Good day, ladies and gentlemen, and welcome to the Hercules Capital Q1 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instruction will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to hand the call over to Mr. Michael Hara, Senior Director of Investor Relations. Sir, you may begin.

Thank you, Brian. Good afternoon, everyone, and welcome to Hercules conference call for the first quarter 2018. With us on the call today from Hercules are Manuel Henriquez, Founder, Chairman and CEO; David Lund, our Interim Chief Financial Officer; and Gerald Waldt, our Corporate Controller and Interim Chief Accounting Officer. Hercules' first quarter 2018 financial results were released just after today's market close and can be accessed from Hercules' Investor Relations section at htgc.com. We have arranged for a replay of the call on Hercules' webpage or by using the telephone number and passcode provided in today's earnings release. During this call, we may make forward-looking statements based on current expectations. Actual financial results filed with the Securities and Exchange Commission 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 limitation, the risks and uncertainties, including the uncertainties surrounding the current market turbulence, and other factors we identify from time-to-time that are on 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 be 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 our website, htgc.com. With that, I will turn the call over to Manuel Henriquez, Hercules Chairman and Chief Executive Officer.

Thank you, Michael, and good afternoon, everyone, and thank you all for joining us today for the Hercules Capital first quarter 2018 financial results earnings call. We have plenty of great news to share with you today, regarding our strong start to 2018 and our renewed optimism and improved outlook for 2018. We had an outstanding first quarter with exceptionally robust performance across all of our business units, which is expected to continue unabated through at least the second quarter of 2018 if not for the remainder of 2018. For today's call, I'll be discussing the following select achievements and highlight, an overview of our outstanding financial performance and key achievements during the first quarter; our renewed optimism and upward revision to our 2018 outlook and forecast based on our outstanding performance in the first quarter; and our trajectory of extremely strong originations and funding activities taking place early in Q2 2018, which when combined led to our updated net loan portfolio growth once again reoccurring now earlier than anticipated and starting as early as Q3 2018. Adding to this optimism is our materially improved competitive outlook, these upward revisions are based on assuming current market conditions remain favorable throughout 2018 as it currently are. I will then provide a brief statement regarding the recent passage of small business credit availability act, which has garnered a great deal of attention and chatters in this passage and our views and positions on the subject. I will then turn the call over to our finance and accounting team led by Gerald and David to conclude with an overview of our financial results during the quarter. And then finally conclude with a Q&A session. Now to highlight our key achievements in Q1. During the first quarter we witnessed a material improvement across many…

Thank you, Manuel and good afternoon ladies and gentlemen. We are pleased to report our first quarter results. Today we would like to focus on the following financial areas that impacted our quarterly earnings. First, origination platform; second, our operating performance in Q1; third, NAV performance and realized and unrealized activity in the portfolio; fourth, credit outlook and fifth, our liquidity. With that, let's turn our attention to the origination platform. Our originations platform continues to demonstrate its market leading performance. We had total investment fundings of $236.3 million in the first quarter from a total of 18 portfolio companies. The fundings were offset by $273.3 million in payments from unscheduled of early payoffs of $243.5 million and regularly scheduled amortization of $29.8 million. This repayment activity is the highest we've ever experienced and to put the activity into perspective, $273.3 million in repayments experienced in Q1 represents almost the same total repayment activity experienced for the last six months of 2017, which was $286 million. The ability to offset significant repayment activity is attributed to the hard work of our origination team in identifying new investment opportunities. As a result of this activity on a cost basis, our debt investment portfolio ended at $1.369 billion at the end of the first quarter or down slightly from 5% from December 31, 2017. Our core yield were 11.9% down from 12.5% in the previous quarter. The decline in core yields was partially due to the timing of early payoffs assuming of the quarter, while fundings occurred later in the quarter. And lower interest income due to a lower day count in Q1 as compared to the prior quarter. We do expect our core yields to rebound in the second quarter. With that I would like to discuss our income statement performance…

