Horizon Technology Finance Corporation Aktie

Greetings, and welcome to the Horizon Technology Finance First Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce Megan Bacon, Director of Investor Relations and Marketing. Please go ahead.

Thank you, and welcome to Horizon Technology Finance Corporation's First Quarter 2026 Conference Call. Representing the company today are Mike Balkin, Chief Executive Officer; Paul Seitz, Chief Investment Officer; and Dan Trolio, Chief Financial Officer. 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.

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, 2025. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to Horizon's CEO, Mike Balkin.

Thank you, Megan, and welcome, everyone, and thank you for your interest in Horizon. Today, we will update you on our quarterly performance and the current operating environment. Paul Seitz, our Chief Investment Officer, will take us through recent business and portfolio developments as well as the current status of the venture lending market; and Dan Trolio, our Chief Financial Officer, will detail our operating performance and financial condition. We will then take questions.

It has certainly been a very newsworthy and exciting couple of months for Horizon. In March, we were pleased to form RoHo, a new joint venture with Roth Capital, which will provide growth financing solutions to small and microcap public companies. Then in April, we successfully completed our merger with Monroe Capital Corp. or MRCC, officially embarking on an exciting growth path for the combined new Horizon. The merger provided us with significant increase in Horizon's equity capital available for investment in earning assets. This larger capital base affords us greater economies of scale to compete for larger cutting-edge early and later-stage venture capital deals backed by some of the leading venture capital and private equity funds.

We are also increasing our lending to small-cap public companies as evidenced by some of our latest announced transactions. Aided by the full support and backing of Monroe, we are taking the Horizon platform to the next level and are well positioned to succeed over the longer term. Turning to our specific results for the quarter. We grew our portfolio for the second consecutive quarter, funding 5 investments totaling $120 million and bringing our total portfolio size to almost $700 million. We generated net investment income of $0.19 per share, exceeding our distributions, while our NAV per share ended the quarter at $6.98. Based on our outlook and our undistributed spillover income, our Board declared regular monthly distributions of $0.06 per share payable in July, August and September of 2026. Consistent with our announcement prior to the closing of the merger, our Board also declared special monthly distributions of $0.03 per share payable in July, August and September 2026.

As we prudently work to deploy the incremental capital from the merger and move to our target leverage, it remains our goal to deliver NII at or above our declared distributions over time. We achieved a portfolio yield on debt investments of over 15% for the first quarter, once again at or near the top of the BDC industry. We finished the quarter with a committed and approved backlog of $180 million. And finally, we continue to close attractive venture debt and small-cap public company investments, while our pipeline of loan opportunities continue to grow.

Moving forward, we believe we are stronger than we have been in years and are excited for the long-term growth path we see ahead. To that end, given the dislocation between our stock price and the current net asset value, we intend to utilize our $10 million stock repurchase program in the near term. Again, we appreciate your continued interest and support in the Horizon Technology Finance platform. I will now turn the call over to our Chief Investment Officer, Paul Seitz, to give you the details of our first quarter results and progress. Paul?

Thanks, Mike, and good morning to everyone. I want to echo Mike's remarks about our excitement at closing the merger with MRCC. With the additional capital from the merger as well as our new joint venture with Roth, we now have more size and scale as well as products to originate venture and growth loans to growing public and private companies. We believe this positions us well to continue growing our portfolio and NII over time. At the end of the quarter, our current portfolio stood at $696 million as we produced our second consecutive quarter of portfolio growth. In the first quarter, we funded 5 life science debt investments, including refinancing of an existing investment, totaling $120 million.

We also made further progress in building our pipeline, including larger venture loan opportunities in our target sectors. One of those pipeline opportunities, Stellar Cyber closed in April. In Q1, we increased our committed backlog by $26 million from the end of Q4, which positions us well to further grow our portfolio in the quarters ahead. In Q2, we expect to further grow our portfolio, driven by our current pipeline. Along with Stellar Cyber, since the end of the quarter, we have been awarded 5 new venture loan transactions, representing $90 million in total commitments.

It goes without saying that we will always be disciplined in originating and underwriting new loans. During the first quarter, we experienced 1 loan prepayment and refinancing totaling $63 million in prepaid principal. Our onboarding debt investment yield of 12% during the first quarter remained consistent with our historic levels. 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 15.2% for the quarter was once again among the highest yielding debt portfolios in the BDC industry. Our ability to generate 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 31, we held warrants, equity and other investments in 99 portfolio companies with a fair value of $50 million. Structuring investments with warrants and equity rights is a key component of our venture debt strategy and a potential generator of shareholder value. As mentioned, we ended the quarter with a committed and approved backlog of $180 million compared to $154 million at the end of the fourth quarter. We believe our pipeline of investment opportunities, combined with our committed backlog with most of our funding commitments subject to companies achieving certain key milestones provides a solid base to prudently grow our portfolio over time.

As of quarter end, 88% of the fair value of our debt portfolio consisted of 3 and 4 rated debt investments, while 12% of the fair value of our portfolio was rated 2 or 1, which is a modest improvement from our levels at the end of the fourth quarter. We continue to collaborate with all of our portfolio companies and utilizing a variety of strategies to optimize returns and create future value.

Turning to the venture capital environment. According to PitchBook, approximately $267 billion was invested in VC-backed companies in the first quarter, which by itself exceeded all full year totals for investment except for 2021 and 2025. However, this record performance was completely due to large investments in AI. In fact, the top 5 investments accounted for $196 billion of that amount. Venture capital dollars are flowing again. However, there is a significant bifurcation in the marketplace as only the companies at the very top are receiving the lion's share of capital.

A similar story is playing out in the exit markets. While exit value of nearly $350 billion puts 2026 on pace to smash records by June, 72% of that value is due to SpaceX's acquisition of xAI. Still excluding that acquisition, exit value of $97 billion was the largest quarter since the fourth quarter of 2021, driven primarily by AI acquisitions. The IPO market, however, remains muted with only 15 VC-backed IPOs during the quarter. Given the current geopolitical and macro uncertainty, we believe the IPO market will remain somewhat muted in the near term. Nonetheless, we believe the limited life science IPO market creates more opportunities for venture loan originations as evidenced by our fundings in the quarter.

On the tech side, though we see the IPO market is muted, we see considerable optimism for tech IPOs, while we continue to conduct deep due diligence, particularly in AI and defense technology to determine the best types of opportunities for future investments. We continue to believe that venture debt remains a compelling option for these high-quality companies to access additional capital. As we move through 2026, we are excited for the new horizon and have been hard at work in identifying and targeting larger venture loan opportunities for both private and small cap public companies given our substantially enhanced capacity profile. Additionally, we continue to work diligently on optimizing outcomes with respect to our current portfolio. We remain confident that we are on the right path to expand our portfolio over the longer term and continue to lead in the venture lending space. We expect this will lead to increased NII over time and ultimately, additional value for shareholders. With that, I will now turn the call over to our Chief Financial Officer, Dan Trolio.

Thanks, Paul, and good morning, everyone. As Mike mentioned, we're excited to have completed the merger with MRCC, which significantly strengthened our balance sheet upon closing with $141 million of additional capital. With the merger complete and with us exiting our blackout period, we expect to begin tapping our $10 million repurchase program given the dislocation between our current valuation and our confidence in the near- and long-term outlook of Horizon. 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 are well positioned to grow our portfolio in the coming quarters and create additional value for our shareholders moving forward.

As of March 31, we had $105 million in available liquidity, consisting of $73 million in cash and $32 million in funds available to be drawn under our existing credit facilities. As of March 31, we had $45 million 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 $200 million Nuveen credit facility, leaving us with ample capacity to grow our portfolio of debt investments. Post-merger, we paid down the full amount outstanding under the KeyBank facility. Our debt-to-equity ratio stood at 1.35:1 as of March 31 and netting out cash on our balance sheet, our net leverage was 1.13:1, below our target leverage.

