Horizon Technology Finance Announces Fourth Quarter and Full Year 2023 Financial Results
- Strong net investment income per share and NAV per share for the fourth quarter and full year 2023.
- Annual debt portfolio yield of 16.6% and a committed backlog of $218 million.
- Regular monthly distributions totaling $0.33 per share through June 2024 and a $0.05 special distribution in April 2024.
- Total investment income growth of 21.8% for the fourth quarter ended December 31, 2023.
- Net assets of $324.0 million as of December 31, 2023, with a net decrease in net assets resulting from operations of $10.7 million for the quarter.
- Significant liquidity with $103.9 million available as of December 31, 2023, and a net debt to equity leverage ratio of 120%.
- Experienced liquidity events from four portfolio companies during the quarter ended December 31, 2023.
- Declared distributions of $0.11 per share payable in each of April, May, and June 2024, and a special distribution of $0.05 per share payable in April 2024.
- No share repurchases during the quarter ended December 31, 2023, with a total of 167,465 shares repurchased since the inception of the stock repurchase program.
- Recent investments in existing portfolio companies, including equity and debt investments.
- Conference call scheduled for February 28, 2024, to discuss corporate developments and financial results.
- None.
Insights
The reported net investment income (NII) of $0.45 per share for Horizon Technology Finance Corporation (HRZN) is a robust indicator of the company's operational efficiency and ability to generate earnings from its investment portfolio. Comparing this to the prior-year period's NII of $0.40 per share, there is a noticeable improvement, which might be viewed positively by investors seeking consistent income from their investments in business development companies (BDCs).
The reported annual debt portfolio yield of 16.6% is significantly higher than the average yield for BDCs, which typically ranges between 8% to 12%. Such a high yield could be indicative of the higher risk profile of HRZN's investments or superior investment selection and management. However, it's crucial for investors to consider the associated risks and the potential for higher default rates that could accompany such yields.
HRZN's net asset value (NAV) per share of $9.71 reflects a decrease from the previous year's $11.47 per share. This decline might raise concerns about asset depreciation and its impact on equity valuation. The decrease in NAV could be attributed to stressed investments, as mentioned by the CEO and it is essential to analyze the quality and performance of the underlying assets to gauge long-term sustainability.
HRZN's committed backlog of $218 million is a forward-looking indicator that suggests a healthy pipeline of future earnings, assuming these commitments translate into actual loans. This could signal potential growth in HRZN's portfolio and subsequent interest income. However, the actual impact on the business will depend on the successful closing of these commitments and the performance of the underlying investments.
The declaration of regular monthly distributions totaling $0.33 per share through June 2024 and a $0.05 special distribution payable in April 2024 demonstrates HRZN's confidence in its ability to generate and sustain cash flows to support shareholder payouts. This consistent distribution policy could make HRZN an attractive stock for income-focused investors. Nevertheless, the sustainability of such distributions hinges on the company's ongoing performance and ability to manage its portfolio effectively in a 'difficult venture market,' as described by the CEO.
From a legal and regulatory standpoint, the Incentive Fee Cap applied for the quarter ended December 31, 2023, is noteworthy. This cap, due to cumulative incentive fees exceeding 20% of cumulative pre-incentive fee net return, demonstrates HRZN's adherence to structured performance-based compensation, which aligns the interests of the management with those of the shareholders. It is also a regulatory requirement for BDCs to maintain such a structure to prevent excessive fee extraction by management.
Additionally, the company's asset coverage ratio of 170% and a net debt to equity leverage ratio of 120% are within the regulatory thresholds, which mandate a minimum asset coverage of 150% and a maximum debt to equity ratio of 1 to 1 for BDCs. These figures suggest that HRZN is managing leverage prudently, which is crucial for maintaining financial stability and investor confidence.
