HRZN

Horizon Technology Finance Corporation (HRZN)

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Horizon Technology Finance Corporation (HRZN)

Q3 2012 Earnings Call

November 7, 2012 9:00 am ET

Executives

Nick Rust - IR Representative, IGB GROUP

Rob Pomeroy - Chairman & CEO

Jerry Michaud - President

Chris Mathieu - CFO

Analysts

Troy Ward - Stifel Nicolaus

Casey Alexander - Gilford Securities

Robert Dodd - Raymond James

Boris Pialloux - National Securities

Jonathan Bock - Wells Fargo Securities

Presentation

Operator

Good morning, and welcome to the Horizon Technology Finance's Third Quarter 2012 Conference Call. Today's call is being recorded. All lines have been place on mute. We will conduct a question-and-answer session after the opening remarks.

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

Nick Rust

Thank you, and welcome to Horizon Technology Finance third quarter 2012 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 Q3 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 forward-looking statements are subject to the inherent uncertainties and predicting future results and conditions. Current factors could cause actual results to differ on 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 31st, 2011.

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. Before beginning my formal comments today, I want to acknowledge the tremendous destruction and dislocation caused by super storm Sandy to those in the hard hit areas of New Jersey, New York, and the rest of the East Coast. We know how hard this can be on families and businesses with a loss of life and property. And our thoughts in first go out to all of you as you recover from this tragedy.

I would also like to recognize the power of democracy as we see the results of the elections held yesterday. Whether or not your candidates won, the high level of participation is encouraging. Now the newly elected or reelected officials must takeup the hard work of actually governing. We wish them well and challenge them to move the country forward.

During today's call I will discuss our third quarter and year-to-date progress. Jerry will then provide a market overview. After that Chris will review our financial results as well as our investment portfolio. Chris, Jerry, and I will then be happy to take your questions.

Horizon's business is sound, profitable, and growing. On last quarter's earnings call, I spoke of the important drivers, which are fundamental for all BDC's, deploying capital by directly originating new loans, maintaining strong credit discipline and quality, earning a good yield on investment, using leverage to improve return to shareholders, prudently raising new debt and equity capital to support the business, and paying dividend.

By consistently focusing on these drivers, we've built a solid specialty finance business. Our focus on these drivers is reflected in the -- our third quarter results. We funded gross new loans of $48.5 million and grew our portfolio by $25 million. We maintained a credit rating of 3.2, with 93% of our loans performing at or above our expectations.

We earned a portfolio yield of 13.6% for the quarter, and 13.9% year-to-date. We increased our leverage capacity with a new $75 million credit facility, and increased our overall debt to equity ratio to 0.5 to 1. We sold 1.9 million common shares with net proceeds of $29.5 million in July, and we declared a dividend of $0.45 per share, which is our eighth dividend overall totaling $3.20 per share since going public.

Last quarter, I also spoke about the issues that impacted our quarterly results, as we execute on these main drivers. The timing of new loan fundings impacts that quarter's earnings. New loan fundings typically occur late in a quarter, as it did again this quarter. Accordingly, when we are growing our portfolio, models that use simple averages for our outstanding portfolio balance, will overestimate our income for such quarters.

In addition, the number, dollar, and timing of prepayments in any quarter are neither predictable nor consistent, but are a fundamental part of the venture lending business and can have a material impact on net investment income.

In the first quarter, when we earned $0.44 per share, we had a high level of prepayments. In our third quarter, where we had nominal prepayments, we earned NII of $0.33 per share. Looking at NII and prepayments over several quarters may provide a better basis for the impact of prepayments on NII, which one might expect on an annual basis. For the first three quarters of 2012, we earned NII of $1.06 per share, for an average of $0.35 per share for the quarter.

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