Based on our cash position and our borrowing capacity on our credit facilities, our potential new investment capacity as of March 31 was $357 million. Post-merger, our new investment capacity has increased by $141 million of additional capital. Turning to our operating results. For the first quarter, we earned investment income of $24 million compared to $25 million in the prior year period, primarily due to lower fee-related income on our debt investment portfolio. Our debt investment portfolio on a net cost basis stood at $655 million as of March 31, up 9% compared to $602 million as of December 31, 2025.

For the first quarter of '26, we achieved onboarding yields of 12%, in line with what we achieved in the fourth quarter of '25. Our loan portfolio yield was 15.2% for the first quarter compared to 15% for last year's first quarter. Total expenses for the quarter were $14.8 million compared to $13.4 million in the first quarter of '25. Our interest expense of $8.2 million was $0.5 million lower than last year's first quarter, while our base management fee was $3.1 million, in line with prior year period. We received $1.8 million of performance-based incentive fees in the first quarter. But as a reminder, our adviser agreed to waive up to $4 million of fees or $1 million a quarter post merger starting in Q3 of '26.

Net investment income for the first quarter of '26 was $0.19 per share compared to $0.18 per share in the fourth quarter of '25 and $0.27 per share for the first quarter of '25. We continue to expect prepayment activity will remain modest in the near term. And for the second quarter, we expect to record a nonrecurring onetime transaction expense of $4.3 million related to the completion of the merger. The company's undistributed spillover income as of March 31 was $0.52 per share. Based upon our outlook and undistributed spillover income, our Board declared monthly distributions of $0.06 per share for July, August and September 2026. In concert with the completion of the MRCC merger, our Board also declared $0.03 per share special distributions payable in July, August and September of 2026.

We anticipate with our expanded capital base and available leverage, our expectation for growth and our predictive pricing strategy will enable us to generate NII that covers our distribution over time. To summarize our portfolio activity for the first quarter, new originations totaled $120 million, which were offset by $5 million in scheduled principal payments and $63 million in principal prepayments, refinancings and partial paydowns. We ended the quarter with a total investment portfolio of $696 million. At March 31, the portfolio consisted of debt investments in 41 companies with an aggregate fair value of $646 million and a portfolio of warrant, equity and other investments in 99 companies with an aggregate fair value of $50 million. Our NAV as of March 31 was $6.98 per share comparable with where it stood on December 31 and compared to $7.57 as of March 31, 2025. The stable NAV on a quarterly basis was primarily due to NII exceeding our distributions and a shift in when we account for monthly distributions.

Moving forward, we're accounting for distributions on the ex-dividend date, which is more aligned with when most BDCs report their distributions. As we've consistently noted, nearly 100% of the outstanding principal amount of our debt investments bear interest at floating rates. Of those investments, approximately 71% are already at their interest rate floors, which should mitigate the impact of decreasing interest rates. This concludes opening remarks. We'll be happy to take questions you may have at this time.

[Operator Instructions] And our first question, we will hear from Cory Johnson with UBS.

I was wondering, could you actually just -- on the last point that you had just touched on regarding, I guess, like the NAV bridge, could you help me, I guess, to maybe understand that because I don't know if maybe I wasn't getting it correctly. But I thought NAV was flat this quarter. And obviously, there were some of the unrealized losses and such. So my understanding is correctly that the dividends that were used for the first quarter were actually the $0.18 rather than the $0.33. Is that correct?

Yes. So every quarter, we will accrue the distribution that is declared in that quarter. So normally, it would be the $0.18. There's 2 accounting guidances that public BDCs can follow. The first is related to recording your distribution on the declaration date, which would be in the quarter. And the second is recording your distribution on the ex-dividend date. And so this quarter, because of the merger and the different shareholders at different periods of time, we adjusted our policy to record the distribution on the ex-dividend date. So 1 of the 3 distributions that were declared is accrued this quarter. So the impact is $0.06 instead of the $0.18.

And so that bridge you from where you're looking at the -- from the unrealized. I was just giving you a little more information to help you bridge from the unrealized to the NAV.

And then just a follow-up. So you do, I guess, have now all this additional capital on hand. But I was just wondering like what is, I guess, the environment like for you to be able to deploy that capital? Like how aggressive do you think you'll be able to be? Are the quality of deals that you're seeing strong enough to allow you to be able to deploy that? If you can maybe just give a little bit of background on that.

Yes. Thanks for that question. This is Paul Seitz. So one is, I think the market is pretty active right now. It's pretty evidenced by the -- some of the larger funds moving down market in terms of the activity with the venture ecosystem, it's just getting -- it's picking up quite a bit. So our focus is to obviously deploy capital, but we need to be resilient and unrelenting on credit quality. And the way we structure our deals is critically important and the way we approach the risk-adjusted return profile of each company is critically important. So while it's active, we remain very diligent on structuring our deals and only doing the deals that are the highest of quality.

[Operator Instructions] Next, we'll move to Sean-Paul Adams with B. Riley.

It looks like you guys have actually had a pretty good quarter as far as credit quality. It looks like a good amount of non-accruals fell off the portfolio as well as your watch list also decreased. Can you provide a little bit of color on the remaining 2 names kind of on non-accrual? It looks like you guys actually experienced a write-up on Provivi. And just a little bit more color on how you're able to move so many names previously on non-accrual back to accrual.

So yes, we -- I guess if you look quarter-over-quarter on our schedule of investments, we had 3 names last quarter and 3 names this quarter. So they were Vesta, Provivi and [indiscernible]. For the previous quarter, Q3 to Q4, we were able to drop off some non-accruals and because we're able to work through some transaction and maximize those returns. And then this quarter related to Provivi, specifically and the change, like we say, we're working on each one of the deals, and we're trying to maximize returns. We were able to receive some paydown related to Provivi as we continue to work through that account.

There are no further questions at this time. I would like to turn the floor back to Mike Balkin for closing remarks.

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

Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.

Greetings. Welcome to the Horizon Technologies Finance Fourth Quarter 2021 Conference Call. At this time, mode. The question-and-answer session will follow the formal presentation. If anyone on your head. Please note this conference is being recorded. I'll now turn the conference over to Megan Bacon, Director of Investor Relations and Marketing. Megan, you may begin.

Thank you, and welcome to Horizon Technology Finance Corporation's Fourth Quarter 2025 Conference Call. Representing the company today are John Jacobs, Chief Executive Officer; Paul Seitz, Chief Investment Officer; and Dan Trolio, Chief Financial Officer. I would like to point out that the Q4 earnings press release and Form 10-K are available on the company's website at horizontechfinance.com.

Before we begin our formal remarks, I need to remind everyone that during this conference call, the company will make certain forward-looking statements, including statements with regard to the future performance of the company. Words such as believes, expects, 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, 2025. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

At this time, I would like to turn the call over to Horizon's CEO, Mike Balkin.

Welcome, everyone, and thank you for your interest in Horizon. Today, we will update you on our quarterly performance in the current operating environment. Paul Seitz, our Chief Investment Officer, will take us through recent business and portfolio developments as well as the current status of the venture lending market; and Dan Trolio, our Chief Financial Officer; will detail our operating performance, financial condition. We will then take questions.

2025 was a year of transformation for Horizon in many respects. While we navigated a number of micro and macro challenges throughout the year, we believe we began to successfully lay the groundwork for Horizon to succeed over the longer term. While the government shutdown in the fourth quarter led to our merger with MRCC being delayed into 2026, we are excited to be holding our special meeting shortly and hopefully closing the merger in the weeks ahead. As a reminder, closing the merger will significantly increase Horizon's equity capital available for investment in earning assets and allow it to take advantage of greater economies of scale in the combined vehicle.

Additionally, Monroe Capital, which is the parent company of Horizon Technology Finance Management, we'll be continuing to provide ongoing support to the post-merger company. As a result, we expect you will see an even more coordinated and synergistic effort between Monroe and Horizon in 2026, which is already evidenced by Horizon's first quarter co-investment with Monroe in a venture loan to [indiscernible]. With Horizon's larger capital base of Monroe's ability to co-invest we expect to originate larger venture loans to cutting-edge early and later-stage venture capital and institutional backed companies as well as small cap public companies. The merger working with Monroe and increasing our ability to fund larger transactions will allow us to bring the Horizon platform to the next level. I cannot be more excited for Horizon's future.

