Horizon Technology Finance Corporation
Horizon Technology Finance Corp (Form: 8-K, Received: 10/31/2017 16:17:18)

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the

 

 Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): October 31, 2017

 

HORIZON TECHNOLOGY FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

         
Delaware   814-00802   27-2114934

(State or other jurisdiction

of incorporation)

  (Commission File Number)   (I.R.S. Employer Identification No.)

 

312 Farmington Avenue

Farmington, CT 06032

(Address of principal executive offices and zip code)

 

Registrant’s telephone number, including area code: (860) 676-8654

 

Check the appropriate box below if the Form 8-K is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
     
¨   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
     
¨   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
     
¨   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ¨

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

 

 

     

 

 

 

Section 2   Financial Information
Item 2.02   Results of Operations and Financial Condition

 

On October 31, 2017, Horizon Technology Finance Corporation (the “Company”) issued a press release announcing its financial results for the three and nine months ended September 30, 2017. A copy of this press release is attached hereto as Exhibit 99.1.

 

The information in Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1 furnished herewith, is being furnished and shall not be deemed “filed” for any purpose of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liabilities of such Section. The information in this Current Report on Form 8-K shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

 

Section 9   Financial Statements and Exhibits
Item 9.01   Financial Statements and Exhibits

 

(d) Exhibits.

     
99.1   Press release of the Company dated October 31, 2017.

 

 

 

  2  

 

 

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

         
Date: October 31, 2017

HORIZON TECHNOLOGY FINANCE

CORPORATION

 

 

 

By:

 

/s/ Robert D. Pomeroy, Jr.

 
    Robert D. Pomeroy, Jr.  
    Chief Executive Officer  
 
 

 

 

 

 

  3  

Exhibit 99.1

HORIZON LOGO FINAL

  

Horizon Technology Finance Announces
Third Quarter 2017 Financial Results

 

Net Investment Income of $0.33 Per Share Exceeds Distributions for the Quarter

Annualized Portfolio Yield of 16.5%

 

FARMINGTON, Conn., October 31, 2017 – 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 third quarter ended September 30, 2017.

 

Third Quarter 2017 Highlights

Earned net investment income of $3.8 million, or $0.33 per share, for the quarter
Net asset value equaled $136.0 million, or $11.81 per share, at quarter end
Funded $18.3 million in loans to five companies
Achieved an annualized portfolio yield on debt investments of 16.5% for the quarter
Ended the quarter with an investment portfolio of $176.7 million
Experienced liquidity events from three portfolio companies
Total liquidity as of September 30, 2017 was $87.6 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 78 portfolio companies
Asset coverage for borrowed amounts of 308% as of September 30, 2017
Declared distributions of $0.10 per share payable in each of January, February and March 2018, increasing cumulative declared distributions to $10.22 per share since going public in 2010

 

“Horizon benefited from the strong earnings power of its venture debt portfolio by realizing income from liquidity events resulting in earnings of $0.33 per share, which exceeded Horizon’s distributions for the quarter,” said Robert D. Pomeroy, Jr., Chairman and Chief Executive Officer of Horizon. “Portfolio turnover in the venture lending business provides an excellent opportunity to produce accelerated income from fees and end-of-term payments, as well as additional income from prepayment fees, while providing further opportunity for upside from warrants and equity interests in portfolio companies.”

 

Mr. Pomeroy continued, “The challenge in the venture lending business is to maintain a strong pipeline and new originations to keep pace with early repayments. Horizon was able to maintain its portfolio size during the quarter as we increased our backlog of committed and approved transactions to $54 million. Looking ahead, we are focused on converting our pipeline into new loans and growing our portfolio, improving our credit quality and continuing to earn net investment income that rewards our shareholders.”

 

Operating Results

Total investment income was $6.8 million for the three months ended September 30, 2017, as compared to $7.6 million for the three months ended September 30, 2016. The year-over-year decrease in total investment income is primarily due to lower interest income on investments resulting from the smaller average size of the loan portfolio. For the nine months ended September 30, 2017 and 2016, total investment income was $19.6 million and $26.0 million, respectively.

