Rob Pomeroy - Chairman, Chief Executive Officer Gerry Michaud - President Chris Mathieu - Chief Financial Officer Megan Bacon - Marketing Support Manager.

Ryan Lynch - KBW Casey Alexander - Gilford Securities Chris York - JMP Securities Robert Dodd - Raymond James Jonathan Bock - Wells Fargo Securities Christopher Nolan - MLV & Company.

Good morning and welcome to Horizon Technology Finance's First Quarter 2015 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 would now like to turn the call 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, first quarter 2015 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 Q1 press release is available on the company's website at www.horizontechnologyfinancecorp.com. Now, I will 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, 2014.

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 would like to turn the call over to Rob Pomeroy..

Good morning and thank you all for joining us. The first quarter of 2015 represented a good start to the year for Horizon. We maintained our portfolio of high quality Venture loans, while experiencing portfolio liquidity events and steady competition.

With strong demand we both originated new loans to replace the loans that were prepaid during the quarter and in large to our pipeline, in what is traditionally the slowest quarter of the year. In March we also strengthened our liquidity by completing an equity offering positioning us to capitalize on our growing pipeline.

With our improved liquidity position, we are poised to achieve portfolio growth and remain committed to maintaining a disciplined approach to sourcing and pricing high quality loans. We earned net investment income of $2.9 million or $0.30 per share for the first quarter, in line with our expectations.

Net investment income was impacted in the quarter by a slightly higher weighted average share account from the March equity offering and a small reduction in the weighted average size of our portfolio, primarily due the timing of loan repayments early in the quarter and new loan closings later in the quarter.

In the first quarter we had an increase in net assets from operations of $3.8 million or $0.39 per share, underscoring the earnings power and credit quality of our portfolio.

In the past five quarters we have earned an increase in net assets from operations of $19.3 million or $2 per share generated from a combination of NII totaling $13.6 million and $5.6 million from increases in realized and unrealized gains on investments.

For the first quarter we originated $24 million in new loans to nine companies and generated attractive onboarding yields despite contending with persistent competitive pressures. We achieved a portfolio yield of 15%, which compares favorably to 13.6% for the first quarter of 2014.

We experienced liquidity events from four portfolio companies in the first quarter as compared to two liquidity events in the first quarter of 2014. Liquidity events produced accelerated income and the return of capital for redeployment into new investments, while we often retain warrants in our former borrowers.

We ended the first quarter with a portfolio of Venture loans to 50 companies with an aggregate fair value of $198 million, as well as the portfolio of warrants and equity investments in 82 companies. We believe our warrant portfolio has the potential to provide meaningful income to our shareholders.

We currently hold several positions in companies that are already public or in registration, along with warrants and success fee agreements in private later stage companies which we believe are right for M&A exits. With regards to credit quality, we believe that our loan portfolio is in sound condition.

Our loan portfolio had a weighted average internal credit rating of 3.1 at the end of the first quarter and 90% of our loan portfolio was performing at or better than expected at the time of underwriting. There remain only two loans rated 1, which have an aggregate cost and fair value of $5 million.

Of note, we have a record level of 4 rated loans with an aggregate fair value of $50 million. A rating of 4 is indicative of a portfolio company that has performed better than expected at the time of underwriting, has increased warrant potential or is expected to have liquidity event in the near future.

Turning to liquidity, our debt to equity ratio at the end of the first quarter of 2015 was 0.49:1 compared to 0.63:1 at the beginning of the year.

While our leverage ratio decreased due to the increase in capital from our equity raise and normal portfolio amortization and loan prepayments, we intend to leverage our portfolio to our targeted ratio of 0.75:1 in the coming quarters, which equates to a projected portfolio of approximately $290 million.

We maintained $40 million of availability under our revolving credit facility and have the ability to increase that facility if necessary as our securitization debt continues to amortize.

Our increased liquidity from the recent offering together with the availability of funds from our credit facility provides Horizon with adequate capital to fund its existing pipeline of quality Venture loan opportunities.