Thank you, David. We saw our NAV decreases to $828.7 million in the first quarter from $841 million in the fourth quarter of 2017 or a decrease of 1.5% to $9.72 per share. This $12.3 million decrease was a result of net realized and unrealized investment activity during the period. We had modest net realized activity in the first quarter with net realized losses of $4.9 million, which was primarily the result of two positions, which were written off and previously were valued at zero in Q4 2017. We had a net change in unrealized depreciation of approximately $15.2 million on our investment portfolio during the quarter. We had net unrealized depreciation in our debt investment portfolio of approximately $8.3 million, the depreciation in our debt investment portfolio consisted of $9 million of current impairments and $4.5 million of market yield adjustments, offset by $5.2 million of reversals due to payoffs. The depreciation in our equity portfolio was made up of $2.6 million in our public portfolio and $1.5 million in our private portfolio. The depreciation in our warrant portfolio is made up of approximately $800,000 and $3.4 million in our public and private portfolios respectively, which was offset by $1.4 million in reversals due to sales and or write-offs. We saw a return on average equity increase to 12.7% in the first quarter, up from 12% in the fourth quarter. Our return on average assets also increased slightly to 6.5% from 6.3%. I now would like to discuss our credit and near-term outlook for the quarter. In the first quarter of 2018, our weighted average credit rating was 2.43 up from 2.17 in the fourth quarter of 2017. The decline in credit rating was due to the payoff of three credit rated one positions as of December 31, 2017,…

[Operator Instructions] And our first question comes from the line of John Hecht from Jefferies. Your line is now open.

Afternoon guys, thanks very much for taking my questions. Manuel you seem pretty optimistic at least definitely more optimistic and you are constructive on the business conditions as you have relative to recent quarters. I am wondering what do you think the driver to that is, is it related to tax reform or general macro-economic conditions is this something more specific technology overall?

I think we are seeing - we ourselves are trying to figure it out, I mean, clearly you are seeing a renewed optimism in venture capital dollars with $26 billion invested in Q1 alone, lease are pretty optimistic. Look our outlook and add to that the pretty successful IPOs that have occurred obviously some have a like snap has been a little bit underperforming, but the fact that we're seeing unicorns able to go out and see your share rallying and demand for growth stock in the marketplace serves as a way of encouraging more and more companies to pursue the IPO to round. And in doing so they want to minimize any equity dilution and see a demand for debt. I think that the tax code may have had some element of this, you are seeing a bit more people want to hire faster, which means they are showing growth, but for me to sit and correlate that the tax code has had a direct cause an effect add to this growth. I am not comfortable doing that or able to do that. But I don't think it's not helping any I think it had some factors in it, but I think venture capital optimism and dollars in IPO, access in M&A and IPOs is really what's driving.

Okay, that's helpful. Second, you talked about pruning certain sectors and then maybe increasing exposure to others, can you give us a sense for which segments that might or sectors that might be?

No, I am not interested in educating my competitors on what we do and why we rotate our certain sectors. I think it's safe to assume that obviously and I want to be clear the Machine Zone is a great company. Machine Zone became a very classic example. I think the company became a very mature company and I think that it make sense to having seek lower costs of financing and continue to pursue their business model. But that's the sector that we decided that I think is well priced and well valued. But I'm not going get into, which sectors we are cycling out of for the purpose of helping our competitors figure that out.

Okay, I can certainly understand that. I appreciate that. Last question is you mentioned specifically just for modeling purposes. I think you gave some outlook for the next two or three quarters of repayment activity or early within this. Can you say that again just to have our model accurate?

Yes, I think, that in Q2 we're probably looking at $100 million to $125 million of early payout activities. What we know that includes - well I won't tell you exact dollars. That a portion of that is embedded in portfolio rotations that's spilled over that we're completing in Q2 that sort of pretty comfortable having that number probably cap out at 125. I think thereafter, we're pretty comfortable saying that we're seeing a regression to the mean and seeing kind of $75 million to $100 million of early payout activities that take place in Q3 and Q4 giving us more optimistic outlook on portfolio growth when we start curtailing back the early payout activities to normalized levels.

Perfect. Appreciate that, thanks very much.

You're welcome.

