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    HRZN
    Earnings call· Jun 2026(Q2 FY26)

    Horizon Technology Finance Q2 FY26 earnings call HRZN

    Aug 5, 2026 Source

    Executive summary

    Horizon Technology Finance Q2 FY26 – Merger Integration and Portfolio Growth Amidst Write-Downs

    Horizon Technology Finance is actively integrating its merger with Monroe Capital, focusing on enhancing underwriting and origination capabilities to drive sustainable portfolio growth. Despite a significant write-down related to one portfolio company, Soli, the company is expanding its investment pipeline and committed backlog, while also returning capital to shareholders through share repurchases and maintaining distributions, including special distributions, supported by spillover income.

    Highlights

    5

    • Grew debt investment portfolio for the third consecutive quarter, funding 9 investments totaling $73 million.

    • Ended the quarter with a committed and approved backlog of $228 million, up $48 million from the prior quarter end.

    • Achieved a portfolio yield on debt investments of just under 15% for the second quarter, among the highest in the BDC industry.

    • Repurchased approximately 1.4 million shares of common stock at an average price of $4.54, and authorized an additional $20 million for repurchases.

    • Undistributed spillover income of $0.33 per share as of June 30.

    Concerns

    4

    • NAV per share decreased by $0.75 to $6.23, primarily due to write-downs of a large investment in Soli.

    • Wrote down entire $20 million equity holding and $19 million debt investment in Soli due to cash burn and fundraising headwinds.

    • Net investment income (excluding one-time merger expenses) of $0.18 per share covered regular distributions but was below the combined regular and special distributions.

    • Loan portfolio yield decreased to 14.9% from 15.8% in Q2 FY25.

    Guidance & targets

    4
    CategoryTargetConfidence
    Regular monthly distributions
    $0.06 per share
    high materiality
    High
    Special monthly distributions
    $0.03 per share
    high materiality
    High
    Net investment income coverage of distributions
    at or above declared distributions
    high materiality
    Medium
    Debt investment portfolio growth
    another quarter of growth
    medium materiality
    High

    Operational metrics

    57
    Debt investment portfolio size
    $677 million
    Q2 FY26

    Total portfolio size at quarter end.

    Debt investment portfolio growth streak
    3rd consecutive quarter
    Q2 FY26

    Indicates consistent portfolio expansion.

    Investments funded
    9
    Q2 FY26

    Number of new investments made during the quarter.

    Total funding
    $73 million
    Q2 FY26

    Total amount funded across new investments.

    Net investment income (excluding nonrecurring merger expenses)
    $0.18
    Q2 FY26

    NII per share adjusted for one-time merger expenses, which covered regular distributions.

    NAV per share
    $6.23down $0.75 QoQ
    Q2 FY26

    NAV per share at quarter end, primarily impacted by write-downs.

    Undistributed spillover income
    $0.33
    as of June 30

    Amount of undistributed spillover income available.

    Portfolio yield on debt investments
    just under 15%
    Q2 FY26

    Yield on the debt investment portfolio, noted as being among the highest in the BDC industry.

    Committed and approved backlog
    $228 millionup $48 million QoQ
    Q2 FY26

    Total committed and approved backlog at quarter end.

    Shares repurchased
    1.4 million
    Q2 FY26

    Number of common shares repurchased during the quarter.

    Average repurchase price
    $4.54
    Q2 FY26

    Average price paid for shares repurchased.

    Additional share repurchase authorization
    $20 million
    approved Aug 3, 2026

    Increase in the amount of common stock authorized for repurchase.

    Equity holding write-down (Soli)
    $20 million
    Q2 FY26

    Write-down of the entire equity holding in Soli.

    Debt investment write-down (Soli)
    $19 million
    Q2 FY26

    Write-down of the debt investment in Soli.

    Loan prepayments
    $39 million
    Q2 FY26

    Total principal from loan prepayments.

    Onboarding debt investment yield
    12%consistent with Q1 FY26
    Q2 FY26

    Yield on new debt investments originated.

    Warrant and equity redemption proceeds
    $2.3 million
    Q2 FY26

    Proceeds realized from the redemption of warrants and equity.

    Committed backlog (prior quarter)
    $180 million
    Q1 FY26

    Committed backlog at the end of the previous quarter.

    New venture loan transactions awarded
    $87 million
    Q3 FY26

    Total commitments from new venture loan transactions awarded in Q3.

    VC-backed companies invested
    $146 billionsecond-highest quarter on record
    Q2 FY26

    Total investment in VC-backed companies according to PitchBook.

    VC-backed companies invested (prior quarter)
    $267 billionrecord high
    Q1 FY26

    Total investment in VC-backed companies in the previous record quarter.

