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July 31, 2018

Horizon Technology Finance Announces Second Quarter 2018 Financial Results

Grows Portfolio and Committed Backlog; Achieves Loan Portfolio Yield of 15.3%

FARMINGTON, Conn., July 31, 2018 /PRNewswire/ -- Horizon Technology Finance Corporation (NASDAQ: HRZN) (the "Company" or "Horizon"), 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 cleantech industries, today announced its financial results for the second quarter ended June 30, 2018.

Second Quarter 2018 Highlights

  • Earned net investment income of $3.3 million, or $0.29 per share, for the quarter
  • Net asset value equaled $133.8 million, or $11.60 per share, at quarter end
  • Funded $33.6 million in loans to seven companies
  • Achieved an annualized portfolio yield on debt investments of 15.3% for the quarter
  • Ended the quarter with an investment portfolio of $226.5 million
  • Experienced liquidity events from three portfolio companies
  • Total liquidity as of June 30, 2018 was $31.4 million
  • Floating rate loans comprised 99% of the outstanding principal of the loan portfolio, at quarter end
  • At quarter end, held a portfolio of warrant and equity positions in 77 portfolio companies
  • Asset coverage for borrowed amounts of 227% as of June 30, 2018
  • Declared distributions of $0.10 per share payable in each of October, November and December 2018, increasing cumulative declared distributions to $11.12 per share since going public in 2010
  • In June, established Horizon Secured Loan Fund I LLC, a joint venture with Arena Investors, and secured initial $100 million debt commitment from U.S. based insurance company

"During the second quarter, we grew our portfolio and committed backlog, while achieving a loan portfolio yield of 15.3%," said Robert D. Pomeroy, Jr., Chairman and Chief Executive Officer of Horizon. "We also took steps to expand our venture lending brand and enhance growth opportunities with the establishment of our new joint venture, which made its first investment during the second quarter."

Mr. Pomeroy continued, "As we progress through the remainder of the year, we believe we remain well positioned to capitalize on strong demand for our venture debt products as we continue to provide growth capital to innovative companies in our core markets. Our priority continues to be growing our portfolio and earnings power with a focus on credit quality and providing shareholders with distributions and upside potential from our warrant and equity positions."

Operating Results
Total investment income was $7.3 million for the three months ended June 30, 2018, as compared to $5.9 million for the three months ended June 30, 2017. The year-over-year increase in total investment income is primarily due to higher interest income on investments resulting from the larger average size of the loan portfolio and an increase in the London Interbank Offered Rate. For the six months ended June 30, 2018 and 2017, total investment income was $14.5 million and $12.8 million, respectively.

The Company's dollar-weighted annualized yield on average debt investments for the three months ended June 30, 2018 and 2017 was 15.3% and 14.7%, respectively. Horizon's dollar-weighted annualized yield on average debt investments for the six months ended June 30, 2018 and 2017 was 14.8% and 15.1%, respectively.

The Company calculates the yield on dollar-weighted average debt investments for any period measured as (1) total investment income during the period divided by (2) the average of the fair value of debt investments outstanding on (a) the last day of the calendar month immediately preceding the first day of the period and (b) the last day of each calendar month during the period. The dollar-weighted annualized yield on average debt investments is higher than what investors will realize because it does not reflect expenses or any sales load paid by investors.

Total net expenses for the three months ended June 30, 2018 were $4.0 million, as compared to $3.1 million for the three months ended June 30, 2017. Interest expense increased year-over-year primarily due to an increase in average borrowings. Base management fee increased year-over-year primarily due to an increase in the average size of the investment portfolio. For the three months ended June 30, 2018, incentive fee expense was $0.8 million, as compared to $0.4 million for the three months ended June 30, 2017. During the three months ended June 30, 2018, our Advisor waived performance based incentive fees of $0.2 million which resulted in $0.2 million of reduced expense and additional net investment income for the three months ended June 30, 2018. The incentive fee on pre-incentive fee net investment income was subject to the incentive fee cap and deferral mechanism under the Investment Management Agreement, which resulted in $0.2 million of reduced expense and additional net investment income for the three months ended June 30, 2017.

Net investment income for the three months ended June 30, 2018 was $3.3 million, or $0.29 per share, as compared to $2.8 million, or $0.24 per share, for the three months ended June 30, 2017. For the six months ended June 30, 2018 and 2017 net investment income totaled $6.5 million, or $0.56 per share, and $6.1 million, or $0.53 per share, respectively.