- Fourth Quarter 2023 Net Investment Income per Share of
- Annual Debt Portfolio Yield of
- HRZN Ends Year with Committed Backlog of
- Declares Regular Monthly Distributions Totaling
Fourth Quarter 2023 Highlights
- Net investment income ("NII") of
$15.0 million $0.45 $10.7 million $0.40 - Total investment portfolio of
$709.1 million - Net asset value of
$324.0 million $9.71 - Annualized portfolio yield on debt investments of
16.8% for the quarter - Horizon funded six loans totaling
$63.4 million - Experienced liquidity events from four portfolio companies
- Cash of
$73.1 million $149.0 million - Held portfolio of warrant and equity positions in 99 companies as of December 31, 2023
- Undistributed spillover income of
$1.25 - Subsequent to quarter end, declared distributions of
$0.11 $0.05
Full Year 2023 Highlights
- Net investment income of
$61.4 million $1.98 $36.2 million $1.46 - Achieved annual portfolio yield on debt investments of
16.6% for 2023 - Horizon funded 33 loans totaling
$241.6 million
"We capped 2023 with another quarter where our debt portfolio yield continued to generate net investment income that exceeded our distributions, while we originated new venture debt investments to add to our portfolio and committed backlog," said Robert D. Pomeroy, Jr., Chairman and Chief Executive Officer of Horizon. "NAV per share was negatively impacted in the fourth quarter by stressed investments. We continue to actively manage all of our investments, while we support our borrowers and seek to maximize capital recovery in a difficult venture market. Looking ahead, we will remain prudent with respect to growing HRZN's portfolio of debt investments, while we work to maximize NAV."
Fourth Quarter 2023 Operating Results
Total investment income for the quarter ended December 31, 2023 grew
The Company's dollar-weighted annualized yield on average debt investments for the quarter ended December 31, 2023 and 2022 was
Total expenses for the quarter ended December 31, 2023 were
Net investment income for the quarter ended December 31, 2023 was
For the quarter ended December 31, 2023, net realized loss on investments was
For the quarter ended December 31, 2023, net unrealized depreciation on investments was
Full Year 2023 Operating Results
Total investment income for the year ended December 31, 2023 was
Horizon's dollar-weighted annualized yield on average debt investments for the year ended December 31, 2023 and 2022 was
For the full year ended December 31, 2023, net investment income was
For the full year ended December 31, 2023, net realized loss on investments was
For the full year ended December 31, 2023, net unrealized depreciation on investments was
Portfolio Summary and Investment Activity
As of December 31, 2023, the Company's debt portfolio consisted of 56 secured loans with an aggregate fair value of
($ in thousands) | For the Three Months Ended December 31, | For the Year Ended December 31, | ||
2023 | 2022 | 2023 | 2022 | |
Beginning portfolio | $ 729,053 | $ 634,624 | $ 720,026 | $ 458,075 |
New debt and equity investments | 64,201 | 104,256 | 251,189 | 452,603 |
Less refinanced debt balances | — | (5,625) | (32,500) | (30,625) |
Net new debt and equity investments | 64,201 | 98,631 | 218,689 | 421,978 |
Principal payments received on investments | (13,247) | (3,800) | (35,258) | (15,716) |
Payment-in-kind interest on investments | 2,345 | — | 8,433 | — |
Early pay-offs and principal paydowns | (48,824) | (2,638) | (117,035) | (80,155) |
Accretion of debt investment fees | 1,844 | 1,152 | 6,862 | 5,684 |
New debt investment fees | (765) | (1,032) | (3,162) | (5,290) |
Warrants and equity received in settlement of fee income | — | — | 169 | — |
Proceeds from sale of investments | (3) | (283) | (11,066) | (49,964) |
Net loss on investments | (1,189) | — | (29,702) | (9,127) |
Net unrealized depreciation on investments | (24,332) | (6,628) | (48,780) | (5,459) |
Other | 2 | — | (91) | — |
Ending portfolio | $ 709,085 | $ 720,026 | $ 709,085 | $ 720,026 |
Portfolio Asset Quality
The following table shows the classification of Horizon's loan portfolio at fair value by internal credit rating as of December 31, 2023, September 30, 2023 and December 31, 2022:
($ in | December 31, 2023 | September 30, 2023 | December 31, 2022 | ||||||||