Our next question comes from the line of Tim Hayes from B. Riley. Your line is now open.

Hey, everyone thanks for taking my questions today. Can you first start Manuel and just give us some inside into the process to attain the third SBIC license and how long that could take once the process commences?

Your guess is guess of mine. We're dealing with the government. So I think to be clear what I said is that we're retiring our first license here in July and will commence the process given our hopefully a relation with the SBA and the great partners that we have the SBA. I'm hopeful the process will take three to six months. I think it will probably end up being more in the six months in the tail. So that's why I have indicated that I think we'll start seeing economic benefit of if and when we apply the third license probably being accretive to earnings commencing in probably 2019 and not much if any in 2018. So I think it's probably going to be a healthy minimum three months and probably six months looking at historical levels.

Got it, thanks that's helpful. And then how much of your pipeline today do you think would be SBIC eligible?

Well, the lion share of what we do as a business are SBIC eligible. Because we invest in great American innovative companies that don't have a lot of retained earnings, because they are still on research and development, which is one of the criterias. So overwhelming our portfolio will qualify for SBIC financing. So we've done it before, we've done over $1 billion - I think it's $1.3 billion. And our first two licenses of investment activities with the SBA. And we anticipate similar levels to forward in the future. But the vast majority of our transactions qualify into the SBA program.

Okay, got it. And then do you have an estimate of the magnitude of earnings of kind of left on the table this quarter as a result of the timing mismatch. Or maybe not in earnings peak, but just the kind of the impact that had on the core yields in the quarter?

Yes, the portfolio rotation that we embarked on that took place at the beginning of the quarter probably cause anywhere on a conservative level $0.02 to $0.03 in earnings. When you actually look at the math and you see the portfolio mathematically was down around $71 million. You get impute what that income losses at the economics that we have at the 12 something yield and drive it on the NII margin. You can kind of drive what that number equates to. But when you look at it's about $0.02 to $0.03 in earnings on our portfolio rotation that we did in Q1 that will have a little bit of ripple effect throughout fiscal 2018. But we expect to catch all that up by the end of Q2 certainly by the beginning of Q3 the portfolio will be back to that normal level and growing. As to the yield impact, I think the last time we looked at the calculations probably anywhere between I think it was 30 or 40 basis points was the factor that related to the timing of the portfolio rotation and early payout activities.

Okay, got it. So all else equal we should be looking at a core yield of closer to 12.3% - 12.2%, 12.3% for next quarter?

Tim, you are on the money then literally on that number. We expect Q2 to normalize back in the what we call the mid-range of our level, but yes, we think that Q2 will be between 12.2% and 12.3% as we speak right now.

Okay, got it. And then one more for me, obviously you had some prepayment income helped out a little bit this quarter, but just given the earnings drag from the liquidity you had and then reflecting your asset sensitivity and just kind of the expected expense savings from the bond pay down. How much confidence do you have in being able to cover the dividend from an NII basis going forward ex-one-time items?

Pretty strong, I mean, we have good portfolio momentum going on right now. We already be adding to SG&A I indicated that in Q3 and Q4, because of the expected headcount and incentive comp with our team. So we expect to see earnings to G&A obviously when you do the math the shortfall in Q1 in terms of the funding level will have some little bit of repel in 2018. But given if you heard what I said at the beginning of the call, the renewed confidence having our loan portfolio end the year about $1.6 billion, $1.7 billion I think that please do the math on a $1.7 billion portfolio for example at the higher end at Q4 you are going to be at a run rate well above our dividend rate.

Okay, thanks for all the - for taking all my questions.

You're welcome.

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

Hey, good afternoon guys. Good afternoon, everyone.

Hey, Aaron, how are you?

I am doing well, how are you?

Fantastic.

Good. I just want to understand a little bit maybe another aspect of this portfolio rotation. Am I correct to understand that the part of this rotation maybe is less sector specific than it is maybe just downsizing some of the outsize positions, which you had?