For the three months ended June 30, 2018, the net realized loss on investments was $0.2 million, or $0.01 per share, as compared to net realized gain on investments of $0.2 million, or $0.02 per share, for the three months ended June 30, 2017. For the six months ended June 30, 2018 and 2017, the net realized loss on investments was $0.3 million, or $0.03 per share, and $10.7 million, or $0.93 per share, respectively.

For the three months ended June 30, 2018, the net unrealized depreciation on investments was $0.2 million, or $0.02 per share, as compared to net unrealized depreciation on investments of $2.2 million, or $0.19 per share, for the three months ended June 30, 2017. For the six months ended June 30, 2018, net unrealized depreciation on investments was $0.7 million, or $0.05 per share, as compared to net unrealized appreciation on investments of $8.9 million, or $0.78 per share, for the six months ended June 30, 2017.

Portfolio Summary and Investment Activity
As of June 30, 2018, the Company's debt portfolio consisted of 33 secured loans with an aggregate fair value of $203.5 million. In addition, the Company's total warrant, equity and other investments in 81 portfolio companies had an aggregate fair value of $18.9 million as of June 30, 2018. Total portfolio investment activity as of and for the three and six months ended June 30, 2018 and 2017 was as follows:

 

($ in thousands)

For the Three Months Ended

June 30,


For the Six Months Ended

June 30,


2018


2017


2018


2017











Beginning portfolio

$      211,905


$   180,114



$   222,099


$   194,003


New debt investments

29,484


22,074



40,525


47,990


Less refinanced debt investments




(2,479)



Net new debt investments

29,484


22,074



38,046


47,990


Investment in controlled affiliate investments

4,069




4,069



Principal payments received on investments

(5,178)


(8,441)



(13,977)


(20,332)


Early pay-offs

(13,584)


(12,308)



(20,325)


(39,517)


Accretion of debt investment fees

571


433



1,081


938


New debt investment fees

(314)


(420)



(1,509)


(690)


New equity

225




1,016



Proceeds from sale of investments

(351)


(346)



(3,066)


(1,572)


Net realized (loss) gain on investments

(153)


175



(302)


(10,670)


Net unrealized (depreciation) appreciation on investments

(207)


(2,197)



(665)


8,934


Ending portfolio

$      226,467


$   179,084



$   226,467


$   179,084


 

Net Asset Value
At June 30, 2018, the Company's net assets were $133.8 million, or $11.60 per share, as compared to $136.8 million, or $11.87 per share, as of June 30, 2017, and $135.1 million, or $11.72 per share, as of December 31, 2017.

For the three months ended June 30, 2018, the net increase in net assets resulting from operations was $2.9 million, or $0.25 per share, compared to a net increase in net assets of $0.7 million, or $0.06 per share, for the three months ended June 30, 2017.

Portfolio Asset Quality
The following table shows the classification of Horizon's loan portfolio at fair value by internal credit rating as of June 30, 2018 and December 31, 2017:

 

($ in thousands)

June 30, 2018


December 31, 2017


Number of

Investments


Debt

 Investments at

Fair Value


Percentage

of Debt

Investments


Number of

Investments


Debt

Investments at

Fair Value


Percentage

of Debt

Investments













Credit Rating












4

4


$    19,685


9.7%


4


$    18,701


9.2%

3

25


166,317


81.7


25


176,560


86.6

2

4


17,457


8.6


3


5,632


2.8

1




1


2,900


1.4

Total

33


$  203,459


100.0%


33


$  203,793


100.0%

 

As of June 30, 2018 and December 31, 2017, Horizon's loan portfolio had a weighted average credit rating of 3.0, 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 a deteriorating credit quality and high degree of risk of loss of principal. As of June 30, 2018, there were no debt investments with an internal credit rating of 1. As of December 31, 2017, there was one debt investment with an internal credit rating of 1, with a cost of $3.0 million and a fair value of $2.9 million.

Liquidity Events
During the quarter ended June 30, 2018, Horizon experienced liquidity events from three 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 April, NinePoint Medical, Inc. ("NinePoint") prepaid the outstanding principal balance of $4.0 million on its venture loan, plus interest, end-of-term payment and prepayment fee. Horizon continues to hold warrants and a success fee in NinePoint.

In May, MediaBrix, Inc. ("MediaBrix"), in connection with its sale, prepaid the outstanding principal balance of $3.3 million on its venture loan, plus interest and end-of-term payment. Horizon also received a success fee in the form of stock of MediaBrix's acquirer.

