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Horizon Technology Finance Announces Third Quarter 2019 Financial Results

October 30, 2019

FARMINGTON, Conn., Oct. 29, 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 sustainability industries, today announced its financial results for the third quarter ended September 30, 2019.

Third Quarter 2019 Highlights

“We are excited by our strong third quarter performance across all facets of our business,” said Robert D. Pomeroy, Jr., Chairman and Chief Executive Officer of Horizon. “For the quarter, we recorded net investment income per share of $0.42, well above our distribution level, while improving our NAV. In addition, we grew our portfolio for the sixth consecutive quarter, originating six new loans for $46.6 million, while generating a record annualized loan portfolio yield of 17.7%, further validating our predictive pricing strategy for structuring loans. The credit quality of our loan portfolio remained solid, a function of our proactive management and our disciplined approach to underwriting.”

“In addition to our strong portfolio performance in the quarter, we successfully completed a $100 million securitization, increasing our lending capacity while reducing our cost of capital, and launched an ‘at-the-market’ offering of up to $50 million worth of our common stock, through which we issued and sold $10 million of our common stock at a premium to NAV,” added Mr. Pomeroy. “With market demand for venture debt remaining robust, we believe we have an excellent opportunity to further grow our venture debt portfolio, and remain well-positioned to deliver long-term value to our shareholders.”

Third Quarter 2019 Operating Results

Total investment income for the quarter ended September 30, 2019 grew 46% to $11.4 million, compared to $7.8 million for the quarter ended September 30, 2018. 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, as well as an increase in fees earned related to a revenue-based payment on a debt investment and on higher principal prepayments received.

The Company’s dollar-weighted annualized yield on average debt investments for the quarter ended September 30, 2019 was 17.7%, an increase from 15.0% for the quarter ended September 30, 2018. 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 September 30, 2019 were $5.6 million, compared to $4.4 million for the quarter ended September 30, 2018. The increase was primarily due to $0.4 million additional interest expense, $0.6 million in higher net performance-based incentive fees and $0.2 million in additional base management fees.

Net investment income for the quarter ended September 30, 2019 was $5.8 million, or $0.42 per share, compared to $3.4 million, or $0.30 per share, for the quarter ended September 30, 2018.

For the quarter ended September 30, 2019, net realized loss on investments was $0.4 million, or $0.03 per share, compared to a net realized gain on investments of $0.1 million, or $0.01 per share, for the quarter ended September 30, 2018.

For the quarter ended September 30, 2019, net unrealized depreciation on investments was $0.1 million, or $0.01 per share, compared to net unrealized appreciation on investments of $0.8 million, or $0.07 per share, for the prior-year period.

Portfolio Summary and Investment Activity

As of September 30, 2019, the Company’s debt portfolio consisted of 32 secured loans with an aggregate fair value of $253.2 million. In addition, the Company’s total warrant, equity and other investments in 77 portfolio companies had an aggregate fair value of $14.0 million, and the Company’s 50% equity interest in its joint venture had a fair value of $14.3 million as of September 30, 2019. Total portfolio investment activity for the three and nine months ended September 30, 2019 and 2018 was as follows:

($ in thousands)

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,


2019

2018

2019

2018

Beginning portfolio

$ 274,759

$ 226,467

$ 248,441

$ 222,099






New debt investments

42,147

24,200

135,284

64,725






Less refinanced debt investments

(7,500)

(17,500)

(2,479)






Net new debt investments

34,647

24,200

117,784

62,246






Investment in controlled affiliate investments

589

344

589

4,413






Principal payments received on investments

(3,413)

(5,591)

(13,069)

(19,568)






Early pay-offs

(25,000)

(6,610)

(70,548)

(26,935)






Accretion of debt investment fees

1,131

524

2,879

1,605






New debt investment fees

(658)

(375)

(1,764)

(1,884)






New equity

240

74

240

1,090






Proceeds from sale of investments

(506)

(294)

(2,411)

(3,360)






Warrants received in settlement of fee income

161

161






Dividend income from controlled affiliate investment

461

1,223






Distributions from controlled affiliate investment

(185)

(715)






Net realized (loss) gain on investments

(444)

66

(3,891)

(237)






Net unrealized (depreciation) appreciation on investments

(143)

791

2,622

127






Other

41

139






Ending portfolio

$ 281,519

$ 239,757

$ 281,519

$ 239,757

Net Asset Value

At September 30, 2019, the Company’s net assets were $168.1 million, or $11.67 per share, as compared to $134.5 million, or $11.66 per share, as of September 30, 2018, and $134.3 million, or $11.64 per share, as of December 31, 2018.