 

 

 

 

The Company’s dollar-weighted annualized portfolio yield on average loans for the three months ended September 30, 2017 and 2016 was 16.5% and 14.2%, respectively. Horizon's dollar-weighted average annualized portfolio yield on average loans for the nine months ended September 30, 2017 and 2016 was 15.5% 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 represents the portfolio yield and will be higher than what investors will realize because it does not reflect expenses or any sales load paid by investors.

 

Total expenses for the three months ended September 30, 2017 were $3.0 million, as compared to $3.3 million for the three months ended September 30, 2016. Interest expense decreased year-over-year primarily due to a decrease in average borrowings. Base management fee decreased year-over-year primarily due to a decrease in the average size of the investment portfolio. For the three months ended September 30, 2017, incentive fee expense was $0.3 million. There was no incentive fee expense for the three months ended September 30, 2016. 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 $0.6 million and $0.9 million, respectively, of reduced expense and additional net investment income for the three months ended September 30, 2017 and 2016. Total expenses for the nine months ended September 30, 2017 decreased to $9.7 million, as compared to $12.9 million for the nine months ended September 30, 2016.

 

Net investment income for the three months ended September 30, 2017 was $3.8 million, or $0.33 per share, as compared to $4.4 million, or $0.38 per share, for the three months ended September 30, 2016. For the nine months ended September 30, 2017 and 2016, net investment income was $9.9 million, or $0.86 per share, and $13.3 million, or $1.15 per share, respectively.

 

For the three months ended September 30, 2017, the net realized loss on investments was $0.4 million, or $0.04 per share, as compared to net realized gain on investments of less than $0.01 million for the three months ended September 30, 2016. For the nine months ended September 30, 2017 and 2016, the net realized loss on investments was $11.1 million, or $0.96 per share, and $2.9 million, or $0.25 per share, respectively.

 

For the three months ended September 30, 2017, the net unrealized depreciation on investments was $0.7 million, or $0.06 per share, as compared to net unrealized depreciation on investments of $10.0 million, or $0.87 per share, for the three months ended September 30, 2016. For the nine months ended September 30, 2017, net unrealized appreciation on investments totaled $8.3 million, or $0.72 per share, as compared to net unrealized depreciation on investments of $14.8 million, or $1.27 per share, for the nine months ended September 30, 2016.

 

Portfolio Summary and Investment Activity

As of September 30, 2017, the Company’s debt portfolio consisted of 36 secured loans with an aggregate fair value of $161.3 million. In addition, the Company’s total warrant, equity and other investments in 81 portfolio companies had an aggregate fair value of $15.4 million as of September 30, 2017. Total portfolio investment activity as of and for the three and nine months ended September 30, 2017 and 2016 was as follows:

 

 

 

 

($ in thousands)  

For the Three Months Ended

September 30,

   

For the Nine Months Ended

September 30,

 
    2017     2016     2017     2016  
Beginning portfolio   $ 179,084     $ 233,266     $ 194,003     $ 250,267  
New debt investments     18,321       13,536       66,311       45,223  
Principal payments received on investments     (7,202 )     (11,839 )     (27,536 )     (35,625 )
Early pay-offs     (12,600 )     (16,961 )     (52,117 )     (33,690 )
Accretion of debt investment fees     459       382       1,397       1,123  
New debt investment fees     (270 )     (195 )     (960 )     (714 )
New equity           11             67  
Proceeds from sale of investments           (5 )     (1,572 )     (939 )
Net realized (loss) gain on investments     (429 )     5       (11,098 )     (2,783 )
Net unrealized (depreciation) appreciation on investments     (659 )     (10,023 )     8,276       (14,752 )
Ending portfolio   $ 176,704     $ 208,177     $ 176,704     $ 208,177  

 

Net Asset Value

At September 30, 2017, the Company’s net assets were $136.0 million, or $11.81 per share, as compared to $143.7 million, or $12.44 per share, as of September 30, 2016, and $139.2 million, or $12.09 per share, as of December 31, 2016.

 

For the three months ended September 30, 2017, the net increase in net assets resulting from operations was $2.7 million, or $0.24 per share, compared to a net decrease in net assets of $5.6 million, or $0.49 per share, for the three months ended September 30, 2016.

