Release Date: May 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Horizon Technology Finance Corp (HRZN, Financial) reported a slight growth in portfolio size to $711 million in Q1, indicating stable business expansion.
- The company continues to generate strong net investment income (NII), which has consistently covered distributions for over six years, showcasing financial stability.
- HRZN's debt portfolio yield of 15.6% for the quarter remains one of the highest in the BDC industry, reflecting the profitability of their venture lending strategy.
- The company has maintained a robust pipeline with $1.8 billion in potential deals, demonstrating strong market demand and reputation.
- HRZN has a solid liquidity position with $91 million available, providing ample capacity for future investments and operational flexibility.
Negative Points
- Challenges in the venture capital environment persist, with a notable decline in VC investment in later-stage companies by 36% from the previous year.
- HRZN experienced a decrease in investment income to $26 million from $28 million in the prior period, primarily due to lower interest income on debt investments.
- The company faces increased competition in the venture debt market, particularly from larger players with more aggressive pricing strategies.
- There are ongoing concerns with unrealized losses in the portfolio, indicating potential valuation issues and investment risks.
- HRZN's net asset value (NAV) per share decreased to $9.64 from $9.71 in the previous quarter, reflecting some pressures on asset valuations.
Q & A Highlights
Q: Could you discuss the write-up of the Evelo investment and the significant write-down quarter over quarter?
A: Gerald Michaud, President, Director - After a failed clinical trial, the market was quite depressed, leading to a conservative valuation around $1 million. However, there's ongoing work to maximize the value of Evelo's assets, with potential positive developments expected in the next quarters.
Q: Can you provide an update on the additional nonaccruals and the related fair value marks?
A: Daniel Devorsetz, COO, EVP, CIO - Both companies on nonaccrual have potential value in their technology and business assets, with third-party interest. Efforts are ongoing to maximize recoveries, which might take a quarter or two more to materialize.
Q: What is the mix between existing companies and new platform companies in the backlog, and what are the expectations for repayment activity?
A: Daniel Devorsetz, COO, EVP, CIO - The backlog primarily consists of committed milestones to existing borrowers. Originations are slow as the company is cautious, ensuring only high-quality venture debt investments are funded.
Q: What caused the lower interest income this quarter?
A: Daniel Trolio, CFO, EVP, Treasurer - The lower interest income was due to a combination of lower portfolio size, decreased prepayment activity, and the absence of fee accelerations that typically accompany repayments.
Q: Are convertible transactions or preferred capital competing with venture debt markets?
A: Gerald Michaud, President, Director - These equity solutions are not in competition but are often part of a broader financing mix that includes venture debt. The market is seeing more realistic equity contributions, which helps in structuring supportive venture debt arrangements.
Q: How are you competing with larger players in the venture debt market?
A: Gerald Michaud, President, Director - Horizon competes effectively on price and can manage size constraints through strategic capital raising and collaborations, especially with tech banks post-SVB crisis, allowing competitive and attractive financing solutions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
