Good day, ladies and gentlemen. And welcome to the Hercules Technology Growth Capital Second Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions). Please note today’s conference is being recorded. I would now turn the conference to Jessica Baron. Please go ahead.

Thank you, operator, and good afternoon, everyone. On the call today are Manuel Henriquez, Hercules' Co-Founder, Chairman and CEO; and myself, VP of Finance and Chief Financial Officer. Hercules' second quarter 2014 financial results were released just after today's market closed. They can be accessed from the company's website at www.htgc.com. We have arranged for a replay of the call at Hercules' webpage or by using the telephone number and passcode provided in today's earnings release. I would also like to call your attention to the Safe Harbor disclosure in our earnings release regarding forward-looking information. Actual financial results filed with the SEC may differ from those contained herein due to timing delays between the date of this release and in the confirmation and final audit results. In addition, the statements contained in this release that are not purely historical are forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including without limitations the risks and uncertainties, including the uncertainties surrounding the current market turbulence and other factors we identified from time to time in our filings with the Securities and Exchange Commission. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate and as a result, the forward-looking statements based on those assumptions can also be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained in this release are made as of the date hereof, and Hercules assumes no obligation to update these forward-looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or visit the website, www.htgc.com. Now, I'd now like to turn the call over to Manuel Henriquez, Hercules' Co-Founder, Chairman and CEO. Manuel?

Good afternoon, everyone and thank you Jessica. Thank you all for joining us today. After the positive feedback we received from last call I will attempt to continue to do a more streamline approach to leave more time for Q&A although there's a lot activities that took place in Q2 and also taking place in Q3 that I elaborate during this call that may fill some of that additional time. With that said, I am once again pleased to report another outstanding and strong quarter for Hercules Technology on all fronts. As of the agenda for today, I will cover a brief summary of our great performance and results for Q2 and provide an overview of current market conditions including best capital activities, IPO and M&A activities, our perspective and outlook for investment activities for Q3 and the remainder of 2014 and then of course turn the call over to Jessica, who will cover our financial results and performance in much greater details than my highlighted section will cover. As to the highlight of operating performance in Q2, I am very pleased to report Hercules delivered yet again a very strong second quarter financial results and performance. We significantly grew our investment portfolio by converting over $100 million of our cash balances into new interest earning assets or loans. We also strengthened our balance sheet during the quarter as well as post the quarter and liquidity position with the most recent bonds rate that I'll speak to and cover later on in mid-discussion. We also expand our origination and operations teams and capabilities by growing our investor professionals that allow us to also continue to fuel the growth of our investment portfolio which will lead to future earnings as well as future dividend growth for the benefit of our shareholders.…

Thanks Manuel and thanks everyone for listening today. I would like to remind everyone that we filed our 10-Q as well as our earnings press release after the market close. I will briefly discuss our financial results for the second quarter of '14. Turning to operating results, we delivered total investment income or revenue of revenue $34 million by decrease of 1.4% when compared to the second quarter of '13. Year-over-year decline was driven by the decrease in weighted average loans outstanding and partially offset by increased loans fee acceleration due to early payout and loan restructures during the second quarter of '14. The all-in effective deals on a divestments during the second quarter was 16.9 down by approximately 1% relative to the previous quarter. The decrease is primarily due to the effect of fee accelerations that occurred from the higher volume of low and early pay-offs and restructures in the first quarter of '14 as compared to the second quarter of '14. As we signaled that beginning in the year, we are focusing on portfolio of growth, we expect our investment origination yields to gradually compress by 30 to 50 basis points reported at '14 as we deploy our excess cash balances into new interest earnings assets. Interest expense and loan fees were approximately $7.6 million during the second quarter of '14 as compared to $8.8 million during the second quarter of 2013. The year-over-year decrease is primarily attributed to the Q1 early pay-off of 34.8 million of SBA debentures and 63.7 million of amortization of the Asset-Backed Notes that are transpired with the second quarter of 2013. The weighted average costs debt increased to 6.3% in the second quarter of '14 versus 6% during the second quarter of '13 primarily attributed to the acceleration of fee amortization triggered…

Thank you. (Operator Instructions). Our first question comes from the line of Ron Jewsikow from Wells Fargo Securities.

Yes. Good afternoon and thanks for taking my questions. I just have two quick questions here. What percentage of the annual retention will be safe fall into kind of the new ABL strategy relative to your more traditional mix?

The ABL as I said just really started earnest in Q2 so little to none. The really outstanding at where the funded assets are represent ABL because, it takes a while to get the borrowing, base and get the mechanics going so those are not yet.

All right. And then just kind of I guess than the long term opportunity of that kind of what percentage of originations you gave the 700 million to 1 billion range for this year depending on the market environment? What percentage in the long run do you see that making up of your origination mix?

I think that when you look at on commitment basis not on a funded basis which is a critical issue.

Yes.

You're looking at that in a I guess a fully focused year or fully 12 month year that give you as probably as a billion dollar level, could be as high as 25% of our portfolio. On a funded basis it probably be somewhere around 10% to 15% on a funded basis, but on a commitment basis it could be as high as 25%.