No, it's a combination of mitigating concentration risk and also some sector rotations embedded in that number. We just highlighted one company Machine Zone, but there are - I think there is three companies in total. They are embedded in the portfolio rotation in Q1 and probably two in Q2.

Okay. And then of the loan commitments that were made in the quarter, it looks like the average size of those was around $22 million. What was the largest of the commitments that were made here in the first quarter?

I don't have here in front of me, we are happy to give you that, when we call you back if you like, but we don't have that in front of us right now.

Okay. And then just on the collateral impairments in the quarter, any information that you can ensure on that and maybe likelihood of any recoveries that we might see later in the year?

I am sorry, can you - what was the part of that question recoveries what?

Any additional color that you can provide on the collateral impairments in the quarter?

It was pretty negligible, but we have collateral impairment in normal course of business that we do. We typically as you know for trucking as we typically will automatically mark down a credit, as or embark beyond a capital raise until such capital raise has been completed. But there wasn't that much of a material markdown in a portfolio related to credit, most of the markdown of the portfolio related to mark to market. So I think that the markdowns you saw on there, I am already aware of one of those markdowns - actually two of those markdowns have paid off in Q2. And have been fully recovered with a gain.

That's great, okay very good, that's it for me. Thank you.

Thank you.

Our next question comes from the line of Christopher Nolan from Ladenburg Thalmann. Your line is now open.

Hey, guys. Can you just clarify something in the press release, there was no non-recurring charge related to the debt retirement that was something for second quarter, but nothing for this quarter.

That's correct Q1 is clean there is no debt retirement by the time we took action and noticed that we have to get the bondholders it made no sense to have it occur in Q1 because would have happened almost the last day. So mathematically became logical just do it in April 2nd, is where we thought to be.

Got it.,

You see the charge come through on April 2nd in the second quarter.

Got it, okay. And then given the higher growth target to $1.6 billion to $1.7 billion. And also given the retirement of the first SBA license in the third quarter. Should we expect incremental debt issuances or possible equity raises here? What was the capital planning outlook for that?

Well obviously we don't talk about if and when we're doing equity raises for many reasons. We have an active ATM program in effect that's been a very useful tool for us to use. But, yes, I think that what I'm comfortable talking about is that there will be a capital debt raise in the foreseeable future. We did our first $175 million, we want to see how the markets work kind of test the market that was a very successful offering. Frankly pricing a seven year deal 5.25% was very attractive with a three non-call. And we also access the investment grade market earlier in the year at 4.625% and 5.625% also very attractive instrument. So I think it's safe to assume that you will see us access the debt capital markets here in the foreseeable future and continuing to also widen our user products whether securitization whether it's going to be a convert or retail a part 25 offering or part 1000 offering. All of around the table and we're accessing most of the facets of liquidity from our well-structured balance sheet.

Final question. Understanding that you're not going to go above one-time to debt-to-equity given the change in the law are you more inclined at this point to increase your typical threshold debt-to-equity. Normally you raised equity when it's 0.75 or 0.8 or so. Or now would you be willing to take that higher to 1.0 before you start considering a large debt raise?

I think it's a safe assumption, given the trajectory of our portfolio and the use of the ATM product, I think that that is exactly the right way to looking at it. I think you'll see Hercules normalize leverage probably in the 0.9 to 0.95 level in fiscal 2018. I think that's probably where the comfort zone you will see us operate the business, which we elevated from a historical levels of 0.75 to 0.85. And so I think you'll see a cadence of running it at 0.95 at the higher end and 0.9 on average if you will.

Okay, thanks Manuel. That's it from me.

You're welcome.

And our next question comes from the line of Ryan Lynch with KBW. Your line is now open.

Hey, good afternoon guys. First question on prepayment fees were actually pretty low this quarter they look like relative to the extremely high level of prepayment that you actually received. Was this due to kind of pruning your guidance portfolio a little bit or what was driving this? And do you expect prepayment fees to kind of return to a more normalized level in the second quarter?

