Q1 2025 Horizon Technology Finance Corp Earnings Call
Operator: Greetings, and welcome to the Horizon Technology Finance Corporation first quarter 2025 earnings call. At this time, all participants are in a listen-only mode.
Greetings and welcome to the Horizon Technology Finance Corporation first quarter 2025 earnings call. At this time all participants are in a listen only mode. A question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Operator: A question and answer session will follow the formal presentation.
Operator: If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
As a reminder, this conference is being recorded.
Megan Bacon: It is now my pleasure to introduce Megan Bacon, Director of Investor Relations and Marketing. Thank you. You may begin.
Speaker Change: It is now my pleasure to introduce Megan Bacon director of Investor Relations and marketing. Thank you you may begin thank.
Megan Bacon: Thank you, and welcome to Horizon Technology Finance Corporation's first quarter 2025 conference call.
Speaker Change: Thank you and welcome to Horizon Technology Finance corporations first quarter 2025 conference call representing the company today are Rob Contrary, Chairman and Chief Executive Officer, Jerry Michaud, President Dan divorced that Chief operating officer, and Chief Investment Officer, and Dan Trulia Chief.
Megan Bacon: 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.
Speaker Change: Lots of fur.
Megan Bacon: I would like to point out that the Q1 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.
Speaker Change: I would like to point out that the Q1 earnings press release and Form 10-Q are available on the company's website at Horizon Tech Finance dotcom.
Speaker Change: 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.
Speaker Change: Words, such as believes expects anticipates intends or similar expressions are used to identify forward looking statements.
Speaker Change: Forward looking statements are subject to the inherent uncertainties in predicting future results and conditions.
Megan Bacon: 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 statements, whether as a result of new information, future events, or otherwise.
Speaker Change: 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 two.
Speaker Change: 24.
Speaker Change: The company undertakes no obligation to update or revise any forward looking statements, whether as a result of new information future events or otherwise.
Rob Pomeroy: 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 performance and our current operating environment.
Speaker Change: At this time I would like to turn the call over to Rob Pomeroy.
Rob Pomeroy: Welcome everyone and thank you for your interest in horizon.
Rob Pomeroy: Today, we will update you on our quarterly performance and our current operating environment.
Dan Devorsetz: Dan Devorsetz will take us through recent business and portfolio developments.
Rob Pomeroy: And divorces will take us through recent business and portfolio development.
Jerry Michaud: Jerry will then discuss the current status of the venture lending market.
Rob Pomeroy: Gary will then discuss the current status of the venture lending market and Dan Trulia will detail, our operating performance and financial condition. We will then take questions.
Dan Trolio: And Dan Trolio will detail our operating performance and financial condition.
Rob Pomeroy: We will then take questions. We began 2025 with guarded optimism that markets were improving, and that it was going to be a growth focused year for Horizon. However, the macro environment, including tariff related uncertainty over the past several weeks, has dampened our optimism and directly impacted our potential recovery from some of our stress tasks. which was a significant factor in the decrease in our NAV at the end of the quarter. Until the worldwide volatility in the market subsides, the venture capital ecosystem is unlikely to return to the positive path forward, which we had hoped for earlier in the year.
Rob Pomeroy: We began 2025 with guarded optimism that markets were improving.
Rob Pomeroy: Then it was going to be a growth focused year for horizon.
Rob Pomeroy: However, the macro environment, including tariff related uncertainty over the past several weeks has dampened our optimism and directly impacted our potential recovery from some of our stressed assets, which was a significant factor in the decrease in our NAV.
Rob Pomeroy: At the end of the quarter.
Rob Pomeroy: Until the worldwide volatility in the market subsides the venture capital ecosystem is unlikely to return to the positive path forward, which we had hoped for earlier in the year our.
Rob Pomeroy: Our comments today will focus on our first quarter results and our outlook going forward. Turning to our specific results for the quarter, we generated net investment income of $0.27 per share. As we look to grow our portfolio in future quarters, it is our goal to deliver NII at or above our declared distributions over time. Despite the headwinds, we were able to fund new investments and grow our debt portfolio by $20 million during the first quarter. Based on our outlook and our undistributed spillover income, our board declared regular monthly distributions of 11 cents per share through September 2025.
Rob Pomeroy: Our comments today will focus on our first quarter results and our outlook going forward.
Rob Pomeroy: Turning to our specific results for the quarter, we generated net investment income of 27 per share.
Rob Pomeroy: As we look to grow our portfolio in future quarters. It is our goal to deliver NII at or above our declared distributions over time.
Rob Pomeroy: Despite the headwinds we were able to fund new investments and grow our debt portfolio by $20 million during the first quarter.
Rob Pomeroy: Based on our outlook and our undistributed spillover income our board declared regular monthly distributions of <unk> 11 per share through September 2025.
Rob Pomeroy: We once again achieved a portfolio yield on debt investments at or near the top of the BDC industry. We were able to increase our investment capacity early in the year by raising equity from our at-the-market program. We have continued capital support from our lenders under our credit facilities as shown by the recent closing of an increase in the commitment amount and extension of the maturity date of our New York Life credit facility. We increased our committed and approved backlog to nearly $236 million, providing us with a solid base of opportunities to further grow our portfolio over time.
Rob Pomeroy: We once again achieved a portfolio yield on debt investments at or near the top of the BDC industry.
Rob Pomeroy: We were able to increase our investment capacity early in the year by raising equity from our aftermarket program.
Rob Pomeroy: We have continued capital support from our lenders under our credit facilities is shown by the recent closing of an increase in the commitment amount.
Rob Pomeroy: Pension of the maturity date of our New York Life credit facility.
Rob Pomeroy: We increased our committed unapproved backlog to nearly 236 million.
Rob Pomeroy: Joining us with a solid base of opportunity is to further grow our portfolio over time.
Rob Pomeroy: As we previously disclosed, in order to further align our advisor and shareholders' interests, our advisor has agreed to waive a portion of its quarterly income incentive fees, if after the payment of such portion, the company's net investment income for the quarter would be less than the distribution.
Rob Pomeroy: As we previously disclosed in order to further align our advisor and shareholders' interests. Our advisor has agreed to waive a portion of its quarterly income incentive fees.
Rob Pomeroy: The payment of such portion the company's net investment income for the quarter would be less than the distributions.
Rob Pomeroy: Finally, Monroe Capital, the owner of our advisor, completed its partnership with Wendell Group, a French investment company. Monroe, and by extension our advisor, continue to operate independently. As part of the Monroe family, Horizon will benefit from the additional capital, scale, and commitment of the partnership between Monroe and Wendell Group. We are continuing to support and work closely with our portfolio companies as we focus on maximizing the value of our stressed investments and preserving NAB.
Rob Pomeroy: Finally mineral capital the owner of our adviser completed its partnership with <unk>, a French investment company Monroe and by extension our advisor continue to operate independently as part of the Monroe family Horizon will benefit from the additional capital scale and commitment of the partner.
Rob Pomeroy: Your ship between Monroe and one Delta.
Rob Pomeroy: We are continuing to support and work closely with our portfolio companies as we focus on maximizing the value of our stressed investments and preserving NAV.
Rob Pomeroy: Moving forward, despite the near-term macro challenges, we remain guardedly optimistic about Horizon's prospects for the following reasons. Our portfolio yield remains among the industry's highest, which we expect will lead to increased NII over time. Our committed backlog is growing, and our pipeline remains full, with quality opportunities to invest in new companies. Our liquidity and balance sheet remains strong. And finally, our markets are still active and demand for venture debt capital remains high. We look forward to being a key supplier of such capital.
Rob Pomeroy: Moving forward despite the near term macro challenges, we remain guardedly optimistic about horizon's prospects for the following reasons.
