Good afternoon and welcome to the Hercules Technology Growth Capital Fourth Quarter and Full-Year 2014 Financial Results Call. My name is Patrick and I’ll be your conference operator today. At this time, all participants are in a listen-only mode. At the end of the prepared remarks, there will be a question-and-answer period. Instructions for asking questions will be explained at that time. I would like to remind everyone that today’s call is being recorded. Please note that this call is the property of Hercules Technology Growth Capital and that any unauthorized broadcast of this call in any form in strictly prohibited. I’ll now turn the call over to Jessica Baron. You may go ahead, Mrs. Baron.

Thank you, good afternoon everyone and welcome to Hercules Conference Call for the Fourth quarter and Full-Year of 2014. With us on the call today from Hercules are Manuel Henriquez, Hercules Co-Founder, Chairman and CEO; and myself, VP of Finance and Chief Financial Officer. Hercules Fourth Quarter and Full-Year 2014 results were released just today after the market closed within our 10-K and can be accessed from the Hercules Investor Relations section at www.htgc.com. We’ve arranged for a replay of the call at Hercules webpage or by using the telephone number and passcode provided in today’s earnings release. During the course of this call, we may make forward-looking statements based on current expectations. 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 the final audit results. In addition, the statements contained in this release are not purely historically and 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 limitation 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 also can 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 the forward-looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or visit our website, www.htgc.com. And with that, I’ll turn the call over to Manuel Henriquez, Hercules’ Co-Founder, Chairman and CEO. Manuel?

Well, good afternoon everyone and thank you very much, Jessica and thank you all for joining us today. I have come to understand here that EDGAR is apparently backed up with a lot of filings here. So my understanding is our 8-K may not be out yet, although it's been filed almost an hour ago and our 10-K is filed. So in order to help everybody, my understanding is we’ve placed the earnings release on our website to make the process easier until EDGAR releases the document. Apparently a lot of people are filing late here and apparently we are probably one of them. So my apologies to everybody, but the 10-K is out and the earnings release is available on our website and hopefully within next five or 10 minutes or so, the EDGAR’s logjams should clear through and you'll see the 8-K filing as well. So with that said, I'm extremely pleased to report another outstanding quarter and a year for Hercules on multiple fronts. 2014 was a very, very interesting year for Hercules itself. And so in the fourth quarter itself represented a lot of challenges that I’ll be talking about that Hercules was able to navigate and show its resiliency in order to achieve the performance that we did in the fourth quarter. So on our financial results, we continue to demonstrate strong leadership position within the venture capital lending marketplace. The strength of our brand and reputation amongst the specialty finance of the largest specialty finance BDC focus on venture lending once again has proven itself within the venture capital community and the private equity community, financing the high growth, innovative, disruptive technology in life sciences companies and select public companies. We continue to see unprecedented deal flow in demand of capital from our venture…

Thanks Manuel and thanks everyone for listening today. I would like to remind everyone that we filed our 10-K as well as you can view our press release on our website at www.htgc.com. I’ll now briefly discuss our financial results for the fourth quarter of 2014. Turning to operating results, we delivered total investment income of revenues of $36.9 million, an increase of 11.1% when compared to the fourth quarter of 2013. This year-over-year increase was driven by approximately $45 million increased in weighted average loans outstanding during the quarter as well as yields increased on the portfolio and a tremendous amount of early payoffs as Manuel mentioned during the fourth quarter of 2014. Our core yield during the fourth quarter was 13% which excludes the effect of fee accelerations that occurred from early payoffs and one-time events. The all-in effective yields on our debt investments during the fourth quarter was 16%, down approximately 70 basis points relative to the previous quarter. The slight decrease is primarily due to the mix of portfolio companies that paid us off early in Q4 versus Q3. This is a function of the [vintage] of the early repayments, the contractual prepayment penalty and the balance of unamortized fees for each investment at payoff. Interest expense and loan fees were approximately $9.3 million during the fourth quarter of 2014 as compared to $9 million during the fourth quarter of 2013. The slight increase is attributable to us securing additional capital to invest in our portfolio, specifically the $103 million of 10-year bonds we issued in July of 14 and the 2014 $129.3 million securitization which was offset by the elimination of convertible notes which happened over the course of 2014 as well as paying of $34.8 million of SBA debentures earlier in the year. The…

[Operator Instructions]. Our first question comes from Troy Ward with KBW. Your line is open.

I just really want to focus -- I am sure all the expense stuff is out there in the documents. I want to focus on the growth and the yields. So Manuel, as you think about the growth rate that you just laid out for 2015 just kind of help us understand in that type of market where you are able to get that size of growth is going to be a robust market. And then how can how can you compare that growth that you expect which is several hundred million dollars versus the yields and how you expect to keep yields relatively stable obviously minus the amortization you know of fees won't be in there. It will be more of a core rate, but just help us understand how you can grow and keep the yields in this environment?

