Horizon Tech Finance Q3 2026 Earnings Call Transcript

Horizon Tech Finance (NASDAQ:HRZN) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

Horizon Tech Finance Corporation reported a backlog increase to $351 million, positioning them for significant portfolio growth in Q4 2026 and beyond.

The company funded 9 new investments totaling $98 million, growing their debt investment portfolio to $650 million; however, NAV per share decreased to $5.56 due to write-downs.

Horizon maintained a strong debt portfolio yield of 14.7%, among the highest in the BDC industry, despite facing credit pressures on certain investments.

A new Chief Growth and Strategy Officer, Manuel Henriquez, was appointed to accelerate strategic initiatives, leveraging his experience from Hercules.

The company’s liquidity stood at $211 million, with a potential new investment capacity of $387 million, and they repurchased over 2 million shares, reflecting confidence in their outlook.

Management anticipates a lower level of prepayment activity in Q4 and expressed optimism about sustainable growth due to a robust pipeline and high-quality investment opportunities.

Full Transcript

OPERATOR

After today’s remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I would now like to turn the conference over to Megan Bacon, Director, Investor Relations and Marketing. Please go ahead.

Megan Bacon (Director, Investor Relations and Marketing)

Thank you and welcome to Horizon Tech Finance Corporation’s third quarter 2026 conference call. Representing the company today are Michael Balkin, Chief Executive Officer, Paul G Seitz, Chief Investment Officer, and Daniel R Trolio, Chief Financial Officer. I would like to point out that the Q3 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, 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 Michael Balkin.

Michael Balkin (Chief Executive Officer)

Welcome everyone and 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. And Dan Trolio, our Chief Financial Officer, will detail our operating performance and financial condition. We will then take questions.

We made significant progress in the third quarter in terms of increasing our pipeline of opportunities, with our backlog building to $351 million at quarter end. That is a testament to our scalable platform, the relentless work of our originations and credit teams, as well as our ability to co-invest with Monroe Capital. We believe we are successfully laying the foundation for Horizon’s long-term portfolio growth and increasing NII. At the same time, our NAV per share remains under stress due to credit pressures from certain investments.

We believe we have made material headway in addressing these challenges, which should become more apparent as we move into 2027. Turning to our specific results for the quarter, we grew our debt investment portfolio for the fourth consecutive quarter, funding 9 investments totaling $98 million. While our total portfolio size ended at $650 million, we finished the quarter with a backlog of $351 million, up over $42 million from the prior quarter end, which positions us to materially grow our portfolio in the fourth quarter and beyond. We generated net investment income of $0.19 per share, which covered our regular distributions in the quarter, while our NAV per share ended the quarter at $5.56.

Our NAV per share was down $0.67 for the quarter, primarily due to write-downs of certain investments based on our outlook and our undistributed spillover income. Our board declared monthly distributions of $0.06 per share payable in January, February and March of 2027. As we continue to deploy the capital 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 third quarter and at or near the top of the BDC industry.

We repurchased just over 2 million shares of our common stock in the quarter, reflecting the continued confidence we have in our near and long-term outlook. And finally, we continue to win attractive venture debt and small-cap public company investments as we further build the top of our funnel and pipeline of loan opportunities. As we close out 2026 with our strong balance sheet and increasingly robust pipeline, we believe we are in an excellent position to further grow our portfolio and drive long-term value creation for shareholders. To support that effort, we are pleased to create the new role of Chief Growth and Strategy Officer at our advisor and to appoint Manuel Henriquez to this position. We have had the benefit of Manuel working with our advisor since June, and this new appointment will help accelerate its positive impact on Horizon.

We look forward to his contributions as we build on our momentum. With the backing of Monroe Capital, one of the premier asset management firms in the country, we have the right team firmly in place and we are executing on our strategic vision, which we believe will create a sustainable growth engine that will increase our NII and NAV over time. Despite our challenges, we remain excited about Horizon’s future and the opportunity to take our platform to the next level. Again, we appreciate your continued interest and support in the Horizon Tech Finance platform. I will now turn the call over to our Chief Investment Officer, Paul Seitz, to give you the details of our third quarter results and progress. Paul.

