Horizon Technology (NASDAQ:HRZN) Finance Corporation (NASDAQ: HRZN) reported its earnings for the third quarter of 2024, with a net investment income (NII) of $0.32 per share, which was marginally below its declared distribution level. The company announced monthly distributions of $0.11 per share through March 2025 and reported a 6% growth in its portfolio to $684 million. The debt portfolio yield stood at 15.9%, one of the highest in the Business Development Company (BDC) industry.
Despite a lower net investment income compared to the same quarter last year and a decline in net asset value (NAV) per share, HRZN remains optimistic about its future growth and the venture debt market, particularly in the technology and life sciences sectors.
Key Takeaways
- Net investment income (NII) of $0.32 per share, slightly below the declared distribution level.
- Monthly distributions of $0.11 per share announced through March 2025.
- Portfolio grew by 6% to $684 million with a debt portfolio yield of 15.9%.
- Nine new debt investments totaling $93 million focused on high-quality loans.
- $38 million in prepayments, indicating an improving venture market.
- A backlog of $190 million in committed and approved loans.
- Raised over $18 million through an at-the-market (ATM) program and $20 million via convertible notes in October.
- $125 million in available liquidity and no outstanding borrowings as of September 30.
- Debt-to-equity ratio of 1.28, with potential new investment capacity at $356 million.
- Optimistic about future portfolio growth and venture debt market, with a robust pipeline of $1.2 billion.
- Investment income for Q3 at $25 million, down from $29 million in Q3 2023.
- NAV per share at $9.06, reflecting a decline due to distributions and fair value adjustments.
- Progress on resolving non-accrual loans with some resolutions expected in Q4 and early 2025.
Company Outlook
- Horizon Technology Finance is optimistic about sourcing new high-quality venture debt investments.
- Aims to grow the portfolio in Q4 2024 and into 2025, focusing on maintaining credit quality.
- Robust pipeline of $1.2 billion expected to support future growth.
Bearish Highlights
- Net investment income per share decreased to $0.32 from $0.53 in Q3 2023.
- NAV per share declined due to distributions and fair value adjustments.
Bullish Highlights
- Portfolio yield remains among the highest in the BDC industry.
- Strong liquidity position with $125 million available and no outstanding borrowings.
- Potential new investment capacity of $356 million.
Misses
- Investment income for Q3 was lower compared to the previous year.
- The company experienced significant realized losses, primarily due to the Nexii transaction.
Q&A Highlights
- CFO Dan Trolio confirmed plans to gradually earn back the incentive fee by the end of next year.
- Spillover income reported at $1.27 with no set target for its minimum level.
- Despite a 50 basis point cut in index rates, yields on new investments have remained stable.
- CEO Rob Pomeroy emphasized commitment to strong portfolio yields and shareholder returns.
In conclusion, Horizon Technology Finance Corporation has navigated the third quarter with a strategic balance of growth and stability. While facing some challenges, the company has secured new capital and remains committed to its investment strategy and shareholder distributions. The outlook for Horizon Technology Finance is cautiously optimistic as it continues to capitalize on market improvements and grow its investment portfolio.
InvestingPro Insights
Horizon Technology Finance Corporation's (NASDAQ: HRZN) recent earnings report can be further contextualized with additional insights from InvestingPro. The company's current market capitalization stands at $360.96 million, reflecting its position in the venture debt market.
One of the most striking InvestingPro Tips is that HRZN "Pays a significant dividend to shareholders." This aligns with the company's announcement of monthly distributions of $0.11 per share through March 2025. The current dividend yield is an impressive 15.27%, which is particularly attractive to income-focused investors. Moreover, InvestingPro highlights that HRZN "Has maintained dividend payments for 15 consecutive years," demonstrating a long-term commitment to shareholder returns despite market fluctuations.
However, investors should note that the stock is "Trading near 52-week low" and has experienced a significant price decline over the last three months, with a total return of -17.19%. This price movement correlates with the reported decline in NAV per share and the lower net investment income compared to the previous year.
