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July 28, 2020

Horizon Technology Finance Announces Second Quarter 2020 Financial Results

- Net Investment Income per Share of $0.40; NAV per Share of $11.64 -
 
- Maintains Regular Monthly Distributions Totaling $0.10 per Share through December -
 
- Debt Portfolio Yield of 16.9% -

FARMINGTON, Conn., July 28, 2020 /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 sustainability industries, today announced its financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Highlights

  • Net investment income of $6.7 million, or $0.40 per share, compared to $5.0 million, or $0.37 per share for the prior-year period
  • Total investment portfolio of $355.9 million as of June 30, 2020
  • Net asset value of $201.2 million, or $11.64 per share, as of June 30, 2020
  • Annualized portfolio yield on debt investments of 16.9% for the quarter
  • Funded six loans totaling $40.4 million during the quarter
  • Purchased all of the limited liability company interests of Arena in Horizon Secured Loan Fund I, and consolidated six venture debt investments totaling $15.4 million onto its balance sheet
  • Raised total net proceeds of approximately $5.0 million with "at-the-market" ("ATM") offering program
  • Experienced liquidity events from four portfolio companies
  • Amended and extended $100 million senior secured debt facility with large U.S.-based insurance company
  • Amended Key Facility to extend the draw period to September 30, 2021
  • Cash of $37.3 million and credit facility capacity of $166.8 million as of June 30, 2020
  • Held portfolio of warrant and equity positions in 71 companies as of June 30, 2020
  • Undistributed spillover income of $0.42 per share as of June 30, 2020
  • Subsequent to quarter end, declared distributions of $0.10 per share payable in October, November and December 2020

"We are proud of our second quarter performance, particularly considering the challenging environment in which we are operating," said Robert D. Pomeroy, Jr., Chairman and Chief Executive Officer of Horizon. "Specifically, we grew our portfolio through opportunistically originated loans to several quality life science companies with ample liquidity. Our predictive pricing strategy helped produce significant net investment income with solid prepayment activity in the quarter.  In addition, we strengthened our balance sheet by enhancing our lending capacity through our newly amended credit facilities. Our increased debt capacity and additional equity raising through our ATM provides us with increased flexibility to further expand our diversified venture debt portfolio."

"While we enhanced our liquidity positioning and sourced new debt investments, we remained focused on proactively managing our existing portfolio of investments, and maintaining a stable credit profile," added Mr. Pomeroy.  "That said, we remain cautious in our overall outlook in light of the ongoing impact of the pandemic.  With our strong balance sheet and financial flexibility, along with our portfolio's stable credit profile, we expect to continue investing in life science and technology opportunities that meet our underwriting standards.  We believe we continue to be well-positioned to deliver value to our shareholders."

Second Quarter 2020 Operating Results

Total investment income for the quarter ended June 30, 2020 grew 29% to $13.5 million, compared to $10.5 million for the quarter ended June 30, 2019. The year-over-year improvement in total investment income is primarily due to growth in interest income on investments resulting from an increase in the average size of the debt investment portfolio. 

The Company's dollar-weighted annualized yield on average debt investments for the quarter ended June 30, 2020 and 2019 was 16.9% and 16.8%, 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 June 30, 2020 were $6.8 million, compared to $5.5 million for the quarter ended June 30, 2019.  The increase was primarily due to $0.4 million of additional interest expense, $0.4 million of higher net performance-based incentive fees and $0.3 million in additional base management fees.

Net investment income for the quarter ended June 30, 2020 was $6.7 million, or $0.40 per share, compared to $5.0 million, or $0.37 per share, for the quarter ended June 30, 2019.

For the quarter ended June 30, 2020, net realized loss on investments was $0.7 million, or $0.04 per share, compared to net realized loss on investments of $4.6 million, or $0.34 per share, for the quarter ended June 30, 2019.

For the quarter ended June 30, 2020, net unrealized appreciation on investments was $1.9 million, or $0.11 per share, compared to net unrealized appreciation on investments of $4.1 million, or $0.30 per share, for the prior-year period.