Turning to our specific results for the quarter. We generated net investment income of $0.18 per share, while our NAV per share ended the year at $6.98. Based on our outlook, our undistributed spillover income in the anticipated completion of our merger with MRCC, our Board declared regular monthly distributions of $0.06 per share payable in April, May and June of 2026. As we grow our portfolio in future quarters, it remains our goal to deliver NII at or above our declared distributions over time. We achieved a portfolio yield on debt investments of over 14% for the fourth quarter and nearly 16% for the full year 2025, once again at or near the top of the BDC industry.

We redeemed our notes due in 2026 with the proceeds of borrowing issuance of 7% notes due 2028. We finished the year with a committed and approved backlog of $154 million and our portfolio returned to growth in the fourth quarter. And finally, we are closing attractive venture debt investments while our pipeline of venture debt opportunities continues to grow. As we begin 2026, we remain excited for our long-term future growth given our numerous strengths, including our portfolio yield remains among the industry's highest, which we expect will lead to increased NII over time.

Our liquidity and balance sheet are strong and will further strengthen post-merger. We maintain a strong committed backlog, a robust pipeline. And with the backing of Monroe Capital, we are able to compete for larger higher-quality opportunities to make debt investments to growing companies which will grow our loan portfolio. And finally, the demand for venture debt capital remains high, and we expect to be a key supplier of such capital in the coming year and beyond.

Again, we appreciate your continued interest and support in the Horizon Technology Finance platform. I will now turn the call over to our Chief Investment Officer, Paul Seitz to give you the details of our fourth quarter results and progress. Paul?

Thanks, Mike, and good morning to everyone. As Mike noted, we are preparing for next week's special meeting, which if shareholders approve the proposal to issue more shares will allow us to close the merger with MRCC. If approved and closed, Horizon will have the additional size and scale to originate larger venture loans to growing public and private small companies, which will enable us to grow our portfolio and NII over time. We remain very excited to do so.

At the end of the year, our current portfolio stood at $647 million as we return to growth. In the fourth quarter, we funded 9 debt investments totaling $103 million, including 2 refinancings of our existing investments. We also continue to make progress in building our pipeline, including larger venture loan opportunities in our target sectors. Two of our pipeline opportunities, [ Celtis and Osio ], have already closed in 2026. In Q4, we increased our committed backlog by $35 million from the end of Q3, which positions us well to further grow our portfolio in the quarters ahead.

In Q1, we expect to further grow our portfolio, driven by our current pipeline, along with the venture loans, which have already closed since the end of the year, we have been awarded 2 new venture loans transactions representing $82.5 million in total commitments. It goes without saying that we will always be disciplined in originating and underwriting new loans. During the fourth quarter, we experienced 1 loan prepayment and 2 refinancings, totaling $43 million in prepaid principal and collected approximately $1 million in warrant proceeds.

Our onboarding debt investment yield of 12% during the fourth quarter remained consistent with our historic levels. 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 14.3% for the quarter was once again among the highest yielding debt portfolios in the BDC industry despite the lower level of prepayments in the quarter. Our ability to generate 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 December 31, we held warrants, equity and other investments in 97 portfolio companies with a fair value of $51 million, structuring investments with warrants and equity rights is a key component of our venture debt strategy and potential generator of shareholder value. As mentioned, we ended the year with a committed improved backlog of $154 million compared to $119 million at the end of the third quarter. We believe our pipeline of investment opportunities, combined with our committed backlog, with most of our funding commitments subject to companies achieving certain key milestones provides a solid base to prudently grow our portfolio over time. As of year-end, 87% of the fair value of our debt portfolio consisted of 3 and 4 rated debt investments, while 13% of the fair value of our portfolio was rated 2 or 1, consistent with our levels at the end of the third quarter. We continue to collaborate with all of our portfolio companies and utilizing a variety of strategies to optimize returns and create future value.

Turning to the venture capital environment. According to PitchBook, approximately $92 billion was invested in VC-backed companies in the fourth quarter, driven again in significant part by continued large investments in AI. At $339 billion of investment, 2025 was the largest year of investment since the record year 2021 and a positive sign that investment activity has sufficiently recovered from 2023 and 2024. Exit markets remained opened, though slow in the fourth quarter with approximately $100 million of exit value driven primarily by tech IPOs. While the M&A market appears to be healthy and the IPO market is open, given the performance of many second half 2025 IPOs, investors and bankers may be more circumspect in bringing companies public in 2026. The life science IPO market remains limited, creating more opportunity for venture loan originations as evidenced by our loans to [ Pelos ] and Osio. In terms of tech, there remains considerable optimism, and we continue to be doing deep due diligence, particularly in AI and defense technology to determine the best types of opportunities for future investments.

We want to take a moment to make a few comments about AI. First, note Monroe Capital published a white paper on AI on February 6 of this year, which we believe summarizes our current view on AI and the tech sector. It's obvious to us that AI is changing the game and AI-related risk has been a central focus in our underwriting process. We believe the claim that the days of enterprise software are over are inflating the risk. And at the same time, those who claim is business as usual are underestimating the risk. Given Horizon and Monroe's track record and software investing, we are confident we can navigate this changing environment.

As we progress through 2026, we believe venture debt remains a compelling option for companies to access capital with lower dilution to their investors as companies continue to grow and prepare for exits. This compelling option provides significant opportunities for Horizon to seek high-quality well-sponsored tech and life science companies to add to its portfolio.

To sum up, while 2025 was a challenging year, we have made significant strides to succeed in both 2026 and for the long term. If and when we closed the merger, we will have an even greater capacity to target larger venture loan opportunities for both private and small cap public companies. Additionally, we will continue to work diligently on optimizing outcomes with respect to our current portfolio. We are confident that we are on the right path to expand our portfolio over the longer term and remain a leader in the venture lending space. We expect this will lead to increased NII over time and ultimately, additional value for shareholders.

With that, I will now turn the call over to our Chief Financial Officer, Dan Trolio.

Thanks, Paul, and good morning, everyone. There are a significant number of positive developments in 2025 for Horizon, namely our impending merger with Monroe Capital Corp. and our continued ability to strengthen our balance sheet despite the challenging environment. Our actions demonstrate our continued ability to opportunistically access the debt and equity markets. 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 in the coming quarters and create additional value for our shareholders moving forward.

To recap 2025, we further strengthened our capacity in May by increasing the commitment under our senior secured credit facility with Nuveen to $200 million. In September, we raised $40 million of debt capital through the issuance of our 5.5% unsecured convertible notes due 2030, and use the proceeds to retire our Horizon Funding Trust asset-backed notes which had an interest rate of just over 7.5%. In December, we raised $57.5 million of debt capital through the issuance of our 7% unsecured notes due 2028, and used the proceeds in January 2026 to redeem our 26 public notes. Finally, we successfully and accretively raised over $14 million through our ATM program during the year, further demonstrating our continued ability to opportunistically access the equity markets.

As of December 31, we had $189 million in available liquidity, consisting of $143 million in cash and $46 million in funds available to be drawn under our existing credit facilities. We currently have no borrowings outstanding under our $150 million KeyBanc credit facility, $181 million outstanding on our $250 million New York Life credit facility, and $90 million outstanding on our $200 million Nuveen credit facility, leaving us with ample capacity to grow our portfolio of debt investments. Our debt-to-equity ratio stood at 1.5:1 as of December 31. And netting out cash on our balance sheet, our net leverage was 1.05:1, below our target leverage. Based on our cash position and our borrowing capacity on our credit facilities, our potential new investment capacity as of December 31 was $472 million.

Turning to our operating results. For the fourth quarter, we earned investment income of $21 million compared to $24 million in the prior year period, primarily due to lower interest income on our debt investment portfolio. Our debt investment portfolio on a net cost basis stood at $602 million as of December 31, up 3% compared to $585 million as of September 30, 2025. For the fourth quarter of '25, we achieved onboarding yields of 12% compared to 12.2% achieved in the third quarter of 2025. Our loan portfolio yield was 14.3% for the fourth quarter compared to 14.9% for last year's fourth quarter.