Sure, all you’ll see in our investment presentations available on our website, we have sustained what we call core yields in that 12% to 13% range now for over 8 quarters. So I'm not actually quite concerned about that. The concern that has to be discussed is the loss of the prepayment fees and income acceleration upon early payoffs represent nearly almost 300 basis points of our historical effective yields. And so I actually have little to no concern that sustaining a 12% to 13% core yield is a challenge. We’ve significant deal flow and let me put things in perspective. Let's assume that the $600 million in fundings that took place in 2014 and the early payoffs did not occur. If that were to repeat itself in 2015, which we think will be a very aggressive assumption to do so you would actually see our portfolio end the year at about $1.6 billion. So we are actually forecasting a more modest but significant growth in a level of being up $1.32 billion to $1.5 billion which is adding $300 million to $500 million of net new loan balances in 2015. We actually think that is also although a challenge, it’s achievable for us to execute on and deliver.

Okay and then a follow-up on the asset side. You’ve talked in the past about you know your traditional asset does not include as much senior as may be that you will be taking down whether it's a revolver or just more true senior in the transactions. Is that going to continue to put pressure on yields in any way?

Well let me be specific. You saw a bit of a yield compression took place on our core yield for the last trailing eight quarters. And specifically to that question, you saw that -- and you actually don't see this, we do. Of the 900 and plus million dollars in loan balance that we have outstanding today at the end of the fourth quarter, approximately $40 million to $50 million of that was asset-based lending revolvers that exist. But more interesting enough is of the $339 million of unfunded commitment, it is in the magnitude of about a $100 million to a $125 million additional in that unfunded commitment that represents revolvers that do in fact have a lower yield. So we set out to broaden our financial offering in the beginning of the second quarter of 2016. And you saw us finish the year with about $40 million to $50 million in those revolvers outstanding today. So that's not going to materially impact the overall yields and we do not expect that ABL revolver business to really ever be greater than a $100 million to $200 million of our loan book, but our loan boo will be growing during that period of time. So said differently, we expect to see that the revolver portion of our credit book should be anywhere between 10% to 15% at any one point in time of when it reaches maturity.

[Operator Instructions]. Our next question comes from Aaron Deer with Sandler O'Neill & Partners. Your line is open.

It sounds like you’ve got some pretty aggressive hiring plans for the coming year and it appears just kind of where do things stand today in terms of your frontline producers quantity wise versus where they stood a year ago?

There are up and if you may remember in the third quarter, we indicated that we expect they will hire anywhere between 8 to 12 people for origination platform at that time starting in Q3 and rolling all the way through Q4 of 2015. Hiring, we conduct hiring like we do our investments. They take a long time. We go through a very methodical process of identifying candidates. We care only about trying to hire the best of the best that's out there and as such we’re going to be purposeful in doing that. And because hiring tends to lead originations, our historical norm has been that a new hire takes anywhere between 6 to 9 months in order to start showing accretive contributions. So expenses will always lead hiring for that 6 to 9 month period of time. So we’re probably not even a third of the way through on the hiring side. We’re maybe a quarter to a third there, [if] that. And we continue to be actively interviewing a significant number of people.

Okay and then it sounds like you did quite a bit of a change with the incentive comp program. Can you talk about what kind of changes if any were made to the kind of the credit risk side of that and what kind of you know controls are in place to make sure that people are being thoughtful about what they are bringing to you?

Well I think that the credit environment and our credit history speak for themselves with only two basis points loss rates and only $12 million in net losses. So I'm not necessarily concerned that anything from a historical perspective on credit needed to be changed. However we felt very strongly that we wanted to ensure that our deal teams were not dis-incentivized by looking at stronger quality credit than they have lower yields. So we recalibrated that if we in fact engage in originating a lower-yielding assets, but a high credit quality that they should be incentivized. Our old plan if you will didn't quite encourage looking at really strong, very strong credits that had lower yields. And so we made sure that we created greater level of alignment on looking at hearing of our incentive compensation programs that are tied to yield specific and asset quality and credit outcomes that we think better serve the individuals themselves and our shareholders.

Okay, and what was the average loan size of the new originations in the fourth quarter?

We’re migrating upward on that range. If you see on our investor deck, the aggregate loan balance average is about $10 million on a simple arithmetic point of view. But in reality, that number of the denominator is being a little bit skewing that number lower and so I think you are seeing averages now in probably the $15 million level is what I would say is the average and life sciences tend to oscillate in the $15 million to $20 million level.

Okay and then you sounded pretty positive on the growth outlook here. Any particular sectors or industry segments where you’ve got the strongest pipeline building?

