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spk05: and our markets. Dan will detail our operating performance and financial condition, and then we will take some questions. In the first quarter, we picked up right where we left off in 2021 with substantial growth which displayed the power of the lending platform of our advisor, Horizon Technology Finance Management. Our portfolio growth resulted in ours surpassing the $500 million milestone during the quarter. We also maintained our portfolio's strong credit quality while we made notable strides in strengthening our balance sheet, ensuring we have ample capacity to further grow in the quarters ahead. Our first quarter highlights include we grew the portfolio by $57 million, a quarterly record for HRZN, which resulted in a portfolio value at quarter end of $515 million. The growth is a testament to our advisors' ability to source and win high-quality venture debt investments and the increasing power of the Horizon brand in the venture debt community. We finished the quarter with a record committed and approved backlog of $151 million and a pipeline of opportunities of over a billion dollars, providing an outstanding base to further expand our portfolio. We further strengthened our balance sheet in several respects, We increased the size of our credit facility with New York Life to $200 million, further increasing our lending capacity and ability to grow. During the quarter, we raised approximately $4 million of equity capital through our at-the-market program, and in March, we successfully completed a $34 million equity follow-on offering, both at a premium to NAV. These equity raising events provide us with significant new equity capital, which we can leverage towards our target leverage of 1.2 to 1. We ended the quarter with NAV of $11.68 per share, up 12 cents from year end 2021, and up 61 cents from the end of Q1 2021. We generated net investment income of 26 cents per share, below our distribution level of 30 cents per share due to a lower amount of prepayments, which is historically typical for the first quarter. Based on our outlook, we declared monthly distributions of 10 cents per share through September of 2022, which will mark nearly six years of monthly distributions at this level. We have earned a total of $1.36 per share over the last four quarters, which exceeds our total distributions of $1.25 per share for such period. Our undistributed spillover income was $0.47 per share as of the end of the quarter. We achieved a solid portfolio yield on our debt investments of 12.4% for the quarter. And finally, we maintained a stable credit profile, with nearly 96% of our portfolio rated 3 or higher as of March 31st. As always, we are consistently and actively managing our portfolio of investments to maintain its credit quality. The demand for venture debt within our target industries remains strong, but we are cautiously watching the equity markets and macro environment for the continued impact on the economy from inflation, geopolitical events, ongoing supply chain challenges, and the effects of the pandemic. Despite our necessary increased scrutiny, we continue to win our share of transactions, which we appropriately structure for the environment. Our double-digit portfolio growth is attributable to the standout work of our advisor and its entire team. For the quarter, the advisor's platform funded $132 million in new high-quality venture debt investments spread over all of our targeted industries. We believe our advisor continues to build us a portfolio based on its predictive pricing strategy with the opportunity for enhanced yields from our borrowers' early debt investment exits from liquidity events. In addition, our advisor continues to enhance the Horizon platform with additional hires and promoting members of its team into key management positions, ensuring we remain on course to generate future growth and continued profitability. The benefits of the Horizon platform include an expanded lending platform and the power of the Horizon brand to access a larger number of investment opportunities, a pipeline of investments that has never been larger, enhanced capacity to execute on a backlog of commitments and new opportunities, and an experienced team that is cycle-tested and fully prepared to manage through potential macro or economic headwinds. Again, I'm proud of our entire team's efforts particularly in reaching the $500 million investment portfolio milestone. With that, I will now turn the call over to Jerry and Dan to give you more details and color on our performance. Jerry?