Total expenses for the quarter were $12.5 million compared to $12.8 million in the fourth quarter of '24. Our interest expense of $8 million was $0.2 million lower than last year's fourth quarter, while our base management fee was $2.9 million, $0.2 million lower than the prior year period due to our smaller portfolio. We received no performance-based incentive fees in the fourth quarter as we continue to defer incentive fees otherwise earned by our adviser under our incentive fee cap deferral mechanism. While we expect that the adviser will return to earning incentive fees. As a reminder, our advisor has agreed to waive up to $4 million of fees or $1 million a quarter if the merger is completed.

Net investment income for the fourth quarter of '25 was $0.18 per share compared to $0.32 per share in the third quarter of '25 and $0.27 per share for the fourth quarter of '24. Prepayment activity and the income that is typically associated with prepayments was lower than our historical experience. We continue to expect repayment activity will remain modest in the near term. For the full year '25, we generated NII of $1.05 per share. The company's undistributed spillover income as of December 31 was $0.65 per share. Based upon our outlook, undistributed spillover income and the anticipated completion of our merger with MRCC, our Board declared monthly distributions of $0.06 per share for April, May and June 2026. We anticipate that the size of our portfolio, our expectations for growth and our predictive pricing strategy will enable us to generate NII that covers our distribution over time.

To summarize our portfolio activities for the fourth quarter, new originations totaled $103 million, which were offset by $13 million in scheduled principal payments and $50 million in principal prepayments, refinancing and partial paydowns. We ended the year with a total investment portfolio of $647 million. At December 31, the portfolio consisted of debt investments in 38 companies, with an aggregate fair value of $596 million and a portfolio of warrant, equity and other investments in 97 companies with an aggregate fair value of $51 million.

Our NAV as of December 31 was $6.98 per share compared to $7.12 as of September 30, 2025, and $8.43 as of December 31, 2024. The $0.14 reduction in NAV on a quarterly basis was primarily due to our paid distributions exceeding our NII. As we've consistently noted, nearly 100% of the outstanding principal amount of our debt investments bear interest at floating rates. All those investments, approximately 71% are already at their interest rate floors, which should mitigate the impact of decreasing interest rates.

This concludes our opening remarks. We'll be happy to take questions you may have at this time.

[Operator Instructions] And our first question is from the line of Michael Brown with UBS.

This is Cory Johnson on for Mike. I was just wondering, can you maybe go into a little bit more about like how you decided on the new dividend level, kind of what was the decision-making around that?

Yes. Cory, as we say every quarter, we review our distribution level with the Board. We look at the current portfolio and the run rate. We look at the spillover. We look at our pipeline and our growth opportunities and determine based on that, a level that we think is sustainable and what we can cover over time.

Great. And then also just a quick follow-up. If I heard this correctly. Did you say the percent at the contractual floor is 71% was that?

That is correct. Yes.

[Operator Instructions] The next question is from the line of Paul Johnson with KBW.

I was just wondering if you could just kind of help me understand here a little bit more just the earnings here a quarter over quarter, because the portfolio yield of 14% with a roughly 10% ROE, just something doesn't really fit there. And I'm just wondering, aside I guess, payment lower prepayment income. I mean what kind of drove, I guess, the lower interest income? I guess, if that was the driver during the quarter because you're not earning incentive fees there was net portfolio growth in the quarter. The portfolio was roughly flat in terms of losses. So it doesn't seem like there was much depreciation in there. I was just wondering if we can just understand maybe the earnings bridge a little bit and maybe we could expect that this is maybe somewhat of a trough and we could potentially see a little bit more.

Yes. So Paul, all those things you stated were correct. Quarter-over-quarter, we grew the portfolio, you're right, the net realized unrealized for the quarter was flat. And so there's positive movement in the quarter. Most of the fundings were towards the end of the quarter. So that had some impact. And really, the major impact when you're looking quarter-over-quarter, was the prepayment and the activity that occurred each quarter. We had some significant prepayments, refinancing on a couple of names in Q3. And then in Q4, we really had 1 prepayment, a couple of opportunistic refinancing that we did with our own portfolio companies that had a lower income level than we typically receive on prepayments. And so when you add up the timing and the lower prepayment rates and the income related to that, that kind of connects the difference between the NII.

Okay. Got it. So if I'm just thinking about the $102 million of originations this quarter, that includes a number of refinancing within the portfolio, where, I guess, the return is structurally lower somehow?

So the -- yes, it included a couple of refinancing. They're positive in the event where we accelerate fee income on the previous already outstanding debt investments, and we're able to re-up with a full new fully loaded fee new debt investment was just lower income related to a prepayment where we'll receive a prepayment fee, but with refinancing, that's 1 of the fees that we don't get.

Okay. Got it. And then my other question was just on the opportunity for public company financing. Are those opportunities where you're refinancing or taking out existing debt? Or is this more of an opportunity we're providing new capital to those companies.

Paul, thanks for the question. It can be a combination of all of the above. But I think the opportunities we're seeing in the market and they are a significant number is that many of these companies don't even realize there's an opportunity to use debt capital like ours, where they can't go to a bank because maybe they're not profitable today or what have you. So in many cases, they will issue equity, which is much more dilutive. So what we are offering out to these companies is a more flexible capital structure that's less dilutive and gives the company an opportunity to have some growth capital here. So we believe this is a very fertile market for us. And again, the opportunity set is fairly wide.

Our next question is from the line of Sean-Paul Adams with B. Riley.

It looks like you guys had an aggregate decline in nonaccruals quarter-over-quarter. Can you just provide a little bit more color on the status of those 3 remaining 3 portfolio companies on nonaccruals.

Yes. What we say each quarter, we're working each 1 of those nonaccruals and they're all at various levels. We're trying to maximize the recovery with each 1 of them. And as you pointed out, we were able to improve the percentage of nonaccruals quarter-over-quarter. But besides that, we can't really get into too much detail with -- as these are private companies.

Got it. I appreciate it. Well, on the actual decline from the 4 to the 3, can you provide a little bit more detail on that 1 that came off?

Again, it's a private company, where we can't -- beside giving names. It was just a deal that we were working on acquisition last quarter that was completed this quarter, and we received the amount of our fair value. And so there is no NAV impact.

The next question is from the line of Christopher Nolan with Ladenburg Thalmann.

Was the driver of the realized loss exits from [ Telix ] Therapeutics?

[ Telix ] was a percentage of that, but talk was a small position -- and again, the realized loss were realized this quarter at the fair value that we had them going into the quarter. As you can see, Q4 net realized unrealized was slightly positive.

No, totally understand that. I'm just trying to understand what was the drivers of the realized loss?

Yes, it's Telix was a small piece of that. And we usually don't give detail on these private companies and how we've worked out each 1 of them.

Okay. In the earnings release and highlight in subsequent events, you guys are redeeming some of your 4.875% 2026 notes. How much of that has been redeemed, please?

The full amount was redeemed in January.

Great. And then I guess on the new dividend, am I correct that when the deal was announced, management is indicating that they're going to try to support the $0.33 dividend through 2026? Or am I mistaken there?

Support it in which way we've agreed to have the adviser agreed to waive $4 million of fees for the 4 quarters following the close at $1 million a quarter. Outside of that, and then we have the repurchase program that we have in place that will support the shares.

Great. Final question. Should we look at the new dividend as a reasonable earnings run rate for the company? And does that assume elevated nonaccruals?

So as we say, we review the distribution level with our Board, we set it at a level that we believe we're going to cover over time. And so that's what we did.

The next question is a follow-up from the line of Paul Johnson with KBW.

Just one more. Can I just clarify, so on the convertible conversion this quarter, what was the conversion rate there? And I guess, is there any kind of dilutive impact in the first quarter from that.

The conversions for the converts that we have done are all at NAV. They're required to be converted at NAV. And so in the fourth quarter, the 8.5% that has been converted. And any time it does convert, it will be at the stated NAV at that time. So there's no dilution.

Thank you. At this time, we've reached the end of our question-and-answer session. I'll hand the floor back to Mike for closing remarks.

