Greetings, and welcome to the Horizon Technology Finance Corporation Fourth Quarter 2024 Conference Call. At this time, all participants will be in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'll now turn the conference over to Megan Bacon, Director of Investor Relations and Marketing. Thank you, Megan. You may now begin.

Thank you, and welcome to Horizon Technology Finance Corporation's fourth quarter 2024 conference call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer; Jerry Michaud, President; Dan Devorsetz, Chief Operating Officer and Chief Investment Officer; and Dan Trolio, Chief Financial Officer. I would like to point out that the Q4 earnings press release and Form 10-K 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 believe, expect, anticipate, 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, 2024. The company undertakes no obligation to update or revise any forward-looking statement, 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.

Welcome, everyone, and thank you for your interest in Horizon. Today we will update you on our quarterly, and annual performance in our current operating environment. Dan Devorsetz will take us, through recent business and portfolio developments. Jerry, will then discuss the current status of the venture lending market, and Dan Trolio, will detail our operating performance and financial condition. We will then take some questions. We ended 2024, with our portfolio growing for the second consecutive quarter. We expect this trend will continue in 2025. While the net investment income we earned in the fourth quarter, resulted in our 2024 NII, covering our regular monthly distributions. Our net asset value, was lower at the end of 2024. This resulted from the underperformance of our stressed investments, due to the continuance in 2024, of many of the same conditions that were present in 2023, namely ongoing stress in the venture capital ecosystem, tightened capital availability, a muted IPO and M&A market, and continued pressure on portfolio company valuations. Our advisor and its experience and expert team, remain focused on our portfolio's credit quality, and originating high quality investments in order to maximize, the value of our portfolio over the long-term. Recapping our full year 2024 results, we generated net investment income of $1.32 per share, once again covering our declared and paid regular monthly distributions for the year. We achieved a portfolio yield, of nearly 16% on our debt investments for the full year, remaining at or near the top of the BDC industry. We finished the year, with a committed and approved backlog of $207 million. We ended the year, with a net asset value of $8.43 per share, primarily the result of the fair value markdowns of our investments. We continued to strengthen our balance sheet during the…

Thanks Rob, and good morning to everyone. We grew our portfolio in the fourth quarter to $698 million, as we continue to originate high quality loans that more than offset prepayments, and amortization in our existing portfolio. In the fourth quarter, we funded seven debt investments totaling $59 million, and one equity investment of $2 million. $55 million of the new debt investments were to four new portfolio companies, all well sponsored companies, with growing revenue in our core life science and technology markets. We continue to see an increasing and healthy volume, of high quality opportunities like these, and are well capitalized to execute on these opportunities, and originate new loans. We also continue, to build a sizable pipeline across our target sectors, which we expect will ensure we continue growing our portfolio, throughout 2025. Looking ahead to Q1, we expect another quarter of portfolio growth. In January and February, we funded seven debt investments totaling $79.4 million, and one equity investment of $2 million. We were awarded four new venture loan transactions representing $75.8 million in total commitments, which will fund over the coming quarters. As we seek growth, we will always be disciplined in our approach, to originating loans. During the fourth quarter, we experienced five loan prepayments totaling $13 million in prepaid principal. Net prepayment activity and the associated fee income in the quarter, was at the lower end of our recent historical levels, which impacted NII. Based on prepayment activity already realized in Q1, and anticipated additional prepayment activity in the quarter. We expect a more positive impact on NII in Q1, especially when combined with portfolio growth from Q4. Our onboarding debt investment yield, of 12.6% during the fourth quarter, remained consistent with our historical levels. We expect to continue to generate strong onboarding…