The company's revenue for the last twelve months as of Q2 2024 was $109.13 million, with a modest growth of 6.41%. This growth, albeit small, supports management's optimistic outlook on portfolio expansion and the venture debt market's potential.
For investors considering HRZN, it's worth noting that InvestingPro offers 8 additional tips for this stock, providing a more comprehensive analysis for those looking to delve deeper into Horizon Technology Finance's investment potential.
Full transcript - Horizon Technology Finance (HRZN) Q3 2024:
Operator: Greetings, and welcome to the Horizon Technology Finance Corporation Third Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce, Megan Bacon. Thank you. You may begin.
Megan Bacon: Thank you, and welcome to Horizon Technology Finance Corporation's third quarter 2024 conference call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer; Jerry Michaud, President; Dan Devorsetz, Chief Operating Officer and Chief Investment Officer; and Dan Trolio, Chief Financial Officer. I would like to point out that the 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 remind everyone that during this conference call, the company will make certain forward-looking statements, including statements with regard to the future performance of the company. Words such as believe, expect, anticipate, intend 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, 2023. The company undertakes no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to Rob Pomeroy.
Robert Pomeroy: Welcome, everyone, and thank you for your interest in Horizon. Today we will update you on our performance and our current overall operating environment. Dan Devorsetz, will take us through recent business and portfolio developments; Jerry will then discuss the current status of the venture lending market, and Dan Trolio will detail our operating performance and financial condition. We will then take some questions. As we expected, our portfolio grew in the third quarter, while we improved our credit profile. Our advisor and its experienced and expert team will remain focused on our portfolio's credit quality and originating high-quality investments in order to maximize the value of our portfolio over the long-term. Turning to our specific results for the quarter, we generated net investment income of $0.32 per share, $0.01 below our declared distribution level. As we grow our portfolio in the future quarters, it is our goal to deliver NII at or above our declared distributions over time. Based on our outlook and our undistributed spillover income, our Board declared regular monthly distributions of $0.11 per share through March of 2025. We once again achieved a portfolio yield on debt investments at or near the top of the BDC industry. We enhanced our investment capacity by raising equity from our at-the-market program. Finally, we grew the size of our portfolio by 6% and increased our committed and improved backlog, providing us with a solid base of opportunities to further grow our portfolio. As the macro environment improves and the venture ecosystem recovers, we are continuing to work closely with and support our portfolio companies as we focus on our overall credit profile and maximizing the value of our stressed investments. As we close out 2024, we remain optimistic about Horizons' prospects for the following reasons. Our portfolio is growing, and our portfolio yield remains among the industry's highest. Our pipeline is full with quality new customer opportunities. Our liquidity and balance sheet are strong. And finally, our markets are active and demand for venture debt capital is growing. We are uniquely capable of providing such capital and look forward to doing so. Finally, before I turn the call over, I want to comment on the strategic partnership that Monroe Capital (NASDAQ:MRCC) announced last week. As you know, Monroe, the owner of our advisor, has announced his plans to partner with Wendel Group, a French investment company, through Wendel's purchase of an ownership interest in Monroe Capital, as well as a $1 billion commitment of capital to support new and existing investment strategies of the Monroe platform, including venture debt. Monroe, and by extension our advisor, we will continue to operate independently, and its investment process, strategy and operations will remain the same. As part of the Monroe family, Horizon will benefit from the additional capital, scale and commitment of the partnership between Monroe and Wendel Group. The transaction is expected to close in the first quarter of 2025. Again, we appreciate your continued interest and support in the Horizon Technology Finance Platform. I will now turn the call over to Dan, Jerry, and Dan to give you the details of our third quarter results and progress. Dan?