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

Thank you. Ladies and gentlemen, thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.

Ladies and gentlemen, greetings, and welcome to the Horizon Technology Finance Corporation Third Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Megan Bacon. Please go ahead.

Thank you, and welcome to Horizon Technology Finance Corporation's Third Quarter 2025 Conference Call. Representing the company today are Mike Balkin, Chief Executive Officer; Paul Seitz, Chief Investment Officer; and Dan Trolio, Chief Financial Officer. I would like to point out that the Q3 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.

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.

At this time, I would like to turn the call over to Mike Balkin.

Thanks, Megan, and welcome, everyone, and thank you for your interest in Horizon. Today, we will update you on our quarterly performance in the current operating environment. Paul Seitz will take us through recent business and portfolio developments as well as the current status of the venture lending market, and Dan Trolio will detail our operating performance and financial condition. We will then take questions.

Well, it has been a very active several months since I assumed the CEO role in June. I spent countless hours with our team together thinking about the next chapter of Horizon and how best to expand the Horizon platform moving forward.

The first part of that strategy came to fruition when we announced in August, that MRCC and HRZN will be merging in a NAV-for-NAV share exchange, subject to shareholder approval and customary closing conditions. The merger is progressing. But due to the federal government shutdown, we now expect to complete it in early 2026.

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.

Importantly, Monroe Capital, which is the parent company of Horizon Technology Finance Management, will provide additional and ongoing support to the post-merger company. As a result, you will see a much more coordinated and synergistic effort in 2026 as we expect to take significant advantage of having such a premier asset manager and expert private credit lender providing us with stalwart backing.

To that end, we added several new originators in the third quarter, who are hitting the ground running. With our reinforced team combined with Monroe's support, we expect to compete to originate larger venture loans to top early stage of late-stage cutting-edge companies and return to the growth trajectory that we've historically experienced.

I could not be more excited for Horizon's future. And while there is still plenty of work to be done, we have the right team in place to bring the Horizon platform to the next level.

Turning to our specific results for the quarter, 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.

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. Based on our outlook and our undistributed spillover income, our Board declared regular monthly distributions of $0.11 per share through March 2026.

Once again, we achieved a portfolio yield on debt investments at or near the top of the BDC industry. We also further strengthened our balance sheet in the quarter by accretively raising equity from our at-the-market program and successfully raised $40 million through the issuance of our 5.5% unsecured convertible notes due 2030.

And through our more active relationship with Monroe Capital, our pipeline of larger potential venture debt transactions is growing, while we maintain a solid base of additional opportunities to grow our portfolio over time.

Before handing the call over to Paul, we are very excited for the new Horizon's long-term future and believe we have the right building blocks in place to execute, namely our portfolio yield remains among the industry's highest, which we expect will lead to increased NII over time. Our liquidity and balance sheet continue to remain strong and will further strengthen the post-merger.

We maintain a strong committed backlog, a robust pipeline, and we believe that the vacuum Monroe Capital that we are in a great position to compete for even larger, higher-quality opportunities to invest in new companies. We are already seeing the aperture widening as more private and public companies express interest in our venture lending solutions.

And finally, the demand for venture debt capital remains high. We look forward to being a key supplier of such capital. Again, we appreciate your continued interest and support in the Horizon Technology Finance platform.

I will now turn the call over to our Chief Investment Officer, Paul Seitz, to give you the details of our third quarter results and progress. Paul?

Thanks, Mike, and good morning to everyone. I'm happy to join today's call and look forward to speaking to you all in the quarters to come. It's an exciting time here at Horizon. While we continue to work closely with all of our current portfolio companies to optimize returns and create further opportunities for additional value creation, we are very enthusiastic about our future.

As Mike mentioned, we believe the combined company will provide us with the size and scale needed to originate larger venture loans to growing public and private small companies.

At the end of the quarter, our current portfolio stood at $603 million as the loans we originated and acquired during the quarter were offset by prepayments and amortization in our existing portfolio.

In the third quarter, we funded 3 debt investments totaling $15 million. Positively, we are making strong progress on building up our pipeline with larger venture loan opportunities in our target sectors, and we are positioning ourselves well to return to growing our portfolio.

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. That said, we will always be disciplined in our approach to originating loans.

During the third quarter, we experienced 6 loan prepayments totaling $50 million in prepaid principal and also collected over $3 million in equity and warrant proceeds. We currently expect more limited prepayment activity in Q4.

Our onboarding debt investment yield of 12.2% during the third quarter remained consistent with our historic levels. 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 18.6% 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 September 30, we held more equity positions in 95 portfolio companies with a fair value of $40 million. Structuring investments with warrants and equity rights is a key component of our venture debt strategy and a potential generator of shareholder value.

We ended the third quarter with a committed and approved backlog of $119 million compared to $149 million at the end of the second quarter. We believe our pipeline, combined with our committed backlog, with most of our funding commitments subject to companies achieving certain key milestones; provides a solid base to prudently grow our portfolio over time.

As of quarter end, 87% of the fair value of our debt portfolio consisted of 3 and 4 rated debt investments, while 13% of the fair value of our portfolio was rated 2 or 1.

While we continue to collaborate with all of our portfolio companies to optimize returns, we are pleased in the quarter to achieve two strong outcomes on stress investments, namely Soli and Hound Labs. These had a positive impact on both NII and NAV. This is a demonstration of our proven ability to utilize a variety of strategies to seek to optimize returns and create opportunities for potential future value.

Turning to the venture capital environment, according to PitchBook, the market is warming up with approximately $81 billion invested in VC-backed companies in the third quarter, driven in significant part by continued large investments in AI. On the positive side, we saw exit markets further open in the third quarter with approximately $75 billion of exit value, driven primarily by tech IPOs.

Along with acquisitions by VC-backed companies, the IPO market is once again opened and investors clearly are eager to put their money to work.

In life sciences, while there is optimism, there remain valuation disconnects and compression, which is keeping a relative lid on potential IPOs in that sector. Meanwhile, on the tech side, there is considerable optimism and we are being very thoughtful about taking a deeper dive into the various subsectors, particularly in AI and defense technology, to determine the best path for future investments.

Looking ahead, venture debt remains a significant option for companies to access capital as they continue to grow and prepare for exits. This provides opportunity for Horizon to seek high-quality, well-sponsored tech and life science companies to add to its portfolio.

To sum up, as we close out 2025, we are increasingly excited for our long-term future as we prepare to merge with MRCC. Our alignment with Monroe is increasing, and we are truly beginning to tap into Monroe as an incredible resource, which should significantly benefit us as we target larger venture loan opportunities for both public and private companies. Additionally, we will continue to work diligently on optimizing outcomes with respect to our current portfolio.

We are confident that we are taking the right steps to continue to be a leader in the venture lending space. These steps will enable us to originate larger venture loans to high-quality, fast-growing public and private companies and expand our portfolio over the longer term. This should lead to increased NII over time and ultimately, additional value for shareholders.

With that, I will now turn the call over to our Chief Financial Officer, Dan Trolio.

Thanks, Paul, and good morning, everyone, Along with the hard work being accomplished to get the merger across the finish line as well as build up our originations pipeline, we further strengthened our balance sheet during the quarter.

As Mike mentioned, 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%. Additionally, we continue to utilize our ATM program to successfully and accretively sell over 1.5 million shares in the quarter, raising an additional $10 million of equity.

These actions demonstrate our continued ability to opportunistically access the debt and equity markets. 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 in the coming quarters and create additional value for our shareholders moving forward.

As of September 30, we had $151 million in available liquidity, consisting of $130 million in cash and $21 million in funds available to be drawn under our existing credit facilities. We currently have no borrowings outstanding under our $150 million KeyBanc credit facility, $181 million outstanding on our $250 million New York Life credit facility and $90 million outstanding on our $200 million Nuveen credit facility, leaving us with ample capacity to grow our portfolio of debt investments.

Our net equity ratio stood at 1.36:1 as of September 30. And and netting out cash on our balance sheet, our net leverage was 0.94:1, below our target leverage. Based on our cash position and our borrowing capacity on our credit facilities, our potential new investment capacity as of September 30 was $460 million.