Well I mean, we are seeing growth in all of our sectors right now. However we’re not liking a lot of the opportunities that we are seeing is what our problem is. Look, there is a lot of terrific companies out there that we feel are pretty horrifically overvalued. What we’ve been expecting for the public technology companies did come to fruition. We have seen most technology companies see valuations on a trailing 12-month period are down maybe 30% or 50% and in some cases greater. And so you are seeing now selectively some of the public companies have gotten beat up on valuations beginning to produce nice quarterly earnings. The problem is that in the private side of the equation, those valuations that were trailing or drastically behind public valuations have not quite adjusted. And so I think it's up little bit concerning that now the so-called billionaire club is now up to 73 companies with private valuations in excess of a $1 billion. And although like fundamentally these companies are pretty good companies, I'm having difficulties to look at these valuations and how can they sustain these valuations. So when you look at that that broad spectrum we’re still seeing very robust opportunities in the life sciences, specifically in the biotechnology area that continues to be a very strong area for us for growth. The portfolio though is down slightly in life sciences as in overall percentages, but we are seeing a growing interest in our tech portfolio. But I think that tech will really start kicking in, in the second half of 2015 as those valuations recalibrate. And you'll see the tech portfolio really starting kicking in the second half of 2015.

Our next question comes from Greg Nelson with Wells Fargo. Your line is open.

So just first off, you obviously were talking about how you expect the yield to compress down. With that on top of you know higher cost debt and the new comp structure and SG&A going up by a million, are we kind of looking at the scenario where to get earnings back to that dividend level we now need the portfolio to be $1.3 billion to $1.5 billion?

Absolutely I want no ambiguity whatsoever on that. Because I'm expecting little to no contributions on early payoffs to accelerate fee income and drive yield, I have to model and run the business with the expectation that our core yields becomes a new base and that new base is that 12% to 13% level. So working backwards using simple arithmetic what does the portfolio need to be to equate to a $0.31 earnings run rate and that's about a $1.3 billion to $1.5 billion subject to that core yield being above that 12% range. Anything above 12% becomes accretive to the overall, it makes the aggregate number slightly lower. But I feel comfortable seeing the portfolio being in that $1.3 billion to $1.5 billion level at which point you are now looking at you know a very consistent $0.31 in EPS earnings. And here is the interesting fact. By rebuilding the portfolio up to that $1.3 billion $1.5 billion level in 2015 and by the time the portfolio starts maturing, you will start seeing early payoffs once again occur in 2016. And so what it means is, if you have a portfolio now generating sustained earnings at $0.31, that means any early pay off income that occurs will become additive and could lead to special dividend.

Right and then I guess just kind of on the early prepayments kind of falling, obviously you’ve had a couple of good realizations here early in the quarter. But with everything kind of trending downwards, do you expect, you know not as many realize gains just as a function of less liquidity or events during 2015?

I'm sorry, I think the issue with trending downward, what's trending downward?

Repayment activity and amortization?

So they are not correlated. There’s absolutely no connection between early payoffs and liquidity events because liquidity events have to do with portfolios. They were onboarded 3 to 5 years ago and so the average age of the warrant portfolio now is achieving nearly 7.5 years average or 6 to 7 years average and duration which means that's a typical unlocking period for companies to achieve liquidity event from venture capitalists. So we are actually not forecasting much significantly lower realized gains in 2015. I think that barring any unforeseen credit situations, we think that 2015 should probably represent another $20 million or greater in realized gains in 2015 with over a 124 warrant positions and over 40 plus equity positions. So they are not correlated whatsoever.

Alright, then just a quick one. Kind of going back to the previous question on valuations in the space a little bit. Would you be able to comment on you know the loan to enterprise value in your portfolio and how that's kind of trended and how you are maintaining your discipline?

Sure, you know unlike any other player especially [indiscernible] market lenders who typically see LTVs, loan-to-value ranging between 50% to 70% loan-to-value. The Hercules portfolio has indicated or seen in our securitization document tend to trend much tighter than that. We typically see a loan-to-value in our portfolio is usually sub-20% to 25%. So we’ve a significant amount of equity cushion or buffer underneath our companies, which means that the propensity for credit losses are similarly mitigated by the amount of capital injected in these companies by the venture capitalists, and the interest and willingness of both parties to restructure the credit of the companies to ensure a successful outcome. So we on a LTV basis, it's safe to assume that we’ve less than 25% LTV and right now, I got to be honest. If you use the V, being the last round valuations of some of these companies, when you are looking at you know companies now being valued at $600 million to $700 million each and over a $1 billion in some cases and while I have a $10 million to $15 million loan, you can quickly extrapolate, they look at LTVs are sometimes under 10% that's out there.