Rob Pomeroy: Our portfolio yield remains among the industry's highest which we expect will lead to increased NII over time.
Rob Pomeroy: Our committed backlog is growing and our pipeline remains cool with quality opportunities to invest in new companies are.
Rob Pomeroy: Our liquidity and balance sheet remains strong.
Rob Pomeroy: And finally, our markets are still active and demand for venture debt capital remains high we look forward to being a key supplier such cap.
Rob Pomeroy: Again, we appreciate your continued interest and support in the Horizon Technology Finance platform.
Rob Pomeroy: Again, we appreciate your continued interest and support in Horizon Technology Finance platform.
Dan Devorsetz: I will now turn the call over to Dan, Jerry, and Dan to give you the details of our first quarter results and progress. Dan? Thanks, Rob, and good morning to everyone. Our portfolio at the end of the first quarter stood at $690 million. As the high-quality loans we originated during the quarter were offset by prepayments, amortization, and unrealized depreciation in our existing portfolio. In the first quarter, we funded nine debt investments totaling $100 million and two equity investments of $2 million. $31 million of the new debt investments were to three new portfolio companies, all well-sponsored companies with growing revenue in our core life science and technology market.
Dan Trulia: Now I'll turn the call over to Dan Gerry and Dan to give you the details of our first quarter results and progress.
Rob Pomeroy: Yeah.
Rob Pomeroy: Thanks, Rob and good morning to everyone.
Rob Pomeroy: Our portfolio at the end of the first quarter stood at $690 million is the high quality loans. We originated during the quarter were offset by prepayments amortization of unrealized depreciation in our existing portfolio.
Rob Pomeroy: In the first quarter, we funded nine debt investments totaling $100 million and two equity investments of $2 million.
$31 million of the new debt investments, where just three new portfolio companies, all well sponsored companies with growing revenue and our core life Science and technology markets. We also continued to build a sizable pipeline across our target sectors.
Dan Devorsetz: We also continue to build a sizable pipeline across our target sector. Looking ahead to Q2, as Rob noted, we are watching the macro environment very closely. We continue to believe we are positioned well for portfolio growth over the long term, but given the current environment, we remain selective in originating a loan. During the quarter, we experienced five loan prepayments, including two refinancings, totaling $68 million in prepaid principal. Based on anticipated additional prepayment activity in the quarter, we expect a more positive impact on NII and Q2. Our onboarding debt investment yield of 13% during the first quarter remained consistent with our historic level.
Rob Pomeroy: Looking ahead to Q2 as Rob noted we are watching the macro environment very closely.
We continue to believe we are positioned well for portfolio growth over the long term, but given the current environment, we remain selective in originating lungs.
Rob Pomeroy: During the quarter, we experienced five loan prepayments, including two refinancings totaling $68 million in prepaid principle.
Rob Pomeroy: Based on anticipated additional prepayment activity in the quarter, we expect a more positive impact on NII in Q2.
Rob Pomeroy: Our onboarding debt investment yield of 13% during the first quarter remained consistent with our historic levels.
Dan Devorsetz: 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. Our debt portfolio yield of 15% for the quarter was once again one of the highest yielding debt portfolios in the BDC industry. Our ability to generate these 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 March 31st, we held warrant and equity positions in 105 portfolio companies with a fair value of $32 million.
Rob Pomeroy: We expect to continue to generate strong onboarding yields with our current pipeline of opportunities, which we believe will generate strong net investment income overtime.
Our debt portfolio yield of 15% for the quarter was once again, one of the highest yielding debt portfolios in the BDC industry.
Rob Pomeroy: Our ability to generate these industry, leading yields continues to be a testament to our venture lending strategy and their execution of stress such strategy across various market cycles and interest rate environments.
Rob Pomeroy: As of March 31, we held warrant and equity positions in 105 portfolio companies the fair value of $32 million.
Dan Devorsetz: Structuring investments with warrants and equity rights is a key component of our venture debt strategy and a potential generator of shareholder value. In the first quarter, we closed $157 million in new loan commitments and approvals, and ended the quarter with a committed and approved backlog of $236 million, compared to $207 million at the end of the fourth quarter. We believe our pipeline, combined with our committed backlog, with most of our funding commitments subject to companies achieving certain key milestones, provides solid base to prudently grow our portfolio.
Rob Pomeroy: Structuring investments with warrants and equity Reits are a key component of our venture debt strategy and a potential generator of shareholder value.
Rob Pomeroy: In the first quarter, we closed $157 million in new loan commitments and approvals and ended the quarter with a committed unapproved backlog of $236 million compared to $207 million at the end of the fourth quarter.
Rob Pomeroy: We believe our pipeline combined with our committed backlog with most of our funding commitments subject of companies achieving certain key milestones by solid base to prudently grow our portfolio.
Dan Devorsetz: As of quarter end, 89% of the fair value of our debt portfolio consisted of 3 and 4 rated debt investments, while 11% of the fair value of our portfolio was rated 2 or 1.
Rob Pomeroy: As of quarter end, 89% of the fair value of our debt portfolio consisted of three and four rated debt investments, while 11% of the fair value of our portfolio was rated sure Juan.
Dan Devorsetz: During the first quarter, and subsequently in April, we received positive news from several of our portfolio companies, most notably MLX Biosciences and Kodiak Robotics. MLX announced that it met the endpoints in its pivotal trial for its drug to treat Tourette's syndrome, which trial is the final clinical step to obtain FDA approval.
Rob Pomeroy: During the first quarter and subsequently in April we received positive news from several of our portfolio companies, most notably <unk> Biosciences and Kodiak robotics.
Rob Pomeroy: <unk> announced that it met the endpoint in a pivotal trial for its drug to treat tourette's syndrome, which trials the final clinical staff to obtain FDA approval.
Dan Devorsetz: In other positive news, Kodiak, a developer of autonomous trucking technology, became the first company to publicly announce the use of driverless trucks in commercial operations. Kodiak also recently announced its intention to go public via a business combination with a SPAC backed by Ares at a $2.5 billion valuation.
Rob Pomeroy: In other positive news Kodiak, a developer of autonomous trucking technology became the first company to publicly announced the use of driverless trucks and commercial operations.
Rob Pomeroy: <unk> also recently announced its intention to go public or be a business combination with respect backed by areas at a 2.5 billion dollar valuation.
Dan Devorsetz: Unfortunately, as we have mentioned, we have also experienced negative portfolio events.
Rob Pomeroy: Unfortunately, as we have mentioned we have also experienced negative portfolio Vas most significantly our investments in both embracing Stan bass were impacted by the lack of exit markets and the broader macro volatility, including tariffs, resulting in the downgrade of both to one rate of investments and reduction in fair value to zero.
Dan Devorsetz: Most significantly, our investments in both Ingrace and Stanvast were impacted by the lack of exit markets and the broader macro volatility, including tariffs, resulting in the downgrade of both to a one-rated investment and reduction in fair values to zero in the quarter. As we manage our stress investments, we continue to collaborate closely with all of our portfolio companies and utilize a variety of strategies to seek to optimize returns and create opportunities for potential future value.
Rob Pomeroy: Quarter.
Rob Pomeroy: As we manage our stress investments we continue to collaborate closely with all of our portfolio companies and utilize a variety of strategies to seek to optimize returns and create opportunities for potential future value.
Dan Devorsetz: To summarize, we continue to work diligently on our current portfolio while maintaining an opportunistic approach toward originating new loans in the current environment. Over time, and as the macro environment normalizes, we believe we are positioned to grow our portfolio, which should lead to increased NII that covers our regular monthly distributions over time.
Rob Pomeroy: To summarize we continue to work diligently on our current portfolio, while maintaining an opportunistic approach toward originating new loans in the current environment.