Portfolio Summary and Investment Activity

As of June 30, 2020, the Company's debt portfolio consisted of 35 secured loans with an aggregate fair value of $342.7 million. In addition, the Company's total warrant, equity and other investments in 72 portfolio companies had an aggregate fair value of $13.2 million.  Total portfolio investment activity for the three and six months ended June 30, 2020 and 2019 was as follows:

($ in thousands)

For the Three Months Ended June 30,

For the Six Months Ended June 30,


2020

2019

2020

2019

Beginning portfolio

$              334,506

$              266,152

$        319,551

$              248,441






New debt investments

54,908

55,055

105,554

93,137






Less refinanced debt investments

(10,000)

(10,000)






Net new debt investments

54,908

45,055

105,554

83,137











Principal payments received on investments

(4,938)

(5,133)

(13,925)

(9,656)






Early pay-offs

(30,296)

(31,458)

(47,243)

(45,548)






Accretion of debt investment fees

1,222

1,090

2,287

1,748






New debt investment fees

(633)

(568)

(1,213)

(1,106)






Warrants received in settlement of fee income

978

978






Proceeds from sale of investments

(576)

(137)

(6,256)

(1,905)






Dividend income from controlled affiliate
investment

(312)

431

118

761






Distributions from controlled affiliate investment

(298)

(530)






Net realized (loss) gain on investments

(725)

(4,598)

2,766

(3,447)






Net unrealized appreciation (depreciation) on
investments

1,944

4,124

(6,539)

2,765






Other

(198)

99

(198)

99






Ending portfolio

$              355,880

$              274,759

$       355,880

$              274,759

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, 2020, March 31, 2020 and December 31, 2019:

($ in
thousands)

June 30, 2020


March 31, 2020


December 31, 2019


Number of
Investments

Debt
Investments at
Fair Value

Percentage
of Debt
Investments


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

2

$       23,539

6.9%


2

$       16,993

5.5%


4

$       45,339

15.7%

3

25

265,365

77.4%


26

232,037

75.5%


26

216,128

75.0%

2

6

46,718

13.6%


6

56,227

18.3%


3

24,888

8.6%

1

2

7,100

2.1%


2

2,300

0.7%


2

2,000

0.7%

Total

35

$     342,722

100.0%


36

$     307,557

100.0%


35

$     288,355

100.0%

As of June 30, 2020, Horizon's loan portfolio had a weighted average credit rating of 2.9, compared to 2.9 and 3.1 as of March 31, 2020 and December 31, 2019, respectively, 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 June 30, 2020, there were two debt investments with an internal credit rating of 1, with a cost of $13.5 million and a fair value of $7.1 million.  As of March 31, 2020, there were two debt investments with an internal credit rating of 1, with a cost of $5.8 million and a fair value of $2.3 million.  As of December 31, 2019, there were two debt investments with an internal credit rating of 1, with a cost of $5.7 million and a fair value of $2.0 million.

Liquidity and Capital Resources

As of June 30, 2020, the Company had $60.0 million in available liquidity, consisting of $37.3 million in cash and money market funds, and $22.7 million in funds available under existing credit facility commitments.

As of June 30, 2020, there was $45.0 million in outstanding principal balance under the $125.0 million revolving credit facility ("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.

In June 2020, Horizon amended its $100 million senior secured debt facility with a large U.S.-based insurance company to extend the investment period to June 2022, pursuant to which Horizon may borrow up to $100 million under the terms of the secured notes. The investment period will be followed by a five-year amortization period. The stated final payment date was extended to June 2027, subject to any extension of the investment period. The interest rate on the notes issued under the facility is based on the three-year USD mid-market swap rate plus a margin of between 3.55% and 5.15% with an interest rate floor, determined by the rating of such notes at the time of issuance. As of June 30, 2020, there were $13.3 million in advances made at an interest rate of 4.60%.

