Megan Bacon - Marketing Support Manager Robert D. Pomeroy - Chairman & CEO Gerald A. Michaud - President Christopher M. Mathieu - CFO.

Troy Ward - KBW Robert Dodd - Raymond James Casey Alexander - Gilford Securities.

Good morning and welcome to the Horizon Technology Finance's Third Quarter 2014 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'd now to like to turn the conference over to Megan Bacon of Horizon for introductions and the reading of the Safe Harbor statement. Please go ahead..

Thank you and welcome to the Horizon Technology Finance third quarter 2014 conference call. Representing the Company today are Rob Pomeroy, Chairman and Chief Executive Officer; Gerry Michaud, President; and Chris Mathieu, Chief Financial Officer.

Before we begin, I would like to point out that, the Q3 press release is available on the Company's Web site at www.horizontechnologyfinancecorp.com. Now, I'll 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, 2013.

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'd like to turn the call over to Rob Pomeroy..

Good morning and thank you all for joining us. Our solid performance in the third quarter reflected our continued success, generating strong yields, improving credit quality and realizing profitable liquidity events.

Our performance was characterized by prepayments that produced good portfolio of income and yield that resulted in reduction in our portfolio at the end of the quarter. The inflows from amortization and prepayments have enhanced our liquidity position.

Turning to our operating performance for the quarter, we earned net investment income of $3.2 million or $0.33 per share. We had an increase in net assets from operations of $4.8 million or $0.50 per share.

Our yields in the quarter remained strong as we achieved, a dollar-weighted average portfolio yield of 15.8% consisting of double-digit coupons, fees and end-of-term payments. We funded $22.8 million in new loans during the third quarter off which 91% were priced at floating interest rates.

We experienced 5 liquidity events including receiving $1.3 million in proceeds from exercising our warrants and selling shares in Anacor Pharmaceuticals, a public portfolio company which repaid our loan in 2013.

These warrants were harvested from our balance sheet, a quality event that demonstrate our ability to monetize our warrant portfolio and receive upside for shareholders. In September, Horizon sold remaining assets of HPO Assets LLC, a wholly on subsidiary of Horizon which helps to support NAV growth.

We ended the third quarter with a portfolio venture loans to 49 companies with an aggregate per value of $196 million as well as a portfolio of warrants and equity investments in 79 companies with an aggregate fair value of $8.7 million.

In consideration of our third quarter performance and future outlook, we declared monthly distributions totaling 34.5 cents per share, payable during the first quarter of 2015. This represents an annualized yield of 9.6% based on our NAV as of September 30th. Since our IPO, we have now declared cumulative distributions of $6.305 per share.

In maintaining our commitment to provide shareholders with a steady stream cash of distributions, we continued to maintain undistributed or spill-over income of approximately $0.51 per share as of September 30. Our strategy remains to pay monthly distributions that are covered by our net investment income overtime.

As a result of our lower portfolio at start of the fourth quarter, our target for covering our distribution by NII through a combination of incremental growth in the portfolio and the continuation of favorable yields will likely to be pushed out into 2015. I would now turn our attention our attention to credit quality.

During the third quarter of 2014, we further improved our asset quality by leveraging our expertise managing venture loan portfolios. As of September 30, our loan portfolio added weighted-average internal credit rating of 3.1 and 93% of our loan portfolio was performing at or better than expected at the time of underwriting.

At the end of the quarter, there was one investment remaining on non-accrual with a cost of $2.6 million at a fair value of $2.3 million. This compares to five investments on non-accrual as of December 31, 2013 with an aggregate cost of 23 million and an aggregate fair value of 14 million.

In terms of liquidity, our debt-to-equity ratio has declined from 0.79:1 in the second quarter to 0.64:1 in the third quarter.

During the quarter, Horizon experienced positive liquidity events from loan prepayments the sales of warrants and the natural deleveraging of our portfolio from loan amortization leading to reduced long-term debt and enhance liquidity. We are now focused on growing our portfolio.

While we maintained our pricing discipline, our credit quality improved as I noted earlier. However, given pricing pressures in the market today, we anticipate onboarding yields from new investments to decrease modestly.

