Horizon Technology Finance Corporation

Greetings and welcome to Horizon Technology Finance Corporation second quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A brief 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. Director, Industrial Relations and Marketing. Thank you, Ms. Bacon. You may begin.

Thank you, and welcome to Horizon Technology Finance Corporation's second quarter 2023 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 conference Earnings press release and Form 10-Q 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, the company 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, 2022. 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.

Welcome, everyone, and thank you for your interest in Horizon. As we always do on our quarterly calls, I will update you on our performance and our current overall operating environment. Jerry will then discuss our business development efforts, our portfolio events, and our markets, and Dan will detail our operating performance and financial condition. We will then take some questions. We had a solid second quarter horizon despite the quarter beginning with the fallout from the banking crisis and the ongoing economic and credit concerns. To that end, our advisor, Horizon Technology Finance Management, closely focused on the credit quality of our portfolio companies, while we also selectively originated new loans and increased our balance sheet's investment capacity. We are navigating through a challenging period, and the macroeconomic environment remains uncertain, but we have built a resilient and expert team of professionals that positions us well to succeed long-term in both maximizing the value of our current portfolio of investments as well as adding attractive new investments to our portfolio. Turning to our specific results for the quarter, we generated net investment income of $0.54 per share, well in excess of our declared distribution level, due largely to higher interest rates on our floating rate debt investment portfolio, as well as lower incentive fees earned by HTFM. Dan will further discuss the impact of incentive fees on NII in his remarks. Based on our outlook and our undistributed spillover income of $1.02 per share as of June 30th, we declared monthly distributions of $0.11 per share through the end of 2023. We once again achieved a portfolio yield of over 16% on our debt investments for the quarter at or near the top of the BDC industry. We raised $44 million of equity from a follow-on offering and from our At the Market program, both at a premium to NAV. The equity raises enabled us to increase our investment capacity and to reduce our net debt to equity ratio below our target of 1.2 to 1. We also increased our investment capacity by successfully expanding both our key bank and our New York Life facilities by a combined $75 million. Our proactive efforts have positioned us well to fund our current backlog and future originations as the environment improves. Our portfolio at quarter end stood at $715 million. We finished the quarter with a committed and approved backlog of $159 million providing us with a solid base of opportunities to thoughtfully grow our portfolio. As a reminder, most of our funding commitments are subject to our portfolio companies meeting certain key milestones. Finally, we ended the quarter with a net asset value of $11.07 per share. Due to the difficult capital-raising environment for companies over the last few quarters, resulting in some companies being unable to access new capital to maintain operations. We wrote off three debt investments, as well as marked down the fair value of other debt investments, contributing to the 27 cent per share reduction in NAV for the quarter. However, with our close working relationships, expertise, and consistent support of our portfolio companies, we believe our overall credit profile improved during the quarter. We will continue to closely manage our portfolio and will remain selective in originating new investments in the near term as we look for the economic and investing environment to stabilize. We continue to believe our portfolio and backlog is positioned to generate strong NII in the second half of the year. I'm also pleased to report the completion of the acquisition of our advisor, HTFM, by Monroe Capital on June 30th. Our advisor maintains its entire team and will generally operate as it has with the added benefits of the Monroe umbrella. With Monroe's fundraising abilities and platform, HTFM will have the capability to compete and win larger investment opportunities, which will provide Horizon with a larger and more diverse portfolio of investments. In summary, while the environment remains unpredictable, Our experienced and expert team is doing all of the right things to steer us through the cycle. We will continue to execute our investment strategy, maintain a sharp focus on credit quality, and seek to carefully grow the portfolio with high-quality investment. With that, I will now turn the call over to Jerry and Dan to give you more details and color on our performance. Jerry?