Rob Pomeroy: Over time as the macro environment normalizes, we believe we are positioned to grow our portfolio, which should lead to increased NII that covers our regular monthly distributions over time.
Jerry Michaud: With that, I'll turn it over to Jerry for a look at the overall venture industry and current environment. Thank you very much, Stan, turning to the venture capital environment, according to Pitchfork. Approximately $92 billion was invested in VC-backed companies in the first quarter, up 19% from the fourth quarter of 2024 and the highest level since the first quarter of 2022. However, the elevated deal value was once again due in meaningful part to large AI deals that represented a significant portion of the quarterly value. With the tariff-related uncertainty in the marketplace, exit markets for VC-backed tech and life science companies remained nearly shut.
Rob Pomeroy: With that I'll turn it over to Jerry for a look at the overall venture industry in current environment.
Jerry: Thank you very much Dan turning to the venture capital environment. According to pitch book.
Jerry: Approximately 92 billion was invested in VC backed companies in the first quarter up 19% from the fourth quarter of 2024.
Jerry: Highest level since the first quarter of 2022.
Jerry: However, you vote.
Jerry: They did deal value was once again doing meaningful part too large a ideals that represented a significant portion of the quarterly value.
Jerry: The tariff related uncertainty in the marketplace exit markets, a VC backed tech and life science companies remained nearly shot specifically we saw some momentum for biotech ipos starting to build in Q4 and continue into January however, the uncertainty related to policy announcements.
Jerry Michaud: Specifically, we saw some momentum for biotech IPOs starting to build in Q4 and continue into January. However, the uncertainty related to policy announcements regarding increasing tariffs on pharmaceuticals, the decrease in NIH and FDA funding, and the HHS pause on the development of key vaccines is resulting in significant investor pullback in the life science market and the IPO market all but disappearing. To date, the S&P Biotech Select Industry Index, XBI, is now down 14% year over year, reflecting cooling investor sentiment. With continued volatility in the equity markets, investors and M&A acquirers are sitting on the sidelines waiting for greater certainty.
Jerry: <unk>, increasing tariffs on pharmaceuticals, the decrease in NIH and SBA funding.
Jerry: H H S pause on the development of key vaccines is resulting in significant investor pulled back in the life science market and the IPO market, all but disappearing.
Jerry: The S&P biotech select industry Index X P. I is now down 14% year over year, reflecting cooling and investor sentiment.
Jerry: With continued volatility in the equity markets investors and M&A acquirers are sitting on the sidelines waiting for greater certainty.
Jerry Michaud: That said, with less equity options available to VC-backed tech and life science companies, venture debt is a significant option for early-stage companies to extend liquidity runway while they wait for better market conditions to raise equity or complete M&As. This has created opportunity for Horizon to seek high-quality, well-sponsored tech and life science companies to add to its portfolio. Q1's total exit value of $56 billion was the highest quarterly total since the fourth quarter of 2021. However, nearly 40% of the total exit value was achieved through just one IPO. Until the tariffs and other macro headwinds clear up, we expect the exit market to remain relatively closed in the near term.
Jerry: That said with less equity options available to V feedback Tech and life science companies venture debt is a significant option for early stage companies to extend liquidity runway.
Jerry: For better market conditions to raise equity or complete m&a's.
Jerry: This has created opportunity for horizon to seek high quality, well sponsored tech and life science companies to add to its portfolio.
Jerry: Q1 total exit value of 56 billion was the highest quarterly total since the fourth quarter of 2021, however, nearly 40% of the total exit value was achieved through just one I P O.
Jerry: Until the Paris, and other macro headwinds clear up we expect the exit market to remain relatively closed in the near term.
Jerry Michaud: With that said, should market conditions persist well past the second quarter, with VCs needing to find exits for their long-standing portfolio companies, it will become even more challenging for VCs to return capital to their limited partners and raise new capital, putting even more pressure on the whole VC ecosystem. To sum up, we remain committed to sourcing high-quality, well-priced investments as we seek to grow our portfolio. We believe market conditions, while very challenging, present a unique opportunity for experienced venture debt firms, including Horizon, to add high-quality, high-yielding debt investments to their portfolios. For Horizon, such opportunities, when combined with its historical prepayment activity, should generate NII that will cover its regular monthly distributions over time.
Jerry: With that said should market conditions persist well past the second quarter with V. C's needing to find exits for their long standing portfolio companies. It will become even more challenging for vcs to return capital to their limited partners and raise new cafe, putting even more pressure on the whole VC ecosystem.
Jerry: We remain committed to sourcing high quality well priced investments as we seek to grow our portfolio, we believe market conditions will vary.
Jerry: Challenging present, a unique opportunity for experienced venture debt firms, including horizon to add high quality high yielding debt investments to their portfolios for horizon, such opportunities and combined with this historical prepayment activity should generate NII that will cover its regular monthly.
Jerry: <unk> over time with that I will now turn the call over to Dan Trulia.
Dan Trolio: With that, I will now turn the call over to Dan Trolio. Thanks, Jerry. And good morning, everyone. As Rob and Dan noted, despite headwinds, we were able to grow the portfolio of debt investments in the first quarter, as we continue to work towards sustained growth with the goal to continue to cover our regular monthly distributions over time. We also strengthen our balance sheet by completing an amendment to our New York Light facility and by utilizing our ATM program to successfully and equitably sell over 400,000 shares early in the quarter. These actions demonstrate our continued ability to opportunistically access the debt and equity markets.
Dan Trulia: Thanks, Gerry and good morning, everyone as Robin Dan noted despite headwinds we were able to grow the portfolio of debt investments in the first quarter as we continue to work towards sustained growth with the goal to continue to cover our regular monthly distributions over time.
Dan Trulia: We also strengthened our balance sheet by completing an amendment to our New York life facility and by utilizing our ATM program.
Dan Trulia: Lee and Accretively sell over 400000 shares early in the quarter.
Dan Trulia: These actions demonstrate our continued ability to opportunistically access the debt and equity markets.
Dan Trolio: In addition, we continue to diligently work with all of our portfolio companies to optimize outcomes for our investments and improve our credit quality. As such, we believe we remain well positioned to grow our portfolio and create additional value for our shareholders moving forward. As of March 31st, we had $126 million in available liquidity, consisting of $77 million in cash and $49 million in funds available to be drawn under our existing credit facilities. We currently have no borrowings outstanding 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 $100 million Nubin credit facility, leaving us with ample capacity to grow our portfolio of debt investors.
Dan Trulia: In addition, we continue to diligently work with all of our portfolio companies to optimize outcomes for our investments and improve our credit quality.
Dan Trulia: As such we believe we remain well positioned to grow our portfolio and create additional value for our shareholders moving forward.
Dan Trulia: As of March 31, we had $126 million in available liquidity, consisting of 77 million in cash and 49 million and funds available to be drawn under our existing credit facilities.
Dan Trulia: We currently have no borrowings outstanding under our 150 million Keybank credit facility.
Dan Trulia: 81 million outstanding on our 250 million, New York Life credit facility, and 90 million outstanding on our $100 million being credit facility, leaving us with ample capacity to grow our portfolio of debt and bathrooms.
Dan Trolio: Our debt-to-equity ratio stood at 1.54 to 1 as of March 31, and netting out cash on our balance sheet, our net leverage was 1.29 to 1, which was within our target level. Based on our cash position and our bond capacity on our credit facilities, our potential new investment capacity as of March 31st was $307 million. Turning to our operating results, for the first quarter, we earned investment income of $25 million, compared to $26 million in the prior year period, primarily due to lower interest income and fee income on our debt investment portfolio. Our net investment portfolio on a net cost basis stood at $700 million as of March 31, up 3% compared to $678 million as of December 31, 2024.