Great observation, Ryan. And you're absolutely right, the prepayment activities this quarter were generally subdued by a combination of factors that include us obviously for encouraging pruning. We're not going to hold companies to full prepayment and other issues. So we're not going to do that to the companies. Number two, a lot of the companies that did cycle out were beyond - they're later stage companies. So there is a lot less income accreted on any early payout activities or penalties if we will prepayment penalties. So a combination of the maturity of the companies and our portfolio rotation certainly helped dampen the early payoff activity income that was realized in the quarter.

Okay, makes sense. And then I did have a question on DocuSign as well. It looks like in the first quarter you guys had about a $2 million unrealized gain given this current price you guys talked about a $9 million unrealized gain based on the closing price that we have. Does that mean we should expect to - or you guys should to recognize the $7 million unrealized gain in the second quarter pending the price doesn't change? And then also with that investment, what's kind of the outlook for what you plan on doing this investment. It's a pretty large investment now for equity investment. You guys have other ones in the past like Box to held on a for a little while. Do you guys planning on holding on to DocuSign this equity investments for a while and writing out or is this investment you guys are looking to exit over the next coming months or quarters?

So I hope you appreciate my response in this period that I want give it. We're not going to indicate our selling price threshold. But every security that we invest in has a proposed exit price that we have modeled in and we track to when the companies hit those exit prices, we immediately engage in a non-disruptive selling program to liquidate the position. In the case of DocuSign, we have a 108 day investment banker lockup anyways on the transaction given our position. So, we're not going to be exiting anytime soon and we're also very active users of the product. We've been users of the product for many, many years. We're actually a big believer in DocuSign, as a product which led us to make the equity investment in the company. But, we're not looking to just kind of sell it right away, I think it's a great company I think it has a lot more legs for growth associated with it. But we are also now the hedge funds. So we're not - we don't get paid by holding on to long positions as an internally managed BDC. So once we've the threshold, we will liquidate the position.

Okay, make sense. And then final question is on your acquisition of Gibraltar, I know you've talk about in the past the meaningful amount of prepayment income from existing portfolio companies that have had success and go out and refinance with another lender as a lower rate. With the Gibraltar acquisition, do you expect that acquisition to be have a slowdown potentially some of these prepayments because some of those loans or companies could then transaction to that platform. And can you also comment, it looks like it's a pretty small portfolio today. Can you just talk about what is the potential for that that company to grow in the future?

So Gibraltar is held as a portfolio company it's not consolidated and they have an independent board and operate autonomously, we're obviously to saw owners of the company. But to answer the latter part of your question is that I can remind everybody, it's barely even 60 days, we just got the thing closed. So, I think that the relationship is still evolving and developing and it is our intent overtime to introduce perspective candidate companies that are looking for and seeking ABL type lending to then be handed off to this Gibraltar credit team and Gibraltar credit process and let them make their independent determination as to whether or not they want to provide capital to that company itself. But that is one of the intent that acquiring the ABL lender, the ABL platform, it will serve as a historical - future mitigate on extending the economic life of our relationship with our companies by holding on to the credit or the company a lot further in its cycle than we other do today because we don't have an ABL product that's really costs effect now that we have Gibraltar we do. As to Gibraltar itself we are very encourage by the growth in the I think it's 60 days and they are already with our capital behind and as a partner, we're always seen very strong encouraging signs of the Gibraltar platform doing quite well. It is small, but that small means that they will - they can be doubling in size at a much more rapid pace because of their size where they start off at. We're very encouraged by what we're seeing we just had our first board meeting, we're very encouraged by what's going on in Gibraltar. The team and the platform continue to do very, very well. And I think that they'll probably nearly double from our acquisition point bottom to year-end. I would not be surprised if they won't end up doubling by the end of the year or by the first quarter of 2019. And our trajectory that we have for them and they have for themselves is probably doubling again in 2019. So, we're going to see some pretty good growth out of that platform and that team so we're very encouraged by that.

Okay. Thank you, those are all my questions.

Thank you.

Our next question comes from the line of Casey Alexander from Compass Point. Your line is now open.

Hi, good afternoon. When you said that you would like to trail the leverage ratio up and settle it in at between 0.9 and 0.95, that is exclusive of whether or not the Board passes a resolution to access the additional leverage, is that correct?