We have yield flexibility, which should continue to enable Horizon to achieve industry leading yields and further differentiate itself from other BDCs. I would also like to give you an update on another important event in the quarter. We entered the SBIC license process by submitting our management assessment questionnaire to the U.S.

small business administration in July. Since taking this first step in the approval process, we have received a Green Light Letter from the SBA on October 30th, inviting Horizon to continue our application process to obtain a license. Monday night, we filed our application for SBIC license with the SBA.

In connection with the granting of the license the SBA typically requires that the applicant have the necessary minimum regulatory capital to meet the initial capital requirements to the SBIC. With our significantly improve liquidity and reduced overall leverage, we are in a great position to satisfy this requirement.

We have the capacity and willingness to drop the equity into our SBIC subsidiary immediately upon licensing without the need of raising additional equity in the public markets. We currently expect to fund the initial regulatory capital from existing liquidity.

I want to remind everyone that, there is no guarantee that we will be granted a license or how long the process will take to receive one. We believe that, our performance in the third quarter was solid and builds the foundation for future growth.

We face some competitive challenges but we use our enhanced liquidity position to selectively compete for the best opportunities. The credit quality of our portfolio is sound and we have harvested gains from our growing warrant portfolio.

Going forward, we will remain focused on operating effectively in the current market environment and originating high-quality deals with strong returns. In a moment, Chris will detail the financial results for the third quarter, which will provide more color on these events. But first Gerry will provide an overview of the market.

Gerry?.

Thank you, Rob. Good morning, everyone. We continue to see strong and consistent venture capital investment activity across our markets during the third quarter. VCs are raising and investing significant amounts of capital and it continues to be a greater number of exits in the form of IPOs and M&As.

We also continued to experience consistent demand for our venture desk products in the quarter, as our advisors originated a total of $44 million in loan investments in nine companies off which Horizon funded $23 million and partnered the remaining $21 million with other vendors.

Based on our continued success of executing on our investment strategy of originating quality investments to venture capital sponsored technology and lifescience companies and for attractive yields for additional upside potential from warrants and success fees, we generated both healthy portfolio yields and on boarding yields during the quarter.

Portfolio yields were 15.8% for the third quarter and 15.3% for the nine months ended September 30th. Onboarding yields averaged 12.2% for the quarter.

As a reminder, our onboarding yields consists of contractual interest rate, commitment fees and ETPs, but does not include additional potential for increased yield from warrant gains, pre-payment fees, success fees or accelerating income from ETPs upon loan prepayments.

As an example of additional yields we received from our portfolio in the third quarter, in connection with the acquisition of Newport Media by Atmel, Newport prepaid the balance of its $7 million loan and we recorded approximately $800,000 in income including a success fee.

In addition, another one of our technology portfolio company Construction Software completed a merger and sale of this business on October and prepaid $7.7 million outstanding balance of its loan which will result approximately $360,000 in income for the fourth quarter.

Into the third quarter, we have warrants in equity positions in 79 portfolio companies and had success fee provisions in seven portfolio companies. At the end of the third quarter, our pipeline of new investment opportunities is approximately $170 million.

While historically, we have been able to convert our pipeline into high-yielding quality assets, it can be no assurance that we will fund any investment opportunities in our pipeline.

Our awarded, approved and committed backlog as of September 30th, totaled $32.2 million to nine companies compared to $11.5 million to five companies as of June 30th, in addition we added $8 million in new awards in October.

Although our total investment portfolio declined in the third quarter, we are well positioned to take advantage of market opportunities as they arise.

As a result of the prepayments on investments in the last quarter combined with the availability of funds from our credit facility, we have increased liquidity going into the fourth quarter and the early part of 2015 with a goal of putting down liquidity to work to grow our portfolio.

Turning to our core markets, we continued to see solid demand for IPOs and lifescience markets. According to National Venture Capital Association or NVCA, 18 late stage lifescience companies completed IPOs in the third quarter raising over $1.2 billion representing over three quarters of the total number of IPOs during the quarter.

The total number of life science deals for the third quarter is slightly higher than Q2, 2014 and represents the sixth straight quarter of double-digit growth in life-science IPOs.

