Exhibit 99.2
FINAL TRANSCRIPT
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[GRAPHIC APPEARS HERE]
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CONFERENCE CALL TRANSCRIPT
HTGC - Q1 2006 HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
EVENT DATE/TIME: APR. 27. 2006 / 4:00PM CT
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FINAL TRANSCRIPT
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
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CORPORATE PARTICIPANTS
CHRISTINA CARRABINO
Stapleton Communications Inc. - Senior Account Executive
MANUEL HENRIQUEZ
Hercules Technology Growth Capital, Inc. - President, Chairman and CEO
DAVID LUND
Hercules Technology Growth Capital, Inc. - VP of Finance and Senior Corporate
Controller
CONFERENCE CALL PARTICIPANTS
DON DESTINO
JMP Securities - Analyst
PAUL HAMILOS
AG Edwards - Analyst
HENRY COFFEY
Ferris, Baker Watts - Analyst
GREG MASON
Analyst
PRESENTATION
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OPERATOR
Good day, ladies and gentlemen, and welcome to the Q1 2006 Hercules Technology
Growth Capital earnings conference call. My name is Jeff, and I'll be your
coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the
presentation over to your host for today's conference, Ms. Christina Carrabino.
Please proceed, ma'am.
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CHRISTINA CARRABINO - STAPLETON COMMUNICATIONS INC. - SENIOR ACCOUNT EXECUTIVE
Thank you. Good afternoon, and welcome to the Hercules Technology Growth
Capital, Inc. first quarter 2006 financial results conference call. At this
time, all participants are in a listen-only mode. Later we will open the call to
your questions. Instructions for asking questions will be explained at that
time.
The Company's first quarter 2006 financial results were released just after
today's market close. They can be accessed from our website at www.htgc.com. I
would like to remind everyone that today's call is being recorded. Please note
that this call is the property of Hercules Technology Growth Capital, and that
any unauthorized broadcast of this call in any form is strictly prohibited. An
audio replay of the call will be available through our website or by using the
using the telephone numbers and pass code provided in our press release.
I would also like to call your attention to the Safe Harbor disclosure in our
press release regarding forward-looking information. Today's conference call may
include forward-looking statements and projections, and we ask that you refer to
our most recent filings with the SEC for important factors that could cause
actual results to differ materially from these projections. We do not undertake
any obligation to update our forward-looking statements unless required by law.
To obtain copies of our latest SEC filings, please visit www.sec.gov or visit
our website at www.htgc.com.
I will now turn the call over to Manuel Henriquez, Hercules' President and CEO.
Go ahead please, Manuel.
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FINAL TRANSCRIPT
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
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MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Thank you, Christina, and thank you everyone for joining us today. I'll spend a
few minutes discussing the highlights of our first quarter, Hercules' investment
portfolio and recent venture capital industry trends and activities. David will
then provide you with a detailed analysis of our first quarter 2006 portfolio
and operating results. After that, we'll be happy to take questions.
We are pleased to announce very solid performance in the first quarter of 2006.
We had record quarterly revenues during the quarter of $6.5 million, an increase
of 50% over the previous fourth quarter. Our net investment income before taxes
increased 115% over the fourth quarter to $2 million or $0.21 per share. And our
taxable income was approximately $750,000 or $0.08 per share, which reflects the
accounting as a C Corp, and we will expand on this issue on qualifying as a RIC
as we progress in the call.
Our pro forma taxable income, we had reported a -- excuse me; our pro forma
taxable income had we reported as a RIC, or Registered Investment Company, would
have been approximately $2.9 million or $0.30 per share. Our net assets were
approximately $119 million or $11.63 a share for the quarter -- at quarter end
pardon me.
On the portfolio side, our new debt commitments increased by $81 million to 11
companies. Our new debt fundings in the quarter totaled $32.5 million to 10 new
companies, and our total commitment since inception now exceeds over $310
million. We declared a dividend of $0.30 per share, our third dividend since
inception, payable to shareholders of May 5th and record date of April 10th.
In addition, we are pleased to announce on April 20th, 2006 the successful
completion and oversubscription of our transferable rights offering, providing
Hercules with gross proceeds of approximately $36 million. We received total
subscription interest to purchase approximately 4.4 million shares, compared
with our offering of 3.4 million shares. This offering demonstrates our
investors' continued support of the Company and our ability to raise capital to
fund future investments.
During the quarter, we selectively and opportunistically added liquidity by
successfully expanding our credit facility with Citigroup to $125 million from
previously $100 million credit facility and total commitments. This added
capital will give us financial flexibility as we progress into 2006 to expand
our investment portfolio. We also announced a new $5 million equity investment
by Farallon Capital Management, an original investor in Hercules. Citibank and
Farallon have been valuable partners and we are excited about our continued
relationship with the two of them.