For the quarter ended September 30, 2019, net increase in net assets resulting from operations was $5.2 million, or $0.38 per share, compared to $4.3 million, or $0.37 per share, for the quarter ended September 30, 2018.

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, 2019 and December 31, 2018:

($ in thousands)

September 30, 2019


December 31, 2018










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

$ 43,017

17.0%


6

$ 41,677

19.3%

3

23

191,545

75.7%


23

155,439

71.8%

2

4

17,123

6.8%


5

19,285

8.9%

1

1

1,500

0.5%


--

--

--

Total

32

$ 253,185

100.0%


34

$ 216,401

100.0%

As of September 30, 2019 and December 31, 2018, Horizon’s loan portfolio had a weighted average credit rating of 3.1, 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 September 30, 2019, there was one debt investment with an internal credit rating of 1, with a cost of $3.7 million and a fair value of $1.5 million. As of December 31, 2018, there were no debt investments with an internal credit rating of 1.

Liquidity Events

During the quarter ended September 30, 2019, 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 September, Catasys, Inc. (“Catasys”) prepaid its outstanding principal balance of $15.0 million on its venture loan, plus interest, end-of-term payment, prepayment fee and a revenue-based payment. Horizon continues to hold warrants in Catasys.

In September, Food52 Inc. (“Food52”) prepaid its outstanding principal balance of $6.0 million on its venture loan, plus interest, end-of-term payment and prepayment fee. Horizon has also received proceeds of $500,000 from the termination of its warrants in Food52.

In September, with the proceeds of a new loan from Horizon, MacuLogix, Inc. (“MacuLogix”) prepaid its previously outstanding principal balance of $7.5 million on its venture loan, plus interest and end-of-term payment. Horizon continues to hold warrants in MacuLogix.

Liquidity and Capital Resources

As of September 30, 2019, the Company had $51.0 million in available liquidity, consisting of $36.4 million in cash and money market funds, and $14.6 million in funds available under existing credit facility commitments.

As of September 30, 2019, there was $15.0 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 million. There can be no assurance that any additional lenders will make any commitments under the Key Facility.

On August 13, 2019, Horizon Funding Trust 2019-1, a wholly-owned subsidiary of Horizon, issued $100 million of Asset-Backed Notes (the “Notes”) rated A+(sf) by Morningstar Credit Ratings, LLC, and backed by $160 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 September 30, 2019, the Notes had an outstanding principal balance of $100.0 million.

On August 2, 2019, Horizon entered into an at-the-market (“ATM”) sales agreement (the “Equity Distribution Agreement”), with Goldman Sachs & Co. LLC and B. Riley FBR, Inc. (each a “Sales Agent” and, collectively, the “Sales Agents”). The Equity Distribution Agreement provides that the Company may offer and sell shares of common stock from time to time through the Sales Agents representing up to $50.0 million worth of common stock, in amounts and at times to be determined by the Company.

During the three months ended September 30, 2019, the Company sold approximately 0.9 million shares of common stock under the Equity Distribution Agreement. For the same period, the Company received total accumulated net proceeds of approximately $10.4 million, including $0.2 million of offering expenses, from these sales.

As of September 30, 2019, the Company’s debt to equity leverage ratio was 91%, toward the low end of the Company’s 80-120% targeted leverage range. The asset coverage ratio for borrowed amounts was 210%.

Stock Repurchase Program

On April 26, 2019, the Company’s board of directors extended the Company’s previously authorized stock repurchase program until the earlier of June 30, 2020 or the repurchase of $5.0 million of the Company’s common stock. During the quarter ended September 30, 2019, the Company did not repurchase any shares of its common stock. From the inception of the stock repurchase program through September 30, 2019, 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 2019

On October 25, 2019, the Company’s board of directors declared monthly distributions of $0.10 per share payable in each of January, February and March 2020. The following table shows these monthly distributions, which total $0.30 per share:

Ex-Dividend Date

Record Date

Payment Date

Amount per Share

December 17, 2019

December 18, 2019

January 15, 2020

$0.10

January 16, 2020

January 17, 2020

February 14, 2020

$0.10

February 18, 2020

February 19, 2020

March 16, 2020

$0.10



Total:

$0.30

After paying distributions of $0.30 per share and earning net investment income of $0.42 per share for the quarter, the Company’s undistributed spillover income as of September 30, 2019 was $0.29 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, October 30, 2019, 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 13695175. 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, November 1, 2019 at (844) 512-2921 in the United States and (412) 317-6671 International, passcode 13695175. 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, 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)







September 30,


December 31,



2019


2018







Assets





Non-affiliate investments at fair value (cost of $259,778 and $229,772, respectively)

$ 258,249


$ 227,624


Non-controlled affiliate investments at fair value (cost of $7,241 and $7,887, respectively)

8,947


7,574


Controlled affiliate investments at fair value (cost of $14,358 and $13,262, respectively)

14,323


13,243


Total investments at fair value (cost of $281,377 and $250,921, respectively)

281,519


248,441


Cash

16,958


12,591


Investment in money market funds

18,199



Restricted investments in money market funds

1,201



Interest receivable

4,966


3,966


Other assets

2,108


1,751


Total assets

$ 324,951


$ 266,749







Liabilities





Borrowings

$ 149,920


$ 126,853


Distributions payable

4,324


3,461


Base management fee payable

470


422


Incentive fee payable

1,443


991


Other accrued expenses

650


765


Total liabilities

156,807


132,492







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 September 30, 2019 and December 31, 2018



Common stock, par value $0.001 per share, 100,000,000 shares authorized,
14,579,940 and 11,702,594 shares issued and 14,412,475 and 11,535,129 shares outstanding as of
September 30, 2019 and December 31, 2018, respectively

15


12


Paid-in capital in excess of par

213,007


179,616


Distributable earnings

(44,878)


(45,371)


Total net assets

168,144


134,257


Total liabilities and net assets

$ 324,951


$ 266,749


Net asset value per common share

$ 11.67


$ 11.64







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 Nine Months Ended



September 30,


September 30,



2019


2018


2019


2018


Investment income









Interest income on investments









Interest income on non-affiliate investments

$ 8,974


$ 7,094


$ 25,429


$ 20,385


Interest income on affiliate investments

210


193


645


528


Total interest income on investments

9,184


7,287


26,074


20,913


Fee income









Fee income on non-affiliate investments

37


315


382


865


Fee income on affiliate investments

4



18



Prepayment fee on non-affiliate investments

639


102


1,373


414


Revenue based payments on affiliate investments1

1,050


10


1,080


10


Total fee income

1,730


427


2,853


1,289


Dividend income









Dividend income on controlled affiliate investments

461


83


1,223


83


Total dividend income

461


83


1,223


83


Total investment income

11,375


7,797


30,150


22,285


Expenses









Interest expense

2,046


1,681


6,209


4,616


Base management fee

1,394


1,197


4,055


3,399


Performance based incentive fee

1,443


1,297


5,352


2,823


Administrative fee

212


162


632


517


Professional fees

279


289


1,044


997


General and administrative

228


215


688


636


Total expenses

5,602


4,841


17,981


12,988


Performance based incentive fee waived


(446)


(1,848)


(605)


Net expenses

5,602


4,395


16,132


12,383


Net investment income

5,773


3,402


14,018


9,902


Net realized and unrealized (loss) gain on investments









Net realized (loss) gain on non-affiliate investments

(424)


66


(3,871)


(237)


Net realized (loss) gain on investments

(424)


66


(3,871)


(237)


Net unrealized (depreciation) appreciation on non-affiliate investments

(129)


761


620


202


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


30


2,019


(75)


Net unrealized depreciation on controlled affiliate investments

(14)



(17)



Net unrealized (depreciation) appreciation on investments

(143)


791


2,622


127


Net realized and unrealized (loss) gain on investments

(567)


857


(1,249)


(110)


Net increase in net assets resulting from operations

$ 5,206


$ 4,259


$ 12,769


$ 9,792


Net investment income per common share

$ 0.42


$ 0.30


$ 1.08


$ 0.86


Net increase in net assets per common share

$ 0.38


$ 0.37


$ 0.98


$ 0.85


Distributions declared per share

$ 0.30


$ 0.30


$ 0.90


$ 0.90


Weighted average shares outstanding

13,816,082


11,529,611


13,016,839


11,525,906


1 Revenue based payments consist of payments made to the Company by a portfolio company based on a percentage of such portfolio company's revenue. Such payments were made in addition to the portfolio company's regularly scheduled payments of principal and interest.

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SOURCE Horizon Technology Finance Corporation