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March 5, 2019

Horizon Technology Finance Announces Fourth Quarter and Full Year 2018 Financial Results

- Net Investment Income per Share of $0.34 -
- NII Covers Distributions for Year -
- Third Consecutive Quarter of Portfolio Growth -

FARMINGTON, Conn., March 5, 2019 /PRNewswire/ -- Horizon Technology Finance Corporation (NASDAQ: HRZN) ("Horizon" or the "Company"), 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 fourth quarter and full year ended December 31, 2018.

Fourth Quarter and Full Year 2018 Highlights

  • Net investment income grew 67% to $4.0 million, or $0.34 per share during the fourth quarter of 2018, compared to $2.4 million, or $0.21 per share, for the prior-year period
  • Net investment income grew 13% to $13.9 million, or $1.20 per share for 2018, compared to $12.3 million, or $1.07 per share, for 2017
  • Net asset value of $134.3 million, or $11.64 per share, at year end
  • Funded six loans totaling $47.0 million during the quarter and 23 loans totaling $115.8 million for 2018
  • Experienced liquidity events from four portfolio companies in the fourth quarter and 14 for the full year
  • Joint venture purchased initial investments and able to access its debt facility of up to $100 million
  • Achieved annualized portfolio yield on debt investments of 16.7% for the quarter and 15.3% for 2018
  • Total investment portfolio of $248.4 million as of December 31, 2018
  • Expanded aggregate commitments under revolving credit facility from $100 million to $125 million
  • Held portfolio of warrant and equity positions in 76 companies at year end

Subsequent Events

  • Declared distributions of $0.10 per share payable in each of April, May and June 2019
  • Horizon's Advisor also declared today that it will irrevocably waive the receipt of incentive fees related to the amount previously deferred that it may be entitled to receive under the Investment Management Agreement between Horizon and its Advisor for all of 2019

"Horizon closed out 2018 on a strong note with net investment income again covering our distributions, as we continued our positive performance," said Robert D. Pomeroy, Jr., Chairman and Chief Executive Officer of Horizon. "Specifically, we grew our portfolio for the third consecutive quarter, bolstered by $47 million of originations, and generated solid returns and net investment income, which exceeded our distributions.  Further, our loan portfolio yield of 15.3% for 2018 ranks among the highest yields in the BDC industry and is indicative of our loan structuring expertise and the success of our predictive pricing strategy."

"Importantly, overall credit quality continues to be strong, as we once again ended the quarter with no non-accruals, further validating our underwriting process," added Mr. Pomeroy.  "As we look toward the balance of 2019, we have ample liquidity to take advantage of sizable market demand to fund new investments and grow our portfolio. We remain confident in the strength of our business and believe we are well positioned to deliver additional long-term value to our shareholders."

Fourth Quarter 2018 Operating Results

Total investment income for the quarter ended December 31, 2018 was $8.8 million, an increase of 43% compared to $6.2 million for the quarter ended December 31, 2017. The year-over-year growth in total investment income is primarily due to higher interest income on investments resulting from an increase in the average size of the debt investment portfolio and higher interest rates.

The Company's dollar-weighted annualized yield on average debt investments for the quarter ended December 31, 2018 and 2017 was 16.7% and 14.1%, respectively.  The Company calculates the dollar-weighted annualized yield on average debt investments for any period measured as (1) total investment income (excluding dividend 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.

Net expenses for the quarter ended December 31, 2018 were $4.8 million, compared to $3.8 million for the quarter ended December 31, 2017.  The increase was primarily due to $0.5 million in higher net performance-based incentive fees, $0.2 million in additional base management fees related to the larger average size of the investment portfolio and $0.1 million in additional interest expense related to an increase in average borrowings. During the quarter ended December 31, 2018, the Company's Advisor waived performance-based incentive fees of $0.6 million, which reduced net expense and generated additional net investment income for the quarter ended December 31, 2018.

Net investment income for the quarter ended December 31, 2018 was $4.0 million, or $0.34 per share, as compared to $2.4 million, or $0.21 per share, for the quarter ended December 31, 2017.

For the quarter ended December 31, 2018, net realized gain on investments was $0.9 million, or $0.08 per share, compared to net realized loss on investments of $10.1 million, or $0.88 loss per share, for the quarter ended December 31, 2017.

For the quarter ended December 31, 2018, net unrealized depreciation on investments was $1.6 million, or $0.14 per share, as compared to net unrealized appreciation on investments of $10.2 million, or $0.88 per share, for the prior-year period.

Full Year 2018 Operating Results

Total investment income for the year ended December 31, 2018 was $31.1 million, an increase of 21% compared to $25.8 million for the year ended December 31, 2017.

Horizon's dollar-weighted annualized yield on average debt investments for the year ended December 31, 2018 and 2017 was 15.3% and 15.1%, respectively.

For the full year ended December 31, 2018, net investment income was $13.9 million, or $1.20 per share, compared to net investment income of $12.3 million, or $1.07 per share, in the prior year.