Yeah absolutely and then just a quick one on you know, obviously over the past couple of quarters you’ve been talking about going into the low-risk venture ABL. You know just kind of curious on you know how you are pursuing that initiative still. Obviously, it's lower yielding and you know in this time where you are kind of compressing down, you know lightning up on that side relative to the more traditional stuff. Does that makes sense?

Absolutely. I don't equivocate on strategies just because of one quarter or two quarters. It's just going on. I fundamentally and strongly believe in the ABL asset base aspect of our business. It enhances our term loans and it offers a competing product with the commercial banks out there that's proven to be well received in the venture community and well-received by our companies. As I had said of the $950 million at the end of the year of loan balance on a cost basis, somewhere in neighborhood of $40 million to $50 million of that is ABL outstandings. And then on the $339 million of unfunded commitment, somewhere in the neighborhood of a $100 million or so of that is on unfunded or undrawn ABL that's formula based in nature. So we strongly remain committed to that business. We think it’s a very important element of the business, but it will not materially move the needle in our business. Even if I put on a $100 million that's going to represent 10% of the aggregate of the portfolio at an effective yield of 7% or 8%. Yeah, you could do the math. It just doesn’t materially move the needle.

Your next question comes from Christopher Nolan with MLV & Company. Your line is open.

With the projected growth in the portfolio in 2015, where do you anticipate your debt-to-equity ratio winding up?

Well if you look at it right now, you'll see that the debt-to-equity ratio on a pure GAAP basis excluding the cash on hand is somewhere in the neighbor of around 95%. And Hercules, because it has an exemptive order from the SEC to exclude all SBIC leverage, you can go up to approximately I think 1.29 on a leverage basis. Now we’ve said over and over in our history, that we think that optimal leverage point of the organization is somewhere in the neighbor of about one extra, sorry 1.1 to 1.2 on the most optimal level. And so I don’t think that we’re going to go much beyond I guess 1.10 if that were to be base, but I want to back off on the 95% leverage because you’ve to take into account our $200 million or so of cash that we’ve at the end of the year. So when you look on a net leverage basis, I am at only net leverage of 61% today. So I’ve an abundance of room to grow, so we’ve -- if we wanted to optimize our balance sheet, we can literally tap under the $200 million of debt to grow our portfolio coupled with our 200 plus million dollars of cash. You are looking at nearly $400 million that we can actually use to grow our portfolio without having to access the debt or equity capital markets.

Okay, and just so it’s a broader question. A couple of quarters ago, you were discussing about a more cautious outlook on the venture capital sector in general, talking about how new entrants are coming in and driving down yield. The tone of this call seems to be a bit different where the compression and yield is more likely just because of general portfolio dynamics. Are you still seeing that pricing pressure in the market?

If I give the impression that somehow competition had ebbed, I didn’t mean to do that. I would not say the competition has ebbed whatsoever. I think what I did say is that I am seeing a lot of our competitors who have jumped into the asset class have begun to realize that; A, it’s very difficult to do; B, it’s actually very costly to do; and C, mostly likely they didn’t have any good experience in knowing how do this asset class. And therefore are either vacating the asset class or are now going through a period of consolidation. You saw City National being acquired by RBC and you saw this morning the announcement that Square 1, one of the smaller venture lender banks is being acquired by PacWest. We’re aware of two of our competitors that are up for sale right now, they are also going through some credit challenges. So we’re actually beginning to see a more favorable environment going into the second half of 2015 that we saw in the earlier part of 2014. So believe it or not, I am actually more optimistic. I think that the Hercules platform and the resiliency of the platform and our access to multiple different layers of capital afford us the opportunity to really go on and build our portfolio while others can’t.

Great, Manuel. The last question is in your references to looking at potentially lower yielding investments. Should we read into that, that you are looking at doing larger loans, banking large companies?

Insightful question on your part. I think that the answer to that question is kind of, I know that's not a very good technical term. But what I would say is that we’re being asked by many well-established companies who for some reason or other do not want to continue to maintain a banking relationship. They prefer to have simply an operating account relationship with some of these banks and are asking us to consider doing larger transactions. We historically have said no to those transactions, but we’re entertaining very, very selectively in a very, very tight credit profile. Certain transactions that would be outside of our normal wheelhouse as a way of experimenting on look at some larger credit exposures. I would not say that that's going to be an overwhelming amount of our transactions in 2015. And we may end up not pulling the trigger on some of those deals, but we’re certainly evaluating transactions in that larger end of the range.

This ends our Q&A session for today. I’ll turn it back to management for closing remarks.

Well thank you operator and thank you all for joining us today. I certainly appreciate your continued interest and belief in Hercules. I think it’s absolutely important to know that we believe strongly in sustaining our dividend. The taxable earnings spillover will help us achieve that. With that, we’ll be attending conferences and meeting with investors over the coming weeks and quarters. Please feel free to contact our Investor Relations department and schedule a meeting. And with that, thank you very much for joining us today.