Thank you very much, Dan. Turning to the venture capital environment. According to PitchBook, approximately $75 billion was invested in VC-backed companies in the fourth quarter, a nice spike from the prior quarters and resulting in total investment for the year, of $209 billion above 2023's total, but still off the highs of 2021 and 2022. We are pleased to see continued signs, of improvement in the VC investment environment, but the road to a full investment recovery will require exit markets for VC-backed tech companies to improve, which will lead to a meaningful return of capital, to VC funds and their LPs. The higher investment level in 2024 was mainly driven by a few outsized AI-related deals. Thus, there continues to be a backlog of venture capital-backed technology, and life science companies that are positioned for an exit, by way of M&A or an IPO. While Q4's total exit value of $37 billion, resulted in 2024's exit value surpassing the prior years, the total number of exits and exit value in 2024, remained well below the levels achieved from 2019 to 2021. On the positive side, the life science exit markets continues to show significant activity, with five IPOs already completed in 2025, and more in the queue. This improvement, combined with investors lowering valuations on many private technology and life science companies over the past two years, is creating an M&A market that is more attractive to potential buyers, who have been on the sidelines for the past two years. In addition, royalty transaction activity in the life science market is re-emerging as examples, Biogen closed a $250 million transaction with royalty Pharma and Castle Creek Biosciences, a Horizon portfolio company, closed a $75 million royalty transaction with Ligand Pharmaceuticals in Q1. As we progress through 2025, there…

Thanks, Jerry, and good morning, everyone. As Rob and Jerry noted, in 2024, we generated NII that covered our regular monthly distributions while actively strengthening our balance sheet. In addition, we continue to diligently work with all of our companies, in order to optimize our outcomes for our portfolio, and further enhance our credit quality. To recap 2024, our portfolio at the end of the year stood at $698 million, up 2% compared to $684 million as of September 30, 2024. We further strengthened our balance sheet in June by closing a new $100 million senior secured credit facility with Nuveen, which contains an accordion feature, to expand the facility to $200 million. In October, we raised $20 million of debt capital through the issuance, of our 7 1/8 unsecured convertible notes due 2031. The notes may only be converted into common stock at a price greater, or equal to our NAV. We always seek to add flexibility and diversity to our capital sources, and we believe the convertible notes achieve that. Finally, we successfully and accretively sold, over 6.3 million shares through our ATM program during the year, raising over $66 million, further demonstrating our continued ability, to opportunistically access the equity markets. As a result of our actions and our stronger balance sheet, we believe we remain well positioned to further grow our portfolio, and create additional value for shareholders in 2025. As of December 31, we had $131 million in available liquidity, consisting of $101 million in cash and $30 million in funds available to be drawn under our existing credit facility. We currently have no borrowings outstanding under our $150 million KeyBanc credit facility, $181 million outstanding on our $250 million New York Life credit facility, and $75 million outstanding on our $100 million Nuveen credit…

Thank you. [Operator Instructions] Thank you. And our first question is from the line of Doug Harter with UBS. Please proceed with your questions.

Sure. Thank you. Hoping you could walk through, what you think the key drivers, to get from the $0.27 back above the $0.33 dividend rate, how you think about that path, back to covering the dividend?

Yes. Doug, good morning. When we look at the NII we projected over through the entire year, one thing we comment probably every quarter, is with a venture debt portfolio, you always will receive some prepayments throughout the year. How they happen each quarter will fluctuate. As we noted in our remarks, the fourth quarter was very light on the amount of prepayments, and the associated fee income that's related to those prepayments, and kind of drove the lower NII this quarter. So we look to harvest the prepayments, and we look to grow the balance sheet as we have over the past two quarters, and continue to do that through 2025. And those will be really the key drivers, to getting back to covering the distribution for - on a quarterly basis.

Got it. Appreciate that. I guess, how do you think about - what is - obviously, there's no one period that is normal, but what is a normalized level of contribution from kind of that repayment income?

Yes. Like I mentioned, each quarter will be very different. Normalized, probably about anywhere between $2 million to $4 million of accelerated fee income.

Great. Appreciate that.

Thank you. [Operator Instructions] The next question is from the line of Paul Johnson with KBW. Please proceed with your questions.

Yes, thanks. Good morning. Thanks for taking my questions. I was just wondering if you can kind of comment on, kind of what primarily drove the portfolio marks this quarter in terms of investments, as well as just kind of maybe more broadly, if you can, what - how much of that's from the debt portfolio versus the equity?