Our Board and management has now made any determination nor have we asked our Board to vote on increased leverage until we complete the outreach program. I think that seeking that - there are a lot of issues are not rated by the rating agency so they don't really care. We are rated by the rating agency so we do care. We do care about our bondholders and our equity holders. So we think it's prudent to embark on that outreach program and help folks quantify and see the business judgment and business case why it makes a lot of sense in doing that. So to the first part of your question, we will operate at the 90% to 95% leverage without seeking Board approval to go beyond that. We are not going to do that for a minimum probably again 60 to 120 days, it could be longer than that until we complete the outreach program and a continued dialogue with the rating agencies that we have already started.

Okay, great. I mean, if the rating agencies draw a line in the sand and just say that's if you ask for additional leverage they are going to downgrade you below investment grade, would that be a non-starter?

Yes, I don't want to pass judgment, whether or not or response to hypothetical it's certainly a factor that has to get quantified and evaluated. And I just would I guess respect which I just want to reserve judgment to finish those constructed conversations and continue the outreach program. I don't want to say the line of sand, another line in the sand. I think that it's a continue fruitful outreach program to continue to educate all stakeholders.

Okay. A different question, you talked about $75 million to $100 million of expected prepayments in Q3 and Q4 was that $75 million to $100 million in each quarter or cumulative?

Each quarter.

Okay, alright. And also the previous question about DocuSign, I don't think was answered. Is there $7 million of - as of today of unrealized depreciation versus the first quarter mark or $9 million in the second quarter?

So let me reconcile for you. It's a total of $40 a share. It's approximately $9.1 million. Yes that in Q1 because the S1 was filed, we took a mark to market step up on the fair value and I believe it's $2 million of appreciation was - unrealized appreciation was recorded in Q1 leading out to the IPO. When the IPO begin effective in April, that's should give your delta of another $7.1 million or so.

Okay, got it, terrific. Thank you for taking my questions.

Thank you.

And our next question comes from the line of Henry Coffey from Wedbush. Your line is now open.

So what changed, I would say listening to the February call and talking to you all after, it was a fairly conservative view on life based mainly on the fact that you were looking at a lot of potential early redemptions. That's still playing out as sort of as expected. And now we are seeing a very aggressive tone about what you think is going on in debenture debt market. Have the competitors drop that has there something turned on new that wasn't there six months ago, what's changed it's a real positive shift in tone?

Well, look, I would love to say selfishly and arrogantly, it's all Hercules, but that will be a complete miss statement. Clearly the team has done an incredible job, but there are many factors as I weighed in earlier that are impacting that. We are seeing evidence of increased banking regulation taking place where we've seen banks in the first and the second quarter dramatically shift backwards for the competitive offering point of view. We have seen players who taking capital losses, who didn't know what they were doing in venture lending, taken some hits, which has spook them. We've seen increase in venture capital equity investment activities that's propelling this enthusiasm further. We are seeing increased optimism on liquidity of M&A events and IPO activities taking place as witnessed in our own portfolio and also evident in our own backlog of companies filing. So I think it's a combination of all of those factors coming together and do I think that the tax reform has had some impact, probably had some of it. But I think there's just a lot of renewed optimism in this country and certainly in Silicon Valley that is driving more companies to accelerate their growth. And I will also add another element that I think there are a lot of companies want to fund themselves through the mid-term election and not risk a second half of the year liquidity issue. And I think that's also a driver that people want to kind of bolster their balance sheet in preparation for guidance what to come.

So, in terms of the likely marks on debt. If there is a lot of positive activity going on in terms of capital raise and expansion that would normally given how you like to kind of play things on the conservative side, that would normally result of a lot of loans being moved down to level three. Are we still sort of - and given that rates are rising. We have those two factors at work. Are we still going to see a lot of - an increase in unrealized depreciation negative marks against your debt holdings over the next couple of quarters just to kind of reflect all this movement in change. Or do you think the increased enthusiasm will result in more acquisitions, more payoffs, more positive marks.

