and approved backlog of $218,000,000 compared to $202,000,000 at the end of the 3rd quarter. We believe our committed backlog with most of our funding commitments subject to our portfolio companies achieving certain key milestones provide solid base as we look forward to prudently grow our portfolio during the course of the year. As of year end, 90% of fair value of our debt portfolio consisted of 3 and 4 rated debt investments compared to 87% as of September 30 and 10% of the fair value of our portfolio was rated 2 or 1 compared to 13% as of September 30.

Speaker 3

For our stress investments, we are continuing to diligently work for innovative solutions that can enable us to achieve additional recoveries. As Rob noted earlier, we continue to work closely and collaboratively with all of our current portfolio companies, their management teams, investors and stakeholders to navigate the continued uncertain venture macro environment. While doing so, we remain just as focused on sourcing and originating new debt investments in order to take advantage of market opportunities to make venture loans to companies whose investors have increased their support at attractive valuations, while we also benefit from the current interest rate environment. With that, I'll turn it over to Jerry for a look at that overall venture industry and current environment.

Speaker 4

Thank you very much, Dan. Turning now to the venture capital environment. According to PitchBook, approximately 100 and $71,000,000,000 was invested in VC backed companies in 2023, lowest total in 4 years, reflecting the ongoing market issues related to valuations and investors being inwardly focused on managing their existing portfolio investments. BC Investment activity levels remained depressed in Q4 as venture capital investments from 20 21 and the first half of twenty twenty 2 continued to face devaluation issues and stress liquidity levels during 2023. VC funds that did raise capital during that time have maintained significant dry powder commitments and we expect there will be pressure and opportunities in 2024 for VC funds to invest their LP's committed capital.

Speaker 4

We have witnessed many private company valuations drop steadily over the last 6 quarters and there are some evidence that private company valuations are becoming more attractive again to both VC investors as well as strategic buyers. While we expect VC activity to gradually and steadily improve in 2024, certain market segments such as AI solutions driven companies and life science companies should see significant investor interest in 2024. Of course, any improvement in the venture capital environment in 2024 will require the macroeconomic environment to continue to improve, including a reduction in overall inflation and interest rates during 2024. In terms of VC fundraising, only $67,000,000,000 was raised in 2023, the lowest in 6 years, as the avenue to public exits remained largely closed in 2023. VC's committed capital from their LPs remained at record highs as a result of amounts raised during 2021 2022.

Speaker 4

VCs will remain reluctant to make new investments in the current market until exit markets improve and the significant correction in private company valuations subsides. We expect VC fundraising to lag VC investment in 2024 as the LP community remains largely on the sidelines until they begin to see attractive VC portfolio exits become more frequent. VCs will have high hurdles for raising new funds based on recent returns, quality of portfolios, organization size and investment strategy. Meanwhile, VC backed exit activity hit a decade low in 2023 as a modest market rally in the 4th quarter was not enough to fully open up the IPO market. The M and A market for venture backed companies remained at historic lows as a combination of unrealistic valuations and higher interest rates combined with regulatory scrutiny continue to keep acquirers on the sidelines.

Speaker 4

We believe 2024 valuations will begin to become more attractive as 6 quarters of because of 6 quarters of declining values. We believe industries such as energy, technology and healthcare are best positioned to resume M and A activity given the historically high earning results, public stock prices posting strong gains and the elevated level of cash and liquidity on the balance sheets of technology, big pharma and energy companies. In terms of market conditions for new venture loan investments, we expect the challenging environment of 2023 to moderate in the first half of twenty twenty four. So we should see a gradual increase in demand for venture debt during 2024. And we hope to see, as Dan indicated, an increase in our originations as the year progresses.

Speaker 4

Accordingly, we will stay on current course of thoughtfully adding select top quality investment opportunities to our portfolio during this period, while focusing on preserving and improving our current portfolio's value and credit quality. As market conditions improve over time, we continue to believe Horizon's solid reputation and long term market presence will allow it to prudently accelerate its portfolio growth. A key baseline for future prudent portfolio growth is our committed approved and awarded backlog, which as of today $743,000,000 dollars To sum it up, it was a challenging 2023 for venture lending and venture investing, and we look forward to improving conditions for both our industry and our portfolio as we move through 2024. We will remain laser focused on credit quality and providing all of our portfolio companies with support to ensure optimal outcomes. Where we find attractive companies seeking venture debt solutions, we will add to our pipeline and backlog as we look to begin to prudently accelerate portfolio growth during 2024.