In May, SilkRoad Technology, Inc. prepaid the outstanding principal balance of $6.3 million on its venture loan, plus interest, end-of-term payment and prepayment fee.

Liquidity and Capital Resources
As of June 30, 2018, the Company had $31.4 million in available liquidity, including $10.8 million in cash and $20.6 million in funds available under existing credit facility commitments.

At June 30, 2018, there was $68.0 million outstanding principal balance under the $100.0 million revolving credit facility (the "Key Facility"). The Key Facility allows for an increase in the total loan commitment up to an aggregate commitment of $150.0 million. There can be no assurance that any additional lenders will make any commitments under the Key Facility.

On April 6, 2018, the Company amended the Key Facility to increase the aggregate commitments to $100.0 million and extend the revolving period to April 6, 2021 and the maturity date to April 6, 2023.

As of June 30, 2018, the Company's debt to equity leverage ratio was 79%, and the asset coverage ratio for borrowed amounts was 227%.

Joint Venture
Horizon and Arena Investors, a global investment firm, established a joint venture, Horizon Secured Loan Fund I LLC ("HSLFI"), which is owned and controlled by them on an equal basis. 

Each of Horizon and Arena has initially committed to provide up to $25 million of equity to the joint venture, and collectively intend to contribute equity capital, in the aggregate, of up to $100 million. In order to enhance HSLFI's capacity to pursue attractive origination activities, a large U.S. based insurance company ("Lender") has provided an initial $100 million senior secured debt commitment, which may be increased to $200 million with the mutual agreement of HSLFI and the Lender.

Stock Repurchase Program
On April 27, 2018, the Company's board of directors extended the Company's previously authorized stock repurchase program until the earlier of June 30, 2019 or the repurchase of $5.0 million of the Company's common stock. During the three and six months ended June 30, 2018, the Company did not make any repurchases of its common stock. From the inception of the stock repurchase program through June 30, 2018, the Company has repurchased 167,465 shares of its common stock at an average price of $11.22 on the open market at a total cost of $1.9 million.

Monthly Distributions Declared in Third Quarter 2018
On July 27, 2018, the Company's board of directors declared monthly distributions of $0.10 per share payable in each of October, November and December 2018. The following table shows these monthly distributions, which total $0.30 per share:

 

Ex-Dividend Date

Record Date

Payment Date

Amount Per Share

September 17, 2018

September 18, 2018

October 16, 2018

$0.10

October 17, 2018

October 18, 2018

November 15, 2018

$0.10

November 16, 2018

November 19, 2018

December 14, 2018

$0.10



Total:

$0.30

 

After paying distributions of $0.30 per share and earning $0.29 per share for the quarter, the Company's undistributed spillover income as of June 30, 2018 was $0.05 per share. Spillover income includes any ordinary income and net capital gains from the preceding tax years that were not distributed during such tax years.

When declaring distributions, the Horizon 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, August 1, 2018, at 9:00 a.m. ET to discuss its latest corporate developments and financial results. The dial-in number for callers in the U.S. is (877) 677-9112, and the dial-in number for international callers is (708) 290-1396. The access code for all callers is 6346648.

A live webcast will be available on the Company's website at www.horizontechfinance.com.

A replay of the call will be available through August 3, 2018. To access the replay, please dial (855) 859-2056 in the United States and (404) 537-3406 outside the United States, and then enter the access code 6346648. An online archive of the webcast will be available on the Company's website for 30 days following the call.

About Horizon Technology Finance
Horizon Technology Finance Corporation 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 cleantech 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. Headquartered in Farmington, Connecticut, Horizon has regional offices in Pleasanton, California, Reston, Virginia and Boston, Massachusetts. Horizon's common stock trades on the NASDAQ Global Select Market under the ticker symbol "HRZN". To learn more, please visit www.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 our 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
Horizon Technology Finance
Daniel R. Trolio
Chief Financial Officer
(860) 674-9977
dtrolio@horizontechfinance.com

Investor Relations and Media Contact:
The IGB Group
Leon Berman
(212) 477-8438
lberman@igbir.com

 


Horizon Technology Finance Corporation and Subsidiaries






Consolidated Statements of Assets and Liabilities

(Dollars in thousands, except share and per share data)







June 30,    2018


December 31,

2017







Assets





Non-affiliate investments at fair value (cost of $216,364 and $219,303, respectively)