For the full year ended December 31, 2018, net realized gain on investments was $0.6 million, or $0.06 per share, compared to net realized loss on investments of $21.2 million, or $1.84 per share, for the full year ended December 31, 2017.

For the full year ended December 31, 2018, net unrealized depreciation on investments was $1.5 million, or $0.13 per share, compared to net unrealized appreciation on investments of $18.5 million, or $1.60 per share, for the full year ended December 31, 2017.

Portfolio Summary and Investment Activity

As of December 31, 2018, the Company's debt portfolio consisted of 34 secured loans with an aggregate fair value of $216.4 million. In addition, the Company's total warrant, equity and other investments in 80 portfolio companies had an aggregate fair value of $18.8 million, and the Company's 50% equity interest in its joint venture had a fair value of $13.2 million as of December 31, 2018.  Total portfolio investment activity for the three months and full year ended December 31, 2018 and 2017 was as follows:

($ in thousands)

For the Three Months Ended December 31,

For the Full Year Ended December 31,


2018

2017

2018

2017

Beginning portfolio

$              239,757

$              176,704

$        222,099

$              194,003






New debt investments

47,000

72,945

111,725

139,256






Less refinanced debt investments

(7,989)

(3,700)

(10,468)

(3,700)






Net new debt investments

39,011

69,245

101,257

135,556






Investment in controlled affiliate investments

8,849

13,262






Principal payments received on investments

(4,686)

(2,942)

(24,254)

(30,477)






Early pay-offs

(33,250)

(20,496)

(60,185)

(72,613)






Accretion of debt investment fees

785

484

2,390

1,881






New debt investment fees

(395)

(745)

(2,279)

(1,705)






New equity

1,090






Warrants received in settlement of fee income

161






Proceeds from sale of investments

(933)

(268)

(4,293)

(1,840)






Dividend income from controlled affiliate
investments

(255)

(255)






Distributions from controlled affiliate investments

255

255






Net realized gain (loss) on investments

790

(10,092)

553

(21,191)






Net unrealized (depreciation) appreciation on
investments

(1,628)

10,209

(1,501)

18,485






Other

141

141






Ending portfolio

$              248,441

$              222,099

$       248,441

$              222,099

Net Asset Value

At December 31, 2018, the Company's net assets were $134.3 million, or $11.64 per share, as compared to $135.1 million, or $11.72 per share, as of December 31, 2017.

For the quarter ended December 31, 2018, net increase in net assets resulting from operations was $3.2 million, or $0.28 per share, compared to net increase in net assets of $2.5 million, or $0.21 per share, for the quarter ended December 31, 2017.

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, 2018 and 2017:

($ in thousands)

December 31, 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

6

$       41,677

19.3%


4

$       18,701

9.2%

3

23

155,439

71.8%


25

176,560

86.6%

2

5

19,285

8.9%


3

5,632

2.8%

1

--

--

--


1

2,900

1.4%

Total

34

$     216,401

100.0%


33

$     203,793

100.0%

As of December 31, 2018, Horizon's loan portfolio had a weighted average credit rating of 3.1, an improvement from 3.0 as of December 31, 2017, 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, 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 December 31, 2018, 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, ShopKeep Inc. ("ShopKeep") prepaid its outstanding principal balance of $8.5 million on its venture loan, plus interest, end-of-term payment and prepayment fee.  Horizon continues to hold warrants in ShopKeep.

In October, Ekahau, Inc. ("Ekahau") closed a sale transaction from which Horizon received proceeds of approximately $0.9 million in connection with the termination of Horizon's warrants in Ekahau.

In October, PebblePost, Inc. ("PebblePost") prepaid its outstanding principal balance of $8.0 million on its venture loan plus interest, end-of-term payment and prepayment fee.  Horizon continues to hold warrants in PebblePost.

In November, with the proceeds of a new loan from Horizon, The NanoSteel Company, Inc. ("NanoSteel") prepaid its previously outstanding principal balance of $8.0 million on its venture loan plus interest, end-of-term payment and prepayment fee.  Horizon continues to hold warrants in NanoSteel.

Liquidity and Capital Resources

As of December 31, 2018, the Company had $13.5 million in available liquidity, including $12.6 million in cash and $0.9 million in funds available under existing credit facility commitments.

On December 28, 2018, the Company amended its revolving credit facility with KeyBank (the "Key Facility"), increasing the aggregate commitments under the Key Facility by $25.0 million to $125.0 million. 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. As of December 31, 2018, there was $90.5 million outstanding principal balance under the $125.0 million Key Facility.

As of December 31, 2018, the Company's debt to equity leverage ratio was 95%, and the asset coverage ratio for borrowed amounts was 205%.