Speaker 4

Based on our current portfolio size and attractive yield, we believe we remain well positioned to continue to generate solid NII for our shareholders and build additional long term shareholder value. With that, I will now turn the call over to Dan Trolio.

Speaker 5

Thanks, Jerry, and good morning, everyone. We had a strong year from an NII standpoint, once again generating NII that more than covered our distribution, while actively strengthening our balance sheet throughout the year. In addition, we continue to diligently work with all of our companies in order to optimize outcomes for our portfolio and further enhance our credit quality. To recap 2023, our portfolio stood at $709,000,000 In May, we expanded the capacity of our New York Life credit facility by $50,000,000 to $250,000,000 In June, we successfully raised nearly $39,000,000 in net proceeds from our common stock offering. We further strengthened our balance sheet in June by increasing the commitment amount on our key bank facility to $150,000,000 and by expanding its accordion feature to $300,000,000 For the end of the year, we fully paid off our 2019 seconduritization.

Speaker 5

Finally, we successfully and accretively sold over 2,200,000 shares to our ATM program during the year, raising over $26,000,000 further demonstrating our continued ability to opportunistically access the equity market. As a result, we believe we remain well positioned to add quality investments to our portfolio and create additional value for shareholders in 2024. As of December 31, we had $104,000,000 in available liquidity, consisting of $73,000,000 in cash and $31,000,000 in funds available to be drawn under our existing credit facilities. We currently have $70,000,000 outstanding under our $150,000,000 KeyBanc credit facility and $181,000,000 outstanding on our $250,000,000 New York Life credit facility, leaving us with ample capacity to grow the portfolio. Our debt to equity ratio stood at 1.4:one as of December 31st, and netting out cash on our balance sheet, our leverage was 1.2:one, which was within our target leverage.

Speaker 5

Based on our cash position, borrowing capacity, our credit facilities, our potential new investment capacity at December 31 was 222,000,000 dollars For the Q4, we earned investment income of $28,000,000 an increase of 22% compared to the prior year period. Interest income on investments increased primarily as a result of the higher average size of our debt investment portfolio and increases in the variable interest rates on our debt investment. Our portfolio investment on a net cost basis was $721,000,000 as of December 31, a 1% increase for September 30, 2023. For the Q4 of 2023, we achieved onboarding yields of 13.8% compared to 13.9% achieved in the 3rd quarter. Our loan portfolio yield was 16.8% for the Q4 compared to 14.5 percent for last year's Q4.

Speaker 5

Total expenses for the quarter were $12,200,000 compared to $12,000,000 in the Q4 of 2022. Our interest expense increased to $7,600,000 from $6,200,000 in last year's 4th quarter due to an increase in the average borrowings and higher interest rates on our borrowing. Base management fee was $3,200,000 up from $3,000,000 in last year's Q4 due to an increase in the average size of our portfolio. We had no performance based incentive fee in the 4th quarter compared to an incentive fee of $1,400,000 for last year's Q4. This was due to the deferral of incentive fees otherwise earned by our advisor in the quarter under our incentive fee cap and deferral mechanism.

Speaker 5

The deferral was driven by unrealized and realized losses on the portfolio. As 2024 progresses, we would expect deferral to end and once again pay our advisor incentive fees. Net investment income for the Q4 of 2023 was $0.45 per share compared to $0.53 per share in the Q3 of 2023 and $0.40 per share for the Q4 of 2022. For the full year 2023, we generated NII of $1.98 per share, more than covering our total distributions during 2023 to $1.37 per share. Company's undistributed spillover income as of December 31st was $1.25 per share.