spk04: Thanks, Rob, and good morning to everyone. Our lending activity in the first quarter of 2022 resulted in two key milestones for Horizon. First, we grew our portfolio by a record $57 million in the quarter, Second, our portfolio topped the $500 million mark for the first time in our history. We funded 16 transactions, totaling $73 million in the first quarter, including $47 million in debt investments to seven new portfolio companies, consisting of three new technology investments, two new sustainability investments, one new life science investment, and one new healthcare tech investment, providing further diversification to our portfolios. We also funded $26 million from our committed backlog to nine of our existing portfolio companies. Our onboarding yield of 11.4% during the quarter reflected the continued discipline in pricing transactions that we expect to produce strong NII. We experienced two loan prepayments during the quarter, totaling $12 million. The prepayment fees and accelerated income from such prepayments contributing to a debt portfolio yield of 12.4%. As Rod discussed, Q1 historically experiences lower prepayment activity than the remainder of the year. While we do not expect prepayment activity for the year to reach the historic level we experienced in 2021, we do anticipate prepayments for the balance of the year in accordance with our historical averages. As of March 31st, We held warrant and equity positions in 84 portfolio companies with a fair value of $23 million. Since the beginning of 2020, we have received approximately $14 million in proceeds from warrant and equity investments. As we've consistently noted, structuring investments with warrants and equity rights is a key aspect of our venture debt strategy and an additional value generator. In the first quarter, we closed $100 million in new loan commitments and approvals, and end of the quarter with a record committed and approved backlog of $151 million compared to $127 million at the end of the fourth quarter. While there is no guarantee we will fund all of the transactions in our committed or awarded backlogs, we are well positioned to further grow our investment portfolio during the year. Our portfolio's credit quality remains very solid at the fair value of nearly 96%. our debt portfolio consisted of three and four rated loans as of March 31st. During the quarter, one investment was downgraded to a two rating, and at the end of the quarter, we had a total of three credits with a one or two rating, with the remaining 47 portfolio credits rated three or better. As always, we are aggressively managing the one and two rated credits in order to achieve the best possible outcome. Turning now to the venture capital environment, It appears we are beginning to see a trend toward more normalized activity. According to PitchBook, approximately $71 billion was invested in VC-backed companies in the first quarter of 2022, a very healthy amount of investment, but off the torrid pace set in 2021. In terms of VC fundraising, the momentum continued from 2021 as $74 billion was raised in the first quarter, putting 2022 well on pace to surpass last year's record. Larger VC funds continue to drive the bulk of the fundraising, and it will be interesting to see if market volatility has any impact on future fundraising or the number of active investors. VC backed exit activity, on the other hand, saw a considerable slowdown in the first quarter, unsurprising given the market volatility and underperformance, inflation, and geopolitical uncertainty. Total exit value for the quarter was $34 billion, which is closer to pre-pandemic exit levels. While we are watching the VC investment environment closely for signs of slowing fundraising, investments, and exit activity, VC firms continue to maintain record levels of dry powder to provide liquidity for new investment opportunities and support for existing portfolio companies. As we noted on our last call, a tightening of the IPO market and significant reduction in SPAC exits is in part driving increased demand for venture debt, a key source of additional liquidity for growth stage companies. With our advisor's strong and active lending platform and the solid investment capacity of Verizon, we believe we are well situated to continue competing and winning in the current environment. Subsequent to the end of the first quarter, we continued our strong growth momentum, funding eight transactions, totaling $60 million in April. Our committed, approved, and awarded backlog as of today has grown to $311 million, which includes several new awards during April. Our advisors' pipeline of new opportunities today is approximately $1.2 billion. Again, an historic level of opportunities to further grow our venture debt portfolio over the coming quarters. We also experienced a prepayment in April of a $25 million debt investment. Turning now to our lending markets, there is a wealth of quality investment opportunities to further fill and enhance our committed backlog and our advisors pipeline. As noted earlier, we not only quantitatively grew the size of our portfolio during the quarter, but we also qualitatively improved our portfolio by adding new portfolio companies from all of our core markets of technology, life science, healthcare technology, and sustainability, providing further diversification to our portfolio. That said, we continue to keep close tabs on the macro environment and are mindful of ongoing concerns when underwriting new investments. We also continue to have an active and regular dialogue with each of our portfolio companies and their investors in order to maintain our credit quality, as well as help us identify changes in the VC ecosystem. Moving ahead, venture debt as an asset class continues to grow, especially as equity markets tighten, and as a result, opportunities remain attractive in our core markets. We will continue to be disciplined and seek quality investments that allow us to intelligently grow our portfolio. Accordingly, we remain well-positioned to continue to deliver additional long-term shareholder value. With that, I will now turn the call over to Dan.
