HRZN

Horizon Technology Finance Corporation (HRZN)

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Horizon Technology Finance Corporation (HRZN)

Q1 2013 Earnings Call

May 8, 2013 9:00 AM ET

Executives

Michael Cimini – IR

Rob Pomeroy – Chairman and CEO

Gerry Michaud – President

Chris Mathieu – SVP, CFO and Treasurer

Analysts

Robert Dodd – Raymond James

Troy Ward – KBW

Jonathan Bock – Wells Fargo Securities

Casey Alexander – Gilford Securities

Presentation

Operator

Good morning, and welcome to Horizon Technology Finance’s First Quarter 2013 Conference Call. Today’s call is being recorded. All lines have been placed on mute. We will conduct a question-and-answer session after the opening remarks, instructions will follow at that time.

I would now like to turn the call over to Michael Cimini of The IGB Group for introductions and the reading of the Safe Harbor statement. Please go ahead, sir.

Michael Cimini

Thank you, and welcome to the Horizon Technology Finance first quarter 2013 conference call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer; Jerry Michaud, President; and Chris Mathieu, Chief Financial Officer. Before we begin, I would like to point out that Q1 press release is available on the company’s website at www.horizontechnologyfinancecorp.com.

Now, I’ll read the following Safe Harbor statement. 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 believe, expect, anticipate, intend, or similar expressions are used to identify forward-looking statements.

These statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on material basis from those projected in these forward-looking statements, and some of those 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, 2012. The company undertakes no obligations 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.

Rob Pomeroy

Good morning, and thank you all for joining us. Today, I would like to cover the following areas that impact both the quarterly and the long term performance of Horizon. I will speak to loan origination, portfolio growth, credit quality, components of net investment income and dividend coverage.

Our goal continues to be to provide detail and transparency about our results to our investors. In April, we provided our quarterly portfolio update and added detail about the prepayments and normal amortization that incurred in the first quarter. We will continue to provide this detailed information on a quarterly basis.

Horizon is a direct originator of loans and we are proud of our ability to find, propose, win and close high quality investments that meet our strict underwriting requirements. In the first quarter, we funded $28.5 million in new loans to seven borrowers. This is strong execution especially considering the traditional slowness of the first quarter and the record level of new loans that we closed in the fourth quarter and the record level of new loans that we closed in the fourth quarter.

There were no refinanced balances included in the $28.5 million and we received no early payoffs during the quarter. After deducting $10 million in normal loan amortization, our loan portfolio grew by $19 million to a record $239 million at March 31. A high portion of the new loans were funded late in the quarter and the positive impact of these new loans on net investment income will be realized in the coming quarters.

Early payoffs are a normal part of the Horizon lending model and a source of pre-payment fees, increased interest income from accelerated recognition of commitment themes and end of term payments and return of capital for future reinvestment. The Horizon Venture lending model has a higher incidence payoffs than many other BDC due to the dynamic nature of development stage portfolio companies.

During 2012, Horizon refinanced or received prepayments more than $87 million in loan balances on an average portfolio of $188 million. We expect that our portfolio will experience a significant number of prepayments during any 12-month period. The timing and level of these prepayments are not within our control.

In the first quarter, we had no really prepayments although three companies had notified us that they might prepay in the quarter. Two of those prepayments have already occurred in the current quarter, generating approximately $230,000 in prepayment fees. The return capital will be deployed in the second quarter.

I would like to now turn our attention to credit quality. Horizon has had an excellent credit history with accumulative realized loss percentage of less than 1% on over $500 million in loans originated over the five-year life of the company, which equates to less than 0.2% in annualized losses.

Since inception, we have recorded more than $7 million in realized warrant games resulting in net realized gains of approximately $2 million. No new loans on non-accrual during the first quarter. In the aggregate, the carrying value of the existing loans on non-accrual remained relatively unchanged from year-in.

The most significant loan on non-accrual is to Satcon Technologies which has been written down to zero. The Satcon loss is included in the loss experience I just mentioned. In the first quarter, we received scheduled payments of approximately $560,000 on one of the loans on non-accrual. The other loan on non-accrual is in an orderly liquidation process with an ultimate disposition expected by year-end.

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