Horizon Technology Finance Corporation (HRZN) Bundle
Understanding Horizon Technology Finance Corporation (HRZN) Revenue Streams
Understanding Horizon Technology Finance Corporation’s Revenue Streams
Revenue Sources Breakdown
- Investment income from non-affiliate investments:
- Interest income: $71.549 million for the nine months ended September 30, 2024.
- Fee income: $2.661 million for the nine months ended September 30, 2024.
- Payment-in-kind interest income: $1.554 million for the nine months ended September 30, 2024.
- Investment income from controlled affiliate investments:
- Interest income: $46,000 for the nine months ended September 30, 2024.
- Payment-in-kind interest income: $560,000 for the nine months ended September 30, 2024.
Year-over-Year Revenue Growth Rate
For the nine months ended September 30, 2024, total investment income was $76.370 million, compared to $85.292 million for the same period in 2023, representing a decrease of 10.5%.
Contribution of Different Business Segments to Overall Revenue
| Segment | Revenue (in millions) | Percentage of Total Revenue |
|---|---|---|
| Non-affiliate Investments | $74.000 million | 97.9% |
| Controlled Affiliate Investments | $2.370 million | 2.1% |
Significant Changes in Revenue Streams
Investment income from non-affiliate investments decreased from $75.695 million in 2023 to $71.549 million in 2024, reflecting a decline of 5.7%.
Fee income saw a slight increase from $2.255 million in 2023 to $2.661 million in 2024, which is an increase of 18%.
Investment Income Overview
| Type of Income | 2024 (9 months) | 2023 (9 months) | Change (%) |
|---|---|---|---|
| Interest Income | $71.549 million | $75.695 million | -5.7% |
| Fee Income | $2.661 million | $2.255 million | +18% |
| Payment-in-kind Interest Income | $1.554 million | $5.930 million | -73.8% |
A Deep Dive into Horizon Technology Finance Corporation (HRZN) Profitability
Profitability Metrics
Analyzing the profitability of Horizon Technology Finance Corporation (HRZN) reveals several key financial metrics that are essential for investors. Below is a detailed breakdown of gross profit, operating profit, and net profit margins.
Gross Profit, Operating Profit, and Net Profit Margins
As of September 30, 2024, the company's financial performance is as follows:
| Metric | Q3 2024 | Q3 2023 | Year Ended 2023 |
|---|---|---|---|
| Gross Profit | $24,563,000 | $29,138,000 | $76,370,000 |
| Operating Profit | $12,210,000 | $17,533,000 | $38,466,000 |
| Net Profit | $11,837,000 | $17,354,000 | $37,357,000 |
| Net Profit Margin | 48.2% | 59.6% | 48.9% |
Trends in Profitability Over Time
The trends in profitability metrics indicate a decline in gross and operating profit from Q3 2023 to Q3 2024. The net profit margin has also decreased, reflecting challenges in maintaining profitability amid fluctuating revenues.
Comparison of Profitability Ratios with Industry Averages
When comparing HRZN's profitability ratios to industry averages, the following insights emerge:
- Gross Profit Margin: HRZN at 48.2% vs. industry average of 50%.
- Operating Profit Margin: HRZN at 49.7% vs. industry average of 52%.
- Net Profit Margin: HRZN at 48.2% vs. industry average of 45%.
Analysis of Operational Efficiency
The operational efficiency of HRZN can be evaluated through cost management and gross margin trends:
- Cost Management: Total expenses for Q3 2024 were $12,353,000, slightly higher than $11,605,000 in Q3 2023.
- Gross Margin Trend: The gross margin has seen a decline from 69.7% in Q3 2023 to 66.5% in Q3 2024.
- Investment Income: Interest income from non-affiliate investments decreased from $23,825,000 in Q3 2023 to $22,779,000 in Q3 2024.
This analysis underscores the importance of monitoring profitability metrics as they are critical indicators of financial health and operational efficiency.
Debt vs. Equity: How Horizon Technology Finance Corporation (HRZN) Finances Its Growth
Debt vs. Equity: How Horizon Technology Finance Corporation Finances Its Growth
Debt Levels
As of September 30, 2024, the total borrowings outstanding for the company are $705.97 million, compared to $433.97 million a year earlier. The breakdown includes long-term debt of approximately $670.17 million and short-term debt of $35.8 million.
Debt-to-Equity Ratio
The company reports a debt-to-equity ratio of 2.52 as of September 30, 2024. This compares to the industry average ratio of approximately 1.8, indicating a higher reliance on debt financing relative to equity.
Recent Debt Issuances
In 2022, the company issued $91 million in asset-backed notes, which are currently rated A by DBRS, Inc. The 2026 Notes, totaling $57.5 million, have a fixed interest rate of 4.875% and are due in 2026. The 2027 Notes, amounting to $50 million, carry a 6.25% interest rate.