    First half 2026 deal value vs. full year 2025
    30% abovevs. full year 2025
    H1 FY26

    Comparison of deal value in the first half of 2026 to the entire previous year.

    AI investment share in VC
    86%
    Q2 FY26

    Percentage of nearly all VC investment consisting of large AI investments.

    SpaceX IPO valuation
    $1.7 trillion
    Q2 FY26

    Valuation of the largest IPO of all time.

    Available liquidity
    $229 million
    as of June 30

    Total available liquidity, consisting of cash and credit facility funds.

    Cash balance
    $135 million
    as of June 30

    Cash on hand at quarter end.

    Funds available under credit facilities
    $94 million
    as of June 30

    Funds available to be drawn under existing credit facilities.

    KeyBank credit facility outstanding
    $0
    as of June 30

    Amount outstanding under the KeyBank credit facility.

    New York Life credit facility outstanding
    $181 million
    as of June 30

    Amount outstanding under the New York Life credit facility.

    Nuveen credit facility outstanding
    $90 million
    as of June 30

    Amount outstanding under the Nuveen credit facility.

    Debt-to-equity ratio
    0.97:1
    as of June 30

    Company's debt-to-equity ratio.

    Net leverage
    0.65:1
    as of June 30

    Net leverage ratio, netting out cash on the balance sheet.

    Potential new investment capacity
    $459 million
    as of June 30

    Capacity for new investments based on cash and borrowing capacity.

    Investment income
    $25 millionvs $24.5 million in Q2 FY25
    Q2 FY26

    Investment income earned, primarily due to higher interest income on debt investment portfolio.

    Debt investment portfolio (net cost basis)
    $682 millionup 4% vs $655 million as of March 31, 2026
    as of June 30

    Size of the debt investment portfolio on a net cost basis.

    Onboarding yields (prior quarter)
    12%
    Q1 FY26

    Onboarding yields achieved in the previous quarter.

    Loan portfolio yield (prior year)
    15.8%
    Q2 FY25

    Loan portfolio yield for the prior year's second quarter.

    Total expenses
    $17.4 millionvs $12.7 million in Q2 FY25
    Q2 FY26

    Total expenses for the quarter, primarily due to merger-related costs.

    Nonrecurring one-time merger expenses
    $4.4 million
    Q2 FY26

    Expenses related to the completion of the merger with MRCC.

    Interest expense
    $7.8 million$0.4 million lower than Q2 FY25
    Q2 FY26

    Interest expense for the quarter.

    Base management fee
    $3.1 millionup $0.2 million from Q2 FY25
    Q2 FY26

    Base management fee incurred during the quarter.

    Adviser fee waiver
    up to $4 million
    starting Q3 FY26

    Adviser agreed to waive base management fees and incentive fees.

    Net investment income
    $0.11vs $0.19 per share in Q1 FY26 and $0.28 per share in Q2 FY25
    Q2 FY26

    Reported net investment income per share.

    Net investment income reduction due to merger expenses
    $0.07
    Q2 FY26

    Impact of nonrecurring one-time merger expenses on NII per share.

    Total investment portfolio
    $677 million
    as of June 30

    Total investment portfolio at quarter end.

    Number of companies with debt investments
    43
    as of June 30

    Number of portfolio companies with debt investments.

    Fair value of debt investments
    $648 million
    as of June 30

    Aggregate fair value of debt investments.

    Number of companies with warrant, equity, and other investments
    96
    as of June 30

    Number of portfolio companies with warrant, equity, and other investments.

    Fair value of warrant, equity, and other investments
    $28 million
    as of June 30

    Aggregate fair value of warrant, equity, and other investments.

    NAV per share (prior quarter)
    $6.98
    March 31

    NAV per share at the end of the previous quarter.

    NAV per share (prior year)
    $6.75
    June 30, 2025

    NAV per share at the end of the prior year's second quarter.

    Debt investments at floating rates
    nearly 100%
    Q2 FY26

    Percentage of outstanding principal amount of debt investments bearing interest at floating rates.

    Debt investments at interest rate floors
    approximately 61%
    Q2 FY26

    Percentage of floating rate debt investments already at their interest rate floors.

    Portfolio investments sensitive to rising rates
    99%
    Q2 FY26

    Percentage of portfolio investments where rising interest rates will increase earning income.

    Fair value of debt portfolio rated 1, 2, or 3 (new scale)
    88%
    as of quarter end

    Percentage of the fair value of the debt portfolio with high internal credit ratings.

    Fair value of debt portfolio rated 4 or 5 (new scale)
    12%
    as of quarter end

    Percentage of the fair value of the debt portfolio with lower internal credit ratings.

    Soli equity raise
    $32.5 million
    completed in 2 phases, end of March/first half of April

    Amount of equity raised by Soli, which was subsequently impacted by cash burn.

