Horizon Technology Finance Corporation 2026 Q2 Earnings Call

You may begin. Thank you, welcome to Horizon Technology Finance Corporation second quarter 2026 conference call.

Representing the company today are Mike Balkin, Chief Executive Officer, Paul Seitz, Chief Investment Officer, and Dan Trolio, Chief Financial Officer. I would like to point out that the Q2 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.

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 31st, 2025. 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 Horizon CEO, Mike Balkin.

Thanks, Megan. Welcome everyone, thank you for your interest in Horizon. Today, we will update you on our quarterly performance in the current operating environment. Paul Seitz, our Chief Investment Officer, will take us through recent business and portfolio developments, as well as the current status of the venture lending market. Dan Trolio, our Chief Financial Officer, will detail our operating performance and financial condition. We will then take questions. In April, we completed our merger with Monroe Capital Corporation, significantly enhancing our available capital for investments and kicking off our next chapter of growth. To that end, we have been very active over the past several months, laying the foundation for sustainable and profitable long-term growth.

That includes enhancing our underwriting and credit capabilities to improve the quality of our portfolio, optimizing the technology stack throughout our organization, and making key investments in our people and our origination platform. We believe the investments we are making today, and which we expect to make over the next several months, are appropriately setting the stage for us to consistently grow our portfolio over time, steadily increase our NII, and ultimately create additional value for shareholders. We have the right team and a scalable platform in place and the backing of Monroe Capital, one of the premier asset management firms in the country. It is now incumbent upon us to execute, and we expect to do so in the quarters ahead as we take the Horizon platform to the next level.

Turning to our specific results for the quarter, we grew our debt investment portfolio for the third consecutive quarter, funding nine investments totaling $73 million, while our total portfolio size ended at $677 million. We generated net investment income excluding non-recurring one-time merger expenses of $0.18 per share, which covered our regular distributions, while our NAV per share ended the quarter at $6.23 a share. Our NAV per share was down $0.75 per share for the quarter, primarily due to write-downs of one of our larger investments, which Paul will discuss later. Based on our outlook and our undistributed spillover income, our board declared regular monthly distributions of $0.06 per share payable in October, November, and December of 2026.

Consistent with our announcement prior to the closing of the merger, our board also declared special monthly distributions of $0.03 per share, also payable in October, November, and December of 2026. As we prudently work to deploy the capital from the merger and move towards our target leverage, it remains our goal to deliver NII at or above our declared distributions over time. We achieved a portfolio yield on debt investments of just under 15% for the second quarter, at or near the top of the BDC industry. We finished the quarter with a committed and approved backlog of $228 million, up $48 million from the prior quarter end. We repurchased approximately 1.4 million shares of our common stock in the quarter, reflecting the confidence we have in our near and long-term outlook.

Finally, we continue to win attractive venture debt and small cap public company investments while building our pipeline of loan opportunities. Additionally, on August 3rd, our board approved an increase in the amount of common stock that may be repurchased under the stock repurchase program to allow the company to repurchase up to an additional $20 million of common stock. Despite our challenges, we remain excited about what we are building at Horizon. We will execute on our strategic vision, creating a sustainable growth engine and increasing our NII and NAV over time. Again, we appreciate your continued interest and support in the Horizon Technology Finance platform. I will now turn the call over to our Chief Investment Officer, Paul Seitz, to give you the details of our second quarter results and progress.

Paul? Thanks, Mike, and good morning to everyone.

Our team has been hard at work over the past few months in all facets of our business, in originations, underwriting, and credit, to name a few, to position Horizon for sustainable and profitable growth on a consistent basis. We are making excellent progress and remain excited for our long-term future. At the end of the quarter, our current portfolio stood at $677 million as our third consecutive quarter of debt investment portfolio growth was offset by the write-downs of large investments in one portfolio company.

As Mike alluded to in his remarks, we learned in June 2026 that one of our portfolio companies, Soli, had its equity-raising plan significantly impacted by cash burn in excess of its projections following its $32.5 million equity raise completed in two phases, one at the end of March and the other at the first half of April. As a result, we wrote down our entire $20 million equity holding, which we obtained in August of last year when we converted a portion of our debt investment as part of Soli's strategic merger and its receipt of significant equity investment. We also wrote down $19 million of our debt investment in the company. We are focused on recovering as much value as possible from these investments. In the second quarter, we funded nine debt investments in our target sectors totaling $73 million.

We also made considerable progress in further building our pipeline, including larger venture loan opportunities in our target sectors. One of those pipeline opportunities, StarCompliance, closed in July. In Q2, we increased our committed backlog by approximately $50 million from the end of Q1, which positions us well to further grow our portfolio in the quarters ahead. In Q3, we expect another quarter of debt investment portfolio growth driven by our current pipeline. Along with the loans we've already funded in the third quarter, we have also been awarded four new venture loan transactions, which represent $87 million in total commitments. We will continue to be disciplined in originating and underwriting new loans. During the second quarter, we experienced three loan prepayments totaling $39 million in prepaid principal. Our onboarding debt investment yield of 12% during the second quarter remained consistent with our historic levels.

We expect to continue to generate strong onboarding yields for the current pipeline of opportunities, which we believe will generate strong net investment income over time. Our debt portfolio yield of 14.9% for the quarter was, once again, among the highest-yielding debt portfolios in the BDC industry. Our ability to generate industry-leading yields continues to be a testament to our venture lending strategy and our execution of such strategy across various market cycles and interest rate environments. As of June 30th, we held warrants, equity, and other investments in 96 portfolio companies with a fair value of $28 million. During this quarter, we were pleased to realize proceeds of $2.3 million from the redemption of warrants and equity in two investments. Structuring investments with warrants and equity rights is a key component of our venture debt strategy and a potential generator of shareholder value.