Dan Devorsetz: Thanks, Rob, and good morning to everyone. We grew our portfolio in the third quarter to $684 million as we originated a number of high-quality loans that more than offset prepayments and normal portfolio amortization. In the third quarter, we funded 9 debt investments totaling $93 million. 5 of these investments were in new portfolio companies, most of whom recently raised significant rounds of equity. As we noted on our last call, we are seeing an increasing and healthy volume of high quality opportunities in the second half of 2024 and have the resources to convert these opportunities into new investments. We also continue to replenish and build our pipeline across our target sectors, with the volume of new opportunities under review currently at its highest level in several quarters. Looking ahead to Q4, we expect our pipeline to produce another quarter of portfolio growth. Thus far in October, we have already been awarded 5 new venture loan transactions representing $90 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 quarter, we experienced 4 loan prepayments totaling $38 million in prepaid principal. These prepayments are evidence of an improving venture market and help generate additional income. Although prepayments remain on the lower end of our historical levels, prepayments are a testament to our predictive pricing strategy, where we structure and price our loans to take into account early prepayments. While we did not see any prepayments in the quarter that were driven by IPOs or M&A activity, in October, one of our portfolio companies, CeriBell, completed its oversubscribed IPO, and we are pleased that we continue to have a debt investment in CeriBell and that its stock is performing well. Our onboarding debt investment yield of 13.2% during the third quarter remained high compared to our historic levels. We expect to continue to generate strong onboarding yields with our current pipeline of opportunities, further demonstrating our capabilities to grow our portfolio profitably and continue to produce strong net investment income. Our debt portfolio yield of 15.9% 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 the profitability of our venture lending strategy and our execution of that strategy across various market cycles and interest rate environments. As of September 30, we held warrant and equity positions in 103 portfolio companies with a fair value of $33 million. Structuring investments with warrants and equity rights is a key component of our venture debt strategy and a potential generator of shareholder value. In the third quarter, we closed $173 million in new loan commitments and approvals and ended the quarter with a committed and approved backlog of $190 million compared to $138 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 provide solid base to prudently grow our portfolio. As of quarter end, 91% of the fair value of our debt portfolio consists of 3 and 4 rated debt investments compared to 88% on June 30. 9% of the fair value of our portfolio was rated 2 or 1, down from 12% on June 30. We made progress in several of our stressed investments using a variety of strategies to maximize current recoveries and create opportunities for potential future value. We will continue to work closely with companies across our portfolio, collaborating with management teams and investors to generate optimal returns from our investments. To summarize, we remain optimistic about continuing to grow our portfolio in the quarters ahead. The current portfolio continues to benefit from elevated interest rates and will continue to work with our borrowers to maximize outcomes. With that, I'll turn it over to Jerry for a look at the overall venture industry and current environment.
Jerry Michaud: Thank you very much, Dan. Turning to the venture capital environment, according to PitchBook, approximately $38 billion was invested in VC-backed companies in the third quarter as the industry remains on pace to match 2023 total, though it is still well off the highs of 2021 and 2022. As we noted last quarter, there continues to be a backlog of venture capital-backed technology and life science companies that are well-positioned for an opportunity to complete an exit by way of M&A or an IPO. While Q3 total exit value of $10 billion was the lowest in five quarters, there were positive indications that the life science market in particular is starting to draw renewed interest from knowledgeable life science investors. There were five life science IPOs in September alone. In October, there have been four more life science IPOs, including Horizon's portfolio company CeriBell. In addition, several large life science private equity funds were raised in the quarter led by Bain [ph] Capital's $2.5 billion life science fund and Goldman Sachs (NYSE:GS)' $650 million life science fund. Big Pharma has also started becoming more interested in acquiring drug discovery companies as they have a need in the next few years to replace blockbuster drugs coming off patent with new drugs with high revenue growth potential. Over the next few quarters, the combination of lower interest rates and a lowering of emerging growth in life science company valuations should accelerate the demand for acquisitions or IPOs of high-quality technology and life science companies. Based on our existing pipeline of over a $1 billion of debt opportunities, Horizon believes there is a very strong opportunity in the coming quarters to provide venture debt financing to high-quality technology and life science companies who will need additional liquidity as they evaluate the improving exit markets. While the overall VC ecosystem has been challenging for an extended period, we believe the conditions for an overall improvement in VC-backed company exit markets for the return of capital to LPs and for new fundraising are showing signs of turning the corner. The macroeconomic impacts of the continuation of lower interest rates, the global need for large tech companies and big pharma companies to remain competitive by acquiring new technologies, combined with the specific technology achievements of VC-backed tech companies and life science companies are beginning to create strong overall market conditions for the VC ecosystem leading into 2025. Accordingly, we remain optimistic about originating a number of new high-quality venture debt investments in the weeks and months ahead. Our optimism is bolstered by our robust pipeline today of about $1.2 billion, a testament to our reputation, brand and sourcing capabilities. To sum up, we remain committed to sourcing high-quality, well-priced investments to grow our portfolio in the fourth quarter and in 2025, which will generate sustainable NII and build additional long-term value for our shareholders. We also remain committed to focus on maintaining credit quality and providing our portfolio companies with support as needed to ensure optimal investment outcomes. With that, I will now turn the call over to Dan Trolio.