So my enthusiasm - our enthusiasm doesn't change our conservative credit marks. And yes, we've been blamed for many years of being overly conservative and very cautious and I'm fine with that accusation because I prefer to be cautious than optimistically doing things at later come back and rust [ph] see on you. So I think as a reminder your more selling question, is that Hercules has a policy unlike I think any other BDC operator that I'm aware of that we will automatically downgrade a loan to level three when it approaches a capital new round of financing. The company still have plenty of enterprise value, but we've always adopted that approach since the inception of Hercules. I think it's still the right thing to do regardless of being prudent to mark it down. I can tell you right now there is probably more than a dozen companies in the portfolio as we speak of right now that are embarked on a capital raise as we speak or have a major clinical FDA event coming up right now. That if they all manifest itself with a positive development you will see a significant uptick in the ratings too and you will see a significant reversals of any interim impairment that we have associated with our commitment to the 40 act on fair value accounting and making a mark down. And I think that I don't lose sleep that we overly conservative marked down the portfolio because I think it's the right thing to do. And I think that when these companies secure the next round of financing or achieve an efficacy on an FDA clinical trial and get the PDUFA date or get a positive read out. I think that will lead to a markup in the portfolio that will occur in Q2 and certainly by early Q3.

Great, thank you very much.

Our next question comes from the line of Robert Dodd from Raymond James.

Hi, guys. So just on the G&A on the comp and benefit side. Obviously potentially considerable portfolio growth. You already mentioned that you're looking to hire 10 to 15 people I would expect that would continue if this kind of portfolio growth continues. So, I mean, what can you - can you give us an indication obviously Q4 was pretty high bonus accruals for the successful year last year obviously a drop this quarter in terms of a comp. What's the ballpark kind of growth we could expect through the course of the year kind of by Q4 in terms of total comp and overhead costs for the growth you're looking at.

Sure, excluding interest expense and fees, we think that SG&A will normalize at a run rate beginning probably Q4 early Q1 2019 around $13 million to $13.5 million.

Okay.

I think we have run rate right now of about 12 to 12.1 at Q1. So you'll see us over the next three to four quarters migrate another $0.25 million [ph] a quarter gravitating to the $13 million to $13.5 million by Q1 2019. But I will caution that the $13.5 million is a full headcount hiring. So I think that it will probably modulate around $13 million or so by Q4 at the current pace that we expect to hire and bring in people onboard. So you're looking at a $800,000 to $900,000 accretive over the next three quarters or $300,000 a quarter, which we now in the year-end.

Got it. And on that kind of more the type of people you're looking for i.e., originators obviously like you are always looking for those these are hard find. Are you looking to have more portfolio manager so to speak stewards of assets they have on the books already, or is it everybody just trying to add more people can do it bringing more big deals to the table, good deals obviously?

Well, look we hire just like we invest. We're very slow, we study the equation, we want to make sure it's a right hire and then we also recognize and we've accepted this as part of the business model that a hire will take us six to nine months of costs before we see accretive contribution from a new hire on the business development side of the equation. And we're fine with that, because we want people to be immersed in our credit discipline and our underwriting standards. So, we invest in our team and our employees to develop them and make sure they understand our credit culture and our disciplines.

Okay, I appreciate it. Thank you.

And I'm currently seeing no further questions. I would now like to turn the call back to Manuel Henriquez, Chairman and CEO for any closing remarks.

Thank you, Brian. And thank you all for joining us on our call today. We will be participating in the B. Riley FBR Investor Conference at the Annual Institutional Conference on March 23rd in Santa Monica, and also participating at the JMP Securities Financial Services Conference in New York City on June 19th. As well as many additional upcoming non-deal road shows and investor outreach that I just discussed during this call. If anyone has an interest in meeting with us, please contact either B. Riley for their conference, JMP Securities for their conference or certainly our own internal IR, Mike Hara, who will be happy to coordinate a potential meeting time to our many expected non-deal road shows coming up. With that, thank you everybody and have a great day.

Ladies and gentlemen, thank you for attending this conference call. You may now disconnect. Everyone have a great day.