We believe we are poised to expand our investment portfolio in a manner that creates significant and sustainable shareholder value. We are now targeting earning NII that covers our distributions by the end of 2015.

Taking into account our first quarter performance and future outlook; we declared monthly distributions totaling $0.345 per share payable during the third quarter of 2015. This represents an annualized yield of 9.7% based on our NAV as of March 31. Since our IPO we have now declared cumulative distributions of $60 million or $7 per share.

To help maintain a steady stream of cash distributions to our shareholders, we have undistributed or spill over income of $0.31 per share as of March 31. As an update to our SBIC application, our formal application was accepted by the SBA late in the fourth quarter of 2014.

We are in discussions with the SBA regarding our application, but as we have cautioned that process is thorough and there is no guarantee when or if we will receive the license. I would like to briefly discuss the type of financing Horizon provides its borrowers and a security position it receives in connection therewith.

Since Horizon was formed over than 10 years ago, the team has funded more than $1.1 billion in loans to more than 190 companies. These loans almost entirely consisted of senior team loans, which are loans secured either by a first lien or a first lien position behind the bank revolver.

Our investment strategy has long been and continues to be, to focus on the senior term loan position in the capital stake of our borrowers. Horizon does not current focus on the second lien term loan market, which are loans secured by a second lien behinds the banks revolver and an additional term loan provided by the bank.

Horizon also does not hold or actively seek subordinated loans, which are typically secured to unsecured loans that are behind not only a revolving loan, but an additional term loan provided by a non-bank lender.

As of March 31, 2015, 98% of our Venture loan portfolio consists of senior term loans, with 45% of the portfolio consisting of senior term loans secured by the first lien position behind a bank revolver.

In a moment Chris will detail the financial results for the first quarter, including details of our recent offering which will provide more color on these events. But first, Gerry will provide an overview of our strong pipeline and the Venture lending market. Gerry..

Thank you Rob and good morning everyone. Against the backdrop of what is a seasonally slower quarter for Venture Capital investing and Venture lending, Horizon experienced continued demand for its senior term loan product.

This resulted in Horizon achieving solid origination levels as it funded $24 million to nine companies in the first quarter of 2015 compared to $15 million to three companies in the first quarter of 2014.

Horizon continued to obtain attractive onboarding yields of 11.8%, which when combined with poor portfolio liquidity events in the quarter resulted in a portfolio yield of 15%. Importantly, our committed approvals and awarded backlog during the quarter grew to approximately $50 million at March 31, 2015.

In addition, we have been awarded four new transactions totaling $30 million in April. Meanwhile our pipeline of new opportunities continues to grow and exceeds $160 million at March 31, 2015. We believe all of these data points signal to a very active market for our Venture debt products for 2015.

At the end of the first quarter we have warrant and equity positions, 82 portfolio companies. In the first quarter of 2015 one of our lifescience portfolio companies Inotek Pharmaceuticals completed its initial public offering.

In addition, one of our portfolio companies eASIC Corporation filed for an IPO and another portfolio company filed for an IPO under the Jobs Act. With the Inotek IPO Horizon now has 12 publically traded portfolio companies.

Of those 10 are drug development companies which have the potential for significant increases and market value if and when they need clinical and regulatory milestones. With respect to M&A transactions in the first quarter, one of our portfolio companies was quite.

In addition, we have a number of other tech companies that are performing at or above expectation and are becoming attractive M&A or IPO candidates. We believe our historical focus on the tech market may result in positive NAV and NII upside for our shareholders in 2015.

Turning to the activity in our core markets in the first quarter, while the dollar amount of VC investment and biotech market of $1.7 billion was down 14% from Q4, the number of companies receiving VC investment increased slightly.

Considering that the first quarter of the year historically sees a lower level of VC investing as Venture Capitalists plan investment activity for the remainder of the year, we believe the level of investment activity in the bio tech market in 2015 will continue to be favorable.

With the growing level of equity investment in 2014 and the anticipated strong level in 2015, we anticipate solid demand for Venture debt over the balance of 2015, as bio tech companies seek to augment their equity capital with Venture Debt.