Paul G Seitz (Chief Investment Officer)

Thanks, Mike, and good afternoon to everyone. As Mike noted, our team made excellent progress in expanding our committed and awarded backlog and pipeline in the quarter, which positions Horizon to deliver sustainable and profitable growth on a consistent basis. At the same time, we continue to work diligently through a number of stressed credits to optimize returns on those investments and ultimately increase our NAV over time. At the end of the quarter, our current portfolio stood at $650 million, our fourth consecutive quarter of debt investment portfolio growth. Our growth was offset by write-downs of certain investments. As always, we remain focused on recovering as much value as possible from these investments. In the third quarter, we funded nine debt investments in our target sectors totaling $98 million. Additionally, we made significant progress in further building our pipeline, including larger-size venture loan opportunities in our target sectors.

In Q3, we increased our backlog by more than $42 million from the end of Q2. During the third quarter, we experienced 6 loan prepayments and partial paydowns totaling $81 million in principal. We are pleased with these prepayments as they generated accelerated income, validated our investment structure, and provided us with additional capital to redeploy into new investments that can generate additional attractive risk-adjusted returns. Despite the uptick in prepayments in the third quarter, we anticipate a lower level of prepayment activity in the fourth quarter.

Given the current macro environment, our onboarding debt investment yield of 12.6% during the third quarter was ahead of our second quarter’s level. Thanks in part to the current rising rate environment, we expect to continue to generate strong onboarding yields with our current pipeline of opportunities, which we believe will generate strong net investment income over time. Meanwhile, our debt portfolio yield of 14.7% 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 September 30, we held warrants, equity and other investments in 95 portfolio companies, as well as our Rojo joint venture, with a fair value of $29 million. During the quarter, we realized proceeds valued at $2 million from the redemption of warrants in two investments and have now realized more than $4.3 million of proceeds from warrants and equity in just the last six months. Structuring investments with warrants and equity rights is a key component of our venture debt strategy and a potential generator of shareholder value.

As Mike mentioned, we ended the quarter with a committed, approved and awarded backlog of $351 million, compared to $309 million at the end of the second quarter. We continue to believe our pipeline of investment opportunities, combined with our expanding committed backlog, with most of our funding commitments subject to companies achieving certain key milestones, provides a solid base to prudently grow our portfolio over time. As of quarter end, under our new 1 to 5 credit scale, which we realigned to as of June 30, 88% of the fair value of our debt portfolio consisted of 1, 2 or 3 rated debt investments, while 12% of the fair value of our portfolio is rated 4 or 5. We recognize the credit pressures on certain investments in the portfolio and we continue to closely monitor all of our investments. As always, we are collaborating with investors in all of our portfolio companies and utilizing a variety of strategies to optimize recoveries and preserve value.

Turning to the venture capital environment, according to PitchBook, approximately $98 billion was invested in VC-backed companies in the third quarter. This results in year-to-date investments as of September 30 being 44% higher than the prior record year 2021, notably with one more quarter still to go. The impressiveness of this increase is tempered by the fact that nearly all the investment consists of large investments in AI. Accordingly, the market is significantly bifurcating with certain companies at the very top receiving the lion’s share of capital.

Meanwhile, exit market activity remained muted for non-AI companies due to the ongoing uncertainty in the macro and geopolitical environment. Anthropic’s anticipated IPO will almost certainly exit at a massive valuation later this quarter, but otherwise we expect the IPO market will stay quiet for the remainder of 2026. Despite the top-heavy market, we continue to believe significant opportunities remain for venture loan originations in both life sciences and tech, as evidenced by both our growing debt investment portfolio and the increase in our pipeline. We continue to believe venture debt remains a compelling option for high-quality companies to access additional capital.

To sum up, we made significant progress in the third quarter in terms of expanding our pipeline, which positions us to sustainably grow our venture debt investment portfolio with high-quality investments. Combined with our strong balance sheet, we believe we are setting the stage to improve our financial performance over time and create more value for shareholders. With that, I will now turn the call over to our Chief Financial Officer, Dan Trolio.

Daniel R Trolio (Chief Financial Officer)

Thanks, Paul, and good afternoon everyone. We are continuing to make progress in growing our origination pipeline as evidenced by our stronger backlog while we closely manage our current investment portfolio. Along with a strong balance sheet, we continue to lay the groundwork to deliver sustainable long-term growth and create additional value for our shareholders moving forward. As of September 30th we had $211 million in available liquidity, consisting of $108 million in cash and $103 million in available borrowing capacity under our existing credit facilities. As of September 30, we had no outstandings under our $150 million KeyBank credit facility, $181 million outstanding on our $250 million New York Life credit facility, and $90 million outstanding on our $150 million Nuveen credit facility, leaving us with ample capacity to grow our portfolio of debt investments.

