Good morning, and welcome to Horizon Technology Finance's First Quarter 2017 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 reading of the Safe Harbor statement. Please go ahead.

Thank you and welcome to the Horizon Technology Finance first quarter 2017 conference call. Representing the Company today are Rob Pomeroy, Chairman and Chief Executive Officer; Jerry Michaud, President, and Dan Trolio, Chief Financial Officer. Before we begin, 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. 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, 2016. 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. The first quarter marked progress on several fronts for Horizon. For the quarter, we earned net investment income of $3.4 million or $0.29 per share. The earnings resulted from a strong portfolio yield of 15.5% for the quarter and income derive from liquidity events at six portfolio companies. Our ending net asset value increased during the quarter to $12.11 per share based on a combination of our NII, our distributions which totaled $0.30 per share for the quarter and realized and unrealized depreciation on our portfolio. Importantly we funded over $25 million in new loans during the quarter a significant increase over the fourth quarter. The investments that we are making in the advisors platform with new senior professional's is beginning to pay-off with increased originations and a growing pipeline. We have added Managing Director's on each coast originating new opportunities in our target markets. In addition, we are adding talent and portfolio management and accounting and finance. Asset quality continued to recover with the reduction in the number and dollar of non-accrual loans. At March 31st, there were only two loans on non-accrual, one of which is already resolved with the long-term royalty agreement that has the potential portfolio recovery overtime. There were no new non-accruals during the quarter. We also saw a reduction in the number and dollar amount at two rated loans from the levels at December 31st. Two of the loans were repaid in full and one loan was upgraded two a three during the quarter. There was one new loan downgraded to a rating of two. Loan prepayments can be either profitable with accelerated fee income or defensive with the opportunity to reduce exposure and reinvest the capital in the new loans. Horizon experienced both types…

Thanks Rob, good morning everyone. Our first quarter performance reflected improved investment activity as we began to reap the benefits of our enhanced investment platform. During the quarter we funded five new loans totaling $26 million and also closed three new loan commitments in the first quarter totaling $20 million. At the same time, we maintained our disciplined pricing performance achieving on boarding yields of over 12% and we generated portfolio yields for the quarter of 15.5% up from 14.2% in the fourth quarter. The higher portfolio yields is a result of consistently maintaining strong on boarding yields since our inception combined with strategically pricing and structuring transactions to maximize returns received from our portfolio companies as they exit our portfolio. The combination of ETP a big payment fee we just received as company's exit out portfolio has consistently resulted in Horizon having one of the higher yielding portfolios in the BDC industry. We continue to expand our investment pipeline with over 340 million in opportunities including 120 million term sheet issued to 10 companies. We are over 25 million in awards and commitments as of today. We are encouraged not only with the size of our pipeline, but also with the quality of the companies we are evaluating. During the first quarter we saw a marked improvement and the quality of the transactions as a direct result of our targeted focus of finding companies with relatively low leverage, continued equity investor support and leading technology platforms in very specific technology and life science sectors. Our increased pipeline activity is also a reflection of new hires by our advisor on Q4 as well as reorganizing our managing director team to take full advantage of the markets that we serve. At the end of the first quarter we held warrant and…

Thanks, Jerry, and good morning everyone. I will now briefly discuss the results for the first quarter 2017. Our total investment income for the first quarter was $7 million as compared $9.3 million for the first quarter of 2016. The decrease is primarily due to lower interest income and investments resulting from the smaller average size of our loan portfolio. Our portfolio yield for the first quarter was 15.5% consistent with last year first quarter. On-boarding yields in our portfolio which were 12.1% and have remained stable in 12% to 13% range since our inception. Turning to our expenses, total expenses were $3.6 million for the first quarter, a 27% decrease as compared to $4.9 million in first quarter of 2016. Included in these expenses is interest expense which decreased slightly on a year-over-year basis mainly due to a decrease in average borrowings. Base management fee decreased 24% year-over-year to $1 million compared to $1.3 million in prior year period. This change was primarily due to a decrease in an average size of our investment portfolio. In addition incentive fee expense for the first quarter was subject to the incentive fee cap and deferral mechanism under our investment management agreement. This resulted in $300,000 of reduced expense and additional net investment income. We earned net investment income of $0.29 per share for the first quarter as compared to $0.38 per share for the first quarter of 2016 and $0.33 per share for the fourth quarter of last year. After paying distribution of $0.30 per share and earnings $0.29 per share for the quarter, the company’s undistributed spillover income as of march 31, was $0.14 per share. Our NAV as of march 31, was $12.11 per share, as compared to $12.09 in the prior quarter. This increase is primarily due to…

[Operator Instructions] And our first question comes from Jonathan Bock of Wells Fargo Securities. Your line is open, Jonathan.