Dan Trolio: Thanks, Jerry, and good morning, everyone. We continue to strengthen our balance sheet in the third quarter and into October. First, we continue to opportunistically access our ATM program, as we successfully and accretively sold over 1.7 million shares in the quarter, raising over $18 million of equity capital. In addition, in October, we raised $20 million of debt capital through the issuance of our seven and an eight unsecured convertible notes due 2031. The notes may only be converted into common stock at a price greater or equal to our NAV. We are always seeking to add flexibility and diversity to our capital sources and we believe the convertible notes achieve that. We will continue to focus on maintaining a strong balance sheet in the coming quarters in order to enable us to further grow the portfolio. As of September 30, we had $125 million in available liquidity consisting of $87 million in cash and $38 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-led credit facility, and $50 million outstanding on our new 100 million Nuveen credit facility, leaving us with ample capacity to grow our portfolio of debt investments. Our debt-to-equity ratio stood at 1.2821 as of September 30, and netting out cash in our balance sheet, our net leverage was approximately one to one, which was well within our target leverage. Based on our cash position and our borrowing capacity on our credit facility, our potential new investment capacity as of September 30 was $356 million. Turning to our operating results. For the third quarter, we earned investment income of $25 million compared to $29 million in the prior year period, primarily due to lower interest income and free income on our debt investment portfolio. Our debt investment portfolio on a net cost basis stood at $654 million as of September 30 compared to $675 million as of June 30, 2024. For the third quarter of 2024, we achieved onboarding yields of 13.2% compared to 13.7% achieved in the second quarter. Our loan portfolio yield was 15.9% for the third quarter compared to 17.1% for last year's third quarter. Total expenses for the quarter were $12.4 million compared to $11.6 million in the third quarter of '23. Our interest expense increased to $7.9 million from $7.1 million in last year's third quarter due to an increase in our average borrowings. Our base management fee was $3 million, down from $3.2 million in the prior year period. We received no performance-based incentive fees in the third quarter as we continue to experience a deferral of incentive fees otherwise earned by our advisor under our incentive fee and cap and deferral mechanism. The deferral in the quarter was driven by net realized and unrealized losses on our portfolio. We expect that the advisor will return to earning incentive fees in the coming quarters. Net investment income for the third quarter of '24 was $0.32 per share compared to $0.36 per share in the second quarter of '24 and $0.53 per share for the third quarter of '23. The company's undistributed spillover income as of September 30 was $1.27 per share. We anticipate that the size of our portfolio along with the portfolio's elevated interest rates and our predicted pricing strategy, will enable us to continue generating NII that covers our distribution over time. While the macro environment is beginning to improve, we expect repayment [ph] activities will remain modest in the near-term. To summarize our portfolio activities for the third quarter, new originations totaled $93 million, which are partially offset by $13 million in scheduled principal payments and $40 million in principal prepayments and partial paydowns. We ended the quarter with a total investment portfolio of $684 million. We expect to further grow our portfolio during the fourth quarter. At September 30, the portfolio consisted of debt investments for 53 companies with an aggregate fair value of $633 million, and a portfolio of warrant, equity and other investments in 108 companies with an aggregate fair value of $51 million. Based upon our outlook, our Board declared monthly distributions of $0.11 per share for January, February and March 2025. We remain committed to providing our shareholders with distributions that are covered by our net investment income over time. Our NAV as of September 30 was $9.06 per share compared to $9.12 as of June 30, 2024 and $10.41 as of September 30, 2023. The six $0.06 reduction in NAV on a quarterly basis was primarily due to our paid distribution and adjustments to fair value, partially offset by net investment income and accretive sales of equity. As we've consistently noted, nearly 100% of the outstanding principal amounts of our net investment, their interest at floating rates with coupons that are structured to increase if interest rates rise, with interest rate floors that will mitigate the impact of decreasing interest rates. This concludes our opening remarks. We'll be happy to take questions you may have at this time.