Our debt to equity ratio stood at 1.12 to 1 as of September 30th and, netting out cash on our balance sheet, our net leverage was 0.82 to 1, well below our target leverage. Based on our cash position and our borrowing capacity, our potential new investment capacity as of September 30th was $387 million. During the quarter we repurchased just over 2 million shares of our common stock at an average price of $4.90 under our $20 million stock repurchase program. We expect to remain opportunistic with respect to our stock repurchase program given the dislocation between our current valuation and our confidence in the near and long-term outlook of Horizon.

Turning to our operating results for the third quarter, we earned investment income of $24.1 million compared to $26.3 million in the prior-year period, primarily due to lower interest income on our debt investment portfolio. Our debt investment portfolio on a net cost basis stood at $690 million as of September 30, up 1% compared to $682 million as of June 30, 2026. For 3Q26 we achieved onboarding yields of 12.6%, ahead of what we achieved in 2Q26.

Our loan portfolio yield was 14.7% for the third quarter compared to 18.6% for last year’s third quarter. Total expenses for the quarter were $12.5 million compared to $12 million in 3Q25, with net expenses for the quarter totaling $11.5 million as the advisor waived $1 million of its base management fee. Our interest expense of $7.8 million was in line with last year’s third quarter. As a reminder, in connection with our merger earlier this year, our advisor agreed to waive up to an aggregate of $4 million of fees, or up to $1 million per quarter, beginning with this third quarter.

Net investment income for 3Q26 was $0.19 per share, compared to $0.11 per share in 2Q26 and $0.32 per share for 3Q25. The company’s undistributed spillover income as of September 30th was $0.24 per share. Based upon our outlook and undistributed spillover income, our board declared monthly distributions of $0.06 per share for January, February and March 2027. We anticipate that our expanded capital base and available leverage, our expectation for growth, and our predictive pricing strategy will enable us to generate NII that covers our distributions over time.

To summarize our portfolio activities for the third quarter, new originations totaled $98 million, which were offset by $3 million in scheduled principal payments and $81 million in principal prepayments and partial paydowns. We ended the quarter with a total investment portfolio of $650 million at September 30. The portfolio consisted of debt investments in 42 companies with an aggregate fair value of $621 million and a portfolio of warrants, equity and other investments in 95 companies with an aggregate fair value of $29 million.

Our NAV as of September 30 was $5.56 per share, compared to $6.23 per share on June 30 and compared to $7.12 as of September 30, 2025. The NAV reduction on a quarterly basis was primarily due to the write-down on certain stressed investments. As we’ve consistently noted, nearly 100% of the outstanding principal amount of our debt investments bear interest at floating rates. As of September 30, 98% of our portfolio will benefit from additional increases in their applicable pricing index.

This concludes our opening remarks. We’ll be happy to take questions you may have at this time.

OPERATOR

And ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you’re using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time we will pause momentarily for the first question. Our first question today will come from Melissa Waddell with UBS. Please go ahead.

Melissa Waddell (Analyst)

Good evening. Appreciate you taking my questions today. You mentioned, obviously, NAV is under pressure on a couple of credits, but you also talked about some turnaround plans on a few of those. Could you help us dimensionalize sort of a timeframe, to the extent that you can provide details around some of the efforts, stabilization, and how investors should think about, you know, a timeline on not just a turnaround there, but just even stabilizing that?

Paul G Seitz (Chief Investment Officer)

Yeah, Melissa, this is Paul Seitz speaking. Thanks for the question. So we are running a few processes on certain names. You’ll see the names in the schedule of investments. Won’t go into too much detail regarding those processes given sensitivity and the fact that they’re private right now. But we had run up against a few shortfalls in terms of the outcomes we were expecting. Definitely unfortunate, but we are working diligently and very hard to recover as much capital as possible.

I think it was a little shocking and surprising that these all came about all at once, but there’s been a lot of effort on our end to stabilize that. In terms of the outlook, I don’t really want to provide any forward-looking statements, but suffice it to say that we are all hands on deck in terms of making sure that the portfolio is stabilizing.

Melissa Waddell (Analyst)

Okay, I appreciate it. Those things can be sensitive and uncertain on timeline. Going back to a comment on the call about repayment activity being particularly elevated in 3Q and then expecting that to sort of normalize in the fourth quarter. Also looking to try to dimensionalize that in the context of some nice momentum on the origination side that you talked about headed into the fourth quarter. I mean, should we be thinking about that more in line with some of what we saw, you know, in 2Q or earlier this year?

