Good morning, and welcome to Horizon Technology Finance's First Quarter 2016 Conference Call. Today's call is being recorded. All lines have been placed on mute. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. I would now like to turn the call over to Megan Bacon of Horizon for introductions and the reading of the Safe Harbor statement. Please go ahead.

Thank you. And welcome to the Horizon Technology Finance first quarter 2016 conference call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer; Gerry Michaud, President, and Chris Mathieu, Chief Financial Officer. Before we begin, I would like to point out that the Q1 press release is available on the company's website at horizontechfinance.com. Now, I will read the following Safe Harbor statement. During this conference call, Horizon Technology Finance 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, 2015. 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 Rob Pomeroy.

Good morning and thank you all for joining us. First quarter 2015, we remain focused on selectively [indiscernible] loans, preserving our solid credit [indiscernible] and continuing to realize positive liquidity events for the benefit of our shareholders. This enables to [indiscernible] the size of investment portfolio and generate net investment income that exceeded our distributions. We’ve now covered our distributions for three consecutive quarters [indiscernible] excess and accretively deploying the net proceeds from our following equity offerings [indiscernible] and leveraging that equity with cost effective borrowings. By originating high-quality loans with attractive on-boarding yields and increasing our leverage towards our target level, we’ve enabled to grow our portfolio to a size that can generate net investment income in excess of our distributions. Notably, we have accomplished this important objective by pursuing a disciplined growth strategy. Going forward, our focus will remain on originating high-quality loans while continuing to manage our investment portfolio to provide shareholders with stable distributions from net investment income. Credit quality remains an outmost priority for us. The overwhelming percentage of our portfolio continues to perform as well or better than our expectations. We saw a normal rating migration during the first quarter with loans being upgraded and downgraded amongst our rating categories. During the first quarter, we did see a reduction in NAV associated with the unrealized depreciation on our public and private warrant portfolio and fair value adjustments on our two portfolio loans. As I mentioned on our last call, we settled the one loan on non-accrual at year end at its carrying value. At March 31, we have only one small loans on non-accrual. With the current reporting of real and unrealized depreciation, I did want to clarify where we stand on our fee cap and deferral mechanism in connection with the management and…

Thanks, Rob. Good morning, everyone. In the first quarter, Horizon successfully managed its diversified investment portfolio while continuing to exercise strong pricing discipline in evaluating new loan opportunities. During the quarter, we funded five new loans totaling $16.5 million and achieved strong and consistent on-boarding yields of over 12%. These results combined with liquidity events from four portfolio companies, which were driven in part by ongoing M&A activity in the technology sector during the first quarter, enabled us to achieve a portfolio yield of 15.5%. As of March 31st, Horizon's unfunded loan approvals and commitments, all priced at floating interest rates were $6.5 million to three companies. In addition, during the quarter we will award three new transactions totaling $12.5 million. Meanwhile, our pipeline of new opportunities was approximately $250 million at March 31st. With our substantial pipeline of new opportunities, combined with expanded commitments on our credit facility, we are well-positioned to execute on our investment strategy. Based on market demand, our enhanced liquidity and expected normal amortization and prepayment activity, we expect the size of our portfolio to remain flat or to grow slightly for the second quarter. At the end of the first quarter, we held warrants and equity positions in 86 portfolio companies. We experienced four portfolio company liquidity events during the first quarter, which included prepayments of $8 million and the successful sale of Overture Networks in January. During the quarter, we monetized three warrant positions, receiving total proceeds of $877,000 from the exercise and sale of warrants and receipt of a success fee. In addition, one portfolio company expects to repay our loan in the second quarter, which will include acceleration of end of term payments, prepayment fees and another portfolio company has entered into a letter of intent to be acquired later this…

Thanks, Gerry and good morning everyone. Our consolidated financial results for the three months ended March 31, 2016 have been presented in our earnings release and on Form 10-Q, both distributed after the market closed yesterday. For the first quarter of 2016, total investment income was $9.3 million compared to $7.3 million for the first quarter of 2015. This increase was primarily due to the higher interest income on investments resulting from both the higher average size of the loan portfolio and a higher level of income associated with end of term payments within our portfolio. Taking into account portfolio liquidity events, our portfolio yield for the first quarter 2016 was 15.5% compared to 15% for the first quarter 2015 and 14.2% for the fourth quarter of 2015. The primary changes quarter-to-quarter were driven by the timing of new loan originations and timing and extent of loan prepayments and the related fee income from those prepayments, including prepayment fees and acceleration of previously unamortized transaction fees. Total expenses were $4.9 million for the first quarter as compared to $4.3 million for the first quarter of 2015. Interest expense, which includes the amortization of debt issue costs decreased primarily due to the decrease of our effective cost of debt for the three months ended March 31, 2016 compared to the prior year period. Base management fee expense increased to $1.3 million in the first quarter of 2016 as compared to $1 million in the first quarter of 2015, due to a 24% increase in the average size of the investment portfolio. For the three months ended March 31, 2016, professional fees and general administrative expenses, which consisted principally of legal and audit fees and insurance premiums remained flat compared to the three months ended March 31, 2015. We earned net investment…

[Operator Instructions] Our first question will come from the line of Jonathan Bock from Wells Fargo Securities. Your line is open.