$       215,102


$     218,600


Non-controlled affiliate investments at fair value (cost of $7,677 and $3,774, respectively)

7,296


3,499


Controlled affiliate investments at fair value (cost of $4,069 and $0, respectively)

4,069



Total investments at fair value (cost of $228,110 and $223,077, respectively)

226,467


222,099


Cash

10,840


6,594


Interest receivable

4,053


3,986


Other assets

1,966


1,467


Total assets

$       243,326


$     234,146







Liabilities





Borrowings

$       104,214


$       94,075


Distributions payable

3,458


3,456


Base management fee payable

387


379


Incentive fee payable

823


541


Other accrued expenses

673


620


Total liabilities

109,555


99,071

















Net assets





Preferred stock, par value $0.001 per share, 1,000,000 shares     authorized, zero shares issued and outstanding as of June 30, 2018 and December 31, 2017



Common stock, par value $0.001 per share, 100,000,000 shares authorized, 11,695,229 and 11,687,871 shares issued and 11,527,764 and 11,520,406 shares outstanding as of June 30, 2018 and December 31, 2017, respectively

12


12


Paid-in capital in excess of par

179,720


179,641


Distributions in excess of net investment income

(2,314)


(1,898)


Net unrealized depreciation on investments

(1,643)


(978)


Net realized loss on investments

(42,004)


(41,702)


Total net assets

133,771


135,075


Total liabilities and net assets

$       243,326


$    234,146


Net asset value per common share

$           11.60


$        11.72


 

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 Six Months Ended



June 30,


June 30,



2018


2017


2018


2017


Investment income









Interest income on investments









Interest income on non-affiliate investments

$          6,675


$          5,418


$       13,290


$     11,697


Interest income on non-controlled affiliate investments

198



336



Total interest income on investments

6,873


5,418


13,626


11,697


Fee income









Prepayment fee income on non-affiliate investments

175


327


312


788


Fee income on non-affiliate investments

265


133


550


356


Total investment income

7,313


5,878


14,488


12,841


Expenses









Interest expense

1,451


1,084


2,935


2,401


Base management fee

1,088


888


2,202


1,862


Performance based incentive fee 

982


405


1,527


836


Administrative fee

171


187


354


381


Professional fees

263


324


708


830


General and administrative

227


236


421


410


Total expenses

4,182


3,124


8,147


6,720


Performance based incentive fee waived

(159)



(159)



Net expenses

4,023


3,124


7,988


6,720


Net investment income

3,290


2,754


6,500


6,121


Net realized and unrealized loss on investments









Net realized (loss) gain on non-affiliate investments

(153)


176


(302)


(10,670)


Net realized (loss) gain on investments

(153)


176


(302)


(10,670)


Net unrealized (depreciation) appreciation on non-affiliate investments

(227)


(2,197)


(560)


8,934


Net unrealized appreciation (depreciation) on non-controlled affiliate investments

20



(105)



Net unrealized (depreciation) appreciation on investments

(207)


(2,197)


(665)


8,934


Net realized and unrealized loss on investments

(360)


(2,021)


(967)


(1,736)


Net increase in net assets resulting from operations

$            2,930


$               733


$           5,533


$         4,385


Net investment income per common share

$              0.29


$               0.24


$             0.56


$            0.53


Net increase in net assets per common share

$              0.25


$               0.06


$             0.48


$            0.38


Distributions declared per share

$              0.30


$               0.30


$             0.60


$            0.60


Weighted average shares outstanding

11,525,874


11,517,271


11,524,024


11,515,074


 

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SOURCE Horizon Technology Finance Corporation

Horizon Technology Finance
312 Farmington Avenue
Farmington, CT
06032

Jerry Michaud
(860) 676-8659
jerry@horizontechfinance.com

Horizon Technology Finance
349 Main Street
Suite 203
Pleasanton, CA
94566

Kevin May
(925) 935-2924
kevin@horizontechfinance.com

Horizon Technology Finance
Boston, MA

Greg Peter
(617) 650-5331
gpeter@horizontechfinance.com

Horizon Technology Finance
1818 Library Street
Suite 500
Reston, VA
20190

Jerry Michaud
(703) 956-3504
jerry@horizontechfinance.com
Nasdaq SBIA Crossroads Venture Group NYSE
HORIZON TECHNOLOGY FINANCE
A Life Sciences & Technology Venture Lending Partner

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