 

Portfolio Asset Quality

The following table shows the classification of Horizon’s loan portfolio at fair value by internal credit rating as of September 30, 2017 and December 31, 2016:

 

($ in thousands)   September 30, 2017     December 31, 2016  
   

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     6     $ 18,434       11.4 %     6     $ 29,721       16.0 %
3     24       129,308       80.2       28       131,605       70.6  
2     3       7,450       4.6       6       13,360       7.2  
1     3       6,100       3.8       4       11,500       6.2  
Total     36     $ 161,292       100.0 %     44     $ 186,186       100.0 %

 

As of September 30, 2017 and December 31, 2016, 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 September 30, 2017, there were three debt investments with an internal credit rating of 1, with an aggregate cost of $16.1 million and an aggregate fair value of $6.1 million. As of December 31, 2016, there were four debt investments with an internal credit rating of 1, with an aggregate cost of $26.2 million and an aggregate fair value of $11.5 million.

 

Liquidity Events

Horizon experienced liquidity events from three portfolio companies in the quarter ended September 30, 2017. 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 July, Strongbridge Biopharma plc (“Strongbridge”) prepaid the outstanding principal balance of $7.5 million on its venture loan, plus interest, end-of-term payment and prepayment fee. Horizon continues to hold warrants in Strongbridge.

 

 

 

 

In July, Skyword Inc. (“Skyword”) prepaid the outstanding principal balance of $3.5 million on its venture loan, plus interest, end-of-term payment and prepayment fee. Horizon continues to hold warrants in Skyword.

 

In September, Sys-Tech Solutions, Inc. (“Sys-Tech”) prepaid the outstanding principal balance of $1.5 million on its venture loan, plus interest, end-of-term payment and prepayment fee. Horizon continues to hold warrants in Sys-Tech.

 

Liquidity and Capital Resources

As of September 30, 2017, the Company had $87.6 million in available liquidity, including $22.3 million in cash and $65.3 million in funds available under existing credit facility commitments.

 

At September 30, 2017, there was no outstanding principal balance under the $95.0 million revolving credit facility. The facility allows for an increase in the total loan commitment up to an aggregate commitment of $150 million. There can be no assurance that any additional lenders will make any commitments under the facility.

 

On September 29, 2017, Horizon completed an underwritten public offering of an aggregate principal amount of $32.5 million of 6.25% notes due 2022. The notes will mature on September 15, 2022, and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after September 15, 2019. The notes bear interest at a rate of 6.25% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning December 15, 2017. On October 11, 2017, in connection with the public offering, the underwriters exercised their option to purchase an additional $4.9 million in aggregate principal amount of notes to cover over-allotments, increasing the total size of the offering to $37.4 million. The Company used the net proceeds of this public offering to repay the $33.0 million of 7.375% notes due in 2019.

 

As of September 30, 2017, the Company’s debt to equity leverage ratio was 48%, and the asset coverage ratio for borrowed amounts was 308%.

 

Stock Repurchase Program

On April 27, 2017, the Company’s board of directors extended the Company's previously authorized stock repurchase program until the earlier of June 30, 2018 or the repurchase of $5.0 million of the Company's common stock. During the three months ended September 30, 2017, the Company repurchased 5,923 shares of its common stock at an average price of $9.97 on the open market at a total cost of $0.1 million. From the inception of the stock repurchase program through September 30, 2017, 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 Fourth Quarter 2017

On October 27, 2017, the Company’s board of directors declared monthly distributions of $0.10 per share payable in each of January, February and March 2018. The following table shows these monthly distributions, which total $0.30 per share:

 

Ex-Dividend Date   Record Date   Payment Date   Amount Per Share  
December 19, 2017   December 20, 2017   January 17, 2018   $ 0.10  
January 19, 2018   January 22, 2018   February 15, 2018   $ 0.10  
February 20, 2018   February 21, 2018   March 15, 2018   $ 0.10  
        Total:   $ 0.30  

 

After paying distributions of $0.30 and earning $0.33 per share for the quarter, the Company’s undistributed spillover income as of September 30, 2017 was $0.11 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, November 1, 2017 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 96455441.

