Horizon Technology Finance Corporation (HRZN) Earnings

Management highlights

- Post-Merger Integration & Strategic Foundation * Completed the merger with Monroe Capital Corporation (MRCC) in April 2026, significantly expanding available investment capital and positioning the company for long-term sustainable growth * Aligned internal credit rating scales with Monroe Capital: changed from a 4-to-1 scale (4 = highest rating) to a 1-to-5 scale (1 = highest rating) to improve consistency for cross-organization collaboration and co-investments * Made targeted investments to enhance underwriting and credit capabilities, optimize company-wide technology infrastructure, and expand the origination platform and team - Portfolio and Operating Performance * Grew the debt investment portfolio for the third consecutive quarter, with 88% of the fair value of the debt portfolio rated 1, 2 or 3 (investment-grade equivalent under the new scale), and only 12% rated 4 or 5 (higher risk) * Total investment income for Q2 2026 was $25 million, up from $24.5 million in the year-ago quarter, driven by higher interest income from the larger debt portfolio * Excluding one-time non-recurring merger expenses, net investment income (NII) was $0.18 per share, which covered the company's regular common share distributions * Net asset value (NAV) per share ended the quarter at $6.23, down $0.75 quarter-over-quarter, primarily due to full write-downs of a $20 million equity holding and $19 million debt holding in portfolio company Soli * Ended the quarter with $229 million in available liquidity ($135 million in cash plus $94 million in undrawn capacity under existing credit facilities), with a debt-to-equity ratio of 0.97:1 and net leverage of 0.65:1, well below the company's target leverage, giving $459 million in total available investment capacity * Repurchased 1.4 million common shares in Q2, and the board approved an increase to the repurchase program authorizing up to an additional $20 million in common share repurchases - Market Environment * The venture capital market remains strongly bifurcated: 86% of Q2 2026 VC investment went to large AI deals, with top-tier companies capturing the majority of capital, while exit activity remains muted for non-AI companies amid ongoing macro and geopolitical uncertainty * Despite this bifurcation, the company sees strong origination opportunities in both life sciences and technology, aligned with its core focus

Guidance

- The company expects additional debt investment portfolio growth in Q3 2026, supported by its current pipeline of opportunities and a $228 million committed backlog (up $48 million from Q1 end) - The company reaffirmed its long-term goals: to consistently grow the portfolio over time, steadily increase NII, and create additional shareholder value, with the target of delivering NII at or above declared distributions over time as it deploys merger capital towards its target leverage - The board has declared regular monthly distributions of $0.06 per share and special monthly distributions of $0.03 per share, both payable in October, November, and December 2026, consistent with prior guidance announced ahead of the MRCC merger close - The company's advisor will begin waiving up to $1 million per quarter in base management and incentive fees starting Q3 2026, for a total planned waiver of $4 million

Segment performance

Horizon Technology Finance is a business development company (BDC) focused on venture lending and related investments, with two core portfolio segments: 1) Debt Investments: Ended Q2 2026 with a fair value of $648 million, accounting for 95.7% of the total $677 million portfolio. The portfolio generated a yield of 14.9% for the quarter. In Q2, $73 million in new debt investments were funded, offset by $39 million in principal prepayments and $6 million in scheduled principal payments, resulting in net portfolio growth. 2) Warrants, Equity and Other Investments: Ended Q2 2026 with a fair value of $28 million, representing 4.3% of the total portfolio. The company realized $2.3 million in proceeds from warrant and equity redemptions in two portfolio companies during the quarter. Total portfolio size ended the quarter at $677 million, marking the third consecutive quarter of debt portfolio growth.

Risks & headwinds

- The Soli investment write-down demonstrates idiosyncratic portfolio company risk: portfolio companies can experience unanticipated excess cash burn that derails planned equity raises, leading to significant full or partial write-downs of both debt and equity holdings - The current venture capital market is heavily bifurcated, with most capital and exit activity concentrated in large AI deals, creating headwinds for non-AI portfolio companies to access growth capital or exit, which could increase broader credit risk - Ongoing macroeconomic and geopolitical uncertainty continues to weigh on the IPO market for non-AI companies, which could limit exit opportunities for the company's equity and warrant holdings - Interest rate risk is partially mitigated: ~61% of floating rate debt investments have interest rate floors that reduce downside to NII if rates fall, while rising rates increase NII for nearly all of the portfolio, but rate declines would still pressure net investment income - Forward-looking statements are inherently uncertain, and actual results may differ materially from projections due to a range of unforeseen factors, as disclosed in the company's SEC filings

Analyst Q&A

• Q: The large NAV decline this quarter came from a single company-specific write-down on the Soli investment. Are there any broader read-throughs from this event to other portfolio companies or industry segments? /

  A: Per company policy, we do not disclose detailed public commentary on individual portfolio company specifics beyond what has already been shared. We confirm this event was driven by company-specific fundraising headwinds for Soli. The team is currently focused on working through the recovery process to maximize the value we can recoup from the position. No broader cross-portfolio or industry risks were highlighted from this specific event.

• Q: Now that the MRCC merger is complete, how will your investment strategy shift, particularly around deal size and portfolio diversification now that you have excess capital capacity? Will you target larger transaction sizes? /

  A: All of these strategic priorities are in play as we scale the platform post-merger. The partnership with Monroe Capital gives us the ability to co-invest on larger deals where it makes strategic sense. Our core goal is to grow the platform to support larger deal ticket sizes and target companies in later growth stages, while also building a more diversified portfolio. We will remain disciplined and only pursue opportunities that align with our overall yield and risk profile targets as we scale.