Dan Trulia: Our debt to equity ratio stood at 1.54 to one as of March 31st and netting all cash on our balance sheet. Our net leverage was 1.29 to one which was within our target leverage.
Dan Trulia: Based on our cash position and our borrowing capacity on our credit facilities.
Dan Trulia: Angel New investment capacity as of March 31 was $307 million.
Dan Trulia: Turning to our operating results for the first quarter, we earned investment income of 25 million compared to 26 million in the prior year period.
Dan Trulia: Primarily due to lower interest income and fee income our debt investment portfolio.
Dan Trulia: Our debt investment portfolio on a net cost basis stood at 700 million as of March 31st up 3% compared to 678 million as of December 31, 2024.
Dan Trolio: For the first quarter of 25, we achieved onboarding yields of 13% compared to 12.6% achieved in the fourth quarter of 24. Our loan portfolio yield was 15% for the first quarter compared to 15.6% for last year's first quarter. Total expenses for the quarter were $13.4 million compared to $13.1 million in the first quarter of 2004. Our interest expense increased to $8.7 million from $8.2 million in last year's first quarter due to an increase in our average borrowing. Our base management fee was $3.2 million, comparable with the prior period. We received no performance-based incentive fees in the first quarter as we continue to experience a deferral of incentive fees otherwise earned by our advisor under our incentive fee cap and deferral mechanism.
Dan Trulia: For the first part of 'twenty, five we achieved onboarding yields of 13% compared to $12, 6% achieved in the fourth quarter of 'twenty four.
Dan Trulia: Our loan portfolio yield was 15% for the first quarter compared to 15, 6% for last year's first quarter.
Dan Trulia: Total expenses for the quarter with $13 4 million compared to $13 1 million in the first quarter of 'twenty four.
Dan Trulia: Our interest expense increased to $8 7 million from $8 2 million in last year's first quarter due to an increase in our average borrowings.
Dan Trulia: Our base management fee was $3 2 million comparable with the prior year period.
Dan Trulia: We received no performance based incentive fees in the first quarter as we continued to experience a deferral of incentive fees otherwise earned by our adviser under our incentive fee cap and deferral mechanism.
Dan Trolio: The deferral in the quarter was driven by net realized and unrealized losses on our portfolio. While we expect the advisor will return to earning incentive fees, as we previously mentioned, the advisor has agreed to waive a portion of any incentive fee in a quarter where we do not earn our distribution. Net investment income for the first quarter of 25 was $0.27 per share compared to $0.27 per share in the fourth quarter of 24 and $0.38 per share for the first quarter of 24. The company's undistributed spillover income as of March 31st was $1 per share.
Dan Trulia: The deferral in the quarter was driven by net realized and unrealized losses on our portfolio.
Dan Trulia: We expect to revise their well we turned to earning incentive fees. As we previously mentioned the advisor has agreed to waive a portion of any incentive fee in a quarter, where we do not earn our distributions.
Dan Trulia: Net investment income for the first quarter of 'twenty five was 27 cents per share compared to 27 cents per share in the fourth quarter of 24, and 38 cents per share for the first quarter of 'twenty four.
Dan Trulia: The company's undistributed spillover income as of March 31 was one dollar per share.
Dan Trolio: We anticipate that the size of our portfolio, along with our portfolio's higher interest rates and our predictive pricing strategy, will enable us to continue generating NII that covers our distribution over time. To summarize our portfolio activities for the first quarter, new originations totaled $102 million, which were partially offset by $11 million in scheduled principal payments and $68 million in principal prepayments and partial paydowns. We ended the quarter with a total investment portfolio of $690 million. As of March 31st, the portfolio consisted of debt investments in 53 companies with an agri-fare value of $644 million, and a portfolio of warrant, equity, and other investments in 110 companies with an agri-fare value of $46 million.
Dan Trulia: We anticipate that the size of our portfolio along with our portfolio is higher interest rates and our predictive pricing strategy will enable us to continue generating NII that covers our distributions over time.
Dan Trulia: To summarize our portfolio activities for the first quarter, new originations totaled $102 million, which were partially offset by $11 million in scheduled principal payments and $68 million in principal prepayments and partial pay downs.
Dan Trulia: We ended the quarter with a total investment portfolio of $690 million.
Dan Trulia: As of March 31, the portfolio consisted of debt investments in 53 companies with an aggregate value of 644 million any portfolio of warrant and equity and other investments and 110 companies with an aggregate value of $46 million.
Dan Trolio: Based upon our outlook and our understated spillover income, our board declared monthly distributions of $0.11 per share for July, August, and September 2025. We remain committed to providing our shareholders with distributions that are covered by our net investment income over time. Our NAV as of March 31st was $7.57 for share, compared to $8.43 as of December 31st, 2024, and $9.64 as of March 31st, 2024. The $0.86 reduction in NAV on a quarterly basis was primarily due to adjustments to fair value in our paid distributions, partially offset by net investment income and accreted sales of equity.
Dan Trulia: Based upon our outlook and our undistributed spillover income our board declared monthly distributions of 11 cents per share for July August and September 2025.
Dan Trulia: We remain committed to providing our shareholders with distributions that are covered by our net investment income over time.
Dan Trulia: Our NAV as of March 31 was $7 57 per share compared to $8.43 as of December 31, 2024, and $9.64 as of March 31 24.
The 86% reduction in avionics quarterly basis was primarily due to adjustments to fair value in our pain distributions.
Dan Trulia: Offset by net investment income and accretive sales of equity.
Dan Trolio: As we've consistently noted, nearly 100% of the outstanding principal amount of our debt investments, their interest at floating rates with coupons that are structured to increase if interest rates rise. with interest rate floors that will mitigate the impact of decreasing interest rates.
Dan Trulia: As we've consistently noted nearly 100% of the outstanding principal amount of our debt investments bear interest at floating rates with coupons that are structured to increase if interest rates rise.
Dan Trulia: With interest rate floors that will mitigate impact of decreasing interest rates.
Dan Trolio: This concludes our opening remarks. We'll be happy to take questions you may have at this time. Thank you.
Dan Trulia: This concludes our opening remarks, we'll be happy to take questions. You may have at this time.
Dan Trulia: Okay.
Operator: We will now conduct a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Dan Trulia: Thank you we will now conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in our question queue. You May press star two to remove yourself from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
Operator: One moment while we pull for our first question.
Dan Trulia: One moment, while we poll for our first question.
Douglas Harter: The first question comes from Douglas Harter with UBS, please proceed.
Dan Trulia: The first question comes from Douglas Harter with UBS. Please proceed.
Corey Johnson: Sorry, this is Corey Johnson. Um, so, you know, you guys have mentioned how, um... and currently have a, you know, ‑‑ so this is so exciting. How, you know, that might be slowing some of the growth and ability to cover that here in the meantime, but, you know, we could also be in this period for for some time.
Corey Johnson: Hi, sorry, this is Corey Cory Johnson on for Doug Harter.
Dan Trulia: Yeah.
Dan Trulia: You guys have mentioned.
Dan Trulia: Do you expect to cover your.
Dan Trulia: And over time.
Dan Trulia: And currently have a.
Dan Trulia: Hillary and spillover earnings I'm, sorry, how are you thinking about like we.
Dan Trulia: So you sort of talk about how this environment is sort of like uncertainty and.
Dan Trulia: That might be slowing some of the growth and ability to cover that.
Dan Trulia: But we can also be in this period for for some time. So just how are you thinking about managing that spillover and like.