Speaker 5

We anticipate that the size of our portfolio along with the portfolio's elevated interest rates and our predictive pricing strategy will enable us to continue generating NII that covers our distribution over time. As a reminder, the Q1 is typically the lightest in terms of prepayment activity and we expect the Q1 of 2024 to be in line with the lower historic norm. To summarize our portfolio activities for the 4th quarter, new originations totaled $63,000,000 which were offset by $13,000,000 in scheduled principal payments and $48,000,000 in principal prepayments and partial pay downs. We ended the year with a total investment portfolio of $709,000,000 Given the macro environment, we expect to remain selective in the near term with respect to originations. At December 31, the portfolio consisted of debt investments in 56 companies with an aggregate fair value of $670,000,000 and a portfolio of warrant, equity and other investments in 102 companies with an aggregate fair value of 39,000,000 dollars Based upon our outlook, our Board declared monthly distributions of $0.11 per share for April, May June 2024 and given our amount of spillover income, our Board also declared a special distribution of $0.05 per share payable in April.

Speaker 5

We remain committed to providing our shareholders with distributions that are covered by our net investment income over time. Our NAV as of December 31 was $9.71 per share compared to $10.41 as of September 30, 2023 and $11.47 as of December 31, 2022. The $0.70 reduction on NAV on a quarterly basis was primarily due to pay distributions, including the $0.05 per share special distribution, realized losses and adjustments to fair value, partially offset by net investment income. As we've consistently noted, nearly 100% of our outstanding principal amount of our investments bear interest at floating rates with coupons that are structured to increase if interest rates rise with interest rate floors. This concludes our opening remarks.

Speaker 5

We'll be happy to take questions you may have at this time.

Operator

And our first question comes from the line of Bryce Rowe with B. Riley Securities. Please proceed.

Speaker 6

Thanks a lot. Good morning.

Speaker 2

Good morning.

Speaker 6

Good morning, Dan. Thanks a lot. Wanted to maybe start with getting some updates on a couple of portfolio companies. I mean, those that you've kind of mentioned in recent releases here, the Nexi building, looks like the maturity on that one was shifted a little bit early or earlier to the end of March. And then also wanted to understand kind of the dynamics of the recent sale of HIMV and kind of what that means relative to where you have that marked on the schedule of investments right now?

Speaker 6

Thanks.

Speaker 3

Sure. Hey, Bryce. This is Dan Dvorcet. Thanks.

Speaker 7

Hi, Dan. So good to talk to you. So yes, Nexi

Speaker 3

is during the quarter, it became inevitable that the company needed to find

Speaker 7

a new home. And so the best way to

Speaker 3

do that was to run it through a process. So it's been publicly announced. So this is not news that it's in the CCAA process the equivalent of Chapter 11 here in the States. So we did adjust our maturity and some of the terms of our deals to align with what's going on in that process. The company continues to operate and deliver on its contracts.

Speaker 3

In fact, it's doing pretty well. It's signed some new contracts and is doing well. So we expect it to find a home in the next couple of quarters and we adjusted our terms as you suggested to accommodate that. In terms of IMV, also this is public news, so not breaking anything, but BioVaxis, which is a small cap company also in Canada, acquired the assets of IMV out of the HIMV entity that we created to acquire the IP. The plan is to develop those assets internally as well as find partners in the market to develop really a strong platform of Biotech IP.

Speaker 3

And so we received cash and stock as part of that transaction as well as future payment schedules based upon performance and milestones that could potentially repay all of our initial investment in that in the original IND asset. So our mark values that entire contract and the potential we see in the future payments as well as what we received upfront.

Speaker 6

Okay. Okay. That's helpful, Dan. Good color. Let's see, just maybe a couple of questions from a, I guess, balance sheet perspective.

Speaker 6

Kind of surprised to see kind of lack of ATM use in the quarter just given the track record of tapping that ATM quite actively. Just kind of curious maybe a question for Dan Trolio, why the lack of ATM use in the quarter?

Speaker 8

Yes. So every quarter when we go into the quarter, we look at our capital needs and look at our different levers to pull in each quarter and determine the best use to raise whatever equity or debt capital. In addition to that, we look at the portfolio and we look at the activity that's going into the quarter and the amount of information that we may know at the time. And so we felt it was prudent to be out of the market in the quarter.

Speaker 6

Okay. That's helpful. And then in terms of cash on the balance sheet, balance sheet leverage, I mean, it sounds like the first half of the year will be slower than the back half. Are you thinking you'll continue to maybe be less active on the ATM and use cash and availability within the credit facilities to fund or is it just really just dependent on how the pipeline and the activity level starts to shape up as we get into the year?