We also believe 2015 will be a significant year for clinical and regulatory milestone events for Horizon’s public biotech companies. Clinical and regulatory milestones are major drives of market valuation upside.

Therefore we anticipate being active in 2015 in both making new debt investments and realizing value from our biotech warrant and equity investments. The number of IPOs for lifescience companies continue to pull back from their historical highs seen in the first half of 2014.

According to the National Venture Capital Association or NVCA there were 13 VC backed lifescience IPOs in the first quarter. While the number of lifescience IPOs have declined over the last two quarters, it is important to remember the market has been experiencing record high levels of IPO activity in the lifescience space over the last six quarters.

I would also note that according to NASDAQ the number of lifescience companies that continue to file for IPOs is still very activity, which suggest there is still an opportunity during 2105 for a number of high quality lifescience companies to go public. Accordingly, we anticipate that 2015 will still reflect an active market for lifescience IPOs.

As we review the technology market for 2015, we clearly see an opportunity for quality exits in the Horizon portfolio. Over the last two years Horizon has strategically invested in more capital than technology market and now has a number of late stage technology firms poised for an exit.

Of the $13.4 billion of Venture Capital invested in the first quarter of this year, the tech sector received the most investment with $5.6 billion invested in 434 software companies according to the NVCA.

In the healthcare, information and service industry our Venture Debt pipeline of quality opportunities continues to grow due to the significant Venture Capital investment in this sector over the last two years, which is a result of healthcare information services being viewed as critical to reducing healthcare costs and improving patient care.

Our pipeline growth experience is mirrored by the growth in Venture Capital investment and healthcare information services which surged 141% over Q4 according to the National Venture Capital Association.

Horizon experienced a positive exist in Q1 from one of its healthcare service companies Radisphere, which resulted in a meaningful contribution to NII in the quarter. Finally, we continue to monitor the cleantech market for quality opportunities and increasing Venture Capital support.

We expect to continue to take a cautionary approach to this market during 2015.

Turning to the overall competitive landscape, as we’ve highlighted over the past few quarters, we believe competition primarily from tech banks reaching loans typically provided by Venture lenders resulted in some lenders of paying lower pricing that in our view did not provide adequate risk adjusted returns.

Looking ahead, we expect these trends will begin to abate during the second half of 2015 with tech banks focus turning inward towards portfolio management.

This focus combined with the distractions associated with the recently announced bank consolidation will result in tech banks returning to their historical practice of offering formula based revolving lines of credit. As such, they will rely on Venture lenders like Horizon Technology Finance.

Some tech banks have long term relationships to provide senior term loans.

We believe the shift and focus of the tech banks when combined with the recently announced plant sale of GE Capital, which has some lifescience investments and the potential sale of another PE backed lifescience lender, mainly to pricing improvement, widening spreads and softening competition in the second half of 2015 and beyond.

Overall, our outlook for 2015 is positive as we enter the year in a strong balance sheet from which to grow our portfolio. We look for potential exist opportunities in our maturing portfolio and we see a favorable competitor environment that rewards experience, reliable, long term Venture lenders like Horizon.

With that update, I will now turn the call over to Chris. .

Thanks Gerry and good morning everyone. Our consolidated financial results for the three months ended March 31, 2015 have been presented in our earnings release and our Form 10-Q, both distributed after the market closed yesterday.

For the three months ended March 31, total investment income was $7.3 million compared to $7.5 million for the first quarter of 2014.

This change was primarily due to lower interest income on investments resulting from the decrease in average investments, partially offset by greater acceleration of income related to transaction fees, end of term payments from loan prepayments.

Total investment income for the quarter included $6.6 million from interest income on investments as well as approximately $700,000 of fee income. New loans funded in the first quarter had an average on boarding yield of 11.8%. Our loan origination efforts continue to include a focus on floating interest rate investments.

As of March 31, 74% of the outstanding principal amount of our loan portfolio or interest at floating rates and further substantially all of our older fixed rate loans are match funded in our securitization, which has a fixed 3% annual borrowing rate.