Horizon Funding Trust 2019-1, a wholly-owned subsidiary of Horizon, previously issued $100.0 million of Asset-Backed Notes (the "Notes") rated A+(sf) by Morningstar Credit Ratings, LLC, and backed by $160.0 million of secured loans originated by Horizon.  The Notes bear interest at a fixed interest rate of 4.21% per annum and have a stated maturity date of September 15, 2027.   As of June 30, 2020, the Notes had an outstanding principal balance of $100.0 million.

During the three months ended June 30, 2020, the Company sold 432,491 shares of common stock under its previously established 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 $5.0 million, including $0.1 million of offering expenses, from these sales.

As of June 30, 2020, the Company's debt to equity leverage ratio was 97%, within the Company's 80-120% targeted leverage range.  The asset coverage ratio for borrowed amounts was 203%.

Liquidity Events

During the quarter ended June 30, 2020, 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 April, HealthEdge Software, Inc. ("HealthEdge") prepaid its outstanding principal balance of $13.1 million on its venture loan, plus interest, end-of-term payment and prepayment fee. Horizon also received proceeds of approximately $0.5 million in connection with the termination of Horizon's warrants in HealthEdge.

In April, Signix, Inc. paid Horizon $0.6 million in full satisfaction of its outstanding obligations to Horizon.

In June, Kinestral Technologies, Inc. ("Kinestral") paid the outstanding principal balance of $12.0 million on its venture loan, plus interest, end-of-term payment and prepayment fee. Horizon continues to hold warrants in Kinestral.

In June, Audacy Corporation prepaid its outstanding principal balance of $4.3 million on its venture loan, plus interest, end-of-term payment, prepayment fee and additional fees. 

Net Asset Value

At June 30, 2020, the Company's net assets were $201.2 million, or $11.64 per share, compared to $157.1 million, or $11.60 per share, as of June 30, 2019, and $184.1 million, or $11.83 per share, as of December 31, 2019.

For the quarter ended June 30, 2020, net increase in net assets resulting from operations was $7.9 million, or $0.47 per share, compared to $4.5 million, or $0.34 per share, for the quarter ended June 30, 2019.

Stock Repurchase Program

On April 24, 2020, the Company's board of directors extended the Company's previously authorized stock repurchase program until the earlier of June 30, 2021 or the repurchase of $5.0 million of the Company's common stock. During the quarter ended June 30, 2020, the Company did not repurchase any shares of its common stock. From the inception of the stock repurchase program through June 30, 2020, 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 2020

On July 24, 2020, the Company's board of directors declared monthly distributions of $0.10 per share payable in each of October, November and December 2020.  The following table shows these monthly distributions, which total $0.30 per share:

Monthly Distributions

Ex-Dividend Date

Record Date

Payment Date

Amount per Share

September 16, 2020

September 17, 2020

October 16, 2020

$0.10

October 19, 2020

October 20, 2020

November 16, 2020

$0.10

November 17, 2020

November 18, 2020

December 15, 2020

$0.10



Total:

$0.30

After paying distributions of $0.35 per share and earning net investment income of $0.40 per share for the quarter, the Company's undistributed spillover income as of June 30, 2020 was $0.42 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, July 29, 2020, 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 13705862.  The Company recommends joining the call at least 10 minutes in advance.  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 Friday, July 31, 2020 at (844) 512-2921 in the United States and (412) 317-6671 International, passcode 13705862. 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 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. Headquartered in Farmington, Connecticut, Horizon also has regional offices in Pleasanton, California and Reston, Virginia. 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
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)



June 30,

December 31,



2020


2019



(unaudited)




Assets





Non-affiliate investments at fair value (cost of $354,879 and $295,256, respectively)

$       348,834


$     294,304


Non-controlled affiliate investments at fair value (cost of $6,819 and $6,891, respectively)

7,046


8,597


Controlled affiliate investments at fair value (cost of $0 and $16,684, respectively)