Turning to our operating results. 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. Our 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.

For the third quarter of 2025, we achieved onboarding yields of 12.2% compared to 12% achieved in the second quarter of 2025. Our loan portfolio yield was 18.6% for the third quarter compared to 15.9% for last year's third quarter.

Total expenses for the quarter were $12 million, compared to $12.4 million in the third quarter of '24. Our interest expense of $7.9 million was comparable to last year's third quarter, while our base management fee was $2.7 million, $0.2 million lower than our prior-year period due to a smaller portfolio.

We received no performance-based incentive fees in the third quarter as we continue to experience the deferral of incentive fees otherwise earned by our adviser under our incentive fee cap and deferral mechanism. While we expect that the adviser will return to earning incentive fees, as we previously mentioned, the adviser has agreed to waive a portion of any incentive fee in a quarter where we do not earn our distributions in 2025.

Net investment income for the third quarter of '25 was $0.32 per share compared to $0.28 per share in the second quarter of '25 and $0.32 per share for the third quarter of 24%. The company's undistributed spillover income as of September 30 was $0.93 per share. Based upon our outlook and undistributed spillover income, our Board declared monthly distributions of $0.11 per share for January, February and March 2026.

To summarize our portfolio activities for the quarter, new originations totaled $15 million, and we also purchased for $23 million additional investments via the acquisition of the venture debt portfolio of a former co-lender. These were offset by $14 million in scheduled principal payments and $61 million in principal prepayments and partial paydowns. We ended the quarter with a total investment portfolio of $603 million.

As of September 30, the portfolio consisted of debt investments and 39 companies with a negative fair value of $560 million in a portfolio of warrant, equity and other investments in 102 companies with an aggregate fair value of $43 million.

Our NAV as of September 30 was $7.12 per share compared to $6.75 as of June 30, 2025 and $9.06 as of September 30, 2024. The $0.37 increase in NAV on a quarterly basis was primarily due to net investment income and positive adjustments to fair value, partially offset by our paid distributions.

As we've consistently noted, nearly 100% of our outstanding principal amount of our debt investments bear interest at floating rates. Of those investments, almost 60% are already at their interest rate floors, which should mitigate the impact of decreasing interest rates.

This concludes our opening remarks. We'll be happy to take questions you may have at this time.

[Operator Instructions] The first question comes from Douglas Harter with UBS.

This is Cory Johnson on for Doug Harter. So it sounds like the VC market is heating up and there are more exits out there in the market. And early payoffs have been strong for the last 2 quarters, but I believe you mentioned that for 4Q, that those payoffs might be a little bit more limited.

I guess, what do you expect that trend to be going forward maybe into 2026? And is it related to the government shutdown where we think that perhaps the 4Q payouts might be a little bit more limited?

Yes, this is Paul Seitz. I don't think that the government shutdown necessarily is going to impact any payoffs or prepayments or anything like that. 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.

Got it. And during the quarter, the net leverage -- your net leverage came down. Curious, are you seeing -- I know you mentioned that you think your portfolio will grow next quarter, and you're starting to see more deals come across your table.

But I was just sort of curious in terms of like now that you are seeing more deals, what is sort of the credit quality behind them? Are there names that you like? Or are you just more name that you seem to be -- you're looking to pass on?

And then obviously, it's a little bit difficult to exactly figure out the trajectory of your -- where the leverage will go. But how long do you think it might be before you perhaps reach your target leverage again?

Yes. So as we say every quarter, 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. So as we talked where -- in our prepared remarks that the pipeline is growing in originations, 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.

[Operator Instructions] Our next question comes from Paul Johnson with KBW.

Just on the portfolio yield or just the portfolio yield in general, it sounds like you're pretty confident about the onboarding yields coming in. But obviously, the income has been running higher, some onetime items just running higher with prepayments.

I mean the 18.9% yield, I mean, how should we be thinking about that? Is that sustainable going forward? Or what's kind of like the longer-term sort of target, I guess, based on the same pipeline?

Yes. So I would point you to our historical portfolio yield, which we've averaged around 14.5% to 15%. That's a more normalized yield. And then I'll just point out, that is a portfolio yield after prepayments and onetime events. And as we mentioned, the onboarding yield has been about 12%, 12.5% for the past few quarters and probably most likely be around that going forward.

Got it. Okay. That's helpful. And then maybe you could just take us through the debt portfolio that you acquired during the quarter, kind of what transpired there? It looks like you were able to buy at a potentially a discount to where, I guess, had previously been marked. But anything -- any color on that would be helpful to hear.

Yes, correct. We were able to acquire a venture debt portfolio from one of our co-lenders that we had created a [ sidecar ] fund, SMA back in 2021 with a $300 million total commitment. We were able to invest that completely. And so it was in runoff.

And then over the past year or so when there are fewer names remaining, we were working with that co-lender, names that, obviously, we've already invested in and negotiated a price. They were co-lender in venture debt, was their only venture debt portfolio and they were looking just to exit the market. And obviously, we're the natural buyer.

Got it. Okay. Interesting. And then maybe just it would be helpful here kind of what is -- as we get into next year and get beyond the fee waivers, like what is kind of the idea with spillover? It still looks like there's a decent amount of $0.93. But I mean, would you like to just continue to work that down potentially further before evaluating the distribution? Or is that something you'd like to kind of maintain?

Yes. So I'll just remind you, every quarter, we discussed the distribution and take into account the current income level and the future level of the Horizon platform and look at the spillover, and we'll determine the amount of distribution on a quarterly basis.

Our next question comes from Christopher Nolan with Ladenburg Thalmann.

Assuming the deal with MRCC closes, is the focus going to be on larger credits going forward? And what does that do to the yield?

That will be one of the benefits with a larger balance sheet. You can hold larger position and stay diversified as we focus on our top 1, top 5, top 10 diversification. But there will still be venture debt deals in the market that we have played in, we'll just be able to hold larger pieces of it. And so we don't expect the yields to change dramatically.

Great. Given the stock price is trading below book now, what's the plan on using the common stock ATM going forward?

Same plan as usual. 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.

Okay. And then given -- assuming the Monroe deal closes, you are going to have a much larger balance sheet, any consideration in terms of revisiting the base management fee? I know it is 2% for the first $250 million in assets. And then there's a breakpoint to 160 bps above $250 million. And even at 160 bps, you're sort of at the high end of the range for BDCs in general stay. Any comment on that?

Yes. So we have our normal 15-C process that we do on an annual basis, and we review all of our competitors. And when everybody calculates it different, has different hurdles and different percentages on a blended effective cost percentage; we are within the average of our peers. We look at it every year through that 15-C process, and we'll continue to do that going forward and make sure we're within market.

Great. And then any target ROE for the new assets coming on from Monroe?

We don't have any targeted new assets right now that are coming on. The Monroe platform will help us get access to larger assets and potentially some additional assets, but nothing specific today.

Yes. No, actually, I phrased it poorly. For the new capital coming in from the Monroe deal, what is the target ROE or return hurdle that you're looking for to get from that new capital?

It's basically stick to what we do, the venture debt model that has a high-yielding portfolio, and that will drive the ROE. We don't have a specific targeted ROE on that capital.

Thank you. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to Mike Balkin for the closing comments.

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

Thank you. Ladies and gentlemen, the conference of Horizon Technology Finance Corporation has now concluded. Thank you for your participation. You may now disconnect your lines.

Greetings, and welcome to the Horizon Technology Finance Corporation Second Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce Megan Bacon, Director of Investor Relations and Marketing. Please go ahead.

Thank you, and welcome to our call announcing the merger of Horizon Technology Finance Corporation and Monroe Capital Corporation as well as Horizon's Second Quarter 2025 Conference Call.

In addition to the press release related to the transactions issued earlier today, each of Monroe Capital Corporation and Horizon Technology Finance Corporation have posted a joint investor presentation on monroebdc.com and horizontechfinance.com, respectively. We will be referencing this presentation during the call.

I would also like to point out that Horizon's Q2 earnings press release and Form 10-Q are available on Horizon's website at horizontechfinance.com.