Number of | Debt Investments | Percentage | Number of | Debt Investments | Percentage | Number of | Debt Investments | Percentage | |||
Credit | |||||||||||
4 | 11 | $ 150,367 | 22.4 % | 12 | $ 150,882 | 22.2 % | 8 | $ 93,832 | 13.7 % | ||
3 | 39 | 452,911 | 67.6 % | 37 | 437,158 | 64.3 % | 47 | 557,554 | 81.2 % | ||
2 | 2 | 39,343 | 5.9 % | 5 | 76,298 | 11.2 % | 2 | 26,822 | 3.9 % | ||
1 | 4 | 27,551 | 4.1 % | 2 | 15,500 | 2.3 % | 3 | 8,250 | 1.2 % | ||
Total | 56 | $ 670,172 | 100.0 % | 56 | $ 679,838 | 100.0 % | 60 | $ 686,458 | 100.0 % | ||
As of December 31, 2023, September 30, 2023 and December 31, 2022, Horizon's loan portfolio had a weighted average credit rating of 3.1, with 4 being the highest credit quality rating and 3 being the rating for a standard level of risk. A rating of 2 represents an increased level of risk and, while no loss is currently anticipated for a 2-rated loan, there is potential for future loss of principal. A rating of 1 represents deteriorating credit quality and high degree of risk of loss of principal.
As of December 31, 2023, there were four debt investments with an internal credit rating of 1, with an aggregate cost of
Liquidity and Capital Resources
As of December 31, 2023, the Company had
As of December 31, 2023, there was
Additionally, as of December 31, 2023, there was
Horizon Funding Trust 2022-1, a wholly-owned subsidiary of Horizon, previously issued
During the three months ended December 31, 2023, the Company sold 8,504 shares of common stock under its ATM offering program with Goldman Sachs & Co. LLC and B. Riley FBR, Inc. For the same period, the Company received total accumulated net proceeds of approximately
As of December 31, 2023, the Company's net debt to equity leverage ratio was
Liquidity Events
During the quarter ended December 31, 2023, Horizon experienced liquidity events from four portfolio companies. Liquidity events for Horizon may consist of the sale of warrants or equity in portfolio companies, loan prepayments, sale of owned assets or receipt of success fees.
In October, HRZN received a principal paydown of
In December, Primary Kids, Inc. ("Primary Kids") paid its outstanding principal balance of
In December, Infobionic, Inc. ("Infobionic") paid its outstanding principal balance of
In December, Magnolia Medical Technologies, Inc. ("Magnolia") paid its outstanding principal balance of
Net Asset Value
At December 31, 2023, the Company's net assets were
For the quarter ended December 31, 2023, net decrease in net assets resulting from operations was
Stock Repurchase Program
During the quarter ended December 31, 2023, the Company did not repurchase any shares of its common stock. From the inception of the stock repurchase program through December 31, 2023, the Company has repurchased 167,465 shares of its common stock at an average price of
Recent Developments
On January 9, 2024, we funded a
Between January 18 and February 9, 2024, we made
On February 7, 2024, we funded a
On February 20, 2024, HIMV LLC, or HIMV, sold BioVaxys Technology Corp., a
Monthly Distributions Declared in First Quarter 2024
On February 23, 2024, the Company's board of directors declared monthly distributions of
Monthly Distributions
Ex-Dividend Date | Record Date | Payment Date | Amount per Share |
March 18, 2024 | March 19, 2024 | April 16, 2024 | |
April 17, 2024 | April 18, 2024 | May 15, 2024 | |
May 16, 2024 | May 17, 2024 | June 14, 2024 | |
Total: |
Special Distribution
Ex-Dividend Date | Record Date | Payment Date | Amount per Share |
March 18, 2024 | March 19, 2024 | April 16, 2024 |
After paying distributions of
When declaring distributions, Horizon's board of directors reviews estimates of taxable income available for distribution, which may differ from consolidated net income under generally accepted accounting principles due to (i) changes in unrealized appreciation and depreciation, (ii) temporary and permanent differences in income and expense recognition, and (iii) the amount of spillover income carried over from a given year for distribution in the following year. The final determination of taxable income for each tax year, as well as the tax attributes for distributions in such tax year, will be made after the close of the tax year.