In the third quarter, we added Argo Therapeutics to our portfolio, a publicly traded clinical-stage life science Company, that completed an IPO in February this year and we exited Anacor Therapeutics as we exercised our warrants resulting in proceeds of $1.3 million.

Valuations for our lifescience companies have come down fairly significantly from the beginning of the year, generally due to broader economic issues and we believe the recent volatility in the stock market may impact the market for IPOs for the fourth quarter of 2014.

Despite these challenges, the market for lifescience IPOs remains robust as quality, late-stage life science companies with positive clinical trial results in the area of oncology, cardiovascular and immune disease should be able to continue to access the public markets.

We are aware that one of our lifescience portfolio companies has filed for an IPO under the Jobs Act in the third quarter. Turning to the technology markets, we continue to see strong M&A activity in this sector.

The NVCA reported at 91 of the 119 M&A transactions reporting during the third quarter were technology-related transactions, an increase from 79 tech deals from the second quarter.

While valuations from the tech market are selectively increasing the levels which we believe may not be sustainable, software, cloud services companies that are getting solid multiples on the value of their long-term contracts and revenues and fabulous specialty semiconductor companies still appear to be enjoying great demand for their products and attracting M&A opportunities at rational valuations.

As a result, we continue to believe the 2015 maybe a strong year for M&A activity in the tech sector and that our portfolio is well positioned to drive higher returns. We remained bearish on the clean tech market as this industry has had only a modest increase in investment levels by VCs.

Meanwhile, the market for healthcare information and services continues to be challenging given the uncertain and ongoing national healthcare. So, we are now seeing demand for equity in this segment.

We will continue to monitor these industry sectors for opportunities that meet our pricing and underwriting criteria in Q4 and into the first half of 2015. In terms of overall venture capital activity, we believe the market for VC investments remained strong.

According to NVCA, VCs has invested $9.9 billion in just over 1,000 companies in the third quarter, compared to $13.5 million in more than 1,100 companies in the second quarter of 2014. Despite the sequential decline, total venture investing in 2014 of more than $33 billion has eclipses already all of 2013, which totaled $30 billion.

Turning to the overall competitive market landscape, while our pipeline remains robust, deal activity is constant, the industry is experiencing increased competition from a growing number of tech banks that are stretching beyond their usual ABL lending platform into pure venture lending.

We believe this increased competition is causing downward pressure on yields, pricing LTVs and transactions that may not provide adequate risk-adjusted returns.

Our healthy liquidity position combined with our flexibility is one of the highest yielding portfolios in the BDC industry and our unwillingness to compromise on credit quality allows us to both effectively compete and maintain a high-quality venture debt portfolio.

We believe that, our disciplined investment strategy will support our future portfolio growth with an attractive yield to our shareholders. In summary, we believe the BC market remained strong as evidenced by the solid levels of deal activity in the tech and lifescience markets.

We have the relationships, knowledge and experience to successfully execute our strategy in sourcing investment opportunities in the secured loans to high-quality technology in life science companies with solid onboarding yields, incremental NII income from early exits and income from harvesting and growing our loan portfolio which our shareholders will continue to benefit from in the form of an attractive and stable dividend.

With that update I would like to now turn the call over to Chris..

Thanks Gerry and good morning everyone. Our consolidated financial results for the third quarter of 2014 have been presented in our earnings release distributed after the market closed yesterday. We also filed our Form 10-Q with the SEC last night.

For the three months ended September 30th, total investment income was $7.7 million compared to 8.7 million for the third quarter of 2013. This year-over-year decrease was primarily due to lower interest income on investments resulting from the decreased average size of the loan portfolio, partially offset by a higher fee income.

New loans funded in the third quarter at an average onboarding yield of 12.2%. Total investment income for the quarter included $6.8 million from interest income on investments as well as approximately $1 million of fee income. We continue to shift our portfolio's interest rates towards floating rate structures.

As of September 30th, 42% of the outstanding principal amount of our loan portfolio for interest at floating rates. Substantially, all of our fixed rate loans are match funded in our securitization, which has a fixed borrowing cost. So there is no risk of spread compression on this portion of our portfolio.

For the third quarter, our portfolio yields was 15.8% compared to 14.6% in the third quarter of 2013. The primary changes quarter-to-quarter to portfolio yields are driven by the timing of new loan fundings and timing and extent of loan payments and related fee income within the portfolio.

