Horizon expects portfolio growth in Q4 2025 while merger with MRCC advances

Earnings Call Insights: Horizon Technology Finance (HRZN) Q3 2025

MANAGEMENT VIEW

* CEO Michael Balkin indicated a period of significant activity since assuming the CEO role in June, highlighting the announced merger between MRCC and HRZN as a key strategic move. Balkin stated, "Upon closing, Horizon will significantly increase their assets under management, while MRCC shareholders will have the opportunity to participate in what we expect to be a rapidly growing BDC that will be able to take advantage of greater economies of scale in the combined vehicle."
* Balkin addressed the impact of the federal government shutdown on the merger timeline, now expected to complete in early 2026.
* The company added several new originators in Q3 and plans to leverage Monroe Capital's support to originate larger venture loans, aiming to return to its historical growth trajectory. "Thanks in part to our accretive acquisition of venture debt portfolio of a former co-lender as well as achieving favorable outcomes with two of our challenged portfolio companies, our NAV per share grew 5% to $7.12," Balkin noted.
* Balkin reported, "We generated net investment income of $0.32 per share. As we look to grow our portfolio in future quarters, it remains our goal to deliver NII at or above our declared distributions over time."
* CFO Daniel Trolio stated, "We successfully raised $40 million through the issuance of our 5.5% convertible notes due 2030 and used the proceeds to retire our Horizon funding trust, asset-backed notes, which had an interest rate of just over 7.5%."

OUTLOOK

* CIO Paul Seitz said, "Looking ahead to Q4, we expect to grow our portfolio in the quarter driven by our pipeline. Thus far in October, we have already funded a $10 million venture loan transaction and have been awarded 3 new venture loan transactions representing $50 million in total commitments, with much of that total to potentially fund in Q4."
* Seitz noted that prepayment activity is expected to be more limited in Q4. "We currently expect more limited prepayment activity in Q4."
* The company expects to continue generating onboarding yields with their current pipeline, which Seitz believes "will generate strong net investment income over time."
* The Board declared monthly distributions of $0.11 per share through March 2026.

FINANCIAL RESULTS

* CFO Trolio reported, "For the third quarter, we earned investment income of $26 million compared to $25 million in the prior-year period, primarily due to higher interest income and fee income on our debt investment portfolio."
* The net investment portfolio on a net cost basis stood at $585 million as of September 30, compared to $636 million as of June 30, 2025.
* Onboarding yields for Q3 2025 were reported at 12.2%, with the loan portfolio yield at 18.6% for the quarter.
* Total expenses for the quarter were $12 million. The company had $151 million in available liquidity as of September 30.
* NAV per share increased to $7.12 from $6.75 as of June 30, 2025. Undistributed spillover income was $0.93 per share at quarter end.
* New originations totaled $15 million, with an additional $23 million in investments acquired via the purchase of a venture debt portfolio.

Q&A

* Cory Johnson, UBS: Asked about the trend in early payoffs into 2026 and whether it's related to the government shutdown. Paul Seitz responded that the shutdown is not expected to impact payoffs, noting, "I would say that it was a little bit higher this quarter, but we expect probably our payoffs and early prepayments to revert to any sort of historical standard. The exit markets are heating up, which is a good thing. But I think it's, right now, in just sort of a little bit of a wait-and-see period."
* Johnson, UBS: Inquired about credit quality and leverage trajectory. CFO Trolio answered, "Our target leverage is around 1.2 to 1.3x net of cash. This quarter, it did come down a bit, where we're at 0.94:1...we expect originations to exceed prepayments going forward. And so I think when we look at the leverage, we should be getting back to that 1.2, 1.3x over the next quarter or 2."
* Paul Johnson, KBW: Questioned the sustainability of the 18.6% portfolio yield. Trolio responded, "I would point you to our historical portfolio yield, which we've averaged around 14.5% to 15%. That's a more normalized yield."
* Christopher Nolan, Ladenburg Thalmann: Asked if the focus will shift to larger credits post-MRCC merger and the yield impact. Trolio stated, "That will be one of the benefits with a larger balance sheet. You can hold larger position and stay diversified...we don't expect the yields to change dramatically."
* Nolan, Ladenburg Thalmann: Asked about the use of the ATM given the stock price. Trolio responded, "We look at our originations pipeline, we look at our liquidity and our capacity and look to pull as many levers as possible to originate and grow the portfolio where we can. Obviously, we're trading below book. We won't be able to utilize the ATM."

SENTIMENT ANALYSIS

* Analysts expressed a neutral tone, focusing on the sustainability of yields, leverage targets, and merger impacts, with direct and detailed questions but little sign of skepticism or negativity.
* Management maintained a confident yet measured tone, emphasizing strategic progress and portfolio strength. Balkin stated, "We are very excited for the new Horizon's long-term future and believe we have the right building blocks in place to execute."
* Management sentiment during Q&A was consistent with prepared remarks, demonstrating confidence in portfolio performance and the merger trajectory. This tone was similar to the previous quarter, though with increased emphasis on execution and growth.

QUARTER-OVER-QUARTER COMPARISON

* The current quarter focused more on the operational progress, the merger timeline affected by the government shutdown, and immediate portfolio growth expectations, while the previous quarter highlighted the strategic rationale and financial synergies of the merger.
* Management's tone in Q3 2025 remained confident, with additional clarity on merger execution and near-term lending opportunities. The previous quarter was more focused on the transaction structure and anticipated merger benefits.
* Analysts in both quarters centered their questions on merger details, capital deployment timelines, yield sustainability, and cost structure.
* Key metrics such as NAV per share and net investment income per share were discussed in both quarters, but Q3 emphasized portfolio yield and leverage management amid increased originations and prepayments.

RISKS AND CONCERNS

* Management highlighted the impact of the federal government shutdown on the merger timeline, now expected to close in early 2026.
* The company noted ongoing efforts to manage prepayment volatility and disciplined loan origination.
* Analysts questioned the sustainability of elevated portfolio yields and the ability to deploy new capital efficiently post-merger.
* Management emphasized ongoing review of expenses and a commitment to prudent growth strategies.

FINAL TAKEAWAY

Horizon Technology Finance’s management underscored a period of transition and growth, driven by the advancing merger with MRCC, expanded origination efforts, and strong portfolio yields. With a robust pipeline and additional liquidity, the company expects to grow its portfolio in Q4 2025, while maintaining disciplined credit and yield targets. The outlook is supported by Monroe Capital’s resources, positioning Horizon to pursue larger and higher-quality opportunities as it enters its next phase post-merger.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/hrzn/earnings/transcripts]

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