That's great color and then just one last question and I'll back in the queue. I was wondering if you talked about your decision to issue the 10 year baby bonds or term debt relative to maybe other options for financing like securitization converts or something else?

Well, don't underestimate that we're not going to doing that as well. This is simply a very important critical part of the 10 year growth foundation that we wanted to show our ability to tap the 10 year bond market as a critical lathering out of maturities for get offerings and especially when I can lock in 10 year paper at 6.25. We are certainly and will be actively approaching the securitization market again sometime I would say conservatively some times in the next six months or less you could see and tap the securitization market as we continue to covert new liquidity into funded assets. We remain as everything we do very flexible in terms of the market. And we're doing that, yes, securitization remains a very critical part of our funding strategy and certainly lowering our near-term cost of capital even further.

That's great color. I'll hope back in the queue. Thanks.

Thank you. Our next question comes from the line of Aaron Deer from Sandler O'Neill.

Hi, good afternoon everyone.

Hi, Aaron.

Manuel the growth this quarter was very impressive and it sounds pretty optimistic going forward although, your guidance with respect to the third quarter I guess was a little surprising. I understand the projected pay-offs that you're anticipating, but the, it look like the number of terms sheets was down and I'm just trying to reconcile your guidance. How much of this slowdown if you will is really due to seasonality versus other factors that might be going on?

Well, significant part of it is in fact seasonality. So there are two embedded questions you're asking there. The portfolio decline, just to be very crystal clear here is driven in almost entirely by us. If you have been following us for many years, you will see that it is pretty typical that we will proactively approach, what seem to be growing credit situations very proactively and in fact look to prune or purge marginal credits or companies that seem to be showing evidence of stress or deterioration. And we tend to do it very proactively and look to managing the balance sheet as self evidenced with our credit historical performance. So if that means that we end up giving some earnings up because of credit quality, I am more than happy to give up a penny or two in earnings and not have a $20 million to $30 million capital loss from a bad loan. And that’s exactly what we are doing here. And we do that pretty proudly throughout our history. As to the term sheets, Q3 has always been slow but I got to be honest, $576 million of signed term sheets through the August 7th or August 4th is a pretty significant number when we had I think it was $700 million of signed term sheet all of last year. I think that the element of the portfolio growth that you are seeing is certainly as evidenced as I indicated in our opening remarks attributed to the funding to commitment ratio, that funding to commitment is both purposely managed by us downward, meaning that historical 75% to 80% funding rate, we are putting much more structured loans on the books. And those loans have purposely structured a risk mitigates to it. Some of our competitors who don’t know the asset class very well, venture debt, are willing to do deals, they don’t have those structures; we invite them to come in and do all of they want. We are not going to do those deals. We are going to be continuing to focus on credit quality and focus on sustained quality of earnings growth. And we don’t get paid for assets under management. So we care more about credit and margins than anything else.

And then what type of companies that you’re pruning, is there specific verticals or lending categories where you are pulling back from?

No, actually it's not discriminated against any one particular category. We’re just seeing some size of stress in the overall market, there is some anxiety on some companies that were -- let me be very clear. A lot of venture lenders that don't venture lending very well, rushed in over last five or six quarters and did what they thought were budget free IPO companies at quite excessive valuations. Those companies are now coming back around looking for money. We have some of those in our portfolio companies that were also looking to achieve an excess event or liquidity event that had now seen that window being pushed out. And until we see a higher level of confidence of capital being injected to those companies, those companies represent a higher level of risk. And we feel that currently that risk is not being properly priced. And other new, naïve venture lenders are more than willing to absorb some of those assets, we’re more than happy to encourage those assets to go see them.

Okay. And then lastly, in addition to the ABL on equipment finance. You also mentioned, I think acquisition finance and there might have been one or two new lending categories that you mentioned. Can you talk about what types of yields you expect on each of those categories?

Well, the acquisition finance remains a very attractive area. And what's going on in the acquisition finance is a lot of our later stage venture capital-backed companies are looking to acquire either technology or customers for some weaker private companies and using our financing to actually bolt on either technology or customers, choose acquisitions in order to groom themselves for a potential IPO. So, those transactions are very attractive to do. They are fort with many due diligence issues, as you’re looking at a target and making due diligence analysis of target and financial modeling it out. So the growth that we’ll see going into 2015, I mean acquisition financing was probably going to be a $50 million to $100 million line of business maybe initially because we’re dealing with venture backed companies not necessarily lower middle market companies. On the equipment finance, this is an area that we’re being pulled in every day more and more by our own portfolio companies, asking us to expand our product offering. We historically have said no to equipment based financing and now we’ve finally chosen to open up our balance sheet and now pursue those. Those are equally attractive transactions because they offer what is basically a typical large back-end final payment, let’s call the end of term payment that you see John, so they typically a lower coupon rate on a front end but have an effective yield that often time is much higher than a term loan for example. And then ABL, asset based lending is another asset item that we’ve been pulled into by companies who have basically chosen not to go pursue a bank and want to stay with Hercules longer-term. And so now we’re offering anywhere $2 million to $20 million ABL line. And those typically will have an interest rate anywhere between 7% to 8% on a coupon rate and they could have different structure to make that yield probably higher than that as well.