16,650


Total investments at fair value (cost of $361,698 and $318,831, respectively)

355,880


319,551


Cash

22,837


6,465


Investments in money market funds

14,499


9,787


Restricted investments in money market funds

1,189


1,133


Interest receivable

6,678


5,530


Other assets

2,186


1,535


Total assets

$       403,269


$     344,001







Liabilities





Borrowings

$       193,559


$     152,050


Distributions payable

5,188


4,669


Base management fee payable

567


519


Incentive fee payable

1,676


1,613


Other accrued expenses

1,047


1,095


Total liabilities

202,037


159,946







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 June 30, 2020 and December 31, 2019



Common stock, par value $0.001 per share, 100,000,000 shares authorized,
     17,459,235 and 15,730,755 shares issued and 17,291,770 and 15,563,290 shares outstanding as of June 
     30, 2020 and December 31, 2019, respectively

17


16


Paid-in capital in excess of par

247,924


226,660


Distributable earnings

(46,709)


(42,621)


Total net assets

201,232


184,055


Total liabilities and net assets

$       403,269


$    344,001


Net asset value per common share

$           11.64


$        11.83


 

Horizon Technology Finance Corporation and Subsidiaries

Consolidated Statements of Operations (Unaudited)

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



For the Three Months Ended


For the Six Months Ended



June 30,


June 30,



2020


2019


2020


2019


Investment income









Interest income on investments









Interest income on non-affiliate investments

$        11,918


$          9,018


$         21,312


$        16,452


Interest income on affiliate investments

176


216


357


438


Total interest income on investments

12,094


9,234


21,669


16,890


Fee income









Amendment fee income on non-affiliate investments

1,028


126


1,064


130


Prepayment fee income on non-affiliate investments

711


439


756


734


Fee income on non-affiliate investments


235


24


250


Fee income on affiliate investments

3


5


7


10


Total fee income

1,742


805


1,851


1,124


Dividend (expense) income









Dividend (expense) income on controlled affiliate investments

(312)


431


118


761


Total dividend (expense) income

(312)


431


118


761


Total investment income

13,524


10,470


23,638


18,775


Expenses









Interest expense

2,561


2,115


4,723


4,163


Base management fee

1,668


1,365


3,249


2,662


Performance based incentive fee

1,676


1,961


2,747


3,909


Administrative fee

254


208


507


419


Professional fees

346


274


848


765


General and administrative

313


243


575


460


Total expenses

6,818


6,166


12,649


12,378


Performance based incentive fee waived


(708)



(1,848)


Net expenses

6,818


5,458


12,649


10,530


Net investment income

6,706


5,012


10,989


8,245


Net realized and unrealized gain (loss) on investments









Net realized (loss) gain on non-affiliate investments

(701)


(4,598)


2,778


(3,447)


Net realized loss on controlled affiliate investments

(24)



(12)



Net realized (loss) gain on investments

(725)


(4,598)


2,766


(3,447)


Net unrealized appreciation (depreciation) on non-affiliate investments

2,985


2,264


(4,806)


749


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

(932)


1,867


(1,475)


2,019


Net unrealized depreciation on controlled affiliate investments

(109)


(7)


(258)


(3)


Net unrealized appreciation (depreciation) on investments

1,944


4,124


(6,539)


2,765


Net realized and unrealized gain (loss) on investments

1,219


(474)


(3,773)


(682)


Net increase in net assets resulting from operations

$          7,925


$          4,538


$           7,216


$          7,563


Net investment income per common share

$              0.40


$               0.37


$             0.65


$            0.65


Net increase in net assets per common share

$              0.47


$               0.34


$             0.43


$            0.60


Distributions declared per share

$              0.30


$               0.30


$             0.65


$            0.60


Weighted average shares outstanding

16,943,155


13,540,657


16,829,821


12,610,593


 

Cision View original content:http://www.prnewswire.com/news-releases/horizon-technology-finance-announces-second-quarter-2020-financial-results-301101495.html

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
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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