Sure. Paul, this is Dan Devorsetz. The marks were - we go through our fair value process and look at each asset, of course. There are several - a couple that are in the process of either fundraising, or getting themselves acquired, and there's a couple that are in positions, where we're unsure of what that outcome is going to be, and took some sizable markdowns, primarily on the debt investments in the portfolio. That's a high-level answer to the question. It's really a matter of a continued fundraising, and exit market that is a challenge for some companies in our stage. We are seeing a good deal, we're seeing anecdotal evidence of positive developments in fundraising, but there are still several in the portfolio that are in situations, where the markdown was appropriate.

Thanks for that. And then if I can ask just about two specific credits. I noticed last quarter in the Q, I think that portion of Evelo Biosciences was on PIK accrual. I noticed that was taken off this quarter. Just wondering what happened there, and if there was any income recorded at all, from Evelo in the fourth quarter?

Yes, hi. This is Jerry. So yes. We've moved Evelo to the other asset bucket of our assets. The company - any recovery on Evelo going forward, is based on basically the sale or otherwise, contractual transactions that Evelo can do relative to its assets, which would be its intellectual property and some other assets its own. So it's no longer an active loan. It's more of a recovery asset at this point. And there was some expectation based on contracts that are in place that, there will be further recovery on that over the coming quarters, and coming years actually.

Appreciate that. And then the other one, just was on non-accrual last quarter, Swift Health Systems. Looked like it might have been restructuring. I'm wondering if you could just kind of talk about, what the outcome of that was, and how you were able to resolve that company?

Sure. That one, it's not resolved. That's one of the ones that, did take a bit of a further markdown. And it's an example of what I was talking about earlier that, they are in an extended fundraising process. They - we we're able to bring in capital last year, with some new investors, some new high-quality investors. But that was the first step in an ongoing process of capital raising, which they are still in. So it is not yet resolved, and is an active fundraise as we speak.

Thanks for that. And then how are you guys feeling, I guess, about the portfolio, maybe particularly like in the life sciences, about any sort of DOGE risk, or spending cuts from the federal government?

Great - interesting question. And it's based on everything that we have seen on other people in the industry that, we know well who have a great deal of experience talked about. It's not a clear cut, one way or the other. Clearly, companies that might be involved in vaccine discovery, certainly have some reasons for concern, based on who the new HHS Secretary is. On the other hand, there does seem to be a more open and aggressive posture, with the HHS relative to drug development, and getting those drugs to market, both sooner and cheaper. And so the school is, definitely still out relative to how all that's going to play out. I think on balance, probably a favorable environment, certainly in the near term. Overall, I think regulatory issues also play into that. I think, we could definitely see more M&A activity. The other thing I would just mention relative to that, is between now and 2030, there is - I think the number I heard was $50 billion of drugs that, are going to be coming off of patent by big pharma companies, and those drugs need to be replaced. And they generally get replaced historically, by new drug development by biotech companies. So we think that, there could be significant activity in that market, over the next couple of years. So on balance, probably a little bit favorable, but like many other things in the market today, it's - a lot of people are just kind of holding their breath, and waiting to see how this all works out.

Got it. Thanks for that. Certainly understand things are still in development. And then, just last question from me. I was wondering if I could just kind of ask about, core sort of debt portfolio yields in the portfolio, how those have kind of held up, I guess, over the last year? We've certainly seen a certain amount of spread compression in the market. But just wondering how much of kind of the portfolio yield decline this quarter, was maybe kind of due to the base rates, and sort of what your expectation is, for spreads going forward this year?

Yes. So again, Dan Devorsetz. The onboarding yield is still kind of within our normalized range. It's a small sample size on a quarter-to-quarter basis, so you have to look at trends. There is some spread compression, due to competitive - competition, particularly in the flight to quality that Jerry was talking about, which is normal. But the overall yields, are still well within normalized venture portfolio. We benchmarked that on a quarterly basis. And I think that the yield, particularly when you factor in, some of the prepayment activity that Dan talked about, and that we referenced in our prepared remarks, that we expect and have visibility into that the portfolio yield will be, within the range that we've been achieving, over the past several quarters.