spk01: Thanks Jerry, and good morning everyone. I'll start with a review of our efforts to strengthen our balance sheet and capital structure in the quarter, and then I'll provide a review of our first quarter results. We took two significant steps to enhance our capital resources in the quarter. First, we increased our lending capacity by 100 million on our New York Life facility, while also extending its investment period. In addition, to match the new debt capacity, we completed a successful equity offering, raising 34 million in a quarter. We believe these actions will provide us with the capacity to continue to grow the portfolio. Turning to our operating results, as of March 31st, we had 80 million in available liquidity, consisting of 15 million in cash, and $65 million of funds available to be drawn under our existing credit facilities. As of March 31st, there was $44 million outstanding under our $125 million KeyBank credit facility and $94 million outstanding on our $200 million New York Life credit facility, leaving us with ample capacity to grow the portfolio. Our debt-to-equity ratio stood at 0.9 to 1 as of March 31st, which is lower than our target leverage of 1.2 times. Based on our cash position and our borrowing capacity on our credit facilities, our potential new investment capacity at March 31st was $202 million. As we go towards our target leverage, we would expect that our NII will also increase. For the first quarter, we earned total investment income of $14.2 million, an increase of 7% compared to the prior year period. Interest income on investments increased primarily as a result of higher average earning debt investment portfolio for the quarter. Our debt investment portfolio on a net cost basis stood at $500 million as of March 31st, a 13% increase from December 31st, 2021. For the first quarter of 22, we achieved onboarding yields of 11.4% compared to 11.3% achieved in the fourth quarter. Our loan portfolio yield was 12.4% for the first quarter compared to 15.2% for last year's first quarter. Total expenses for the quarter were $8.4 million compared to $7.2 million in the first quarter of 2021. Our performance-based incentive fee was $1.4 million compared to $1.5 million for last year's first quarter. Our interest expense increased to $3.4 million from $2.7 million in last year's first quarter due to an increase in average borrowings. Our base management fee was $2.2 million up from $1.8 million in last year's first quarter due to an increase in the average size of our portfolio. The investment income for the first quarter of 22 was $0.26 per share compared to $0.39 per share in the fourth quarter of 21 and 31 cents per share for the first quarter of 21. The company's undistributed spillover income as of March 31 was 47 cents per share. We anticipate that the larger portfolio, along with our predictive pricing strategy, should enable us, over time, to generate solid NII that covers our distribution. As we have said in the past, we will experience prepayments throughout the year. However, it is difficult to predict in which quarter they will occur, with the first quarter typically being the lowest. To summarize our portfolio activities for the first quarter, new originations totaled $73 million, which were partially offset by $2 million in scheduled principal payments and $12 million in principal prepayments. We ended the quarter with a total investment portfolio of $515 million. The portfolio consisted of debt investments in 50 companies with an aggregate fair value of $492 million, and a portfolio of warrant, equity, and other investments in 86 companies with an aggregate fair value of $23 million. Based upon our outlook for 2022, our board declared monthly distributions of $0.10 per share for July, August, and September of 2022. We have now declared monthly distributions of $0.10 per share for nearly six years. We remain committed to providing our shareholders with distributions that are covered by our net investment income over time. Our NAV as of March 31st was $11.68 per share, compared to $11.56 as of December 31st, 2021, and $11.07 as of March 31st, 2021. A 12-cent increase in NAV on a quarterly basis was primarily due to the accretion from our successful equity offering and net investment income, partially offset by paid distributions and unrealized losses. As we've consistently noted, 100% of the outstanding principal amount of our debt investments bear interest at floating rates with coupons that are structured to increase as interest rates rise with interest rate floors. As of March 31st, over 80% of our portfolio will benefit from additional increases in the prime rate. In addition, we have a 50 basis point spread in our cost of debt to the current prime rate, providing us with a positive spread when the prime rate rises. This concludes our opening remarks. We'll be happy to take questions you may have at this time.