Paul G Seitz (Chief Investment Officer)

Yeah, you know, as far as the fourth quarter, we’ve got a month and a half left. As we noted, we did have one prepayment today on the smaller side. Nothing in our future projections right now, but it’s still a month and a half. If you’re thinking about estimating it, I’d look back the last three quarters. You can see we’ve grown the portfolio an average of about $30 million, and I probably would be expecting a little bit higher than that this fourth quarter, but not significantly.

Melissa Waddell (Analyst)

Okay, got it. That’s helpful. Thank you.

OPERATOR

Once again, if you would like to ask a question, please press star then one. Our next question will come from Paul Johnson with KBW. Please go ahead.

Paul Johnson (Analyst)

Good evening. Thanks for taking my questions. So in terms of the processes you were running, you know, I guess the loans or the companies that you’ve been managing out of the stressed credits, I mean, are all of those found within the non-accruals today, or are there more of those investments potentially, maybe even some equity investments with just, you know, non-income-generating investments attached to them?

Paul G Seitz (Chief Investment Officer)

Yeah, I’d say the majority of them, if not all, are in the non-accrual bucket that will be labeled as such on the schedule of investments.

Paul Johnson (Analyst)

Got it. Okay. And then just one technical question, but you mentioned the $98 million originations this quarter on the call. I think it’s also in the press release as well, but just looking at the investment activity, it says $89 million. I’m just curious what the difference is there. Is it just commitment versus funded, or what’s the $10 million sort of difference between the $98 million?

Daniel R Trolio (Chief Financial Officer)

Yeah, I believe that’s probably just location where that other $9–10 million was funded in the joint venture. And so that is—yeah, so it’s technically $98 million as far as earning assets put on the books; it’s just different locations of where they’re sitting.

Paul Johnson (Analyst)

Got it. Okay. And then the pipeline, you know, sounds like that’s been building. You’ve been working to expand that as well. Just curious, what’s kind of the expected timeline, I guess, in terms of how long you think it would take to start seeing some of those investments come through and fund, and, you know, I guess how much of that activity went through this quarter as well?

Paul G Seitz (Chief Investment Officer)

Yeah. So, you know, our pipeline is always fluid, and so deals can be delayed, they can accelerate. There’s—you know, it’s a bit nuanced and idiosyncratic at times, but we’re confident that our pipeline is strong and that we’re going to have some decent conversion on it. You know, right now I think the pipeline typically is on a rolling six-month basis as far as the deal activities. So any deal that’s on the pipeline now hopefully is—you know, we have some sort of decision within six months from now.

Michael Balkin (Chief Executive Officer)

Yeah. And Paul, this is Mike. I would say that we’re extremely encouraged by the backlog and the pipeline we have. It’s the strongest we’ve had in quite a while, and so we’re seeing lots of activity and we’re very pleased with how things are going right now.

Paul Johnson (Analyst)

Got it. Yeah, that’s great to hear. And the last one for me, I guess, would just be with the recent appointment of Manuel Henriquez to Chief Strategy Officer. I’m just curious what you’re hoping to kind of get from that, you know, given there’s obviously been a lot of, you know, changes and modifications here to the investment strategy with the Monroe merger. But just curious to get your thoughts there in terms of, you know, what you’re hoping to benefit with the BDC.

Michael Balkin (Chief Executive Officer)

Yeah, well, sure, and it’s a good question. And actually, Manuel has been working with us for a little while here now, and we’re very happy with having him on board. And he’s—you know, obviously he built a great business at Hercules, and so we’re able to take a lot of the learnings and experience he had there and try to apply them to things we’re doing here at Horizon. Obviously, Horizon’s gone through a lot of changes over the last several years, and so a lot of the experience that he brings to the table is valuable.

He’s helping significantly on the origination side of the business, and we believe we’ll continue to benefit from his contacts and relationships. So stay tuned. But it’s incumbent upon us to put the numbers up on the board, and we’re excited about what we see happening.

Paul Johnson (Analyst)

Great. Well, appreciate it. I look forward to it. That’s all from me. Thanks.

OPERATOR

Thank you. This will conclude our question and answer session. I’d like to turn the call back over to Michael Balkin for any closing remarks.

Michael Balkin (Chief Executive Officer)

Thank you all for joining us this afternoon. We appreciate your continued interest and support in Horizon, and we look forward to speaking with you again soon. This will conclude our call.

OPERATOR

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company’s SEC filings and official press releases. Corporate participants’ and analysts’ statements reflect their views as of the date of this call and are subject to change without notice.