Horizon Technology Finance Corporation

Greetings and welcome to Horizon Technology Finance Corporation second quarter 2020 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Megan Bacon of Horizon. Thank you. You may begin.

Thank you, and welcome to the Horizon Technology Finance second quarter 2020 conference call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer, Jerry Michaud, President, and Dan Trollio, Chief Financial Officer. I would like to point out that the Q2 earnings press release and Form 10Q are available on the company's website at horizontechfinance.com. Before we begin our formal remarks, I need to remind everyone that during this conference call, Horizon Technology Finance will make certain forward-looking statements, including statements with regard to the future performance of the company. Words such as believes, expects, anticipates, intends, or similar expressions are used to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements. And some of these factors are detailed in the risk factor discussion in the company's filings with the Securities and Exchange Commission, including the company's Form 10-K for the year ended December 31, 2019. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. At this time, I would like to turn the call over to Rob Pomeroy.

Good morning. Thank you for joining us and for your continued interest in Horizon. We hope you and your families remain safe and healthy. As we normally do, I will provide some overall perspective on the company. Jerry will then touch on our business development efforts and the market environment, and Dan will detail our operating performance and financial conditions. The last few months have been extremely challenging times for all Americans. At Horizon, we have been hard at work since the beginning of the pandemic, closely managing our portfolio and building on our recent accomplishments to further strengthen our overall financial and credit position. Our efforts in constructing and managing our portfolio, including execution on our predictive pricing strategy, produced second quarter results of which we are all proud. During the quarter, we generated net investment income of 40 cents per share, which exceeded our distributions due to our strong onboarding yields, our predictive pricing strategy resulting in significant prepayment activity, and our successful efforts to recover value from our underperforming loans. We grew the size of our debt portfolio for the ninth consecutive quarter. We achieved a debt investment portfolio yield of 16.9%. We maintained a stable credit profile despite the ongoing volatility in the market. We increased our net asset value as of June 30th to $11.64, up 16 cents from March 31st. Considering the significant persistent economic effects of COVID-19, we're very pleased our NAV increased this quarter. We also further strengthened and diversified our balance sheet, by amending our credit facilities with New York Life Insurance and KeyBank and into the quarter with over $200 million of capacity to support our portfolio companies and to selectively make new investments. All in, we are weathering the storm well and remain confident in our ability to navigate the challenges presented by the pandemic. That said, we are well aware that there remains a considerable amount of ongoing uncertainty and macroeconomic risks outside of our control. Thus, we continue to take a measured and thoughtful approach with respect to our portfolio and new originations. On our last call, we discussed at some length our process for managing our investments and our consistent communication with our portfolio companies as they deal with the new normal. During the quarter, we continued to employ our three-legged stool approach which has worked for us in both good times and bad. The first leg of the stool consists of meaningful discussions with the management teams of our portfolio companies about employing a realistic and achievable outlook when making business plans, especially in light of the present environment. We ensure management teams remain focused on streamlining operating expenses and rightsizing their businesses in order to successfully navigate the real and potential challenges that lay ahead. The second leg is the investor's willingness and ability to support their portfolio companies with additional new capital now and in the future. One of the key criteria of our underwriting process is the quality and resources of the potential borrower's investor group. When times are difficult, this is even more critical. The third leg of the stool is aligning Horizon's interests with the other legs of the stool to provide a plan to help a portfolio company through difficult times, while increasing the credit quality of the investment. To do so, we can defer principal payments, ease performance covenants, or make additional loans, all of which we have utilized in the past. The three-legged stool approach served us well in the quarter. as we maintained strong relationships with our companies, and many were able to raise capital despite the economic environment. Turning to our investment activity, in the second quarter, we funded six new loans totaling $40 million and consolidated $15 million in loans from our former joint venture onto our balance sheet, which resulted in our ninth consecutive quarter of portfolio growth. We were also pleased to see $30 million in prepayment activity in the quarter, a testament to the success of our predictive pricing strategy even during challenging times. Entering the third quarter, our committed backlog and overall pipeline continue to remain active despite the pandemic. We continue to see strong demand for venture debt within our target industries as companies seek additional liquidity and funding sources. We will continue to selectively pursue new investment opportunities in companies that meet our higher bar for liquidity. We also maintained our current monthly distribution level at 10 cents per share through December. It is our board's policy to set our distribution where it can be covered by NII over time. The distribution level reflects our outlook for the balance of 2020 and our spillover income at June 30th. We have now covered our distributions with NII for the past two and a half years. While our overall outlook remains measured in light of the ongoing pandemic, our team has continued to perform quite well. We will continue to focus on closely managing our portfolio and supporting our portfolio companies while we look to opportunistically fund new investments. By doing so, we look to continue to generate additional long-term value for our shareholders. I will now turn the call over to Jerry.