Corey Johnson: So how are you thinking about managing that spillover? you know, how deeply. how much of it you might get back over. Yeah, you know, as we mentioned, I think last quarter, a similar question related to the distribution, you know, each quarter, if you look back to the last three quarters, we've been able to grow the distribution. And so, you know, the plan is to continue to do that through 2025. And as we mentioned, every quarter, we, you know, expect to have prepayments. And as you plan out the quarter, you can never determine which quarter that they will happen and the impact on income for the quarter.
Dan Trulia: How deeply.
Dan Trulia: How much of it you might get back over overtime.
Speaker Change: Yeah, you know as we mentioned I think last quarter, a similar question related to the distribution now each.
Speaker Change: Each corner, if you look back the last three quarters, we've been able to grow the distribution and so on.
Speaker Change: And to continue to do that through 2020 five.
Speaker Change: And as we mentioned every quarter, we expect to have prepayments and as you plan out the corner, you can never determine which quarter that they will happen and the impact on income for the quarter. So this quarter, we added about $68 million in prepayments and refinancing.
Corey Johnson: So this quarter, we had about 68 million in prepayments and refinance. A couple of those were related to refinance and a pay down a revolver. So the fee income was a little bit less than you would normally expect at that level. And as you mentioned, of course, the $1 spillover is something we'll continue to manage throughout the year. We review that every quarter in discussions with the board and set the distribution. And I'll just point out that, you know, we declare distribution through September of 25, and so the confidence is there to continue to cover and pay that distribution, as we mentioned, over time.
Speaker Change: A couple of those were related to refinancing or paying down our revolver. So that the fee income was a little bit less than you would normally expect that that level.
Speaker Change: And as you mentioned of course, the $1 no longer is something we'll continue to manage them throughout the year. We review that every quarter and discussions with the board and set the distribution and I'll just point out that we you know we declared distributions through September of 'twenty five mm and so the confidence is there.
Speaker Change: We continue to copper and pay that distribution as we mentioned over time.
Corey Johnson: Thank you.
Speaker Change: Alright, thank you.
Corey Johnson: And I just have a follow-up. So, you know, you didn't mention how it's, you know, currently it's, I guess, since some of the markets for venture equity are, you know, closed at the moment, that venture debt is the, you know, other option, and so it's an opportunity for you guys. And so you've expanded, you know, your backlog and your debt portfolio grew.
Speaker Change: Just as a follow up so you know you didnt mention how it's.
Speaker Change: Currently it's up.
Speaker Change: Got it.
Speaker Change: Some of the market for venture equity or.
Speaker Change: Or was that at the moment that venture debt.
Speaker Change: Other option and so it's an opportunity for you guys and so you've expanded.
Speaker Change: Your backlog in your debt portfolio grew Oh can you sort of just talk about how.
Corey Johnson: Can you sort of just talk about how the quality of deals that you're seeing come across your table at the moment? Are there, like, a lot of good ones, or are there more that you would rather, like, pass on? Like, what's that sort of look like at the moment?
Speaker Change: The quality of deal that Youre seeing come across your table at the moment are there like a lot of good ones that are more that you would rather like pass on like what what's that sort of looked like at the moment.
Jerry Michaud: Hi, this is Jerry. Yep, you kind of hit on it. There's definitely a significantly higher bar relative to selecting the kind of transactions that we would be pursuing in today's market, in addition to strong continued equity support based on realistic valuations in today's market versus what they were in 21 and 22. The quality investors, the quality of their funds, because many VCs haven't been able to return capital LPs and they have limited ability to continue to fund portfolio companies. So just on that side of the equation, the bar has been lifted significantly. But there are a lot of companies, or there certainly are companies out there today that are performing very well operationally.
Jerry: Hi, This is Jerry.
Speaker Change: Yep you kind.
Speaker Change: Alright.
Speaker Change: There's definitely a significantly higher bar relative to selecting.
Speaker Change: The kind of transactions that we would be pursuing in todays market. In addition to.
Speaker Change: Strong continued equity support based on realistic valuations.
Speaker Change: In today's market versus what they were in 'twenty, one and 'twenty two.
Speaker Change: The quality of investors the quality of their funds because many of these haven't been able to return capital L piece and they have limited ability to continue to fund portfolio companies.
Speaker Change: Just on that just on that side of the equation.
Speaker Change: The bar has been lifted significantly, but there are a lot of our companies.
Speaker Change: Companies or they certainly are companies out there today that are performing very well operationally. They are continuing to be funded by high quality Bdcs, who do have <unk>.
Jerry Michaud: They're continuing to be funded by high quality VCs who do have liquidity. And so those are the kinds of deals that we are looking at, and that does, I have to say, obviously shrink. The pipeline is very wide at the top. It's very narrow at the bottom. And, you know, that's the way we have been selecting transactions in this current environment. And that's going to continue, at least as I indicated, probably for the next couple quarters.
Speaker Change: Liquidity.
Speaker Change:
Speaker Change: And so those are the kinds of deals that we're looking at and that does I have to say obviously shrink.
Speaker Change: The pipeline is very wide at the top it's very narrow at the bottom.
And that's the way we had been.
Speaker Change: Selecting transactions in this in this current current environment.
Speaker Change: And.
Speaker Change: That's going to continue at least as I indicated probably for the next couple of quarters.
Speaker Change: Great. Thank you.
Christopher Nolan: The next question comes from Christopher Nolan with Ladenburg-Dowman. Please proceed. Hey, just to follow up on that.
Speaker Change: The next question comes from Christopher Nolan with Ladenburg Thalmann. Please proceed.
Speaker Change: Hey, just a follow up on those questions.
Christopher Nolan: Atlanta Graze, The Leverage Ratio. I think we mentioned each quarter, our target leverage net of cash is around 1.2, 1.3 times. We may go above that slightly in a quarter, but that's still our target. You know, we ended this quarter net of cash 1.29. There was some activity afterwards with the cash on the balance sheet, where we paid down some debt. So we're towards the lower range of that today. But the goal is to stay within that range.
Speaker Change: Is the plant agrees to leverage ratios.
Speaker Change: You're going to grow the portfolio in coming quarters.
Speaker Change: No I think we mentioned each quarter are our target leverage net of cash is around one point to 1.3 times. We may go above that slightly in a corner, but that's still our target. Our target you know we ended this quarter net of cash 1.29, there was some activity.
Speaker Change: Afterwards, with the cash on the balance sheet, we paid down some debt so where were towards the lower range of that today, but the goal is to stay within that range.
Christopher Nolan: and is the plan to not tap the ATM in coming quarters, just given where the stock price is? When we look at our equity needs, debt and equity needs each quarter, look at the funding pipeline and what we have related to prepayments, and we make that determination on a quarterly basis. We don't make that determination flat throughout the year.
Speaker Change: And is the plan to not tap the ATM in coming quarters, just given where the stock prices.
Speaker Change: When we look at our equity needs debt and equity needs each quarter and look at the funding.
Speaker Change: Pipeline and what we have related to prepayments and we make that determination on a quarterly basis, we don't make that determination flat throughout the year.
Christopher Nolan: You guys have a 2% base management fee. The industry is closer to 150.
Speaker Change: You guys have a 2% base management fee. The industry is closer to $1 50, you need discussion of cutting the base management fee.
Christopher Nolan: Any discussion of cutting the base management fee? Our base management fee has two tiers to it. It's 2% up to $250 million and $1.6 after that. So our blended rate is probably closer to $1.6, $1.7. And we review that to the market in our comps and we're right where our comps are when you actually do the calculations.
Speaker Change: So our base management fee has two tiers to it it's 2% up the 215 250 million and 1.6 after that so our blended rate is.
Speaker Change: Probably closer to 1.61, 0.7, and yeah, we view that to the market in our comps and we're right where our comps are when you actually do the calculations.
