Horizon Technology Finance Provides First Quarter 2024 Portfolio Update

Rhea-AI Summary

Horizon Technology Finance (HRZN) originated $33.5 million of new loans in Q1, ending the quarter with a committed backlog of $168 million. HRZN funded loans to various portfolio companies, received payoffs, and maintained a strong position for future investments.

Positive

• HRZN funded $33.5 million in new loans in Q1 2024.
• HRZN ended the quarter with a committed backlog of $168 million.
• HRZN received $20 million in loan payoffs and partial paydowns in Q1.
• HRZN funded loans to companies like Sonex Health, Ceribell, and Nexii Building Solutions.
• HRZN experienced liquidity events from three portfolio companies in Q1 2024.
• HRZN received regularly scheduled principal payments totaling $10.5 million in Q1.
• HRZN closed new loan commitments totaling $37.5 million in Q1 2024.
• HRZN's unfunded loan approvals and commitments were $168.2 million to 14 companies as of March 31, 2024.
• HRZN held a portfolio of warrant and equity positions in 99 portfolio companies as of March 31, 2024.

Negative

• None.

Insights

Financial Analyst

Horizon Technology Finance Corporation's recent portfolio update indicates a proactive approach to managing their investment portfolio in a fluctuating venture environment. The origination of $33.5 million in new loans during Q1 2024 demonstrates a strategic focus on technology and healthcare sectors, which are historically resilient to economic downturns. The company's substantial committed backlog of $168 million signals a strong pipeline for future earnings, although it's important to note that these commitments are contingent upon portfolio companies meeting specific milestones.

The $20 million in loan payoffs and partial paydowns, resulting in accelerated income and prepayment fees, suggests a healthy liquidity event for Horizon. This is a positive sign for investors, as it indicates that Horizon's portfolio companies are performing well enough to repay their loans ahead of schedule, which can lead to increased earnings for the company. However, investors should be cautious as these liquidity events can also signal a reduction in outstanding interest-earning assets.

From a financial perspective, the decrease in regularly scheduled principal payments from $13.2 million in Q4 2023 to $10.5 million in Q1 2024 could be indicative of a broader trend in the company's investment repayments. The diversification of Horizon's portfolio, with investments in various sectors like green construction and AI in healthcare, could mitigate risks associated with any single industry. The warrant and equity portfolio, consisting of 99 companies, offers potential for non-interest income through equity appreciation, which could be a significant value-add for shareholders in the long term.

Market Research Analyst

Horizon's focus on technology, life sciences, healthcare information and sustainability industries is in line with current market trends that favor innovation and growth in these sectors. The strategic investments in companies like Sonex Health, Ceribell and Nexii Building Solutions reflect a targeted approach to capitalizing on industry sectors that are expected to experience substantial growth. This aligns with broader market research that suggests a continued demand for advancements in medical technology and sustainable construction.

Moreover, the venture capital environment has been increasingly competitive and Horizon's cautious yet active investment strategy positions it well to leverage market opportunities. The company's ability to secure new loans and maintain a significant backlog amidst market uncertainties is commendable and reflects a robust deal-sourcing capability. The presence of a committed backlog is a strong indicator of future business activity and potential revenue, which is a positive sign for stakeholders looking for growth prospects.

However, the reduction in new loan commitments from $89.4 million in Q4 2023 to $37.5 million in Q1 2024 could suggest a more selective approach or a possible shift in market conditions. Investors should monitor this trend for insights into Horizon's market positioning and risk management strategies in the upcoming quarters.

Venture Capital Analyst

The venture capital landscape has been characterized by cautious optimism, with investors like Horizon Technology Finance Corporation navigating the post-pandemic recovery. Horizon's strategy of extending loans to venture capital-backed companies is a way to tap into the high-growth potential of startups while mitigating risk through secured loans. The mix of new loans to existing portfolio companies underscores the importance of supporting companies through various growth stages, which can lead to stronger partnerships and potentially higher returns.

Horizon's continued investment in Ceribell, Inc., despite the loan payoff, suggests confidence in the company's long-term prospects and the potential for value creation through warrant holdings. This is a common strategy in venture lending, where lenders seek to balance immediate income from interest and fees with longer-term gains from equity participation.

Investors should take note of the company's unfunded loan approvals and commitments, as these represent both opportunities and risks. While they indicate a robust pipeline, there is no guarantee these will convert into funded loans. The venture capital market is inherently volatile and Horizon's portfolio companies' ability to meet their milestones is important for actualizing these commitments. The company's warrants and equity positions in a diverse set of 99 portfolio companies provide a hedge against this volatility and a chance for Horizon to benefit from the potential upside of these investments.

- HRZN Originates $33.5 Million of New Loans in Q1 -

- HRZN Ends Quarter with Committed Backlog of $168 Million -

FARMINGTON, Conn.--(BUSINESS WIRE)-- Horizon Technology Finance Corporation (NASDAQ: HRZN) (“Horizon”), an affiliate of Monroe Capital, and 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, today provided its portfolio update for the first quarter ended March 31, 2024 and an update on the lending platform (“Horizon Platform”) of Horizon Technology Finance Management LLC (“HTFM”), its investment adviser.