Credit Ratings
The company’s debt investments have a weighted average credit rating of 3.1 as of September 30, 2024, with 70.9% of investments rated 3, indicating a standard level of risk.
Debt Investment Portfolio
| Credit Rating | Number of Investments | Fair Value ($ thousands) | Percentage of Total Debt |
|---|---|---|---|
| 4 | 10 | 129,508 | 20.5% |
| 3 | 34 | 449,085 | 70.9% |
| 2 | 6 | 33,465 | 5.3% |
| 1 | 3 | 21,226 | 3.3% |
Equity Funding
During the nine months ended September 30, 2024, the company raised approximately $47.5 million through the sale of common stock under its equity distribution agreement. The company sold 4,279,141 shares at an average price of $11.09 per share.
Balance Between Debt and Equity Financing
The company maintains a balanced approach to financing, utilizing both debt and equity to fund growth. As of September 30, 2024, the company's assets were covered by debt at a ratio of 178%, complying with the regulatory requirement of at least 150%.
Conclusion on Financing Strategy
By leveraging its credit facilities and maintaining a robust equity base, the company has effectively positioned itself to finance ongoing growth while managing risk associated with high levels of debt.
Assessing Horizon Technology Finance Corporation (HRZN) Liquidity
Assessing Horizon Technology Finance Corporation's Liquidity
Current Ratio: As of September 30, 2024, the current ratio was calculated at 3.54, reflecting a strong liquidity position. The current assets totaled $117.9 million, while current liabilities stood at $33.3 million.
Quick Ratio: The quick ratio, which excludes inventory from current assets, was 3.54 as well, indicating that the company can easily cover its short-term obligations with its liquid assets.
Working Capital Trends
As of September 30, 2024, the working capital was $84.6 million, an increase from $73.9 million as of December 31, 2023. This trend indicates improved financial health and a stronger ability to meet short-term liabilities.
Cash Flow Statements Overview
The cash flow statement for the nine months ended September 30, 2024, reveals the following:
| Cash Flow Category | 2024 (in millions) | 2023 (in millions) |
|---|---|---|
| Operating Cash Flow | $30.1 | ($16.5) |
| Investing Cash Flow | ($10.3) | ($8.1) |
| Financing Cash Flow | ($19.1) | $36.1 |
The operating cash flow turned positive in 2024, a significant recovery compared to the negative cash flow recorded in the same period of 2023. This reflects the company's ability to generate cash from its core operations.
Potential Liquidity Concerns or Strengths
The company has cash and investments in money market funds totaling $83.4 million as of September 30, 2024, compared to $73.1 million at the end of 2023. Additionally, the borrowing capacity under various credit facilities was as follows:
| Facility | Outstanding Principal (in millions) | Borrowing Capacity (in millions) | Available for Borrowing (in millions) |
|---|---|---|---|
| Key Facility | $0.0 | $150.0 | $13.3 |
| NYL Facility | $181.0 | $69.0 | $8.2 |
| Nuveen Facility | $50.0 | $50.0 | $29.9 |
The asset coverage for borrowed amounts was 178%, well above the required minimum of 150%. This indicates a strong solvency position, with adequate assets to cover outstanding borrowings.
Is Horizon Technology Finance Corporation (HRZN) Overvalued or Undervalued?
Valuation Analysis
In evaluating the valuation of Horizon Technology Finance Corporation, we will analyze key financial ratios, stock price trends, dividend metrics, and analyst consensus.
Price-to-Earnings (P/E) Ratio
The current P/E ratio for Horizon Technology Finance Corporation is 8.73. The trailing twelve months (TTM) earnings per share (EPS) stands at $1.10.
Price-to-Book (P/B) Ratio
The P/B ratio is currently 0.83, with the book value per share at $10.92.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is reported at 5.64, indicating the company's valuation relative to its earnings before interest, taxes, depreciation, and amortization.
Stock Price Trends
Over the past 12 months, the stock price has fluctuated between a high of $12.50 and a low of $8.25. The current stock price is $9.06.
Dividend Yield and Payout Ratios
The current dividend yield is 4.84%, with annual dividends declared at $0.44 per share. The dividend payout ratio is approximately 40% based on the net investment income per share of $1.10.
Analyst Consensus
The consensus among analysts regarding the stock is as follows:
- Buy: 5 analysts
- Hold: 3 analysts
- Sell: 1 analyst
Comprehensive Financial Summary Table
| Metric | Value |
|---|---|
| P/E Ratio | 8.73 |
| P/B Ratio | 0.83 |
| EV/EBITDA Ratio | 5.64 |
| 12-Month High | $12.50 |
| 12-Month Low | $8.25 |
| Current Stock Price | $9.06 |
| Dividend Yield | 4.84% |
| Annual Dividends | $0.44 |
| Payout Ratio | 40% |
| Analyst Consensus (Buy) | 5 |
| Analyst Consensus (Hold) | 3 |
| Analyst Consensus (Sell) | 1 |
Key Risks Facing Horizon Technology Finance Corporation (HRZN)
Key Risks Facing Horizon Technology Finance Corporation
Horizon Technology Finance Corporation faces a variety of internal and external risks that could impact its financial health and operational performance.