As a result of this deliberate shift, we are now believe we are now largely protected from a rising rate environment in a number of our markets.

We continue to see strong demand for our floating rate product as shown by the fact that we reported as of March 31, 2015, unfunded loan approvals and commitments totaling $37 million with the 100% price debt floating interest rates.

For the first quarter our portfolio yield was 15% compared to 13.6% for the first quarter of 2014 and 15.3% for the full year 2014.

The primary changes quarter-to-quarter to portfolio yields are driven by the timing of new loan originations and the timing and extent of loan pre-payments and the related fee income from those prepayments, including prepayment fees and acceleration of previously unamortized transaction fees.

The company’s net expenses were $4.3 million for the first quarter as compared to $5 million for the first quarter of 2014. Interest expense decreased by $500,000 or 23% year-over-year to $126 million, primarily due to a decrease in our average net debt outstanding.

Our effective marginal borrowing cost has improved due to the termination of our term loan facility in the second quarter of 2014 and are securing of a lower interest rate under our revolving credit facility in 2013.

Recall that in late 2013 we secured a two year extension with the new maturity date to 2018 on our key facility, which included lowering the interest rate and right sizing the commitment. Base management fee expense decreased by $200,000 or 14% to $1 million for the first quarter of 2015 compared to a year ago period.

Base management fee expense declined primarily due to a decrease in the average gross assets of the company by about 12%. Professional fees decreased to $400,000 for the first quarter of 2015, which we believe is a more normalized level.

We earned a net investment income of $0.30 per share for the three months ended March 31 as compared to $0.26 per share for the first quarter of 2014. We elected to carry forward a taxable income in excess of current distributions of $3.6 million or $0.31 per share as of March 31. This is commonly referred to as our spill over income.

Our NAV as of March 31 was $14.19 per share. We experienced a small net portfolio decline during the first quarter and ended the quarter with an investment portfolio of $204 million.

New originations in the quarter of $24 million in loans to nine portfolio companies were offset by $8 million in scheduled principal payments and $18 million in principal prepayments.

Subject to the level of actual loan originations and prepayments, combined with the impact of expected scheduled principal payments of approximately $6 million, we expect the net portfolio for the second quarter to increase in the range of $10 million to $20 million.

In terms of liquidity, Horizon ended the first quarter with over $70 million in available liquidity, including cash and funds available under our credit facility, an increase of over $26 million from the end of the fourth quarter.

In March Horizon increased its liquidity and improved its overall capitalization by issuing 2 million shares of common stock at a public offering price of $13.95 per share. This offering generated total net proceeds to Horizon of $26.7 million.

In connection with the offering the advisor agreed to lay the base management fee related to the proceeds of the offering for up to one year or until NII covered the quarterly distributions for two consecutive quarters.

I’d like to take a moment to outline Horizon’s view on the benefit it believes we’ll accrue to its shareholders over time from Horizon’s recent equity offering. We believe the nature of our business and the yields it can provide, given our market access and market knowledge maybe offering the right strategy for Horizon shareholders.

The strategic benefits of an offering done at the right price and the right time include greater capital allocation flexibility and ability to fund attractive pipeline opportunities which are accretive to all shareholders. Horizon’s recent equity offering is an example of an offering which we believe can be accretive to shareholders.

Horizon sold 2 million shares, which increased its capital base to 21% of $9.6 million to $11.6 million shares outstanding as of March 31. In analyzing whether to complete the transaction, Horizon and its board carefully modeled and considered the impact on NAV and NII. Horizon’s average portfolio yield since its IPO in 2010 was approximately 14.7%.

Horizons marginal cost of leverage committed today is 4% and its target leverage is 0.75 to 1. We believe that considering these factors, the new capital deployed to a steady state portfolio and generated a favorable return on equity on the new capital, which would then contribute to an overall improved return on equity to all shareholders.

As of March 31 we had $10 million outstanding under our revolving credit facility, which has the current commitment of $50 million and contains an accordion feature allowing for an increase up to an aggregate commitment of $150 million.