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 quarter and full year ended December 31, 2018, the Company did not repurchase any shares of its common stock. From the inception of the stock repurchase program through December 31, 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 First Quarter 2019

On March 1, 2019, the Company's board of directors declared monthly distributions of $0.10 per share payable in each of April, May and June 2019. The following table shows these monthly distributions, which total $0.30 per share:

Ex-Dividend Date

Record Date

Payment Date

Amount per Share

March 18, 2019

March 19, 2019

April 16, 2019

$0.10

April 17, 2019

April 18, 2019

May 15, 2019

$0.10

May 16, 2019

May 17, 2019

June 17, 2019

$0.10



Total:

$0.30

After paying distributions of $1.10 per share deemed paid for tax purposes in 2018, declaring on October 26, 2018 a distribution of $0.10 per share payable January 15, 2019, and generating taxable earnings of $1.22 per share in 2018, the Company's undistributed spillover income as of December 31, 2018 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, March 6, 2019, at 9:00 a.m. ET to discuss its latest corporate developments and financial results. To participate in the call, please dial (877) 677-9112 (domestic) or (708) 290-1396 (international).  In addition, a live webcast will be available on the Company's website at www.horizontechfinance.com

A replay of the call will be available through March 8, 2019 at (855) 859-2056 in the United States and (404) 537-3406 International, passcode 7869896. 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) 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 also has regional offices in Pleasanton, California, Reston, Virginia and Boston, Massachusetts. 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 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 
(860) 284-6450

Media Relations:
ICR
Brian Ruby
brian.ruby@icrinc.com
(203) 682-8268

 

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Assets and Liabilities

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



December 31,


2018


2017





Assets




Non-affiliate investments at fair value (cost of $229,772 and $219,303, respectively)

$       227,624


$     218,600

Non-controlled affiliate investments at fair value (cost of $7,887 and $3,774, respectively)

7,574


3,499

Controlled affiliate investments at fair value (cost of $13,262 and $0, respectively)

13,243


Total investments at fair value (cost of $250,921 and $223,077, respectively)

248,441


222,099

Cash

12,591


6,594

Interest receivable

3,966


3,986

Other assets

1,751


1,467

Total assets

$       266,749


$     234,146





Liabilities




Borrowings

$       126,853


$       94,075

Distributions payable

3,461


3,456

Base management fee payable

422


379

Incentive fee payable

991


541

Other accrued expenses

765


620

Total liabilities

132,492


99,071





Commitments and contingencies








Net assets




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


Common stock, par value $0.001 per share, 100,000,000 shares authorized,
     11,702,594 and 11,687,871 shares issued and 11,535,129 and 11,520,406 shares outstanding 
     as of December 31, 2018 and 2017, respectively

12


12

Paid-in capital in excess of par

179,616


179,641

Distributable earnings

(45,371)


(44,578

Total net assets

134,257


135,075

Total liabilities and net assets

$       266,749


$    234,146

Net asset value per common share

$           11.64


$        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 Year Ended


December  31,


December 31,


2018


2017


2018


2017

Investment income








Interest income on investments








Interest income on non-affiliate investments

$          7,676


$          5,677


$         28,061


$        23,538

Interest income on non-controlled affiliate investments

197


144


725


225

Total interest income on investments

7,873


5,821


28,786


23,763

Fee income








Prepayment fee income on non-affiliate investments

745


245


1,159


1,432

Fee income on non-affiliate investments

10


82


867


567

Fee income on affiliate investments

5


15


23


15

Total fee income

760


342


2,049


2,014

Dividend income








Dividend income on affiliate investments

172



255


Total dividend income

172



255


Total investment income

8,805


6,163


31,090


25,777

Expenses








Interest expense

1,747


1,627


6,363


5,167

Base management fee

1,179


1,003


4,578


3,786

Performance based incentive fee

1,570


620


4,393


1,714

Administrative fee

191


124


708


699

Professional fees

346


260


1,343


1,365

General and administrative

353


204


989


803

Total expenses

5,386


3,838


18,374


13,534

Performance based incentive fee waived

(579)


(79)


(1,184)


(79

Net expenses

4,807


3,759


17,190


13,455

Net investment income before excise tax

3,998


2,404


13,900


12,322

Provision for excise tax

34


25


34


25

Net investment income

3,964


2,379


13,866


12,297

Net realized and unrealized (loss) gain on investments








Net realized gain (loss) on non-affiliate investments

882


(10,092)


645


(21,191

Net realized gain (loss) on investments

882


(10,092)


645


(21,191

Net unrealized (depreciation) appreciation on non-affiliate investments

(1,647)


10,211


(1,445)


18,506

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

38


(2)


(37)


(21

Net unrealized depreciation on controlled affiliate investments

(19)



(19)


Net unrealized (depreciation) appreciation on investments

(1,628)


10,209


(1,501)


18,485

Net realized and unrealized (loss) gain on investments

(746)


117


(856)


(2,706

Net increase in net assets resulting from operations

$          3,218


$          2,496


$         13,010


$          9,591

Net investment income per common share

$              0.34


$               0.21


$             1.20


$            1.07

Net increase in net assets per common share

$              0.28


$               0.21


$             1.13


$            0.83

Distributions declared per share

$              0.30


$               0.30


$             1.20


$            1.20

Weighted average shares outstanding

11,533,328


11,518,625


11,527,777


11,516,846

 

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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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