Good morning and thank you for taking my questions, guys. So, first, congrats, the topline obviously grew substantially. The one question relates to the sustainability of that because I think Gerry, you mentioned the likelihood of a prepayment that may likely again boost the topline in next quarter either through EOT or unaccreted OID. And we got about a $1.1 million of end of term payments that kind of came in. I know you mentioned there is others, as it relates to the OID, et cetera. Give us a sense how should we be thinking about velocity in this environment because it would seem that with market volatility out there, we'd be less apt to see more of this, I will call it one-time fee benefit in nature? Am I wrong for thinking that or what incensed some of your entrepreneurs to quickly turnover there, pay back their loans and find others at a point when it's really difficult to achieve other forms of financing?

Jon, it’s really a two-part question. So, this is Chris. The first part really is kind of the frequency of prepayments. And so we have historically seen a pretty steady cadence of prepayments in our portfolio as it has been maturing. Gerry can speak to the broader markets of the refinancing environment. So, if you want to?

Yes. So, I think one of things that we pay pretty close attention to, Jonathan and I think it gets a little bit lost in our presentation is what does the top of our pipeline look like at any period of time based on what's going on relative to the market cycles. And actually right now, I think the top of our pipeline is about as large as it’s been in quite a while. We are seeing lots of opportunities. I think there is a concern in the marketplace relative to liquidity from the IPO markets that just isn't there that had been over the last couple of years. So, I think we are very well positioned, especially with the increase in the credit facility to maintain the kind of size of portfolio that we have during the course of the year and to your point go through those normal prepayment activity that takes place during the course of the year. So, I actually -- fundamentally, I kind of see a very normal year for us relative to both prepayments, but also creating opportunities to obviously maintain the size of our portfolio and maybe hopefully grow it a little less as the year goes on. And generally speaking when the IPO market is a little bit tighter, we also were able to get a little bit better pricing in the marketplace. So, I don't think we are going to see any deterioration in our pricing. We are pretty disciplined on that anyway no matter what’s going on in the market. But I also think that there is going to be enough opportunity in the marketplace for us to be able to transition prepayment loans and to new loans with consistent pricing during the year.

Got it. And that’s helpful. And then Chris, as I go back and I understand prepayments have been certainly steady and when I think of the amount that’s kind of been accreted in income with end of term payments, so the June through December ’15, kind of around the $300,000 to $500,000 mark. And now this quarter we received $1.1 million, so obviously great when I highlight that. But are you saying that we should see a consistent level of that $1.1 million going forward in light of just because you mentioned that prepayments are steady? Is that kind of what you are saying with your previous statement?

No. Jon, thank you for your clarification. So, I think this was somewhat of an outsized quarter for the end of term payment, the recognition. So, I think historical averages are better way to think about the portfolio. It was definitely a benefit this quarter that we have a benefit this quarter that we had. Maybe a little bit better than other quarters in the past.

And then Gerry, the one that’s going to prepay this quarter, is there a sizable EOT attached to that?

Actually, Jonathan, I don’t have answer for that as I’m sitting here right now.

Okay. Okay. And then just a little bit of a clean-up. As it relates to NOMi, this was $7.5 million investment marked at 86, 87, would you mind just giving us some additional commentary on performance of the underlying portfolio company and that’s all my questions?

I will take that one, Jonathan. It’s a two rated credit. As we’ve always said those are companies that are experiencing some stress but we do not expect to experience a loss on and that would be the case with NOMi. And so they're working through the stress and we expect to have -- still expect to have full repayment of that loan.

Okay. Thank you so much.

Thank you. Our next question will come from the line of Casey Alexander, Ladenburg Thalmann. Your line is open.

Yes. Thank you. Jon asked a couple of my questions. But just for maintenance, when did or does the cumulative look-back began?

It commenced in July 1st of 2014 and it has a three year look-back. So it’s still gathering quarters.

Okay. Great. Thank you. And at end of quarter what was the percentage of floating rate loans to fixed-rate loans?

95% were floating. We have a small piece of the portfolio that is in the securitization that is fixed rate but all the new stuff that we’ve been doing for the past two years has been floating rate.

Okay. And again, as it relates to NOMi, I mean that was originated in January and so it's marked down in the quarter that it was originated in. Was there a specific event at the company that related to them to some sort of stress, or did this not come to light until after the underwriting process was complete? Can we get a little bit more color on that, please?

