Hercules Technology Growth Capital, Inc. Q1 2010 Earnings Call Transcript

Hercules Technology Growth Capital, Inc. Q1 2010 Earnings Call Transcript
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Hercules Technology Growth Capital, Inc. (HTGC)

Q1 2010 Earnings Call

May 6, 2010 5:00 pm ET

Executives

Jason Gold - IR

Manuel Henriquez - Co-Founder, Chairman & CEO

David Lund - CFO

Analysts

John Hecht - JMP Securities

Troy Ward - Stifel Nicolaus

Jason Deleeuw - Piper Jaffray

Vernon Plack - BB&T Capital

Jason Arnold - RBC Capital Markets

Douglas Harter - Credit Suisse

Matthew Howlett - Macquarie

Presentation

Operator

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Previous Statements by HTGC
» Hercules Technology Growth Capital, Inc. Q4 2009 Earnings Call Transcript
» Hercules Technology Growth Capital, Inc. Q2 2009 Earnings Call Transcript
» Hercules Technology Growth Capital, Inc. Q1 2009 Earnings Call Transcript

Good day, ladies and gentlemen and welcome to the Q1 2010 Hercules Technology Growth Capital 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 follow at that time. (Operator Instructions). As a reminder, this conference maybe recorded.

I would now like to turn this conference over to your host today Mr. Jason Gold. You may begin sir.

Jason Gold

Thank you, Regina and good afternoon everyone. On today’s call are Manuel Henriquez, Hercules Co-Founder, Chairman and CEO; and David Lund, our CFO. Our first quarter 2010 results were released just after today's market closed. That can be accessed from the company's website at www.herculestech.com or www.htgc.com. We’ve arranged for a taped replay of today's call, which will be available through our website or by using the telephone numbers and pass code provided in today's earnings release.

I would like to call your attention to the Safe Harbor disclosure in our earnings release regarding forward-looking information. Today's conference call may include forward-looking statements and projections. We ask that you refer to our most recent filings with the SEC for important risk factors that could cause actual results to differ materially from these projections. We do not take any obligations to update our forward-looking statements unless required to do so by law. To obtain copies of our latest SEC filings, please visit sec.gov or visit our website at herculestech.com.

I would now like to turn the call over to Manuel Henriquez, Hercules Co-Founder, Chairman and CEO. Manuel.

Manuel Henriquez

Thank you Jason and let me first start of, thank you for everybody being on the call after today’s one crazy volatile day. So I hope that we have a lot of folks on the call today and looking forward to answering lot of questions after this. Today is quite an interesting day, being a financial services company and the technology company like we are.

So Let me first start of by saying that I am very happy about everything that’s been going on in our organization and the continued transition as we go from a capital preservation mode to now a new and growing portfolio mode and I’ll be speaking to you about this in quite significant details throughout this call and certainly look forward to expanding upon those issues at the Q-and-A session.

Let me first start of by saying that once again we did a fantastic job reporting $5.6 million GAAP earnings or $0.16 a share that also matched our taxable income at $0.16 per share as we turn the portfolio from a harvesting mode to a growth mode and I’ll be talking a lot about that as I go along. We also did $90 million of new commitments in the quarter that is a fantastic turnaround from going from zero or mature origination in 2009 to certainly coming out in Q1 with $90 million of commitments in an extremely strong pipeline.

A pipeline I have not seen this robust in over two years versus sales, a year and half, this level of a pipeline over billion dollar in opportunity. So I’m extremely optimistic and bullish about the future ahead despite today’s fairly volatile stock market, our business looks and remains fairly robust. And our concern as we go along is not overloading our liquidity, as we try to fill this growing backlog that we have today of demand.

Our credit performance has improved dramatically from Q4. David will start getting into the specifics of the credit performance. So you’ll see in our detailed financial release that we saw significant credit improvement in portfolio, which is also indicative on how our business in growing and improving as well and better than that is also non-accruals. Non-accruals basically have become almost a non-issue, a non-item, they are insignificant at this point compared to Q4 and I believe we have one loan only in non-accrual which David our CFO will also speak more to that situation.

I’m also happy to report to our shareholders that earlier this month, we received notice from the SBA that we were approved by the Divisional Committee level, which is where the most difficult committees to go through, and we have our final committee approval for second license expected to be on Monday, May 10. From what we believe, we expect that license to be approved granting at secured abilities have additional $75 million of leverage from the SBA giving us more importantly long-term 10 year capital of fixed interest rate, which Dave will talk about further during his presentation as well.

Now, let me turn to some of the more specific issues related to our new business activity, pipeline and continued growth of signed term sheets that we are receiving every week, almost every day in the organization. Yesterday, you saw us report that even after the close of Q1, we closed an additional $35 million of term sheets that were converted into contractual loan obligations or commitments from us.

Its important, that we start segregating as I used to do in 2007 the difference between a non-binding term sheet of commitment in our funding and I will talk about a lot more on the call, it is important to understanding the uniqueness of Hercules, which focus on the venture industry as opposed to other BDCs that rely primarily in the lower level market or middle market industries when the companies fully drawn down to the capital.

Now, continuing on that thread, we saw also $35 million of deals in Q2 so far leaving by the way another $125 billion of outstanding term sheet that we expect to convert in the next 30 to 45 days into obligations. What this means is, that it gives me an incredible comfort on being able to see over $220 million of new investment activities that will close in the first half of 2010. So we’re certainly on track to our pace that we expected.

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