Christopher Nolan: Two more questions.
Speaker Change: Two more questions one were there any timing issues deals closing late in the quarter, which might have.
Christopher Nolan: One, were there any timing issues? Deals closing late in the quarter, which might have... resulted in the EPS coming down.
Speaker Change: Resulted in EPS coming in below where the dividend is.
Christopher Nolan: below were the dividends. Well, there definitely is timing issues every quarter, and you try to manage the debt outstanding and the cash on the balance sheet related to that timing, and, you know, some funding slips into the second quarter. So timing always has an impact on it. I can't say specifically that drove the NII this quarter.
Speaker Change: Well there definitely is timing issues every quarter and you try to manage the debt outstanding and the cash on the balance sheet related to that timing and you know some are funding slipped into the second Florida.
Speaker Change: So timing always has an impact on it.
Speaker Change: Can't say, specifically that drove yeah NII. This this corner.
Christopher Nolan: Final question, given where the stock price is and given where the dividend is, you're paying out roughly 14.7% by my estimate. of Equity as Dividend. your debt yields are 15%.
Speaker Change: Final question.
Speaker Change: Given where the stock prices and given where the dividend is.
Speaker Change: Paying out roughly 14.7% by my estimate.
Speaker Change: Of equity.
Speaker Change: As dividend.
Speaker Change: Your debt yields are 15%.
Christopher Nolan: How does that math work where you're paying, if you raise new equity, you're paying 14.7% of it out, and even if you invest it, you're only getting 15%. I mean, something has to give. You know, again, it's just something we'll look at each quarter, as far as raising equity or not, and based on the funding and the yields, you know, what you mentioned is exactly one of the things we look at every quarter.
Speaker Change: How does that math work, where you're paying if you raised new equity you're paying 14, 7% of it out and even if you're investing you're only getting 15%.
Speaker Change: Something has to give.
Speaker Change: Yeah again, it's just something we're going to look at each quarter as far as raising equity or not and based on the fundings and the yields now what you mentioned is exactly one of the things we looked at every corner.
Christopher Nolan: Okay, that's it for me guys. Thank you.
Speaker Change: Okay. That's it for me guys. Thank you.
Operator: Once again, to ask a question, that's star 1 on your telephone keypad.
Speaker Change: Once again to ask a question Thats Star one on your telephone keypad. Our next question comes from Paul Johnson with <unk>. Please proceed.
Paul Johnson: Our next question comes from Paul Johnson with KBW. Please proceed. Yeah, good morning. Thank you for taking my questions. Following up on question a little bit. What I mean, I think you mentioned 13% onboarding yields. I mean, Is that what you're seeing in the market? I mean, just because the cover, you know, what you guys have is roughly like a 16% cost of equity today, you would need to be generating like a 20% plus return at the asset level. So are you, do you include like warrant returns or any other sort of expected item that would increase that over the long term?
Paul Johnson: Yeah. Good morning. Thank you for taking my questions following up on Chris's question, a little bit.
Paul Johnson: What I mean, I think you mentioned, 13% Onboarding yields I mean.
Speaker Change: Is that what youre seeing in the market.
Paul Johnson: Does it cover.
Paul Johnson: What you guys have is roughly like 16% cost of equity today, you would need to be generating like a 20% plus return at the asset level. So are you.
Paul Johnson: Do you include like warrant returns or any other sort of expected.
Paul Johnson: Item that would that would increase that over over the long term.
Paul Johnson: Well, you know, clearly, onboarding yields is not reflective of what, and you look historically, what the portfolio actually yields on an ongoing basis. And yeah, some of that and, you know, in stronger markets, we have more exit activity. So the overall portfolio yield can get up into the range that you were kind of mentioning, Paul. But in today's market with exits being, you know, fewer. and not as exciting, actually, compared to historical periods.
Paul Johnson: Well.
Paul Johnson: Clearly onboarding yields is not reflective of what.
Paul Johnson: And if you look historically, what the portfolio actually yields on an ongoing basis and yes some of that.
Paul Johnson: In stronger markets, we have more exit activity so the port the overall portfolio yield.
Paul Johnson: And get up into the range.
Paul Johnson: You were kind of entering new carpet.
Paul Johnson: In today's market with exit scheme.
Fewer.
Paul Johnson: And not as exciting.
Paul Johnson: Compared to historical.
Paul Johnson: Periods.
Paul Johnson: you know, that the portfolio yield will probably, I think, in the 16 percent range, 15, 16 percent range, continue for at least the next couple quarters until we start seeing better optimism in the M&A and IPO markets. You know, there are some things going on in our couple, you know, a few of our portfolio companies, Stan mentioned a couple, but there is some optimism relative to some of our stronger portfolio companies, our four-rated credits, three-rated credits, where there is some activity that does give us some confidence relative to, you know, some exit opportunities over the next couple quarters.
Paul Johnson: The portfolio yield will probably.
Paul Johnson: I think in the 16% range 15, 16% range.
Paul Johnson: Continue for at least the next couple of quarters until we start seeing better optimism in.
Paul Johnson: In the M&A and IPO markets.
Paul Johnson: There are some things going on in a couple of few of our portfolio companies Stan mentioned a couple but.
Paul Johnson: There is some optimism relative to some.
Paul Johnson: Some of our stronger portfolio companies, our four rated credits three rated credits where.
Paul Johnson: There is some activity that does give us some confidence relative to.
Paul Johnson: Uh huh.
Paul Johnson: Some exit opportunities over the next couple of quarters, but we have to see how they play out because.
Paul Johnson: But we have to see how they play out because in the last couple quarters, we've come very close on a couple of our portfolio companies from getting what looked like reasonable exits. And the buyers essentially pulled back, especially over the last 90 days, just literally pulled back. And the reasons we got were basically they were frozen. They needed more indications about overall market volatility before they were willing to move. So that's the market we operate in today. And it's frustrating at times. But again, for some of the quality portfolio companies we have, there is interest in high-quality technology companies because at the end of the day, the kinds of companies that buy these companies, you know, need new technology as they move forward.
Paul Johnson: And the last couple of quarters, we've come very close on a couple of our portfolio companies from getting what looks like reasonable exits in.
Paul Johnson: Tobias essentially pulled back, especially over the last 90 days just literally pulled back.
Paul Johnson: And the reasons, we got where basically they were frozen they needed more.
Paul Johnson: Indications about overall market for a while.
Paul Johnson: Utility before they were willing to move so that's the market we operate in today and it's it's.
Paul Johnson: Frustrating at times, but again for some of the quality portfolio companies we have.
Paul Johnson: There is there is there is interest in.
Paul Johnson: High quality technology companies.
Paul Johnson: Because at the end of the day.
Paul Johnson: The kinds of companies that buy these companies.
Paul Johnson: Need new technology.
Paul Johnson: So there is a bit of a pull toward those kinds of companies, but there just isn't enough in the market today to be able to say with great confidence that we're going to be able to move forward.
Paul Johnson: As they move forward. So there is a bit of a.
Paul Johnson: Uh huh opposed toward.
Paul Johnson: Those kind of companies, but there just isn't enough.
Paul Johnson: In the market today to be able to say with great confidence.
Paul Johnson: you know, what's going to happen over the next couple of quarters, we need greater certainty in a lot of the macro issues that everybody is quite aware of. Go ahead.
Paul Johnson: What's going to happen over the next couple of quarters, we need greater certainty in a lot of the macro issues that everybody is quite aware.
Paul Johnson: Yeah.
Paul Johnson: Paul has that.
Paul Johnson: Oh, Yes go ahead I'm sorry.