Please note that this call will contain forward-looking statements, which are subject to risks and uncertainties. All statements other than historical facts, including statements related to the expected closing of the transaction, the ability of the parties to complete the proposed transactions based on the various closing conditions and certain aspects of the proposed transactions, such as Monroe Capital Corporation selling its existing investment portfolio for cash and immediately thereafter completing the merger between Monroe Capital Corporation and Horizon Technology Finance Corporation are forward-looking statements.

These statements are subject to risks, and our actual future results may differ materially from those expressed on this call. Monroe Capital Corporation, Horizon Technology Finance Corporation and their respective affiliates assume no obligation to update any forward-looking statements. Please see Slide 2 of the joint investor presentation for more information.

At this time, I would like to turn the call over to Ted Koenig.

Good afternoon, and welcome, everyone. Thank you for joining today's call. I am Ted Koenig, Chairman and CEO of Monroe Capital Corporation, and I'm pleased to be joined by Michael Balkin, CEO of Horizon Technology Finance Corporation. We are also joined by Mick Solimene, Chief Financial Officer and Chief Investment Officer of Monroe Capital Corporation; and Dan Trolio, Chief Financial Officer of Horizon Technology Finance Corporation.

Today marks a significant milestone for Monroe's BDC platform which is currently comprised of Monroe Capital Corporation or MRCC, Horizon Technology Finance Corporation or HRZN, and Monroe Capital Income Plus Corporation or MCIP. We are excited to announce a strategic transaction that will culminate in the merger of Monroe Capital Corporation and Horizon Technology Finance Corporation, our 2 publicly traded BDCs.

We believe that this is a unique opportunity to unlock shareholder value in MRCC, establish HRZN as a leading, well-capitalized venture debt and growth capital provider to small cap companies, and to optimize our platform's direct lending capabilities in a market that increasingly rewards BDCs with both reach and specialization. We will walk you through the key details of the proposed transaction and what it means for both MRCC and HRZN shareholders, and share insights into the key value-creation drivers that we believe will result from the combination of these companies has the potential to generate, highlighted by enhanced scale, operating efficiencies, cost savings and accelerated growth. Importantly, we believe we've carefully constructed and structured this transaction to be accretive to all parties and preserve net asset value or NAV integrity while creating compelling long-term upside for our shareholders.

As a leading venture debt platform, the proposed merger will provide the combined Horizon company with an estimated $165 million of incremental equity capital based on MRCC's June 30, 2025 preliminary NAV range estimate, net of estimated transaction expenses and related NAV adjustments, as well as the distribution of all undistributed net investment income. We believe this additional equity capital will provide the scale, resources and flexibility to execute Horizon's next phase of growth while capturing operational efficiencies. This strengthened platform is expected to deliver accretive net investment income as compared to the standalone forecast, and create meaningful long-term value for shareholders.

Turning to Slide 4. This is a tri-party transaction that will be executed in 2 concurrent steps, which have received unanimous approval from the applicable boards of directors of MRCC, MCIP and HRZN, including each of their respective special committees of independent directors.

First, MRCC will sell substantially all of its assets at fair value to MCIP, our privately offered BDC. Based on the closing price of MRCC's share price on August 5, 2025, the sale represents an estimated 33% premium to the share price, unlocking shareholder value for all stakeholders and MRCC.

The final NAV used to determine the sale price of the assets will be established shortly before the transaction closes. MRCC will use those cash proceeds net of transaction expenses to repay liabilities and declare and pay a distribution to its shareholders equal to any remaining undistributed net investment income. This sale will result in MRCC holding only cash, ensuring that the shareholders immediately realize significant value.

MCIP is acquiring a highly familiar portfolio of high-quality assets that will enable continued growth and be accretive to its shareholder returns. Nearly 80% of the assets acquired by MCIP from MRCC are already owned and in the existing loan portfolio of MCIP.

In the second transaction, the all-cash MRCC entity will merge with and into HRZN through a NAV-for-NAV share exchange based on the net asset values of each entity determined shortly before the closing date. We believe the merger creates a true win-win for both sets of shareholders. MRCC shareholders will receive shares of common stock in HRZN, with HRZN receiving a corresponding estimated $165 million cash infusion in exchange for those shares. HRZN will be the surviving public entity and will continue to both be managed by Horizon Technology Finance Management, or HTFM, a Monroe-affiliated investment adviser and trade on the NASDAQ under its ticker symbol HRZN.

It is important to note that the transactions, which we expect to close in December 2025, will be conditioned on the concurrent closing of both the asset sale and the merger as well as receipt of the necessary regulatory approvals and applicable approvals of both the MRCC and HRZN shareholders.

Slide 5 summarizes the key elements of the transaction, which focus on shareholder alignment and protection. In connection with and in support of the transaction, HTFM, the external adviser and the investment adviser of the combined HRZN company, has agreed to waive an aggregate amount up to $4 million in advisory fees over the first 4 full fiscal quarters following the closing, up to $1 million per quarter. These advisory fee waivers are meant to support core net investment income while Horizon focuses on selectively and efficiently deploying the incremental capital to execute its strategic growth initiatives. The fee waivers will not exceed the total amount of fees earned during the applicable quarter.

Additionally, Horizon's existing stock repurchase program will remain available for open market repurchases of shares of its common stock following closing. An aggregate of up to 2% of the outstanding shares of then current market prices at any time the Horizon stock is trading below 90% of the then most recently disclosed NAV per share.

Prior to the closing of the merger, both MRCC and Horizon intend to declare and pay ordinary course distributions subject to their respective Board's approval. In addition, MRCC intends to declare a distribution to its shareholders equal to any undistributed income estimated to be remaining as of the closing of the merger, subject to its Board approval.

Finally, Horizon and MRCC have agreed to a balanced Board structure post-close, with the combined Board expected to be comprised of 2 current independent Horizon directors, 1 current MRCC Independent Director; and Mike Balkin, the CEO of the combined company.

We believe this transaction unlocks immediate tangible value to MRCC shareholders while offering tax efficiency and a compelling long-term upside. By selling the MRCC investment portfolio to MCIP at fair value, MRCC shareholders are expected to realize approximately a 33% premium to the market trading price as of August 5, 2025 based on MRCC's estimated preliminary June 30, 2025, NAV. As the merger is structured as a tax-free reorganization, this enables MRCC shareholders to defer taxes and maintain their investments in a larger, more scalable platform that will benefit from a significant capital infusion to propel its next phase of growth.

The larger combined platform presents MRCC shareholders with a greater potential to realize upside through enhanced scale and liquidity, stronger earnings power bolstered by synergies and other operational savings, and accelerated growth.

With that, I will now turn the call over to Mike Balkin, Horizon's Chief Executive Officer, who will provide color around the benefits to Horizon's existing shareholders as well as to elaborate on the next phase of Horizon's growth strategy.

Thank you, Ted. First, let me say how excited I am to be on board here at Horizon and to lead the company into the next phase of its growth. Second, I want to express my firm belief to Horizon shareholders that this strategic rationale and benefits of this merger are very clear. Horizon will receive an immediate boost in size and scale as it will add approximately $165 million in equity to its capital base based on June 30, 2025 numbers, bringing the combined company's estimated NAV to approximately $446 million. In addition, Horizon will be able to leverage this capital infusion with debt to provide more investment capital, which may produce more core NII growth.

This increased scale is expected to help reduce Horizon's per share operating expenses, to provide access to lower cost financing and to further solidify the firm as a leading venture debt and growth capital provider. With a larger market capitalization and bigger public float, we believe trading liquidity in Horizon will be enhanced. We believe all of these traits are increasingly rewarded by investors in the public BDC space.

Next, the merger is expected to be accretive to core net investment income over time driven by G&A savings, portfolio optimization and potential access to lower-cost financing. As mentioned earlier, HTFM has agreed to supplement net investment income through meaningful fee waivers during the first year following the closing of the transaction. And notably, the fresh capital from the merger provides Horizon with the fuel and the runway to execute its next phase of growth while allowing HTFM to scale its venture debt platform through more investments in its origination capabilities as well as enhancing its investment mandate.