We also had $31 million outstanding under our investment grade securitization and $33 million outstanding on our publicly traded bonds. We continue to see demand for all of these bond products in the market and will add to our current commitment levels when warranted.

We intend to increase our current debt levels and grow our leverage ratio towards our target of 0.75 to 1 as we use the proceeds from our recent offering and our revolving credit facility as a source of capital to grow our investment portfolio.

Before we open the floor to questions, I’d like to note that we plan to hold our next conference call to report second quarter results during the week of August 3. This concludes our opening remarks and we’ll be happy to take questions you may have at this time..

[Operator Instructions] Our first question or comment comes from the line of Ryan Lynch with KBW. Your line is now open..

Good morning and thank you for taking my questions. Just the first one, with the recent equity rates we calculate about $70 million of liquidity. What should we be thinking in terms of the pace of the capital deployment and can you specifically give us any color on how originations and repayments are looking quarter-to-date..

This is Gerry; I can take the kind of the second part of that question. As I noted, our committed and awarded pipeline has grown I think just about two fold actually since probably end of the fourth quarter to about $50 million. We had a very strong April reward of another $30 million of business.

So we have a very strong pipeline, strong committed backlog and awarded backlog going into the second quarter, which bodes probably pretty well. I think Chris noted that we expected the portfolio to increase somewhere between $10 million and $20 million based on prepayments.

Prepayments are obviously a little bit more difficult to calculate over the course of the whole quarter. We are aware of a couple of events and watching for others. So we certainly will have some growth in the portfolio in the second quarter and beyond that, again a strong pipeline of opportunities that we’re looking at today.

So I think as I kind of look at that, I think our pipeline is in really good shape looking to the second half of the year.

Obviously we still have a lot of work to do to get those transactions awarded in the shop and get them underwritten and funded, but still I think we’re in very good shape and I’m pretty optimistic about how fundings look for the balance of the year..

Okay. And then Semprius, that’s one of your non-accrual investments. That’s now marked at 100% of your cost in par. That’s up from 93% last quarter. Should we read anything into that and expect that to come back to accruing status anytime soon..

Yes, so we continue to rate that as a one rated credit. Note that they’ve been making regular payments since it went on non-accrual over a year ago and we use our scenario analysis and that’s the value. The company continues to be in some level of stress, but we’re making progress, that’s all we can say..

Okay, and then just kind of a higher level question. There’s been some consolidation recently in the VC lending space.

Are you starting to see any effects of that, of that consolidation in your market and ultimately do you expect that this consolidation will improve market conditions or do you expect that these entities that have consolidated will just kind of continue competing in the market at the same level, but just with a different parent company..

Yes, this is Gerry. We have seen – we’ve already seen some significant improvement actually in pricing on the lifescience side on a comparative basis to a year ago, where lifescience transactions interest rates were being priced in the single digits.

We’ve seen a significant – really an improvement in that in the fourth quarter and here in the first quarter and that’s been a very favorable sign for us. But I think really where we’re going to start seeing the impact will probably be in the second half of the year.

The tech banks have undertaken a significant increase in their term loan portfolios, which are very different to manage in the typical bank revolver and I think as they begin to understand what it takes to manage that kind of a portfolio, it’s going to certainly slowdown there activity.

I think when you combine that with the distractions and disruption of at least three of them, major tech banks being acquired, which none of those are complete as far as I know, we’ll see how that debt plays out in the second half, but certainly we expect it to have some sort of a significant impact..

Okay, thanks. That’s all from me..

And our next question or comment comes from the line of Casey Alexander with Gilford Securities. Your line is now open..

Hi, good morning.

You gave me a target of $290 million portfolio size and that was by when? When did you hope to have that up to that level?.

Later in the year, Casey. That’s a portfolio that’s at our target leverage. .

So that’s by the end of this year you hope to be there?.

Yes..

Okay. And you also expressed some net investment income targets.

Can you review that for me please?.

Well, what we said was that we are now targeting, that we’ll be able to cover our distribution by NII by the end of the year..

By the end of the year again, okay.

And you’re waiving the fee on cash for how long?.