Conference Call
The Company will host a conference call on Wednesday, February 28, 2024, at 9:00 a.m. ET to discuss its latest corporate developments and financial results. To participate in the call, please dial (877) 407-9716 (domestic) or (201) 493-6779 (international). The access code for all callers is 13743029. The Company recommends joining the call at least 5 minutes in advance. In addition, a live webcast will be available on the Company's website at www.horizontechfinance.com.
A webcast replay will be available on the Company's website for 30 days following the call.
About Horizon Technology Finance
Horizon Technology Finance Corporation (NASDAQ: HRZN), externally managed by Horizon Technology Finance Management LLC, an affiliate of Monroe Capital, is a leading specialty finance company that provides capital in the form of secured loans to venture capital backed companies in the technology, life science, healthcare information and services, and sustainability industries. The investment objective of Horizon is to maximize its investment portfolio's return by generating current income from the debt investments it makes and capital appreciation from the warrants it receives when making such debt investments. Horizon is headquartered in
Forward-Looking Statements
Statements included herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts included in this press release may constitute forward-looking statements and are not guarantees of future performance, condition or results and involve a number of risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Horizon's filings with the Securities and Exchange Commission. Horizon undertakes no duty to update any forward-looking statement made herein. All forward-looking statements speak only as of the date of this press release.
Contacts:
Investor Relations:
ICR
Garrett Edson
ir@horizontechfinance.com
(646) 200-8885
Media Relations:
ICR
Chris Gillick
HorizonPR@icrinc.com
(646) 677-1819
Horizon Technology Finance Corporation and Subsidiaries | |||||
Consolidated Statements of Assets and Liabilities | |||||
(Dollars in thousands, except share and per share data) | |||||
December 31, | December 31, | ||||
2023 | 2022 | ||||
Assets | |||||
Non-affiliate investments at fair value (cost of | $ 693,730 | $ 720,026 | |||
Non-controlled affiliate investments at fair value (cost of | 1,132 | — | |||
Controlled affiliate investments at fair value (cost of | 14,223 | — | |||
Total investments at fair value (cost of | 709,085 | 720,026 | |||
Cash | 46,630 | 20,612 | |||
Investments in money market funds | 26,450 | 7,066 | |||
Restricted investments in money market funds | 2,642 | 2,788 | |||
Interest receivable | 13,926 | 13,573 | |||
Other assets | 3,623 | 2,761 | |||
Total assets | $ 802,356 | $ 766,826 | |||
Liabilities | |||||
Borrowings | $ 462,235 | $ 434,078 | |||
Distributions payable | 11,011 | 9,159 | |||
Base management fee payable | 1,052 | 1,065 | |||
Incentive fee payable | — | 1,392 | |||
Other accrued expenses | 4,077 | 2,684 | |||
Total liabilities | 478,375 | 448,378 | |||
Commitments and contingencies | |||||
Net assets | |||||
Preferred stock, par value shares issued and outstanding as of December 31, 2023 and 2022 | — | — | |||
Common stock, par value 33,534,854 and 27,920,838 shares issued and 33,367,389 and 27,753,373 shares outstanding as of | 36 | 29 | |||
Paid-in capital in excess of par | 450,949 | 385,921 | |||