Speaker 8

Yes. It will definitely be dependent on how the activity shapes up for the year. We did end 2023 with a large cash balance and that's because we received a very late prepayment. And you can see in the first quarter from our recent developments, there hasn't been a lot of activity in the quarter to date. But as we look forward, we'll do the same thing that I mentioned earlier and look at what we see coming down the pipeline, our capital needs.

Speaker 8

We will definitely look to consider any equity raise that may make sense or borrow, like you said, on the facilities.

Speaker 5

So it will definitely be dependent on what we see. Okay.

Speaker 6

All right. Last one for me, another one for you, Dan. Just thinking about the mechanics of the deferred income incentive fee, let's assume that kind of comes back into play. How does the deferred portion work? Does it run through the income statement in future quarters?

Speaker 6

Or would it just reduce the, I guess the liability to tell it on the balance sheet? Thanks.

Speaker 8

Yes. So you'll have to work through the calculation that looks back 3 years and with the amount that's deferred. Right now, we do not have it on the balance sheet as a liability per se. If it is earned going forward, it would run through the income statement.

Speaker 6

Okay. That's it for me. Appreciate it.

Operator

And our next question comes from the line of Paul Johnson with KBW. Please proceed.

Speaker 9

Yes, good morning. Thanks for taking my questions. Part of this was answered kind of in your commentary on Nexi, but I'm just kind of wondering your thoughts in general for the stressed assets and really the VC market in general. What is kind of like the overlying stress that's been the issue for the last several quarters? I mean, is it just been simply that sponsors have held off for potentially too long, trying to avoid kind of the pain of obviously lower valuation rounds or are these more idiosyncratic issues that you're sort of you think that you're kind of seeing within portfolio, but any comments there would be helpful?

Speaker 4

Hi Paul, this is Jerry. You kind of hit on both sides of that. I mean, the fact of the matter is that through the whole 2023, even companies in our portfolio that have been performing well and have been able to raise capital, the amount of capital they've been able to raise and the valuations at which they've been able to raise it has been really painful for the companies, for the VCs based on their carrying value with those companies. And so that has led to literally every time little on liquidity and they have to raise money. It's not just a matter of looking at the valuation and figuring out what's appropriate, whether you do a down round or bridge financing or whatever.

Speaker 4

It's venture capital firms are struggling with their own portfolio valuations and it's difficult for a lot of VCs to put money into companies, put new capital into companies when the capital they already have it in is way underwater. And the LPs are basically saying don't continue to throw good money after bad. And that's kind of a common theme we have seen throughout the year. And obviously valuations have taken a huge hit over the last 6 quarters. I think Nexi was valued at $2,000,000,000 at 1 point in 2022, just to give you an idea.

Speaker 4

So that's been definitely a big part of the problem. I would like to say that's the only The fact of the matter is that in some of these instances, there are some idiosyncratic issues relative to how these companies have been managed, who their investors are, the ability of those investors under any circumstances to put in more capital. And so we really have really for the whole year had to roll up our sleeves and get really heavily more heavily involved in and kind of figuring out what the best strategy is to exit some of these transactions. And we've touched on some of them. Nexi is 1 obviously, what we saw, we did with IMV.

Speaker 4

And so those are real issues that are more as much idiosyncratic, I would say, as they are just the overall markets. So it's been difficult. I would say, and I don't want to sound too confident here at all, but we are seeing some, what I call, green shoots relative to overall market conditions. For instance, there were 7 public life science IPOs in the 1st 2 months of this year. Last year during the same period there were only 2.

Speaker 4

So we are starting to see and there's been some M and A activity in the place as well. Again, I wouldn't say we're out of the woods by any stretch. I think this is going to be a really interesting year, especially the first half of it. But I do think that valuations have gotten to a point now where they are becoming a little bit more attractive to M and A buyers. And as I mentioned, even the IPO market seems to be showing some signs of life anyway.

Speaker 4

So that's where we are.

Speaker 9

Thanks for that. That's very helpful. A lot of color in there. I mean, it sounds like there may be some testing of the waters again, but I mean has the more recent kind of I mean the prime rates at 8.5%, I believe. I mean does the higher for longer commentary, I guess, that's out there, I mean, does that push that out any further this year, do you think more recently?

Speaker 9

Just I guess the recovery in that market?