spk00: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we poll for questions. Our first question comes from the line of Paul Johnson with KBW. You may proceed with your question.
spk03: Good morning, guys. Thanks for taking my questions. I'm just curious how, you know, what your guys' expectations are for your unfunded commitments just kind of under this environment with, you know, potentially maybe a slowdown in VC equity investments and, you know, maybe more of a preference for VC debt and obviously tapping into any sort of unfunded commitment that's available?
spk04: Well, I think that's the question for our environment right now, so it's a really good one. As you probably know, most of our committed backlog is subject to companies meeting certain milestones as they move forward that basically would provide additional higher valuations for the company. In today's environment, of course, meeting those key milestones are key to understanding whether a company is able to strategically adjust both its ability to raise capital to adjust a strategy based on their own economic outlook for their own markets. And so we pay very close attention to them and we pay very close attention to the milestones that need to be met. In addition, of course, many of our transactions have covenants as well. So we're very focused on that today. And I think, as are the venture capitalists who are funding these companies, I would say that probably a little bit of a difference in this volatility market compared to other cycles we have had is that the venture capitalist firms themselves have a lot of liquidity on their balance sheets and are able to, certainly through the first quarter, have been able to raise additional capital, so there is a lot of dry powder. And we're seeing that in our discussions with the VCs. They're still strongly supportive of their portfolio companies. We are having more conversations more often right now with both our portfolio companies and the investors. And so that's kind of how we are kind of monitoring the market and, um, we'll continue to do that at a heightened level through, um, you know, certainly the rest of 2022. Thanks.
spk03: I appreciate that. That's great color. Um, I guess when you are looking at your, your pipeline and you've obviously had a, you know, a pretty good quarter of net growth, um, this quarter, um, or, you know, do you think we're maybe looking at a scenario where, uh, net growth is actually, you know, relatively high for the BDC just kind of due to lower prepayments over sort of the next few quarters?
spk04: Yeah, so, you know, we've spent a fair amount of time looking at that, actually, and we certainly don't expect to see prepayment levels like we saw in 2021. Our expectation is we will continue to have prepayments. We're aware of some of – the ongoing events within our portfolio companies, certainly in the near term. Of course, prepayments are more difficult to predict, obviously. But there are a couple of, I think, indicators. We don't think that there will be as much refinance of significant existing debt that has been taken on in the last year or two. During those periods, you know, maybe, you know, venture lenders being a little bit more aggressive in terms of the amount of capital they were – and venture banks, by the way. They were willing to provide companies. I don't think you're going to see that kind of level of refinance activity. I know for, you know, certainly for Horizon, we have a heightened awareness of companies that have taken on a lot of debt and are now looking to refinance that, and that's – That's not going to be a big part of our strategy during the course of 2022. So I have no reason to think that that wouldn't be true with other lenders as well. So there will be lesser activity, but there's still going to be some M&A activity for sure. We're seeing that, as well as some opportunity for public companies to raise capital in the public markets, albeit not as it has been historically.
spk03: Thanks again. Yeah, I really appreciate that. It's more great color. And just lastly, just one question on a specific credit. I'm just curious, you know, the only non-equal, I guess, in Maculogix, it looks like you made a small additional investment in the company this quarter. Could you maybe just talk about what's going on there? I know it was marked a little bit lower this quarter. Is there, you know, hope or an idea for recovery with an additional investment there? What's the idea of a turnaround with that?
spk05: Thanks, Paul. It's the case in a lot of these credits when we get to this level of putting on non-accrual. It is in the middle of a process. We have expectations that it can resolve itself in the next quarter or two. and we're providing small amounts of liquidity to make that happen.
spk03: Got it. Okay. Appreciate it. That's my last question. Thanks for having me today. Thank you.
spk00: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. One moment while we poll for questions. Thank you. There are no further questions at this time. I would like to turn this call back over to Mr. Robert Pomeroy for Chairman and CEO for closing comments.
spk05: Thank you all for joining us this morning. We appreciate your continued interest and support in Horizon. We hope you and your families continue to remain safe and healthy, and we look forward to speaking with you again soon.
spk00: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.
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