Rob Pomeroy: Yeah, Paul, this is Rob. I was just going to comment on your question about onboarding yields, just for clarity. The onboarding yield is a cash-on-cash return in the transaction, assuming it goes to terms. without any benefit of any warrant upside or otherwise. That onboarding yield turns into the actual portfolio yield based on accelerated fees from prepayments and other events. And so to get to the ROE we need, you can do the math with the leverage, the spread of the cost of debt.
Paul Johnson: Yeah.
Paul Johnson: Paul This is Rob I was just going to comment on your question about Onboarding yields just for clarity the onboarding yield is a cash on cash return in the transaction.
Speaker Change: Assuming it goes to term.
Paul Johnson: Without any benefit of.
Speaker Change: Any more upside or otherwise.
Speaker Change: Onboarding yields turns into the actual portfolio yield based on celebrated fees from prepayments and other events.
Speaker Change: <unk>.
Speaker Change: So to get to our ROE, we need you can do the math.
Speaker Change: With the leverage costs were spread over the cost of debt.
Paul Johnson: Okay, yes, that's helpful. Thanks for that.
Speaker Change: Okay, Yes.
Speaker Change: That's helpful.
Speaker Change: Thanks for that.
Paul Johnson: I mean, but just, you know, given how frozen the market is, as you kind of say, you know, and the potential for that to continue for some time, I mean, has that, have you approached that part of your strategy any differently in terms of, you know, the warrant and the equity kickers? You know, is there... Has that made you rethink how hard you push for that in deals? Well, I think overall, yeah, I mean, that's not necessarily just a recent phenomenon, I think over the last few quarters. Um, you know, we, um... especially as we look at valuations of companies very closely now, given valuations, you know, that were in existence in 21-22 compared to what, you know, it just, just significant decline in valuations over the last really almost two years now, which is part of the issue.
Speaker Change: But just given how frozen the market is as you say the Patel.
Speaker Change: Potential for that to continue for some time I mean is that how you approach that part of your strategy any differently in terms of.
Speaker Change: The equity Kickers.
Speaker Change: Is there.
Speaker Change: Has that made you rethink how hard you you push for that and deals.
Speaker Change: Well I think overall, yeah, I mean, that's not necessarily just a recent phenomenon I think over the last few quarters.
Speaker Change: We.
Speaker Change: Especially as we look at valuations of companies very closely now.
Speaker Change: Given given valuations.
Speaker Change: Net ware and exists in 'twenty, one 'twenty two compared to what.
Speaker Change: Yes.
Speaker Change: A.
Speaker Change: Significant declines in valuations over the last.
Speaker Change: Really almost two years now which is part of the issue of course, it's been a long running.
Paul Johnson: Of course, it's been a long-running problem for the venture capital market in general. That's one of the reasons exits have been so hard is it's hard to get companies back to valuations that make sense in today's market. So yeah, we look at other ways of propping up returns through higher yields, more fee income, end-of-term payments and things like that. We're much more focused on getting our yield from those kind of events versus a warrant expectation.
Speaker Change: A problem for the venture capital market in general and that's one of the reasons exits have been so far is it's hard to get companies back to valuations that make sense in todays market. So yeah, we look at.
Speaker Change: Are there other ways of.
Speaker Change: Propping up returns through higher higher.
Speaker Change: Yields more fee income.
Speaker Change: End of term payments and things like that where we're much more focused on.
Speaker Change: Getting our yield from those kind of events versus.
Speaker Change: Werent expectation.
Paul Johnson: Thanks, that's helpful once again, and then I was hoping maybe you could expand a little bit on the Disclosure, and the press release just regarding Soli Organics post-quarter receiving the blockage notice from Western Alliance. That loan, I think it was marked at $96 last quarter. I believe it was around $91 or so this quarter, fair value cost.
Speaker Change: Got it thanks that helps.
Speaker Change: Well once again.
Speaker Change: And then I was hoping maybe you could expand a little bit.
Speaker Change: On the.
Speaker Change: Disclosure in the press release, just regarding solely organics post quarter.
Speaker Change: Receiving the blockage notice from Western Alliance.
Speaker Change: That low I think it was marked at 96 last quarter I believe it was around 91 or so this quarter.
Speaker Change: Fair value cost I mean.
Paul Johnson: I mean, was there any sort of ongoing action or any ongoing discussion with the sponsor there? what, I guess, what changed? so quickly, kind of between the most previous quarters. Yeah, so we've been working with the senior lender, the management team and the investors on Soli for a number of quarters now, as new capitals come in, they look for external investors, or an acquisition of the company that's been occurring for that, that's been a process that's been ongoing for a while. And we continue that dialogue now, and there is activity going on. This latest notice that we got from the senior lender was just part of that process.
Speaker Change: Was there any sort of ongoing action or any ongoing discussion with.
Speaker Change: Yes.
Speaker Change: The sponsor there I mean.
Speaker Change: What I guess what changed so quickly caught between the most previous quarters.
Speaker Change: And in getting the blockage notice in April.
Speaker Change: Yes so.
Speaker Change: We've been working with the senior lender the management team and the investors on solely for a number of quarters now.
Speaker Change: New capitals come in they look for.
Speaker Change: External investors or an acquisition of the company that's been occurring for that's been a process.
Speaker Change: Been ongoing for a while.
Speaker Change: The and we continue that dialogue now and there is activity going on this latest.
Speaker Change: Notice that we got from the senior lender.
Speaker Change: Just.
Speaker Change: Part of it part of that process and as they as they get to the fin.
Paul Johnson: And as they get to the finish line on some of these situations that are evolving, and we believe will be successful, the senior lender needed to take this action. So we needed to disclose it, and we did, but there are dialogues that continue to happen with all parties.
Speaker Change: Finish line on some of these situations that are evolving and we believe we'll be successful as.
Speaker Change: The senior lender needed to.
Speaker Change: Take this action so we needed to disclose it and we did but the dialogues are continue to happen with all parties.
Paul Johnson: Thank you.
Speaker Change: Got it thank you and just a few more if I can.
Paul Johnson: And just a few more, if I can, another credit specific. I don't know if it's an e-commerce aggregator or if it just has... some exposure there. I mean, we've seen some weakness in that industry.
Speaker Change: Another credit specific.
Speaker Change: Question I noticed stand gas I believe it may have some e-commerce I don't know if it.
Speaker Change: E Commerce Aggregators.
Speaker Change: Some exposure there I mean, we've seen some weakness in that industry.
Paul Johnson: Is that the only type of What's the other company that you have like that?
Speaker Change: Is that the only type of.
Speaker Change: If you are a company that you have laid out is there any more I guess I would ask any more sort of consumer exposure that you see in the portfolio that might be.
Paul Johnson: Is there any more, I guess I would ask, any more sort of consumer exposure that you see in the portfolio that might?
Speaker Change: Susceptible to some sort of any sort of consumer slowdown and one additional to that I would also ask if there's any sort of meaningful tariff.
Paul Johnson: I would also ask if there's any sort of meaningful tariff sort of exposure in any of your companies in terms of tech hardware, manufacturing, anything like that that might be impacted. Sure. You're right. Yes, Stanbast did operate in the 3PL space, and so they weren't selling to consumers, but they were certainly adjacent to the consumer market. So that had an impact on the eventual outcome there.
Speaker Change: Exposure in any of your companies in terms of tech hardware manufacturing anything like that.
Speaker Change: That might be impacted.
Speaker Change: Sure.
Speaker Change: Alright, yes stay invested operate in the <unk> space and so that they they werent selling to consumers, but they were certainly adjacent to the consumer market. So that has had an impact on the eventual outcome there.