Operator: [Operator Instructions] And our first question comes from Douglas Harter, UBS.
Douglas Harter: Thanks. I'm hoping you could just give us a bit of an update on the non-accrual loans and kind of the -- how we should think about the timelines for resolutions on those?
Dan Devorsetz: So this is Dan Devorsetz. There are -- we're working on a couple of different strategies for the nonaccruals. Some of them have been resolved here in Q3, as you see in the numbers with either acquisitions or other transactions. There's a couple others that we're working on in real time that will take a little bit more time to resolve. I think that there'll be -- some of it will be resolved here in Q4, and a couple others might linger into the first half of 2025. But each one is its own specific timeline and strategy.
Douglas Harter: Great. And I guess just how are you seeing -- the ones that you resolved in Q3, kind of, if you could just give us a little more detail on kind of how those resolved versus kind of your expectations going into the quarter.
Dan Devorsetz: Sure. So one of them, Nexii, was the assets were sold to a third-party buyer, high-quality buyer and that company is operating the company and we marked the assets based upon the transaction that occurred. We have debt and equity in the new company. So that was that one. Evelo, Jerry, you want to talk about Evelo a little bit?
Jerry Michaud: Sure. So Evelo, the life science company has significant life science assets that they are looking to monetize. And so they put all those assets into a holding company. There are a number of transactions that are underway right now. One actually did close in the third quarter and all the proceeds that will be coming from those transactions, some of those proceeds are contractual due to Evelo over time. They will flow to Horizon to continue to pay down our loan based on our senior secured lien position in the company. So this was a way to kind of consolidate the assets. Like I said, there's one transaction that closed in Q3. There's another one, a very similar transaction that is expected to close in Q4. And then there's a separate asset where we're also in the process of finalizing documentation for Q4 closing and we'll get a combination of some upfront proceeds, contractual proceeds, do specifically when I say us, Evelo will get them, those will flow to us through the transactions. And then some of them, in addition to contractual obligations, Evelo has significant equity positions in the transactions that are being completed. So, they have a very diverse asset base. So we're trying to do everything we can to maximize the value of those assets.
Douglas Harter: Thank you.
Operator: Thank you. [Operator Instructions] And our next question comes from Bryce Rowe, B. Riley Securities.
Bryce Rowe: Thanks. Good morning. I wanted to maybe start with the environment. I think last quarter you all talked about kind of an improving pipeline and an improving back -- backdrop from a market perspective and certainly looks like that came to fruition in the third quarter. And based on Dan, based on your comments, it sounds like that that's kind of continued into October. So trying to maybe handicap the deal flow over coming months. And if you could talk a little bit more about the pipeline and how it's building. It sounds -- again, it sounds like you've got some tangible deals that have already closed here in the fourth quarter and so I wanted to just get a feel for beyond October, how the market is shaping up and how your pipeline is coming together.