Okay. Thanks for taking my questions.

Thank you. And our next question comes from the line of Greg Mason from KBW.

Great, good afternoon. Just to follow-up on kind of this prepayment activity in the third quarter calling the portfolio, just is this companies that have financing options and you’re just not defending your position and letting them go? Are you proactively telling them, listen we went out, you need to find another financing?

Well, let me just take the specific of that question. I would say that we as the incumbent always have the option to defend the credit. And in many of these cases, we're choosing not to defend the credit and let the credit find financing somewhere else.

Okay, great. And then in the Q you mentioned that you have filed for co-investment exemption with other affiliates. Are you looking at raising other funds or other strategic alternatives or what’s that regarding?

Sure. As we look at the next 10 years, we are certainly looking multiple different family of funds. If you will like an Aries, like Apollo among others out there, TPG and we’ve come to the conclusion, similar to what these other very formidable and very reputable players have also noticed is that by having very specific vertical entities or funds that could complement our current activities, makes a lot of sense to leveraging the brand across these verticalized funds. So, we’re certainly evaluating multiple different options in that area. We have yet to close on an initiative right now, but we are actively evaluating multiple different strategies by having vertical identities that are in transactions by which Hercules does not working today. And we feel that having a sister relationship with an affiliate fund would really strengthen the brand and more importantly increase our access across the board to companies in different verticals or stages that we’re not investing in today.

Okay. And then one last modeling question. Could you give us some level of the accelerated income in the quarter that was in the total interest income line just ballpark?

Are you referring to Q2?

Yes.

Yes. So as we said the total effective yields for the portfolio was 16.9%. Our historical rate of naturally yield on the portfolio hasn't changed that much. There has been as we talked about on the call, a slight degradation in our yields on a natural basis. But I believe historically, we've disclosed that a 200 basis points are typically related to the one-time effect of early pay-offs from loan restructure.

So the other way look at it is total one-time fees that have become kind of a core one-time fees event is probably in the $2.5 million level. And then any one quarter you can add what is generally unpredictable one-time fees if you will the variability of that is probably another $2.5 million to $3.5 million that can vary widely quarter-over-quarter. As Jessica said in her comments, a lot of the early pay-offs that we're seeing in fiscal, sorry in just been in Q3 are going to be all the vintage companies. So there are not going to have a lot of accretion of fee acceleration because they’ve been on the books for quite sometime. And so this is been on maybe about 18, 24 months and therefore the impact of any early pay-off will significantly dampen, contrary to what we saw occur in Q1 or Q4 last year.

Great color. Thank you.

Thank you. And our next question comes from the line of Douglas Harter from Credit Suisse.

Thanks most of my questions have been answered, but I guess just one Manuel I guess can you talk about the timing of why raise the 10 year growth in front of a quarter where you are expecting kind of flat to down when you still have significant cash position?

Well first of all we all are very cognizant of global capital markets and then global geopolitical crisis going on and with an unfunded commitment pipeline of $230 million and a growing backlog of signed term sheets as well as the pipeline, the last thing I want to do is put our franchise at risk on having hit the brakes on new origination activities in Q4 because the capital markets are not bitter and I rather raise debt than equity because the impact in EPS can be managed a lot more efficiently. And I think that the opportunity to raise 10 year paper that’s blocked in 6.25 I will do all day long and as evidenced by the credibly successful offering that is I still in a very good position from a liquidity point of view to capitalize on the market that we are going to be looking at Q4 and Q1 that we think a lot of that liquidity will be absorbed. The other element of your question is that when the capital raise was being initiated for the bond, our credit outlook at some of these companies was not geld as it is today and therefore the prepayment number was significantly south of what it is today and we run a very fluid portfolio in credit process we are constantly weekly or bi-weekly evaluating the credit performance of portfolio on a continuous basis. And so I’d rather be long liquidity all day long than short liquidity with a growing pipeline.

That makes a lot of sense. Thanks Manuel.

Thank you. And that concludes our question-and-answer session for today. I would like to turn the conference back for any closing comments.

Well, thank you operator and thank you everyone for joining on this call today. And once again we look forward to meeting with most investors and analysts in the upcoming conferences. We have a very busy September and early October on conferences and non-investor roadshow meetings that we'll be doing. It will be our first conference company up will be the RBC Financial Institution Conference, September 16 in Boston. We also have the JMP Securities Conference at September 30th. I believe we also have a Credit Suisse Investor Conference in mid-September in Manhattan as well. If you like to arrange a meeting with any of these conferences or spend more time with management, we'll be happy to do so, please contact our Investor Relations department. And once again thank you for continued interest and support for Hercules Technology and we are continuing to be working hard on behalf of our shareholders. Thank you very much operator.