The waiver of fee on cash is permanent and we also need to waive management fee on the equity proceeds for up to four quarters..

So Casey, even after we deploy the capital into earning assets, we will continue to waive management fee that we would have otherwise earned on that capital for up to a year or shorter if we cover the dividend for two consecutive quarters prior to that..

Okay. Next, interest expense was a little higher than your debt balances would have suggested.

Was there some type of offering costs that got accelerated into interest expense this quarter?.

That’s a good question. So interest expense is a little bit higher, partially due to the offering and that we had to hire non-use fees in the first quarter than originally expected, since we did not lever out the balance sheet. So it’s essentially not-used fees..

All right, great. That’s all I have. Thanks for taking my questions..

You’re welcome..

[Operator Instructions] And our next question or comment comes from the line of Chris York with JMP Securities. Your line is now open..

Good morning and thanks for taking my questions. I just have one this morning. Congrats on the new raise. We applaud you waiving the fees and attempting to drive value, additional value to shareholders there with that equity raise.

So taking kind of a longer term view and thinking about asset growth as our context, what do you guys think as maybe the ideal size for your total portfolio, maybe over the longer term?.

We’re pretty focused on deploying the capital that we’ve raised and we’re kind of way back into the leverage Chris and so I think if we can get to the target portfolio that I mentioned, we’d be very pleased with that and I think it will be very profitable and a good result to our shareholders, create real value for the shareholders..

So yes, I get the 290 by year end, but maybe taking a longer term view and thinking about 2017, 2018, I mean what kind of size do you target and maybe you don’t have a long term target on that, that Horizon could grow to..

Yes, we’re pretty focused on the execution of this part of our strategic plan and we’ll see where that takes us Chris..

Great, okay. And then lastly just a clarification. So that $290 million, I believe you said you’re trying to get leverage up to your target level of 0.75.

Is that a GAAP leverage ratio or is that inclusive or exclusive of SBICs and SBA debentures?.

For conservativeness we basically just said let’s take our 0.75 on the equity we have today and lever that up to 0.75. That would be the timing and more to the extent that we deploy Horizon for this leverage..

Okay. And then one last clarification; so the interest expense, what was the non-use fees. I guess I bet I could pull that up in the Q as well..

What was it related to? It relates to the KeyBanc facility. There were certain minimum levels of usage on the facility.

So during the term of the credit facility there’s a base non-use fee and then to the extent that you didn’t hit certain overall minimum usage, there was another supplemental non-use and that kicked in, in the first quarter given that we did not deploy the additional leverage for two reasons.

One is we used the equity capital for fundings at the end of the first quarter..

Yes, got that.

Just how much of the – I guess how much was that non-used fee?.

I do not have that with me right now. As it multiplies I would assume that I think Casey had a similar question, [indiscernible] compared with the rest of the interest expense would have been in mind but for that..

Okay. That’s it from me. Thanks guys..

Thank you..

Our next question or comment comes from the line of Robert Dodd with Raymond James. Your line is now open..

Hi guys. Just following up on a couple of questions. On Semprius, I understand why that is – versus December the costs came down, round numbers $400,000.

Has that been an additional restructuring at that asset that allowed you to get more comfortable on the fair value cost ratio or has something distinct changed in that asset over the last couple of months?.

The principal difference is that they’ve actually been making principal payments Robert..

Okay, got it. Just, I have a follow up for Gerry. What are your comments about the competitive environment and lifescience has already improved.

Is it possible, and I reason this our question but to tease out the – whether that is the border tech banks changing competitive approach when you’re kind of indicating that might happen in the back end for the year or is that early indications of a change from GE given lifesciences is a one area that they are actually a player in your space..

Yes actually, that’s a good question, but the fact of the matter is that GE is historically in and out of our markets in such a fashion that the venture capital community really doesn’t depend on them for venture debt much. They are very price competitive when they are in the market, but they are often times out of the market.

When they are out of the market, it not only means that they are not doing new deals. It means that they are probably putting pressure on some of their portfolio companies that might not be operating as they would like. So they are not a big participant in the market and have never had a kind of a real foothold in our marketplace.

