MaSSSoftech

Hercules Technology Growth Capital, Inc. (HTGC)

Q2 2009 Earnings Call Transcript

August 6, 2009 5:00 pm ET

Executives

DeDe Sheel – IR, FD Ashton Partners

Manuel Henriquez – Co-Founder, Chairman and CEO

David Lund – CFO

Analysts

John Hecht – JMP Securities

Troy Ward – Stifel Nicolaus

Jason Deleeuw – Piper Jaffray

Jon Arfstrom – RBC Capital Markets

Douglas Harter – Credit Suisse

Vernon Plack – BB&T Capital Markets

Presentation

Operator

Good day and welcome to the Hercules Technology Growth Capital Q2 2009 Conference. Today's call is being recorded. At this time, for opening remarks and introductions I would like to turn the call over to Ms. DeDe Sheel. Please go ahead.

DeDe Sheel

Thank you, operator, and good afternoon everyone. On the call today are Manuel Henriquez, Hercules Co-Founder, Chairman and CEO; and David Lund, CFO.

Our second quarter 2009 financial results were released just after today's market close. They can be accessed from the Company's web site at www.herculestech.com or htgc.com. We have arranged for a tape replay of today's call, which will be available through our web site 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 by law. To obtain copies of our latest SEC filings, please visit sec.gov or visit our web site.

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

Manuel Henriquez

Thank you, DeDe, and good afternoon and thank you everybody for joining us today. As you most realize after the market close we released our Q2 2009 earnings release and financial performance for the second quarter of 2009.

I'm proud to say that once again we, Hercules, produced another strong quarter in otherwise difficult and challenging credit environment as most of you are fully aware of as listening to the many earnings calls over the last few weeks.

I like to start off by giving you a quick overview of the quarter, then some specific on the venture capital industry, some specifics on the balance sheet and outlook that we have for the second half of 2009, and then have David Lund, our CFO provide you more detailed internal overview of the financial performance in the quarter and of course, finish off with a question and answer session for our investors to ask questions and get better oriented in our performance.

In terms of the quarter we once again produced record net investment income of $11.8 million and producing earnings on a NII basis that are $0.04 above street consensus of $0.30. We reported $0.34 in net investment income earnings for the quarter.

On top of that we also reported record net interest margin of 14.35%. We also experienced a 3.4% income growth year-over-year as compared to the same period of 2008. We also improved and dramatically increased our liquidity position and further solidifying our cash position in our balance sheet by delevering our balance sheet further and increasing the cash position which David will elaborate further. This is part of our ongoing strategy of maintaining high liquidity position as we position Hercules for the fourth quarter and beyond for new originations.

During the quarter we also saw the beginning and improvement of the venture capital industry by seeing an increased investment activities compared to Q1 but I like to caution everybody although the data is certainly encouraging one quarter does not make a trend yet. And I will stand upon that as I go through more details of the venture capital industry.

Another important achievement during the quarter was our ability to secure a $20 million credit facility by Union Bank, California that was expected to close in the third quarter, providing us even more liquidity to continue make investments in the fourth quarter and beyond.

As to the asset quality, as many of you have seen today, we experienced a $4.2 million realized loss for the quarter, primarily attributed to two investments. However, I remain optimistic in keeping with Hercules credit position that I expect to see over the proceeding few quarters some recovery of those realized losses that we experience as we look to monetize or liquidate some of the fixed assets, intangible assets we may have received as part of the liquidation of those companies. We have opted to take a more controlled sale of the intellectual properties, and look to monetize some portion of those, some recovery on that $4.2 million realized loss in the quarter.

A testimony to Hercules continued credit performance is that our investment professionals. Hercules credit performance would not have been and would not sustain itself without the incredible dedication and hard work of our employees as a company. To that end we may extremely vigilant, tenacious, and aggressive, and ensuring that we attack and address the first signs of credit concern in our portfolio.

During the quarter we have also experienced a $20.7 million of unrealized depreciation and in keeping with Hercules historical credit performance in underwriting and fair value standards, a significant portion of that is attributed to the companies that either in the process of closing the next round financing or expect to close round of financing in the near-term. And to that end we have fair value of the investments in the event of those companies do not successfully secure our next round of equity capital.