The company's total expenses were $4.5 million for the third quarter, as compared to $5.1 million for the third quarter of 2013. Interest expense decreased 32% year-over-year, primarily due to a decrease in our average debt outstanding and a decrease in the effective interest rate on our borrowings.

We've recorded expense savings from the elimination of debt issuance costs and non-use fees associated with the term loan facility we paid-off in Q2 combined with lower costs under our revolving credit facility with key equipment finance, which has a current interest rate of 4%.

Another impact of the term loan facility termination is that, we cleaned up the balance sheet by eliminating higher cost debt and the off balance sheet commitments and now have improved cost of debt. We've right-sized our debt commitments and obtained lower coupon rates for our borrowings and paying less non-use fees, compared to the year ago period.

The effective interest rate on our borrowings for the first nine months for 2014 was 6.8%. For the first six months ended June 30th and the three months ended September 30th the effective rate was 6.9% and 6.2% respectively. We expect our effective interest rate on borrowings for the fourth quarter to be approximately 6%.

Horizon recorded performance-based incentive fee expense of $800,000 for the third quarter in 2014 compared to $900,000 for the third quarter of 2013. The decrease due to lower pre-incentive fee net investment income. Base management fee expense also decreased year-over-year by 18%, primarily due to a decrease in average total assets.

Professional fees for the third quarter increased year-over-year, primarily due to increased legal fees and other costs associated with certain non-accrual investments and other assets.

However, I'd like to point out that, each of the non-accrual investments and other assets that were generating these professional fees have now been resolved, so we anticipate professional fees to return to normal levels of $300,000 to $500,000 per quarter beginning in fourth quarter.

Net investment income was $0.33 per share for the three months ended September 30th. During the quarter ended September 30th, we realized net gains totaling $2.3 million primarily due to sale of warrants and other assets acquired through bankruptcy of a portfolio company earlier this year.

We believe the opportunity to benefit from an additional liquidity events including warrant gains remained strong due to the continued strength in both IPO and M&A activity within our target markets.

Our net asset value or NAV as of September 30th was $14.38 per share, an increase of $0.15 per share compared to Q2, primarily due to the net realized gains I just discussed. New loans funded in the quarter totaled $22.8 million.

This performance was offset by $10 million in normal principal payments and $27 million in loan prepayments, resulting in a portfolio of $196 million at the end of the quarter.

Subject to the level of actual loan originations and prepayments combined with the impact of expected regular principal payments of $10 million, we expect the net portfolio change for the fourth quarter to be in a range of the $5 million decrease to an increase of $10 million.

In terms of liquidity, Horizon ended the third quarter with $44 million in available liquidity including cash totaling $16 million as well as $28 million in funds available under our revolving credit facility.

As of September 30th, we had $10 million outstanding under our credit facility, which has an initial commitment of $50 million and contains an accordion fee to allowing for an increase in the total loan commitment up to an aggregate commitment of a $150 million.

We also had $45 million outstanding under our asset-backed investment grade securitization and $33 million outstanding of our publicly-traded senior unsecured notes. 89% of the Company's total borrowings are outstanding were at a fixed interest rate with 51% of the total borrowings fixed at an interest rate of 3%.

We intend to increase our current debt levels and grow our leverage ratio as we use our credit facility to grow our investment portfolio. This planned growth is expected to be partially offset by the continue pay down borrowings under our securitization through normal amortization and prepayments within our active loan portfolio.

Before we open the floor to questions, I would like to note that we plan to hold our next conference and report fourth quarter and year-end results during the week of March 9. This concludes our opening remarks we will happy to take questions you may have at this time. .

(Operator Instructions). Our first question comes from Troy Ward of KBW. Your line is open..

Great. Thank you and good morning gentlemen. .

Good Morning..

Only SBIC, I know you don't have a lot of clarity and you don't want to provide too much guidance on that and I understand that, but given the fact that you did go too far down the process and to know fault of your own, you had to take a step back and now you've re-entered that process.

Do you expect that the time between the Green Light and actual receipt of the license now you are returned in your app, will be lower because you're involved in the process couple of years ago?.