Dan Trolio: Sure, Bryce. Yes, the market, we believe, is improving. We've been signaling that on our last several calls. That was our expectation based upon signs that we saw in terms of portfolio companies resetting valuations, getting significant rounds of equity and more recently some early signs of life in the exit window. I think it's still too early to say that it's consistent and predictable, but there's certainly some activity as you saw with CeriBell and some others. So I do think the market is improving and we believe that we're in for some strong vintages here in '24 and '25, but we're not there yet. You're right, we did get -- we are building the pipeline with those quality opportunities recently raised equity strong performers. We have had some awards in October, I want to clarify the awards that I referenced on the -- in my scripted remarks haven't closed yet We're working through the process on those. All of them can and should fund in Q4, but you use some might be the later some might fall off. We do expect Q4 to be a growth quarter, but beyond that level of guidance, I don't have a good feel at this stage for what those numbers would be. But the pipeline is growing. It's at its strongest position that it's been in a while, and we are competing hard for quality opportunities.
Bryce Rowe: Okay. That's helpful. And so, as we kind of think about that outlook, even though it's a bit murky, so to speak, how do you all think about the balance sheet at this point? I mean, you've had a decent level of cash going -- on the balance sheet going on the last year, really. Do you expect to draw that down? And I'm kind of thinking about that in relation to where NII is relative to the dividend, and kind of couple that with the fact that you haven't earned the incentive fee or haven't had an incentive expense for the last couple quarters. How do you think about putting that cash to work and possibly getting back to a point where you are covering the dividend?
Dan Trolio: Yes. So I think I mentioned every quarter when we go into the quarter we look at the committed backlog what we expect to fund where we think awards will come in during the quarter and what we'll be able to fund from that and look to our capital sources, right? Use the cash on the balance sheet as you mentioned. Look at the debt facilities and look at our ability to raise equity and we try to plan that as best as possible in the most efficient way. At times deals will slip, we'll have late prepayments and so the cash will fluctuate from quarter-to-quarter. It's always just a snapshot that we're reporting. So that's how we think about the balance sheet. As far as the NII, just reiterate that the venture debt portfolio does generate prepayments on an annual basis. Where they come in on a quarterly basis will fluctuate, and so quarter-over-quarter will be at different levels. But if you look back historically, we've been able to cover our distribution for the past and we're on a good trend through the first 9 months of this year to do that again. And I think I may have forgotten your other question, but …
Bryce Rowe: I know, I think that covered it, Dan. I appreciate it. I did have one more just around, I guess, one of the nonaccruals that's still sitting on nonaccrual. Maybe Dan or Jerry, you could address this, but it looked like Swift was the fair value mark improved dramatically here in the quarter. Can you just talk about what pushed that up and assuming that that maybe -- is on a path back to accrual status?
Jerry Michaud: Sure. Swift is a company that's been in our portfolio for a couple of years, very strong product, very strong investors, victim of the market environment earlier this year where there were issues with continuing fundraising. So the company has been operational all along even though it was on nonaccrual. It was having some precarious cash positions, so we put it on nonaccrual while we were working through that. We are working with two very high-quality life science investors to bring in capital this company. We've been -- we brought -- the capital has come in during the third quarter. We are in the process of closing a longer term transaction that will stabilize this company and set it up for a long-term performance.
Bryce Rowe: Okay and I assume there's some -- the potential for accrued interest that, I guess hasn't been paid that could come back in if it does come back to accrual status. Is that the right way to think about it?
Jerry Michaud: So, we're working on a variety of strategies, and the accrued interest and the final payments and the balances are all part of the picture. But yes, that will be part of the solution.
Bryce Rowe: Okay. Thank you, guys.
Operator: Thank you. Our next question comes from Christopher Nolan, Ladenburg Thalmann.
Christopher Nolan: Hi guys. The ATM, you guys have been hitting it pretty hard last few quarters. What dictates the pace of shares sold?
Dan Trolio: Again, when we look at our capital sources each quarter, we try to balance that out in comparison to what we believe we'll fund in the quarter. You always can't match it perfectly, but with the volume that's trading in the ATM, with our debt facilities, capacity and other availabilities, that will dictate how much we determine we want to raise through the ATM.
Christopher Nolan: And so I guess, and I missed the early part of the call, I just have overlapping calls. It seems like the market is becoming stronger for you guys. And so going forward, should we expect more share issuances from the ATM given your indications of improving loan demand?
Dan Trolio: I think, again, that'll fluctuate. What we have been doing this past year is probably a good parameter [ph] to think about going forward.