Yes. I mean, it’s a fair value adjustment, not an incremental loan just to be clear. But yes, there were things that happened since we did the loan that have created the additional stress.

Okay. Thank you. That’s all my questions. Thank you.

Thank you. Our next question will come from the line of Robert Dodd from Raymond James. Your line is open.

Hi, guys. Two questions. First one, following up on Jonathan’s as well but I will make it easier for me in terms of numbers out there. Total amortization of ETPs, regular OID, etcetera in the quarter was $2.5 million. Knowing the prior four quarters, it averaged about $1.1 million to $1.million. So, would it be fair to say that there was a bit more acceleration than just the $1 million ETP and there were some other OID accelerated as well? And then following on from that when you talk about historical average that total line, not just acceleration, $4.5 million last year but $6 million in the year before, so can you give us kind of a -- what is the historical average for that number?

Yes. So the activity that happened this quarter is outsized as I had mentioned. It largely refers to a couple of transactions that had previously been on ETP non-accrual for a period of time and they came off because of a substantial improvement in their overall credit stature, much like middle-market company would put a pick interest loan on, pick non-accrual very similar situation and so these transactions had moved, improved dramatically in the portfolio. So, you see a little bit of a pickup through that. And so when we were speaking earlier about -- with Jonathan about kind of the trends of the impact of prepayment activity, I would go back to more of the past 12 or 24 months of ETPs or OID acceleration as a result of prepayments.

Okay. Got it. Thank you. And then on the rates sensitivity, flipping through the Q, it looks like most of the loans have floors at about 50 basis points with a LIBOR. Is that about -- or is there a bit of dispersion in where the floors are?

No, that’s right. Substantially, all have a 50 basis point floor.

Got it. Thank you.

Thank you. [Operator Instructions] Our next question will come from the line of Christopher Testa from National Securities. Your line is open.

Hi. Good morning. Thanks for taking my questions. Just for the unrealized marks this quarter how much were from the two specific credits and how much of that was from just general market conditions?

Hang on one sec, Chris.

No problem.

Can you repeat the question?

Sure. Just the unrealized marks, how much was just from technical, from spread widening and how much was from credit specifics?

Most substantially all of it was credit specific.

Okay. Got it. And that’s the non-accrual and the loan ranked two?

Correct.

Okay. Got it. And I just want to clarify, the yield on the portfolio of 15.5% that includes ETP and the OID acceleration.

It does. Yes.

Okay. Got it. And I know you've remarked the pipeline is very strong. You guys are not trading it as -- to be able to deleverage. Would you be willing to take the balance sheet leverage beyond 75% debt to equity given the opportunities you are currently seeing?

No. We are really focused on staying in that range, Chris. I mean from quarter-to-quarter depending on the timings of actual loan fundings or prepayments, we might be plus or minus like we are today. But we really are focused on staying within that target range of 0.75%.

Got it. And I know you had mentioned that the venture capital cycle is not correlated to the middle-market credit cycle. I would just be interested in hearing your thoughts on where we are in the VC cycle and what you think would be the signs that are saying that this is still going?

Sure. This is Gerry Michaud. One of the things we follow very closely is both VC investing but also VC fundraising. And for the last really, I guess it's almost eight quarters now. When we see VC investing over $10 billion consistently, VC fundraising in $7 billion to $15 billion range that suggests that the way institutional investors and VCs are looking at the marketplace is they still think from an asset allocation place this is a really good place to be putting their money. I think the only concern on the VC side relative to investing is some of the valuations, which is pretty well known and has been pretty well discussed at every level relative to unicorn companies. Those valuations have gotten probably out over their skis relative to the real values of these companies when you drill down into actual operating performance. And so there was going to be some level of stress relative to those companies and how they're going to manage pulling those valuations back. But generally speaking from what we are seeing in the marketplace, our own portfolio companies are getting, continuing to be funded by VCs with follow-on equity rounds including new investors coming into some of those rounds and those are all very positive aspects relative to how we kind of view that market and pay attention to what's going on.

That’s great color. Thank you. That’s all for me.

Thank you. There are no further questions. I would now like to turn the call back over to Robert Pomeroy, Chairman and Chief Executive Officer for closing comments.

Thank you. To recap, in the first quarter by executing on our investment strategy, focusing on preserving our solid credit quality and continuing to realize positive liquidity events, we successfully maintain the size and quality of our investment portfolio and generated net investment income that exceeded our distributions and increased the amount of our spillover income, which can support future distributions to shareholders. Over the coming quarters we will continue to selectively originate high-quality loans by utilizing the increased liquidity from our expanding credit facility while maintaining our leverage at our target levels. In addition, with our growing and maturing warrant and equity portfolio, we expect to continue providing upside to our shareholders. Thank you for your interest in Horizon and we look forward to sharing our progress again with you on August. This concludes our conference call and thank you and have a great day.