Turning to Slide 8. While we will continue to provide venture debt to sponsor-backed private companies in technology, health care, life sciences and sustainability industries, we also expect to leverage our existing platform to more actively provide loans to public small-cap companies.

To supplement my 35-plus years of working with small cap public companies, we've strengthened our existing leadership team with the addition of Paul Seitz as our Chief Investment Officer. Paul is a seasoned lending professional who has extensive experience in the venture debt market as well as helping lead Monroe's software and technology lending vertical.

In order to achieve our growth objectives, we will need to be hyper-focused on efficiently yet prudently deploying the capital resulting from the merger into attractive and accretive portfolio assets that align with our core investment objectives. We have been and will continue diligently plan to rapidly deploy the proceeds from the merger. This plan includes deployment of debt in both the venture and public small-cap growth company space as well as leveraging the strength of the overall Monroe platform for deployment into more assets in the technology sector.

Additionally, we are augmenting our team and further scaling our platform by adding select new talent that is strictly focused on sourcing new origination opportunities to further accelerate our capital deployment. We have already commenced that process and expect to continue onboarding new talent in the months ahead.

All of this is to ensure that Horizon is able to ramp the portfolio quickly post-merger and efficiently accelerate earnings growth. This is not just going to be a larger portfolio; it's going to be a more sophisticated and diversified portfolio supported by deeper origination channels and more robust credit governance. Management will be fully aligned with shareholders given the management and incentive fee waivers in year 1. In short, we succeed when shareholders succeed.

The cost savings for the pro forma company are real and identifiable. We expect to eliminate approximately $2.5 million of G&A expenses from the current G&A expenses of the 2 combined companies, which translates to an immediate 30% reduction when compared to the aggregate levels for the standalone entities. This expected per share reduction in operating expenses on a pro forma basis comes from consolidation of legal, audit, administration, Board and regulatory costs.

Because of the complementary nature of our organizations, we don't anticipate integration risk. There's minimal overlap operationally and maximum efficiency to gain as we continue to scale. In addition, we will have the support and resources of the entire Monroe Capital Asset Management platform, which is currently approximately $22 billion in assets under management.

Moving to Slide 10, we have outlined the mechanics for the NAV-for-NAV Exchange. The illustrative exchange ratio of 1.1313 to 1.1373 shares of Horizon common stock for each share of MRCC common stock is based on estimated rise in NAV per share of $6.70 and after giving effect to estimated transaction expenses as of June 30, 2025, and an estimated June 30, 2025 preliminary MRCC NAV per share range of $7.58 to $7.62 after giving effect to estimated transaction expenses, distribution of all undistributed earnings to MRCC shareholders and other transaction-related NAV adjustments.

Based on this illustrative exchange ratio, we expect MRCC shareholders to own approximately 37% of the combined company immediately followed in closing. The final NAVs utilized to determine the exchange ratio will be determined no earlier than 48 hours prior to the closing of this transaction.

I will now turn the call back over to Ted, who will walk you through the expected transaction time line before we open the line for any questions.

Thanks, Mike. With that, here's our expected time line for the merger.

The next major step will occur as soon as this month as the MRCC and Horizon joint proxy statements and Horizon prospectus and registration statement are being prepared and will be filed with the SEC. Based on this timing, we expect we will be in a position to hold a joint MRCC and Horizon shareholder meeting as soon as December 2025 to obtain the required shareholder votes, with the transactions finalized and the merger closing shortly thereafter.

Until closing, both companies will continue to operate independently while preparing for capital deployment and executing a seamless integration plan. Our focus will remain on ensuring continuity for our borrowers, stability for our investors and strong alignment across all teams.

We believe this transaction takes the best attributes of both MRCC and Horizon and creates a better business development company with more capital, more scale, more earnings power, better efficiency and attractive, sustainable returns for our shareholders. It is a strategic, transparent and long-term focused combination designed to benefit all shareholders. We are excited about the future and confident in the value we will unlock together.

To our shareholders in MRCC, thank you for your support and partnership. We believe this merger is a natural next step in our strategic journey and a catalyst for future growth.

With that, we will now open up the line to take your questions.

[Operator Instructions] First question comes from Christopher Nolan with Ladenburg Thalmann.

Okay. Let's see. The 2 steps. If I understand, Ted, correctly that the portfolio is going to be -- the MRCC portfolio is going to be sold to Monroe's nontraded BDC, I presume pretty close to the marks. The debt paid down and then the cash proceeds basically sold to Horizon. Is that a fair summary?

Yes.

Okay. And so I estimate, just back of the envelope, $430 million in terms of MRCC's fair value in the first quarter, $270 million in revolvers and the 2026 notes. So it's $160 million cash, give or take, to Horizon. And what premium -- because this is effectively an equity raise from Horizon's perspective. Is this cash being sold 1x book or a little bit above book?

Chris, the transaction will be NAV to NAV, and the NAV will be struck at the time right before the merger is complete. That's how you should think about it.

Okay. So from Horizon's standpoint, this is just a very cost-efficient equity raise, correct?

Very much so, yes.

You got it.

Okay. Got it. And then the $2.5 million in G&A expenses and the waiving of the management fees for 12 months, I applaud that. Do you guys have any particular targets in terms of yield net investment income yield on NAV or anything? See, one of the issues with both companies has always been slightly heavier expense structure. And while I appreciate the sentiments in terms of lowering that, trying to see whether or not you guys have any hard targets that you want to try to achieve.

No, we usually don't put in hard targets. We try to run the company as efficiently as possible. As you know, venture debt is a high-yielding portfolio. And so we'll continue to run it out as we have been.

Okay. And then is there going to be -- because Verizon is going to have a significantly larger portfolios, what is the timing in terms of deploying this capital?

Yes. We believe we're going to be able to deploy this capital fairly rapidly. We've been going through discussions and looking at opportunities there. So we think that, as we've mentioned in our presentation, that we will be able to make this neutral, at least to shareholders in the first year, and hopefully we can do better. .

When you say neutral, do you mean neutral to EPS, neutral to NAV? Just trying to get a clarification.

Yes. Neutral to our EPS.

Okay. Great. Okay. I guess the final question is, does it start moving you up in terms of larger -- does this start moving horizon up to larger deals or is it going to stay sort of within the same type of size deals that traditionally you have?

Yes. I think it certainly allows us the opportunity to do deals that would be a little bit larger. We'll have a larger capital base to work with. But also the relationship with Monroe gives us the opportunity to do deals that are substantially larger when you combine both companies. So we're already seeing that go into practice now with some of the deals that we've got term sheets out on.

All right. Good show. You guys know how to make an earnings call a lot more exciting.

Thank you, Chris. You hit most of the key points as usual. Our view on this is it's a win-win for everyone, the MRCC shareholders and the Horizon shareholders.

Yes. No, it's an interesting transaction, and it's creative. Kudos to whoever structured it. It does address issues that overhang MRCC. And I think it does provide a neat way to leverage the Horizon platform because Horizon is trading above book and is able to utilize the ATM.

And I think the venture debt space in general is a good place to be. It has natural barriers to entry, and I think the deal makes a lot of sense.

You watch. We've got big plans for Horizon.

Next question comes from Paul Johnson with KBW.

Is there any sort of lockup at all in place for the Monroe shareholders after receiving rising shares?

No, I don't believe there's any contemplated in the transaction.

Got it. Okay. And then the 2,500 -- sorry, the $2.5 million of G&A expense synergies, what is kind of like the trailing combined 4-quarter or trailing year of G&A expenses between the 2 BDCs prior to the synergies?

I think if you look on Slide 9 in the presentation, it will give you the information that you're looking for. If you see the MRCC and Horizon is at 8.4, and then the combined afterwards is the 5.8. And that's the savings that Mike spoke about in the script.

Got it. Okay. And then more of a technical question, but I mean does the merger at all, does that affect the total return hurdle calculation look-back in any way?

No, it does not They'll still be calculated as normal calculated with the look-back and the same features.

At this time, there are no further questions. This concludes today's teleconference. We thank you for your participation. You may now disconnect your lines.