Yes. And I'll just add to that. As far as the portfolio yield and where rates are, we mentioned every quarter, our rates float up, but have floors. Today, after the 100 basis points move down last year, 43% of our portfolio, are either at or above today's prime rate. And so any continued movement down in overall rates, which seems like it will be towards the latter half of this year, will have a smaller impact on our portfolio.

Thank you. That's very helpful. And then just curious, I mean, end of term fees has - that - if portfolio spreads have been kind of within the normal context, how have end of term fees held up, I guess, versus kind of historically, what you received?

Those really haven't changed a whole lot over the last several years.

Okay. Thank you very much. That's all from me.

Our next question is from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed with your questions.

Hi, apologies. I joined the call late. And a follow-up to Paul's question on the yields. How much did the Fed easings in the fourth quarter affect your yields?

It had a - definitely had an impact, but I would say the third quarter rate cut had a bigger impact in the fourth quarter. If you look at our - Ks and our Qs, it will show you rate movement and the overall impact if everything is static, and all the rates happened at the beginning of the quarter. But obviously, that's not how it normally happens. And that would get you about 100 basis points, we show it's about $0.02 a quarter. So that's kind of roughly a static state. But with the cuts in the fourth quarter, a little bit towards the latter half of the quarter, had a smaller impact.

Great. And then also back to the whole DOGE thing. Given the prospect of tariffs, and then the HHS basically looking to improve transparency, at least they'd say that in the sides, but it very well might be on pricing, too, for drugs. Anecdotally, I hear stories where American consumers are paying a multiple for a drug, which is priced otherwise overseas. And how is that affecting how some of these portfolio companies you guys have, are thinking about their business model? I mean, is there a lot more uncertainty? Is this affecting their ability, to raise new equity? I mean, just a little color around that would be great?

Sure. Hi, this is Jerry. So first of all, the life science industry over the last couple of years, irrespective of who the President was has had kind of a tough goal, relative to raising capital for a whole host of reasons. As we look at the market today, there are certain things that are definitely actually providing a tailwind. One is the lower, the cost of developing drugs is coming down significantly, relative to the technology that can be used today, including AI technology that is reducing the overall cost. So there is definitely going to be going forward, some benefit relative to the cost of developing drugs. And then on the regulatory side, at least again, it's very early. We're in the early days here. They're talking about being able to streamline regulatory approval relative to drug development, which for one drug can cost $300 million to $1 billion, to develop depending on the size of the market, the kind of clinical trials that are needed. So that is kind of all on the positive side. But you're correct. The cost of the consumer is definitely, kind of an anchor that's weighing all of this down. And how these costs, are going to be managed going forward, specifically Medicare, Medicaid cost, that is the uncertainty there, just the level of uncertainty there, definitely causes significant issues relative to being a drug discovery company, and trying to determine how you're going to get paid, for this $150 million investment, you're about to make going forward. So unfortunately, we're just in that very uncertain period right now, and everyone's trying to, as best they can, figure out what to do about it. The only thing I would say that, is certain is we have seen more IPO activity in the life science sector over the last two quarters, which is a good sign. The market - the participants in the market, are saying they want to buy into these higher-risk type biotech companies, and that's a positive sign. And as I mentioned, there are other kinds of financing now on the life science side that, we have historically seen, but haven't really seen much of it in the last two years that seem to be also picking up some momentum. So it's an interesting market that, has to be carefully thought through literally for every company, depending on where they are in the market, relative to the kind of drugs that they're developing, and the necessity of it.

Great. That's great color. Thank you. And I guess just for Dan. What - how much did share repurchases add to fourth quarter NAV per share, please?

It's about $0.02.

And the remaining spillover, please?

$1.06.

Good. Thank you very much.

Thank you.

Thank you. At this time, I'll turn the floor back to Mr. Pomeroy for closing remarks.

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

We thank you for your participation. You may now disconnect your lines at this time.