Distributable earnings | (127,004) | (67,502) | |||
Total net assets | 323,981 | 318,448 | |||
Total liabilities and net assets | $ 802,356 | $ 766,826 | |||
Net asset value per common share | $ 9.71 | $ 11.47 | |||
Horizon Technology Finance Corporation and Subsidiaries | ||||||||
Consolidated Statements of Operations | ||||||||
(Dollars in thousands, except share and per share data) | ||||||||
For the Three Months Ended | For the Year Ended | |||||||
December 31, | December 31, | |||||||
2023 | 2022 | 2023 | 2022 | |||||
Investment income | ||||||||
From non-affiliate investments: | ||||||||
Interest income | $ 24,739 | $ 23,049 | $ 100,435 | $ 77,366 | ||||
Payment-in-kind interest income | 2,183 | — | 8,113 | — | ||||
Prepayment fee income | 1,032 | 26 | 1,880 | 1,568 | ||||
Fee income | 58 | 70 | 1,465 | 257 | ||||
From non-controlled affiliate investments: | ||||||||
Interest income | — | — | 1,245 | — | ||||
From controlled affiliate investments: | ||||||||
Payment-in-kind interest income | 162 | — | 320 | — | ||||
Interest income | 9 | — | 17 | — | ||||
Total investment income | 28,183 | 23,145 | 113,475 | 79,191 | ||||
Expenses | ||||||||
Interest expense | 7,564 | 6,215 | 28,971 | 19,202 | ||||
Base management fee | 3,178 | 3,011 | 12,799 | 10,566 | ||||
Performance based incentive fee | — | 1,392 | 3,094 | 7,745 | ||||
Administrative fee | 409 | 520 | 1,658 | 1,667 | ||||
Professional fees | 620 | 487 | 2,178 | 1,650 | ||||
General and administrative | 453 | 371 | 1,837 | 1,459 | ||||
Total expenses | 12,224 | 11,996 | 50,537 | 42,289 | ||||
Net investment income before excise tax | 15,959 | 11,149 | 62,938 | 36,902 | ||||
Provision for excise tax | 948 | 409 | 1,490 | 715 | ||||
Net investment income | 15,011 | 10,740 | 61,448 | 36,187 | ||||
Net realized and unrealized loss | ||||||||
Net realized loss on non-affiliate investments | (1,189) | — | (29,702) | (8,364) | ||||
Net realized gain on non-controlled affiliate investments | — | — | — | 30 | ||||
Net realized loss on controlled affiliate investments | — | — | — | (1,150) | ||||
Net realized loss on investments | (1,189) | — | (29,702) | (9,484) | ||||
Net realized loss on extinguishment of debt | (151) | — | (151) | — | ||||
Net realized loss | (1,340) | — | (29,853) | (9,484) | ||||
Net unrealized depreciation on non-affiliate investments | (16,833) | (6,721) | (24,489) | (7,002) | ||||
Net unrealized depreciation on non-controlled affiliate investments | (8,364) | — | (26,513) | — | ||||
Net unrealized appreciation on controlled affiliate investments | 865 | — | 2,222 | 1,450 | ||||
Net unrealized depreciation on investments | (24,332) | (6,721) | (48,780) | (5,552) | ||||
Net realized and unrealized loss | (25,672) | (6,721) | (78,633) | (15,036) | ||||
Net (decrease) increase in net assets resulting from operations | $ (10,661) | $ 4,019 | $ (17,185) | $ 21,151 | ||||
Net investment income per common share | $ 0.45 | $ 0.40 | $ 1.98 | $ 1.46 | ||||
Net (decrease) increase in net assets resulting from operations per common share | $ (0.32) | $ 0.15 | $ (0.56) | $ 0.86 | ||||
Distributions declared per share | $ 0.38 | $ 0.38 | $ 1.37 | $ 1.28 | ||||
Weighted average shares outstanding | 33,339,363 | 26,918,733 | 30,957,849 | 24,726,079 | ||||
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SOURCE Horizon Technology Finance Corporation
FAQ
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