Hi guys [indiscernible] for Jonathan this morning. Thanks for taking our question and congratulations on the quarter. I'm sorry if I missed but did you provide an update on digital signal, I think last quarter you mentioned that the company was seeking a buyer of its assets?

We did not specifically mention it, but that process continues, it's being done through the assignment for benefit of creditors, there are active bidders and we are in the middle of the negotiations ongoing.

Okay, very well. And then for the royalty agreement ScoreBig, New Haven can you give us a sense of what say for New Haven where we can see the structure now in the value of it. How are these structured to return? Would it be similar to your current portfolio yields?

So the fair value that we have for them whether its ScoreBig as a loan and New Haven as a long term royalty investments are based upon scenarios and expectations of royalty income overtime. I wouldn’t expect a lot of fluctuation for them in the near-term, but as the royalties as the revenues that produced the royalties grow overtime. We will use that scenario analysis to adjust the fair value.

Okay, very well and just one more on what is you view on spill over, I think you reported about $0.14 do you have a strategy of maintaining and building spill over or is this something used to - do you see as sort of a purse to fund a dividend gap as seen this quarter? Just your kind of high level thoughts on that and that’s all for me. Thank you.

So our goal as stated repeatedly over the last several years and quarters is set our dividend or distribution level at a point that can be covered by NII overtime. There are fluctuations in terms of prepayment income that made some quarters positive, some negative and as we have stated need to rebuild our portfolio back to our target leverage. So our goal is to cover our dividend with NII and maintain some spill over long-term.

Thank you so much.

And our next question comes from Robert Dodd of Raymond James. Your line is open Robert.

Maybe for Dan, but to all of you. I mean Dan you mentioned the portfolio leverage going up to target et cetera, you could expand the portfolio buyback $50 million plus. Obviously overtime you get repayments call it round numbers of $100 million a year in terms of scheduled and early but obviously that takes time. Jerry's comment was if I noticed that right you have got $120 million in outstanding term sheets right now on preliminary earlier stage pipeline of [indiscernible]. So obviously you are depending on the timing, if you close the term sheet tomorrow, you don’t have the capital. So what is the strategy there on managing that overtime or do you simply expect a major pickup in early repayments to provide the capital to fund some of these opportunities you see?

Hi Robert this is Jerry I'll take that question because it's more about pipeline and liquidity actually. So as you probably remember that most of the transactions that we do even once they are committed aren’t all funded upfront, there milestone that need to be met overtime. And so we can easily project out relative to win those milestones would be relative to our overall funding pattern of those transactions. How much liquidity we need to have on hand and I would say that we are quite comfortable - first of all there is no guarantee we are going to 120 million $120 million as you well know. We are quite comfortable of our capabilities to fund those commitments overtime. We actually still have room even beyond that. So we are in a good position to be able to fund any of the term sheets that are awarded that I have you mentioned you today.

Okay cool, one more if I can I mean last quarter - somebody asked a question about this that might be asked later, but you asked about the incentive fee and you said that you could be back into incentive fees as early as the second quarter. Obviously there was a incentive fee paid this quarter which I haven’t projected given the color you gave on the last call and that call obviously it was March 8th right so within three weeks of we ended the quarter. So what changed between then early March and the end of the quarter that resulted in an incentive fee being accrued from in the first quarter given the color that you gave that maybe second quarter was when we would see that.

The incentive fee is calculated based on the investment management agreement and at any point in time we regarding that calculation and determining what the incentive fee cost would be, we had been projecting throughout the year that depending on the portfolio activity what the incentive fee possibly could be and we knew that in the first quarter there is possibility for it, in each quarter that will be as we continue to go and do the calculation each quarter.

I thought we had indicated that we thought that there could be some incentive fee in the first quarter, we did have one additional prepay in the last at nearly end of the quarters that might have put those number Robert. I can’t remember what it is.

I wish that quote FY was from the transcript from last quarter. So understood, but there you go. Thank you.

[Operator Instructions] Our next question comes from Christopher Testa of National Securities. Your line is open.

Just touching on the royalty agreements again, just a couple of things, just wondering when we should expect any sort of revenue coming in from the royalty agreements can we have an idea on that. And also just Dan with your comment on how that's going to be recognized is that is there going to do a new loan item for that or is that just going to be in the investment income as well.