Christopher Nolan: Okay. And I guess the final question is, your stock prices sort of come down off highs earlier of the year. You guys have any plan or strategy in terms of trying to improve that, please?
Dan Trolio: We always look at the stock price, talk about the stock price. There are different things that people have opinions that you can do to affect the stock price. We're really more focused on delivering performance for our shareholders, growing the portfolio, generating a consistent NII, and we believe that will take care of the stock price.
Christopher Nolan: Right. Final question. Final question. Any consideration of doing off-balance sheet vehicles or RIAs [ph] or anything like that?
Dan Trolio: We do look at that consistently. And it's one we will continue to look at going forward. As of right now, we don't have anything in the plans.
Christopher Nolan: Okay. Thanks, Dan.
Operator: Thank you. And our next question comes from Paul Johnson, KBW.
Paul Johnson: Yes, good morning. Thanks for taking my question. Just going back to Bryce's question a little bit on just NII generation and [indiscernible] distribution. So when you say your goal is to cover the distribution with NII, when you're kind of looking forward with your outlook, does that include the accrual of the incentive fee, the full accrual of the incentive fee? I just want to be clear on that.
Dan Trolio: Yes. So, when we do forecast that out, we take everything in consideration, cost of capital, our yield, the growth in the balance sheet and earning back the incentive fee over a period of time where we think we'll get back to that towards the end of next year at a full amount.
Paul Johnson: Okay. So the end of next year is you're kind of looking at potentially getting back to the …
Dan Trolio: To the full amount. Yes, we think we'll gradually start building back to the advisor. We'll start earning the incentive fee gradually over the next few quarters to probably about a 100% towards the end of next year.
Paul Johnson: Got it. And then on the spillover income, I think it was a $1.27 you said, I mean what would you like that to be at, I guess, kind of at a minimum? Do you have any sort of target for where you would like to kind of carry spillover income at?
Dan Trolio: We don't look at it as a target. We look at what's contractually we can carry forward. We look at ways to be able to distribute that out to the shareholders through supplemental distributions and try to manage it through those two.
Paul Johnson: Got you. And then, I mean, just kind of given the higher level of the realized losses taken this quarter, I realize some of it may have to do with restructuring of assessments, which might get more complicated, but I guess it's a little surprising to see the level of realized losses again this quarter and the spillover did not really change much quarter-over-quarter. So is there anything, I guess, flowing through those investments that their result that would affect spillover level kind of your estimation?
Dan Trolio: Yes. So the large realized loss for the quarter was generated from the completion of the Nexii transaction Dan mentioned, and that really just flipped from an unrealized loss to a realized loss where it had a very little impact on NAV quarter-over-quarter. Net realized unrealized was about $4 million down for the quarter. Then the spillover is impacted by the operating income, NII, compared to the distribution.
Paul Johnson: Thanks for that. And last question from me, I guess, yields on new investment, it sounds like you're expecting a decent amount of growth going into the fourth quarter. Is there a good amount of activity this quarter? Where are you guys seeing, I guess, yields, core yields, coupon rate yields on new investments. Have you seen any kind of compression and spreads there?
Dan Trolio: So, I haven't seen a compression in spreads necessarily on a portfolio basis. Certainly, each transaction merits its own pricing consideration and structural consideration, but across the portfolio, yields have been -- have maintained pretty nicely. Obviously, the 50 basis point cut in index rates earlier is affecting overall yields, but over time we expect the venture market to trade in the yields that we've traditionally seen, and so far that's been the case, and we expect that to continue yields across on a portfolio basis. I think our portfolio yield year-over-year for many, many years has been quite strong. And I think that's going to remain a strength of ours.
Paul Johnson: Appreciate it. That's all for me. Thank you.
Operator: Thank you. There are no further questions. I would like to now turn the floor back to Robert Pomeroy, Chairman and CEO for closing remarks.
Robert Pomeroy: 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.
Operator: Thank you. This does conclude today's teleconference. We thank you for your participation. You may disconnect your lines at this time.
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