Industry Competition
The company operates in a competitive landscape where numerous business development companies (BDCs) vie for investment opportunities. This competition can lead to pricing pressures and reduced margins on investments. The five largest debt investments at cost represented 22% and 23% of total debt investments outstanding as of September 30, 2024, and December 31, 2023, respectively.
Regulatory Changes
Changes in financial regulations can significantly affect operations. The company must comply with the Investment Company Act of 1940, which imposes restrictions on borrowing and investment strategies. As of September 30, 2024, the asset coverage for borrowed amounts was 178%, indicating compliance with regulatory borrowing limits.
Market Conditions
Volatility in market conditions can impact the company's investment portfolio. Interest income from the five largest debt investments accounted for 21% and 24% of total interest and fee income on investments for the three months ended September 30, 2024, and 2023, respectively. Economic downturns can lead to defaults or reduced payments from portfolio companies.
Financial Risks
The company is exposed to interest rate risk, particularly with the recent increases in rates. The average interest rate on the Key Facility was 8.53% for the three months ended September 30, 2024. Any significant changes in market interest rates could adversely affect net income.
Operational Risks
Operational risks include potential disruptions in cash flows from portfolio companies, which may affect their ability to make payment-in-kind (PIK) interest payments. The timing of cash flows can be uncertain, impacting overall liquidity.
Mitigation Strategies
The company employs several strategies to mitigate these risks:
- Maintaining a diversified investment portfolio across various sectors.
- Monitoring regulatory changes actively to ensure compliance.
- Implementing a robust credit evaluation process for new investments.
| Risk Factor | Impact | Mitigation Strategy |
|---|---|---|
| Industry Competition | Pressure on pricing and margins | Diversification of investments |
| Regulatory Changes | Operational restrictions | Active compliance monitoring |
| Market Conditions | Investment volatility | Portfolio diversification |
| Financial Risks | Interest rate fluctuations | Fixed-rate borrowings |
| Operational Risks | Cash flow disruptions | Robust cash flow management |
As of September 30, 2024, the company had total borrowings outstanding of $433.97 million, and the net asset value per common share was $9.06. These figures illustrate the scale of operations and the financial structure that must be carefully managed in light of the identified risks.
Future Growth Prospects for Horizon Technology Finance Corporation (HRZN)
Future Growth Prospects for Horizon Technology Finance Corporation (HRZN)
Analysis of Key Growth Drivers
The company has identified several key growth drivers including:
- Product Innovations: The company continues to invest in technology-focused companies, enhancing its portfolio with innovative solutions. The focus areas include healthcare information services, software, and diagnostics.
- Market Expansions: The company has actively expanded its market presence through strategic investments and partnerships, particularly in the healthcare and technology sectors.
- Acquisitions: The company is exploring potential acquisitions of complementary businesses to enhance its service offerings and market reach.
Future Revenue Growth Projections and Earnings Estimates
For the fiscal year 2024, analysts project a revenue growth rate of approximately 8% to 10%, with expected earnings per share (EPS) of around $1.06. This reflects a recovery from the previous year’s earnings of $1.54 per share, attributed to increased investment income and strategic asset management.
Strategic Initiatives or Partnerships
The company has undertaken several strategic initiatives:
- Debt Investment Initiatives: On October 7, 2024, the company funded a $2.5 million debt investment to Standvast Holdings, LLC.
- Convertible Notes Offering: The company issued $20 million in 7.125% Convertible Notes due 2031, generating net proceeds of approximately $18.6 million.
Competitive Advantages
The company benefits from several competitive advantages:
- Diverse Investment Portfolio: As of September 30, 2024, the total investments at fair value were $684 million, with a focus on technology and healthcare sectors.
- Strong Cash Position: The company reported cash holdings of $52.3 million as of September 30, 2024, providing a solid foundation for future investments.
- Robust Asset Coverage: The asset coverage for borrowed amounts was 178% as of September 30, 2024, indicating a strong balance sheet.
| Key Financial Metrics | 2024 Estimates | 2023 Actuals |
|---|---|---|
| Revenue Growth Rate | 8% - 10% | 6% - 8% |
| Earnings Per Share (EPS) | $1.06 | $1.54 |
| Total Investments at Fair Value | $684 million | $709 million |
| Cash Holdings | $52.3 million | $46.6 million |
| Asset Coverage Ratio | 178% | 150% |
These growth opportunities and strategic initiatives position the company well for future expansion and profitability in the technology finance sector.
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Article updated on 8 Nov 2024
Resources:
- Horizon Technology Finance Corporation (HRZN) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Horizon Technology Finance Corporation (HRZN)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View Horizon Technology Finance Corporation (HRZN)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.