I would say Troy that, we had good interaction when we worked with them before and we would expect that going forward, but we're not going to get special favorable treatment, but we will work hard to be as responsive from our end as we can. But we can’t really give other guidance on the timeline..

Okay, and then when you talk about having the capital available to fund it, already on your balance sheet, how much equity capital do you anticipate needing to fund that size of facility do you anticipate starting with?.

We're not giving direct guidance on that, Troy. We won't put the full amount down, but we will ease it overtime..

Okay. And then in the press release, one thing that you talked about was, you are not chasing pricing structures and credit environment for risk-adjusted returns. The pricing obvious and you talked about some tech banks are getting little bit active in your more traditional space.

What about the structures? What are you seeing on the structures that you think as quite as favorable as they were historically?.

Hi, Troy. This is Gerry.

On the structural side, I think the things or certain indicators we look at, not related to one transaction but kind of we look for trends and if we see trends of loan to values starting to increase, which in this market place you certainly can see happening because the exits have been very favorable relative to the number of IPOs and MNA activity.

So, there is a rational that we can go a little bit higher up in loan to value because exits are happening and they're happening at valuations that are still well projecting the debt.

But off course we've seen those markets can turn and actually they can turn fairly quickly sometimes, and so one of the things I thing that really important for us for our portfolio, for our own investors is to continue to maintain a very disciplined process relative to underwriting.

So, I am willing to lose a transaction where I believe that even may look okay, you maybe rationalize the deal in today's market. We see LTV getting too high and that becomes quite concerning to us.

As it relates to pricing, I mean, there we actually have a little bit of an advantage because we've been so discipline in the market place really since we've gone public.

Our yields have been consistently well over 12%, onboarding yields, and so I think we have a little win at our back related to our liquidity position and the way our portfolio was positioned and priced today specially with our cost of capital starting to come down and lower professional fees.

So, I think we’ve positioned ourselves well, but we have been on the underwriting site which is what you are referring there and that's the right place I think for cautionary note. But in terms of pricing and in terms of demand, those are all good. In terms of underwriting support for the VCs, there is plenty capital in the market, so that's all good.

We will face a little bit of a headwind relative to when we do find quality opportunities at competitive pricing. .

Okay. And then one final one from me. On the portfolio, I know, you haven't focused on the Clean Tech sector in more recent times because you just haven't been impressed with some of the opportunities there.

But looking at the portfolio, it looks like 8% or 9% of the portfolio is in Clean Tech and obviously with since last 48 hours all this going on with the energy market.

How do you view changes in the energy market versus your current Clean Tech portfolio and what that could mean for credit quality there?.

Yeah. Good question. I think in terms of the quality of our portfolio, it's relatively small part of our portfolio now. We're very comfortable with what we have been there.

We've only had two transactions all year that are prepaid relative to be in and refinanced out versus an M&A activity or an exit and both of those transactions for Clean Tech deals and so we were perfectly willing to have those exit our portfolio, so we could redeploy that capital in what we think are the strong industry sectors that we have.

As it relates to going forward, I mean I think that, it would not be a long stretch to say that Clean Tech will be more challenged by first of all lower oil prices, because that you're always competing on price for energy.

So I think going forward, that's certainly one concern and obviously things like opening up the pipeline or doing things like that could also have an impact on how investors, We particularly are looking at the Clean Tech market relative to investments. So, we will be watching at very carefully.

The good news is we've already repositioned our portfolio, so it's not a concern relative to what's in our portfolio today. .

Great. Thanks guys. .

Our next question comes from [inaudible] from Wells Fargo Securities. Your line is open..

Hey, guys. Good morning and thanks a lot for taking my questions. .

Thanks. Good morning. .

You mentioned during the commentary that, you expect the NOI to cover the dividend that's been pushed out in 2015.

And I'm just trying to get a sense of what needs to happen to get to there and what the real catalyst are? In the past couple of quarters you've seen higher amount of fee income from the portfolio turn and then on the portfolio growth side you mentioned higher competition at lower rates from banks and other venture vendors.

Is it continued portfolio turn, is it fees, is it portfolio growth or is it the SBIC?.