    Deals & partnerships

    1
    Monroe Capital CorporationMerger to significantly enhance available capital for investments and kick off a new chapter of growth.

    Completed in April, laying the foundation for sustainable and profitable long-term growth.

    Risks & headwinds

    3
    Significant write-down of investments in SoliQ2 FY26

    $20 million equity holding and $19 million debt investment written down.

    Mitigation: Focused on recovering as much value as possible from these investments.

    Venture capital market bifurcation and muted IPO market for non-AI companiesCurrent

    86% of Q2 VC investment in AI; IPO market remains relatively muted for non-AI companies.

    Mitigation: Continued disciplined origination and underwriting; significant opportunities remain for venture loan originations in life sciences and tech.

    Net investment income not covering combined regular and special distributionsQ2 FY26

    NII (excl. merger expenses) of $0.18 per share vs. combined regular and special distributions of $0.09 per share (regular $0.06 + special $0.03).

    Mitigation: Expectation for growth and predictive pricing strategy to enable NII coverage over time.

    What to watch in Q3 FY26

    5

    NII coverage of distributions

    over time
    CurrentNII (excl. merger expenses) $0.18/share vs. combined distributions $0.09/share
    TargetNII at or above declared distributions

    Why it matters

    Demonstrates profitability and sustainability of shareholder returns, crucial for investor confidence.

    As we prudently work to deploy the capital from the merger and move towards our target leverage, it remains our goal to deliver NII at or above our declared distributions over time⏳.

    Q&A highlights

    1

    Are there broader implications from the Soli write-down for other portfolio companies, and how will the merger impact the size and diversification of future investments?

    Management stated the Soli event was company-specific, driven by fundraising headwinds, and they are working to maximize recovery. Regarding pipeline, the merger with Monroe Capital allows for larger bite sizes, playing into growth-stage companies, and increasing portfolio diversification, with the goal of growing the platform and taking larger tickets, potentially co-investing with Monroe.

    “Given that we're part of Monroe, we have the ability to partner with them on certain deals and where that makes sense, we will definitely do that. The goal, obviously, is to grow the platform so that we can take larger bite sizes and larger tickets and deals, but also to be able to play into the growth phase and growth stage rather more.”

    asked by Melissa Wedel · answered by Paul Seitz

    2 min read6 chapters

    Detailed Narrative

    01

    Merger Integration and Strategic Vision

    The merger with Monroe Capital Corporation in April significantly enhanced available capital for investments, marking a new chapter of growth. The company is actively investing in underwriting, credit capabilities, technology, and personnel to build a scalable platform. These investments are aimed at consistently growing the portfolio, steadily increasing Net Investment Income (NII), and ultimately creating additional shareholder value over the long term⏳.

    02

    Portfolio Performance and Soli Write-Down

    The debt investment portfolio grew for the third consecutive quarter, reaching $677 million. However, Net Asset Value (NAV) per share declined by $0.75 to $6.23, primarily due to significant write-downs related to one portfolio company, Soli. This included a $20 million write-down of an equity holding and a $19 million write-down of a debt investment, following the company's substantial cash burn and fundraising challenges.

    03

    Origination and Pipeline Expansion

    Horizon funded 9 debt investments totaling $73 million in Q2. The committed and approved backlog increased by $48 million from the prior quarter to $228 million, driven by larger venture loan opportunities. The company anticipates continued debt investment portfolio growth in Q3, supported by a strong pipeline and $87 million in new venture loan transactions already awarded.

    04

    Credit Rating Scale Alignment

    Effective June 30, the internal credit rating scale was revised from a 4-to-1 system to a 1-to-5 system (where 1 represents the highest credit rating). This change was implemented to align with Monroe Capital's scale, improving consistency and efficiency across the organization, particularly for co-investments. Under the new scale, 88% of the debt portfolio's fair value was rated 1, 2, or 3, with 12% rated 4 or 5.

    05

    Venture Capital Market Dynamics

    The venture capital market saw approximately $146 billion invested in Q2, making it the second-highest quarter on record, following Q1's $267 billion. First half 2026 deal value is already 30% above the full year 2025 total, with 86% of the Q2 investment concentrated in large AI deals. Despite a bifurcated market and muted IPO activity for non-AI companies, management believes significant opportunities for venture loan originations persist in life sciences and tech.

    06

    Capital Management and Shareholder Returns

    The company repurchased 1.4 million shares of common stock at an average price of $4.54 during the quarter and increased its share repurchase authorization by an additional $20 million. Available liquidity stood at $229 million, comprising $135 million in cash and $94 million in available credit. With a net leverage of 0.65:1, the company has a potential new investment capacity of $459 million.

    AI-generated summary of the company’s earnings call. Not investment advice.