“HRZN funded $34 million in new loans in the first quarter, as we continued to monitor the changing venture environment and maintained our cautious approach,” said Gerald A. Michaud, President of HRZN and HTFM. “We are now seeing some green shoots in our markets which we find encouraging. While we watch these developments, we continue to maintain a significant committed backlog of debt investments, which totaled $168 million as of March 31. Our backlog should provide a solid foundation for new debt investments to existing and new portfolio companies in the quarters ahead.”

“During the quarter, we also received $20 million in loan payoffs and partial paydowns, generating accelerated income and prepayment fees, which added to our regular investment income from interest on our outstanding debt investments,” added Mr. Michaud. “Looking forward, we believe HRZN remains well positioned to prudently grow its portfolio of debt investments, while delivering additional value to HRZN’s shareholders.”

First Quarter 2024 Portfolio Update

Originations

During the first quarter of 2024, HRZN funded a total of $33.5 million of loans, as follows:

• $15.0 million to an existing portfolio company, Sonex Health, Inc., a developer of technology, education and training programs for ultrasound guided procedures.
• $14.0 million to an existing portfolio company, Ceribell, Inc., a developer of an FDA-cleared rapid response electroencephalography (EEG) medical device, which measures the amount of electrical activity in different regions of the brain in order to diagnose seizures.
• $2.5 million to an existing portfolio company, a developer of a cloud-native software platform for the property and casualty insurance segment.
• $1.8 million to an existing portfolio company, Nexii Building Solutions Inc., a green construction technology company focused on creating environmentally-friendly, durable, cost-efficient and disaster-resilient buildings.
• $0.2 million to an existing portfolio company, Robin Healthcare, Inc., a developer of an AI device that silently observes healthcare visits, extracts data, then builds and uploads clinical notes to a patient’s electronic health record.

Liquidity Events and Partial Paydowns

HRZN experienced liquidity events from three portfolio companies in the first quarter of 2024, including principal prepayments and partial paydowns of $19.8 million, compared to $48.3 million of principal prepayments and partial paydowns during the fourth quarter of 2023:

• In February, with the proceeds of a new loan from the Horizon Platform, Ceribell, Inc. (“Ceribell”) paid its outstanding principal balance of $11.2 million on its venture loan, plus interest and end-of-term payment. HRZN continues to hold warrants in Ceribell.
• In March, HRZN received a principal paydown of $1.1 million on its venture loans to NextCar Holding Company, Inc. (“NextCar”). HRZN continues to hold warrants in NextCar.
• In March, Engage3, LLC paid its outstanding principal balance of $7.5 million on its venture loan, plus interest, end-of-term payment and prepayment fee.

Principal Payments Received

During the first quarter of 2024, HRZN received regularly scheduled principal payments on investments totaling $10.5 million, compared to regularly scheduled principal payments totaling $13.2 million during the fourth quarter of 2023.

Commitments

During the quarter ended March 31, 2024, HRZN closed new loan commitments totaling $37.5 million to three companies, compared to new loan commitments of $89.4 million to four companies in the fourth quarter of 2023.

Pipeline and Term Sheets

As of March 31, 2024, HRZN’s unfunded loan approvals and commitments (“Committed Backlog”) were $168.2 million to 14 companies. This compares to a Committed Backlog of $218.3 million to 15 companies at HRZN as of December 31, 2023. HRZN’s portfolio companies have discretion whether to draw down such commitments and the right of a portfolio company to draw down its commitment is often subject to achievement of specific milestones and other conditions to borrowing. Accordingly, there is no assurance that any or all of these transactions will be funded by HRZN. Across the Horizon Platform, the quarter ended with an additional $4.7 million of unfunded loan approvals and commitments.

During the quarter, HTFM received a signed term sheet that is in the approval process, which may result in the Horizon Platform providing up to an aggregate of $10.0 million of new debt investments. These opportunities are subject to underwriting conditions including, but not limited to, the completion of due diligence, negotiation of definitive documentation and investment committee approval, as well as compliance with HTFM’s allocation policy. Accordingly, there is no assurance that any or all of these transactions will be completed or funded by HRZN.

Warrant and Equity Portfolio

As of March 31, 2024, HRZN held a portfolio of warrant and equity positions in 99 portfolio companies, including 87 private companies, which provides the potential for future additional returns to HRZN’s shareholders.

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 Farmington, Connecticut, with a regional office in Pleasanton, California, and investment professionals located throughout the U.S. Monroe Capital is an $18 billion asset management firm specializing in private credit markets across various strategies, including direct lending, technology finance, venture debt, opportunistic, structured credit, real estate and equity. To learn more, please visit horizontechfinance.com.

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 the Company’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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240410823499/en/

Investor Relations:

ICR

Garrett Edson

ir@horizontechfinance.com

(646) 200-8885

Media Relations:

ICR

Chris Gillick

HorizonPR@icrinc.com

(646) 677-1819

Source: Horizon Technology Finance Corporation

FAQ

How much new loans did HRZN originate in Q1 2024?

HRZN originated $33.5 million of new loans in Q1 2024.

What was HRZN's committed backlog at the end of Q1?

HRZN ended the quarter with a committed backlog of $168 million.

Which companies received loans from HRZN in Q1 2024?

HRZN funded loans to companies like Sonex Health, Ceribell, and Nexii Building Solutions in Q1 2024.

How many portfolio companies did HRZN hold warrant and equity positions in as of March 31, 2024?

HRZN held a portfolio of warrant and equity positions in 99 portfolio companies as of March 31, 2024.