Really, Greg, in the near-term it's the all of the above that you mentioned. It's a working a way back a little bit more into the leverage by growing the portfolio, maintaining certain healthy level and standard level of prepayments during the quarter, very much part of the vendor lending models especially for Horizon.

By growing the portfolio is just a little bit, we will get us back to where we need to be we're close. We're just we need to be we need to have the portfolio grow modestly and we can achieve those results. .

Okay.

And then kind a connected to that, you've said you had the liquidity on balance sheet to fund the SBIC if needed, does that mean that you could hold back portfolio growth until having certainty around the SBIC license plus limiting NOI growth?.

No. We believe that we have the capacity to do both, and as I said they grow the portfolio modestly. We have an outlook that we've already given guidance on the outlook for the fourth quarter. First quarter is typically one of the lower production of course. We have capacity to do both going forward. .

Okay. And then just connected to SBIC license, just wanted to get a sense of your willingness or appetite in the future issue equity below NAV, if that was connected to the SBIC..

We don't need to do that. We said that historically, we have the liquidity and the capacity under our balance sheet to fund this going forward, and so that's our plan, Greg. .

Fine. Thanks so much for taking my questions.

(Operator Instructions). Our next question comes from Robert Dodd of Raymond James. Your line is open. .

Hi guys. Thanks for taking the question. Just kind of focusing on the balance sheet from the other side. On the securitization, obviously it's paid down pretty substantially now. It's half of its starting balance.

Obviously, you're working on the SBA as well which will be another former capital and you don't really need a full securitization at this point perhaps. But is there any sort into putting another one of those on the books? And I remember when the first one went on you also move back. There was some discussion or maybe during reinvestment period.

So, any color on discussion you’ve had about that on either in changes to the form, if you do another in terms of the investment or any other color?.

Big question, Robert. We're always looking at the other options in the debt market and right now we see that really it's a combination of the securitization coming down and then redeploying leverage using our revolving facility. The key equipment finance facility really has the perfect match of our business with the leverage that we need.

So, I would expect that we would have as we have more leverage needs, we would add to that facility. Currently, it's a $50 million commitment and certainly have interest from additional lenders that could build on to that commitment. So, that is something we will look at in 2015 as the securitization comes down.

We gave signal when we had first on that securitization that it had a weighted average life of about a year and a half and we are willing to that now. So, we really not surprise that the securitization is where it is. And as we have prepayments on the asset side, it will continue to reduce that debt side as well.

As I mentioned, it's a matched-term fixed rate financing. And so, it is as we expected and certainly to the extent we have the SBIC in in 2015 that would become a very important part of our overall leverage strategy..

Got it. And just kind of the competitive environment, rather than where they are now. Could you give us a view of that where it looks to be versus historical cycles? Because obviously you've been through VC cycle, economic cycle et cetera before.

And I mean is this move of the tech banks kind of getting a bit more aggressive relatively speaking in VC debt.

Is that typical of any particular point in cycles?.

Great question actually. Relative to the tech banks, a lot of that has been driven not just by historical tech banks that we have competed with and actually partnered with in the past, but actually the entrance of a new bank that has been coming to the market very aggressively, and put a lot of pressure on.

We have been the normal competition on the tech bank side, and that is really what has kind of led to a significant amount of volatility relative to with the banks having just kind of reposition themselves and maybe stretched our further than what they have historically being comfortable with. We've been competing against kind of the same tech banks.

Some of them have gotten stronger relative to capitalization, but the entrance of really just one new tech bank that happens to have a pretty big balance sheet is kind of changed the environment and honestly I have to kind of wait and see.

I don't see this has being a long-term issue relative to the market, because banks are very heavily regulated and at some point in time, they will have to address more aggressive approach relative to regulatory issue. So, I'm not as concerned about that.

Relative to the rest of the market, we've seen a lot of BDCs coming over the last few years and kind of replace what have been traditionally venture debt funds. And I think that, that's had really kind of a not much of effect because the funds that we are in the market, we're extremely well known.

These were companies that had a lot of value-added relative to how BDCs thought about them as they think about us. And so, that has been offset by bigger checkbooks that have come in to the market but don't have those relationships and VCs don't and we see don't have as much comfort level with them.