Speaker 4

I wish I I read probably the same things that you read. And I wish I had. So all I can all we can do really is at the ground level at this point, just look at how all of this impacts our portfolio companies as well as the new transactions we're looking at. And it's definitely going to be an interesting, like I said, the first half of twenty twenty four is going to be very interesting. It could go either way because I mentioned higher interest rates as and lowering inflation has been macroeconomic issues, but there's also 2 wars in an election coming up.

Speaker 4

So anyone who's trying to predict through all that relative to looking out to the future in 2024, it's really difficult. But so we've got our head down. We're looking at every one of our portfolio companies. We're staying extremely close to the management teams, to their investors, really all their stakeholders. And we're going to manage our way through this, that try to maximize the value of all of our assets, including those that are a bit stressed right now.

Speaker 9

Great. Appreciate it. Thanks for that. And last one, I'd just ask, I mean, do you think that there is any kind of potential for just some incremental G and A cost savings from the acquisition of the Monroe platform?

Speaker 2

I'll take that one, Paul. It's Rob. I think on the margin, absolutely. But the investment management agreement between HTFM and the public company established advent fees and costs that are important. But we have seen some as it relates to things cost borne by the public company, D and O insurance and other things that is helpful.

Speaker 2

So we have already seen a few of those. Not big numbers, but helpful. Okay.

Speaker 9

Thanks. Great. That's all for me.

Operator

Our next question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed.

Speaker 7

Hi, apologies, I joined the conference late. Back to the ATM use question, what's the outlook for the leverage ratio going forward?

Speaker 8

So as we mentioned, our target leverage is net of cash 1.2 times. And so with that at that level, again, it's a target. What we report is always a point in time. So if we're a little above that, then we feel comfortable because there's significant amount of cushion between the 1.2 and the 2 times regulatory cap. So I would say the outlook is to be within that range.

Speaker 7

Got you. And on the dividend, I know that you guys announced a supplemental dividend for the Q1. Given the rise in non accruals and also given your high level spillover income, what's the thoughts on further dividend supplements through the year?

Speaker 8

Yes. So each quarter, we have a distribution discussion with our Board and determining the level of not only the quarterly the monthly distributions each quarter, but also the need for a supplemental distribution. And based on exactly what you said, the elevated spillover that we have coming out of 2023, Our outlook for 2024, we felt it was prudent along with the Board to provide a special distribution at this time and then we will continue to do the same each quarter.

Speaker 7

And I guess final question and related to the spillover, do you guys compare what the excise tax would be not distributing in terms or I mean how does the excise tax consideration fall into your spillover consideration? Excuse me, is it a part

Speaker 8

of the consideration, but at 4%, it isn't a significant expense to the balance sheet. Some would say it's a lower cost way to keep capital on the balance sheet. And so with the spillover, we look at the level of where it is at the current point in time and being able to distribute the spillover in the required period to stay within the where it can be DC requirements.

Operator

Ladies and gentlemen, we have reached the end of the question and answer session. I'd like to turn the call back to Rob Pomeroy for closing remarks.

Speaker 2

Thank you all for joining us this morning. We appreciate your continued interest and support in Horizon, and we look forward to speaking with you again soon. This will conclude our call.

Powered by Quartr

Key Takeaways

  • The company delivered record net investment income of $1.98 per share in 2023—well above its $1.37 per share in distributions—yet saw NAV fall to $9.71 due to markdowns on stressed portfolio positions.
  • Its debt investment portfolio generated a 16.6% yield for the full year (16.8% in Q4), ranking it near the top of the BDC industry and reflecting strong structuring and pricing discipline.
  • Balance sheet strength was bolstered by raising over $26 million via an ATM program, a June equity offering, and expanded credit facilities with New York Life and KeyBanc, while the advisor’s sale to Monroe Capital adds co-investment capacity.
  • Entering 2024, Horizon maintains a $218 million approved backlog, expects modest Q1 prepayments and a selective pace of new originations, and aims to prudentiy grow its portfolio while maximizing NAV in a challenging market.
  • The broader venture debt market remains under pressure from tight capital, collapsed IPO channels and valuation declines, though pockets like AI and life sciences show early signs of improvement and may drive demand later in 2024.
AI Generated. May Contain Errors.
Earnings Conference Call
Horizon Technology Finance Q4 2023
00:00 / 00:00