Paul Johnson: We have intentionally, over the last number of years, managed our portfolio out of consumer-facing and direct-to-e-commerce transactions. We currently have one transaction in the portfolio that's directly e-commerce. That's Havenly, and they're actually performing quite well, but we are not actively looking to grow that into that sector. In terms of the tariffs in general, we have addressed that, looked at all of our portfolio companies in terms of specific impacts to their products, not a ton. In terms of how their supply chains work, we're still working through that, but we expect that while there'll be some displacement, most of them have planned for it.
Speaker Change: Have intentionally over the last number of years managed our portfolio out of consumer facing and direct to e-commerce.
Speaker Change: Transactions, we currently have one.
Speaker Change: Transaction and a portfolio that is directly e-commerce, I'd say evenly and Theyre actually performing.
Speaker Change: Quite well.
Speaker Change: But we are we are not actively looking to grow that into that sector.
Speaker Change: In terms of the tariffs in general.
Speaker Change:
Speaker Change: We have addressed that looked at all of our portfolio companies in terms of specific impacts because their products not a ton in terms of how their supply.
Speaker Change: Supply chain work, we're still working through working through that but we expect that while there'll be some displacement most of them have a plan for it.
Paul Johnson: Yeah, I'll add to that, Paul. It's rough that the real impact of the tariffs on our portfolio, as we mentioned, in the body of the script was just a great uncertainty and you know, the shocks to the market, stock markets on again, off again, targeted industries, it's not specific to a specific tariff or a specific country or specific anything, it was people nearing the finish line on transactions that in a more calm environment. could have and would have gotten done that were jolted into, well, we're just paralyzed, we're not going to do anything. So that's the fundamental part of the comments we made earlier.
Speaker Change: I'll add to that Paul as Rob said, the real impact of the.
Speaker Change: Tariffs on our portfolio.
Speaker Change: As mentioned in the body of the script was just.
Speaker Change: Great uncertainty.
Speaker Change: <unk>.
Speaker Change: The shocks to the market stock markets on again off again targeted industry, but it's not specific to a specific tariff or specific country or anything it was.
Speaker Change: People nearing the finish line on transactions.
Speaker Change: On a more calm environment.
Speaker Change: Could have it would've done that will jolted into while we're just airlines, they're not going to do anything so that less.
Speaker Change: Yes.
Speaker Change: Fundamental part of the comments, we made earlier.
Paul Johnson: Got it. Appreciate that.
Speaker Change: Got it I appreciate that.
Paul Johnson: I guess if I can just ask one more, I mean, the The recent Lyndell Monroe partnership, I mean, can you say? You know, if there's been any sort of additional resources you've been able to access or anything that's been... given in support of the BDC, I guess, to assist in whether it's just recovery efforts or potentially expanding verticals to capture, you know, some some different industries such as like the AI. some of the AI investment going on. I guess notable that you could mention there. Well, the deal's been closed for 30 days, so the real impact is that the deal's closed now and that Monroe and Horizon, we can be focused on our businesses and the things that we need to do, especially in light of the market we're in.
Speaker Change: I guess, if I can just ask one more.
Speaker Change: The resets when Dell Monroe partnership I mean can you say.
Speaker Change: If theres been any sort of additional resources that you've been able to access or.
Speaker Change: Or anything that's been.
Speaker Change: Given is supportive of BDC I guess to assist in whether it's just recovery efforts or potentially expanding verticals to capture.
Speaker Change: So different industries, such as like the AI.
Speaker Change: The AI investment going on has there been anything.
Speaker Change: It's notable that you could mention there.
Speaker Change: Well the deals closed has been closed for 30 days so.
Speaker Change: The real impact is that the deal is closed now in that.
Speaker Change: Monroe.
Speaker Change: And horizon.
Speaker Change: We focused on our businesses and the things that we need to do.
Speaker Change: And especially in light of the market we're in.
Rob Pomeroy: This is a business that continues to operate independent of Wendell. However, the fact that it's closed is really focused now everybody's attention on the things we need to do to stabilize and grow. all of Monroe's segments. So I think we will see over time the strong benefit of the scale and for Horizon we're getting good help from Monroe on all the places we need help and so from that standpoint that's been ongoing and continuing and I think will be ramped up as we go forward.
Speaker Change: Yes.
Speaker Change: This is a business we can continue to operate independent of Glendale, However of the fact that its close to us really focus now.
Speaker Change: Everybody's attention on the things, we need to do to stabilize and grow it.
Speaker Change: All of the minerals segment. So I think we will see over time.
Speaker Change: The strong benefit of the scale.
Speaker Change: And for Horizon, we're getting.
Speaker Change: Good help from an ROE on all the places we need help and so from that standpoint.
Speaker Change: That's been ongoing and continuing I think will be ramped up as we go forward.
Mitchell Pinn: Thank you. That's all for me.
Speaker Change: Great. Thank you that's all for me.
Mitchell Pinn: The next question comes from Mitchell Pinn with Oppenheimer. Please proceed. Thanks so much. Hey, guys. I just had a follow up on Soli. It looks like you say it's Has occurred. Do you guys have a cross default so that you're essentially going. You have to put it on non-accrual this quarter. So as related to non-accrual, this just occurred as far as getting the blockage and looking into the default and looking into that currently. So if we don't collect any interest payments as has been noted in the blockage, then, yeah, that will have to be on non-accrual.
Speaker Change: The next question comes from Mitchel Penn with Oppenheimer. Please proceed.
Mitchel Penn: Thanks, So much hey, guys I just had a follow up on this morning.
Speaker Change: I just had a follow up on solely.
Speaker Change: It looks like.
Mitchel Penn: You say it's.
Mitchel Penn: Default has occurred do you guys have a cross default so that youre essentially go and.
Mitchel Penn: You have to put it on non accrual this quarter.
Mitchel Penn: So it is related to non accrual. This you know just.
Mitchel Penn: Just occurred as far as getting the blockage and looking into default in looking into that currently.
Mitchel Penn: So if.
Mitchel Penn: If we don't collect.
Mitchel Penn: Any interest payments as it's been noted in the blockage then yes that will have to be on non accrual.
Mitchell Pinn: Okay, and do you, are you comfortable with the marks or would you have to reassess them? you know, next quarter, this quarter. figure out what the value. Yeah, so that, you know, we will obviously reassess the the mark as we get more detail and work more through the credit as Dan mentioned, you know, it's been ongoing. And there's still activity that still has to, you know, come to fruition. And so that that will factor into the fair value going forward.
Ed: Got it okay and Ed.
Mitchel Penn: And in it do you are you.
Mitchel Penn: Comfortable with the marks or would you have to reassess.
Mitchel Penn: <unk> quarter this quarter, I guess to figure out what's the value.
Mitchel Penn: Yes.
Mitchel Penn: We will obviously reassess the mark as we get more detail and work more through the credit as Dan mentioned, it's been ongoing and Theres still activity that it still has to come to fruition and so that and that will factor into that fair value going forward.
Mitchell Pinn: Okay, that's all. Thank you so much. Thank you.
Mitchel Penn: Okay. That's all thank you so much.
Mitchel Penn: Thank you.
Rob Pomeroy: At this time, I would like to turn the call back over to management for closing comments. We want to thank you all for joining us this morning. We really do appreciate your continued interest and support in Horizon. We look forward to speaking with you again soon.
Speaker Change: Thank you at this time I would like to turn the call back over to management for closing comments.
Speaker Change: We want to thank you all for joining us this morning.
Speaker Change: Really do appreciate your continued interest and support in horizon.
Speaker Change: Forward to speaking with you again soon this will conclude our call.
Operator: This will conclude our call. Thank you. This does conclude today's teleconference. You may disconnect your lines at this time.
Speaker Change: Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Operator: Thank you for your participation and have a great day. © BF-WATCH TV 2021
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Hum.
Speaker Change: Yes.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: [music].