So, that hasn't changed things relative to how we see the competition outside of the banks and I think we still have a very strong foothold as it relates to that. We're still very much considered a value-added lender and I think the evidence in that is our portfolio yield.

Even with significant pressure on yields overall in middle market lending and even in the eventual debt space, we've been able to hold pretty strong yield positions within our portfolio. So, I feel good about where we are. We have more liquidity than what we had in the past.

I think this allows our managing directors to take off their gloves a little bit relative to the next two quarters and be more aggressive. The better liquidity position also allows you to look at how we have used partnering in the past.

We used it for two things, one is to manage concentration levels which we will continue to do, but it gives us more flexibility relative to liquidity to be able to fund more of the transactions that we originate every quarter, and so I think with all those things working for us, the next two quarter outlook for us certainly puts us in a good question.

It's going to be a question of how much more competitive do we have to be on yields and do credit structure start get into a place where we're not comfortable so we'll have to see how that goes..

Okay. Thank you. .

Our next question comes from Casey Alexander of Gilford Securities. Your line is open..

Hi. Good morning.

Coming down from 60,000 or 30,000 feet to about 5,000, what is I know that your weighted average yield is very variable because of the prepayments, what's the cash yield on the portfolio right now?.

The onboarding yield is just about 12.5%..

12.5%. Okay.

And you mentioned that, you expect the professional fees to moderate starting this quarter?.

In the fourth quarter, it will be lower, yes..

Okay. And what verticals is the competition? I mean, you have four verticals that you have approached.

What vertical is the competition the highest and in what your lending verticals are you seeing more interesting opportunities?.

Yes. So life science has been a very competitive market now for over a year and I pretty much said that on every investor call that we have had, that continues to be true. We did see last quarter a little bit improvement in yields we had Argo Therapeutics, which is a late-stage life science to our portfolio. Overall, that was a $25 million commitment.

So, we are seeing a little bit improvement there, which is good because we like that sector a lot and look forward to hopefully finding more opportunities there. So, that's where we're going to be focused in one area. I think on the tech sector, that's where we have seen for the first time in quite a long time yield pressure.

The tech sector is more ABL driven because, they actually have revenues and they're in growth modes so they are doing banks traditionally through to ABL deals there and so they have access to those customers earlier and now they are trying to kind of push that envelope a little bit out into the venture kind of pure venture lending space, and so that's where we will see probably more competition.

What we like about that sector is we still very much like the software side, specialty semiconductor side. There are lots of opportunities relative to consumer internet place.

Those are the ones to get the biggest flash in the market, historically though we have some history on Internet and the underlying value of somebody's companies this goes back to my LTV comment are questionable if they don't are able to execute on their strategy and generally that strategy initially is raising an awful lot of equity.

And so, right now, the equity markets are good so people feel good about it, but dries up and you are talking about.

I mean is your point there that their intellectual property is basically based upon an idea and nothing much more?.

Yes. I mean, that's a little bit simplifying it, but the underlying value of the enterprise value can be stressed significantly when liquidity or I should say capital raising becomes more of a problem form. We watch that carefully..

But, now that you have the green light from the SBA, I mean, and you have this sort of you have some liquidity, you need to make sure that you have liquidity for the approval of the SBA.

Other BDCs that were in the SBA process have taken the approach of actually putting some capital in the SBA subsidiary to do some pre-license approval but approved deals within the SBA structure.

Are you considering doing any of those?.

Casey, this is Chris. Currently, we are not expecting to do that. We're hoping that the cadence of the approval process would be such that we would not do that.

There have been folks that have been in that process that have actually abused the SBA's ability to do that, and so we're trying to go the other way and keep the process clean, let them do their work through the licensing and not distract them with pre-licensing deals, which does create a delay in their process..

Okay. Thank you. We would never suggest that you guys be abusive..

Good..

Alright. Thanks for your time this morning. I appreciate you taking my questions..

Thank you..

Yes. We appreciate your questions and your continued interest in the Horizon story. We look to build on our solid performance from the third quarter as we grow our portfolio and execute on our investment strategy and we look forward to sharing our progress with you in the future.

And so, this will conclude the Horizon Technology Finance conference call. Thank you and have a great day..

Ladies and gentleman, thank you for participating in today's conference. You may all disconnect. Everyone have a great day..