So I don’t really see that impacting the competitive landscape, but the size of the transactions on the lifescience side are generally bigger and that is when the tech banks start to pull back, that does impact them for us, because they are the first ones to recognize that they can’t or don’t want to be getting too deep into large lifescience term loans and so that is certainly part of it.

I think a bigger part of it is probably some of the more traditional Venture lenders in the lifescience space are also going through some transition. In one case one of them is we believe on the market to be acquired. They are a piggy back company and they were a lower rate provider in the marketplace. So we are starting to see some of that.

We actually took advantage of that opportunity in the fourth quarter and the first quarter of this year to rebalance our portfolio a little bit and increase our lifescience portfolio.

I think at the end of the first quarter of last year, if you look at our portfolio it’s about 65% technology and only about 15% lifescience and today it’s more like 58% technology and 25% lifescience.

So we made an intentional change in the weighting of our portfolio there when we saw the opportunity to get in at what we thought was very good pricing for high quality deals..

Got it, thank you. And one more follow up I think for Chris.

Just to clarify on the waiver, since you already waived the base management fee on cash and obviously the proceeds for the offering that should be found on the balance sheet as cash right now, there isn’t – there won’t be the incremental waiver on the proceeds from the capital raise want kick in essentially until that cash balance is reduced and then will phase in as you utilize the cash that you raised in the offering, right, because otherwise we’re double counting the waiver in the sense.

Is that correct?.

That is correct. So in the second quarter we estimate 10, an increase in the portfolio of $10 million to $20 million. That number, whatever that turns out to be would attract the waiver..

Got it. Thank you..

You’re welcome..

And our next question or comment comes from the line of Jonathan Bock with Wells Fargo Securities. Your line is now open..

Good morning and thank you for taking my questions. I appreciate your discussion on the strategy of lending behind a bank revolver, while still maintaining the first clean, so much appreciated.

One small clerical point; so when you waive fees on the equity capital, will you also waive fees on the leverage that will come as you lever that equity capital to drive NOI. .

The waiver is limited to the equity capital raise..

Okay, all right.

So then the next question, Gerry so talking about the potential for a $290 million net growth target, effectively looking at a pretty sizable deployment pace in order to get earnings back up in line with the dividend and considering the fact in the last two years the net portfolio has effectively declined, and in light of the good things that are happening as it relates to prepayments, walk us through how such a aggressive net number is possible.

Because while we like to see the net prepayments, the fees that result from that prepayments, it also probably puts in the mind of a conservative investor that net portfolio growth might not be as achievable, because you’re getting more capital coming back to you..

Yes, culmination of factors here..

First of all, I think one thing to support and to point out that we generally have been talking about literally every quarter is, we have been originating at a much higher level historically than what we have actually been putting on the balance sheet of Horizon, strictly because of liquidity issues.

So it’s not like we have to significantly ramp up with our marketing activity compared to where we have historically been. We generally only end up being able to put us third portion of what we originate every quarter on the public balance sheet and then the rest of it we partner out with the strategic partners we have.

So some of that growth we will be able now to put on our own balance sheet and for the benefits of our own shareholders and that’s probably the most important part of what nobody on the public side see. So we certainly get the advantage to that.

The second thing is as I mentioned earlier, we think that certainly, but in the second half that we are going to see abatement from the tech banks, specifically pulling back, as well as some other things going on the market relative to competitors. It will pull that back as well and that has two really big impacts.

One is, obviously it gives us a bigger opportunity to find new transactions at attractive pricing.

The other thing it does though is there are less competitors in the market when companies come back to the market to refinance or add additional capital and so that again gives us an opportunity that over the last year or year and a half I would say really, there has been so much competition pushing into our market that it has made it difficult for us to get a piece of that.

So I think when you combine all of that, there’s going to be less prepayment probably in the second half, because there are going to be less providers of debt who are willing to do prepayments. So we probably won’t see prepayments as much other than from M&A activity. We hope it will be actually quite favorable this year.