Well for both royalty agreements when we receive any capital from the agreements then it will first be a return to capital, and then depending on which investment it is for a New Haven that we received additional cost basis then it will be a capital gain, because that is now a royalty agreement in other assets. The loan agreement will be marked at every quarter based on the activity and the probability on the scenario analysis and as payments come in for the ScoreBig as we return of capital and so the cost based is of the loans are fully covered.

Got it that's helpful. Thank you. And I'm just also curious more of the high-level thing I know last quarter you guys have spoken about VC is generally not having a willingness to stand behind companies as much and that caused some of the non-accruals. What have you seen if anything has changed from last quarter to now in terms of VCs are backing our companies?

So really I think you know having now the benefits two quarters that we looked at this, what we are basically seeing is a shift in VC focus relative to the kind of technologies where they want to put their capital. And so I think we have a really good sense today of those areas where companies have been established maybe four five years, but revenue growth has slowed and has limited upside, those are companies they are beginning to have troubles support continuing to support. On the other hand some of the newer technology sectors some of which I mentioned, we are seeing very significant VC support into those areas and we expect that that support will continue over the next certainly four or five years as some of those areas there are somewhat revolutionary some are evolutionary but some are revolutionary. I think the VCs is seeing those areas where they can get the greatest returns on their capital. So we are very cognizant of those areas where we think VC support is somewhat tappet right now and we have kind of adjusted our pipeline accordingly.

Got it and I know you guys have also mentioned that a lot of the VCs are more vary of obviously be the smaller type companies, just curious if there is any information or thoughts on your behalf on potentially during a joint ventures or some partnership with another venture lender in order to have some larger bite size and some larger borrowers to kind of avoid the trouble in the smaller companies?

We really have no plans right now to do joint venture, we do partner with the technology banks and others occasionally on the larger life science transactions to be able to provide appropriate solution to the borrower.

Got it. Okay. And just last one for me. Just the cash balance ended pretty high at the quarter, just as curious how we should think about that going forward with cash relative to the portfolio and balance sheet, does this seems like HBK down more driven the portfolio shrink and what not?

The cash is always based on the timing of the principal prepayments and at the end of the first quarter Rob mentioned there was a substantial prepayment at the end of the quarter. So that will fluctuate each quarter and then also depends on the amount that we are able to deploy each quarter. So I would go with what we have normally have been projecting over the past, for each quarter we have normal principal payments of around $10 million to $13 million a quarter and on average we have had some principal prepayments about $10 million a quarter.

We did pay out $30 million pretty quickly up to the end of the quarter.

Okay, great. That’s all for me. Thank you.

And our next question comes from Casey Alexander of Compass Point. Your line is open.

Good morning. Do you expect a full incentive fee in the second quarter?

Well it's too early to say because it's dependent on timing both new loan volume prepayments and the income associated with those prepayments that are really it would be inappropriate to say for sure.

Okay, secondly do you have any sense of subsequent events that had taken place in the second quarter. Is there a look at - in general are you prepayment spend to come before deployments, do you have any sense for how prepayment are looking thus far in the quarter.

We have always sort of modeled around $10 million per quarter of prepays and $10 million to $12 million in normal amortization. There is a possibility that we could be higher than that on the prepays this quarter.

Okay, thank you.

Our next question comes from Jonathan Bock of Wells Fargo. Your line is open, Jonathan.

[indiscernible] for Jonathan. Just another follow-up on the incentive fee item. As you guys recover sort of back to the 7% hurdle is there going to be a cap of your normal 20% of pre-incentive fee NII plus any gains the normal way these hurdles work or is that backing in of the base fee going to allow for a much higher incentive fee clip going forward.

The formula allows for the cumulative incentive fee to not agree 20% further the formula. I’m not sure exactly what you are asking.

Just how in terms of the cap, how the base fee is backed to back into that if you agree?

It's yes I do.

So would your CapEx as you said prevents a an incentive fee that would be larger than the base fee.

On a cumulative basis no, but in a single quarter possibly.

Okay, very well. And thank you so much.

And there are no further questions. I would now like to turn the call back over to Robert Pomeroy, Chairman and CEO for closing comments.

Thank you. In summary in the first quarter we achieved higher levels of loan originations, made further progress in resolving underperforming loans and increased our NAV. We also continue to realize positive liquidity events including a $1 million warrant gain. Looking ahead, we remain optimistic about our long-terms ability to grow our portfolio and pay distribution that are covered by our net investment income, while we also provide our shareholders with that upside potential from our diverse warrant portfolio. We thank you for your interest in Horizon and look forward to sharing our progress with you again in August. This concludes our conference call. Thank you and have a great day.