Overview

Horizon Technology Finance Corporation is a specialty finance company that lends to and invests in development-stage companies in its Target Industries. The company’s investment objective is to maximize its investment portfolio’s total return by generating current income from the debt investments it makes and capital appreciation from the warrants it receives when making such debt investments. Horizon is focused on making Venture Loans to venture capital and private equity backed companies and publicly traded companies in its Target Industries, which it refers to as “Venture Lending.”

Portfolio composition and investment activity

As of December 31, 2024, Horizon’s portfolio consisted of 52 debt investments, 85 warrants, 5 other investments, and 19 equity investments, with a total fair value of $697.9 million. The largest sector exposures were in Medical Device (29.4% of the debt portfolio), Software (23.1%), and Biotechnology (12.7%). The company’s five largest debt investments represented 23% of the total debt portfolio at fair value.

Horizon’s total portfolio investment activity showed $182.4 million in net new debt and equity investments for the year ended December 31, 2024, with $46.9 million in principal payments received and $99.4 million in early pay-offs and principal paydowns. The company recorded $34.6 million in net realized losses on investments and $18.8 million in net unrealized depreciation.

Debt investment asset quality

As of December 31, 2024, Horizon’s debt investments had a weighted average internal credit rating of 3.1 on a scale of 4 to 1, with 4 being the highest credit quality. There were 11 investments rated 4, 30 rated 3, 7 rated 2, and 4 rated 1, reflecting an increase in the number of lower-rated investments due to portfolio company underperformance and the difficult fundraising environment.

Consolidated results of operations

Horizon’s total investment income decreased by 11.9% to $99.9 million for the year ended December 31, 2024, primarily due to a 9.6% decrease in average earning debt investments and a 61.3% decrease in PIK interest income. Total expenses remained relatively flat at $50.7 million. The company recorded $34.6 million in net realized losses and $18.8 million in net unrealized depreciation on investments, resulting in a net decrease in net assets of $5.6 million.

Liquidity and capital resources

As of December 31, 2024, Horizon had $97.5 million in cash and investments in money market funds, as well as $244 million in unused borrowing capacity under its various credit facilities. The company raised $66.4 million in net proceeds from the sale of common stock under its ATM program during 2024. Horizon’s primary sources of capital have been public equity offerings, use of credit facilities, and issuance of public and private debt securities.

Outlook

Horizon faces challenges from the difficult equity fundraising market and portfolio company underperformance, which have led to an increase in lower-rated investments. However, the company maintains a strong liquidity position and continues to actively manage its portfolio. Horizon’s ability to generate consistent investment income and navigate the current economic environment will be key to its future performance.