 

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

 

A replay of the call will be available through November 3, 2017. 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 96455441. 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 Investor Relations and Media Contact:
  Daniel R. Trolio The IGB Group
  Chief Financial Officer Scott Eckstein / Leon Berman
   (860) 674-9977 (212) 477-8261 / (212) 477-8438
  dtrolio@horizontechfinance.com seckstein@igbir.com / lberman@igbir.com

 

 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Assets and Liabilities
(Dollars in thousands, except share and per share data)

 

   

September 30,

2017

   

December 31,

2016

 
             
Assets                
Non-affiliate investments at fair value (cost of $184,124 and
$211,627, respectively)
  $ 173,211     $ 194,003  
Affiliate investments at fair value (cost of $3,767)     3,493        
Total investments at fair value (cost of $187,891 and $211,627, respectively)     176,704       194,003  
Cash     22,326       37,135  
Interest receivable     4,366       6,036  
Other assets     1,413       2,078  
Total assets   $ 204,809     $ 239,252  
                 
Liabilities                
Borrowings   $ 64,101     $ 95,597  
Distributions payable     3,455       3,453  
Base management fee payable     304       337  
Incentive fee payable     258        
Other accrued expenses     695       673  
Total liabilities     68,813       100,060  
                 
Net assets                
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero
shares issued and outstanding as of September 30, 2017 and December 31, 2016
           
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 11,684,244 and 11,671,966 shares issued and 11,516,779 and 11,510,424 shares outstanding as of September 30, 2017 and December 31, 2016, respectively     12       12  
Paid-in capital in excess of par     179,626       179,551  
Distributions in excess of net investment income     (846 )     (397 )
Net unrealized depreciation on investments     (11,187 )     (19,463 )
Net realized loss on investments     (31,609 )     (20,511 )
Total net assets     135,996       139,192  
Total liabilities and net assets   $ 204,809     $ 239,252  
Net asset value per common share   $ 11.81     $ 12.09  

 

 

 

 

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 Nine Months Ended  
    September 30,     September 30,  
    2017     2016     2017     2016  
Investment income                                
Interest income on non-affiliate investments   $ 6,164     $ 6,819     $ 17,861     $ 24,610  
Interest income on affiliate investments     81             81        
Total interest income on investments     6,245       6,819       17,942       24,610  
Fee income                                
Prepayment fee income on non-affiliate investments     399       355       1,187       618  
Fee income on non-affiliate investments     130       434       485       769  
Total investment income     6,774       7,608       19,614       25,997  
Expenses                                
Interest expense     1,140       1,420       3,540       4,466  
Base management fee     921       1,135       2,783       3,666  
Performance based incentive fee     258             1,094       2,126  
Administrative fee     194       197       575       753  
Professional fees     275       315       1,105       1,159  
General and administrative     189       218       600       681  
Total expenses     2,977       3,285       9,697       12,851  
Net investment income before excise tax     3,797       4,323       9,917       13,146  
Credit for excise tax           (52 )           (138 )
Net investment income     3,797       4,375       9,917       13,284  
Net realized and unrealized loss on investments                                
Net realized (loss) gain on non-affiliate investments     (429 )     5       (11,098 )     (2,857 )
Net realized (loss) gain on investments     (429 )     5       (11,098 )     (2,857 )
Net unrealized (depreciation) appreciation on non-affiliate investments     (640 )     (10,023 )     8,295       (14,752 )
Net unrealized depreciation on affiliate investments     (19 )           (19 )      
Net unrealized (depreciation) appreciation on investments     (959 )     (10,023 )     8,276       (14,752 )
Net realized and unrealized loss on investments     (1,088 )     (10,018 )     (2,822 )     (17,609 )
Net increase (decrease) in net assets resulting from operations   $ 2,709     $ (5,643 )   $ 7,095     $ (4,325 )
Net investment income per common share   $ 0.33     $ 0.38     $ 0.86     $ 1.15  
Net increase (decrease) in net assets per common share   $ 0.24     $ (0.49 )   $ 0.62     $ (0.37 )
Distributions declared per share   $ 0.30     $ 0.345     $ 0.90     $ 1.035  
Weighted average shares outstanding     11,518,552       11,549,508       11,516,246       11,543,995