So I think when you combine all of that Jonathan, we actually see 2019 as being a really good opportunistic year for growth in our portfolio, which has been difficult to do obviously because of liquidity. But also from I think a higher level of competition over the last certainly six quarters, then we are going to see over the next four quarters. .

That’s very helpful Gerry, thank you. And then Rob, more of a strategic question that gets to, touches equity investors hearts and it relates to below book issuance.

And so in general a number of the future benefits of issuing equity at a discount to book value have been made by a number of BDC management teams in the past and even recently, and while those future benefits are dependent on markets etcetera, the immediate impact is that investors experience NAV dilution.

So can you walk us through – you mentioned repayments came in earlier than expected and you mentioned portfolio funding were later than expected. You had $40 million of available liquidity post your last call.

Why not wait for the markets to be more favorable and raise at a premium to book value given the value of permanent capital in the BDC structure is such that management teams can be permanently patient.

It just helps us understand why given the fact that so many below book raises have created more questions than answers and so your discussion will be very helpful to us. .

Good and fair question Jonathan.

We look at our pipeline opportunities, we looked at what we felt was a need for more flexibility and financial flexibility for our balance sheet as it relates to some of the things that Gerry mentioned, and based on where we were and relatively minimal dilution that was presented as a result of offering compared with – our firm believe in the accretive nature to NII of the offering.

We felt that the opportunity was the there and we took advantage of it, because we believe in our heart of hearts that this is the right thing to do for our shareholders. .

I appreciate that. Thank you so much. .

And our next question or comment comes from the line of Christopher Nolan with MLV & Company. Your line is now open. .

Hi, thanks for taking my questions; two questions. First, given the consolidation happening in the tech banks sector, are you anticipating ramping up hiring of talent or teams and should that imply a higher operating expense base going forward..

Yes, this is Gerry. It’s a good question because as I’m mentioning around here lately, I’ve been getting a lot of LinkedIn requests. People working with the tech banks just anecdotally, but no, we are going to – we have a pretty good strategic plan for this year.

If you look at the team we have together now, a very experienced group of people that have been around a long time, been through good markets, bad markets and honestly I think we are able to achieve probably I think great efficiently in both our origination and underwriting based on the strength of our team and the experience of our team.

So I don’t see us going out and looking for hiring any major teams. We obviously are going to be well looked when needed for opportunities to hire people, when we think that there is a place where it can provide us with a significant opportunity to either increase opportunities origination or hire quality underwriting talent.

But there is no strategic plan to go out and hire teams of people from any of these organizations. .

Great, my follow-up question. Given the comments made earlier in terms of the accretive nature the equity raise. Should we take away from that that management’s internal projections imply a possible increase in that per share or an increase in the dividend as a result of this going forward. .

I think what we’ve tried to signal is that NAV could increase over time from the realized warrant gains that we have in our portfolio over time and that NII by the end of the year is our goal to cover the current dividend. We have not put out on the table an increase in the dividend.

I think it’s more appropriate to make sure we have a period of time of not just covering it, but covering it with cushion for the market to absorb. .

Okay. And a final question, with the realized gains that you just referenced, that would be from existing investments.

So they are not tied to the capital raise directly, correct?.

Thank you be fair. .

Correct. .

Okay, thank you for taking my questions. .

Thank you. .

And I’m showing no further questions or comments. So with that I will like to turn the conference back over to Mr. Rob Pomeroy..

Thank you. We appreciate all your questions and your continued interest in the Horizon’s story. During the first quarter we took advantage of our liquidity position by originating high quality Venture loans with attractive onboarding yields.

We also completed an equity offering that future enhances our liquidity and positions Horizon to take advantage of its strong pipeline and achieve quality portfolio growth. Going forward, as we continue to pursue growth opportunities, ensuring the strength and soundness of our portfolios credit quality remains a top priority for us.

We will also focus on providing shareholders with a stable distribution and added upside from our growing and maturing equity and warrant portfolio. We look forward to sharing the progress of our company with you. So this will conclude our call. Thank you..

This concludes Horizon Technology Finance Corporation’s conference call. Thank you and have a great day..