Now I'd like to mentioned additional changes in the quarter. I would like to
also mention that we are pleased to announce that Robert Badavas our board
member who joined us during the quarter. Bob has taken on the position as
Chairman of the Audit Committee and he is also a member of our other committees
as well. Bob is great addition to our board, he brings with him strong financial
leadership combined with extensive experience in the technology industry and
knowledge as a venture capitalist being -- have been the former CEO of Atlas
Venture. Bob along with the two other board members Joe and Allyn will continue
to help us tremendously as we grow our business.
Now I'd like to share some thoughts on the current state of the venture capital
marketplace in terms of VC, fundraising activities during the quarter 2006.
According to a survey published last week by Thomson Venture Capital Economics
and the National Venture Capital Association private equity fundraising by
general partners maintained a strong momentum in the first quarter of 2006 with
93 venture fund raising a combined 34 -- $31.4 billion in new capital.
Since our inception we've experienced phenomenal growth and we continue to take
advantage of our huge market opportunity to offer complimentary and alternative
sources of growth capital to venture-backed companies. According to Dow
Jones/VentureOne there are currently over 5,400 privately funded venture
capital-backed companies that have received approximately $132 billion of
cumulative investments over the last six years. We believe there is still
significant unfulfilled market demand for debt at reasonable valuations by
venture capital backed companies.
In addition during Q1 2006 we saw new equity investments to US venture capital
backed companies by VCs of approximately $6 billion, representing over 550 new
transactions completed during the quarter. Of that 56% of the capital was
deployed to technology companies 27% to healthcare and life sciences and 17 to
the balance of the remaining industries.
In addition, the San Francisco Bay area continue to dominate the venture capital
marketplace with 1.2 billion of the $6 billion in new investments while New
England received the second largest traunch of $1 billion according to Dow
Jones/VentureOne. Thanks to our highly seasoned experience origination and
management team combined with a growing reputation has allowed us to continue to
track new investment opportunities and repeat business as we continue to build
our portfolio. We have over 100 different venture capital firms financially
supporting our portfolio of over 40 technology and life sciences companies.
These relationships are long standing, strategic and are well respected top tier
venture capital firm across the country.
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
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At Hercules, we continued to diversify our investment portfolio within the
technology and life sciences industries including bio pharmaceutical,
communications, networking, software consumer and business products, electronics
and computer hardware, medical devices and semiconductor as well as internet
companies.
During our Q1 commitments we invested in the following new industries, 41 % of
Q1 investment activities were deployed into bio pharmaceutical; 16% into the
communications and networking companies; 14% into software, 11% into energy or
Cleantech; 10% into consumer and business product companies; 6% into consumer
internet services and lastly 2% into medical devices and equipment.
Our national presence continues to be a source of deal flow, which allows us to
invest -- which allowed us to invest in 11 companies throughout the United
States of which 6 were located in the East Coast, 3 were located in California
and 2 located in our Midwest region or our Colorado offices.
We are very excited about our phenomenal growth, since originations began 16
months ago. We remain committed to delivering financial solutions to our clients
that meet their specific needs, offering customized and flexible financing
solutions.
With that, I'd like to turn over the call to David to review the first quarter
portfolio and operating results for the Company. David?
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DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
Thank you, Manuel. And thank you to all of you for joining us today. I will
start out with our portfolio and investment activity. During the first quarter,
Hercules entered into agreements to provide debt funding of $81 million to 11
new companies. We funded a total of $32.5 in debt commitments to 10 companies
and had 3 portfolio companies fully repay their outstanding loans for
approximately $22 million.
We also participated in one new equity funding to an existing portfolio company,
representing an investment of $500,000 in preferred equity securities, bringing
total equity investments at fair value to $4.7 million.
During the first quarter, we recorded a realized gain of $1.5 million. The gain
was comprised of an additional recovery of $500,000 on [Metreal] and $1.1
million from the sale of the remaining shares in Labopharm. Our total realized
gain on the equity investment in Labopharm was approximately $1.6 million.
As of March 31, 2006, the Company's unfunded debt commitments totaled $81.7
million to 16 portfolio companies. In addition, Hercules executed non-binding
term sheets with 11 prospective portfolio companies representing approximately
$62 million, which are subject to further negotiation and due diligence. I would
also like to point out that we also had future equity participation rights in
approximately 18 portfolio companies.
The fair value of Hercules' debt portfolio at March 31, 2006, was $172.1
million, representing investments in 41 portfolio companies compared with $171.8
million at December 31, 2005, representing investments in 31 portfolio
companies. The fair value of the Company's equity portfolio at March 31 was $4.7
million, representing investments in 7 portfolio companies compared with $4.9
million at December 31, 2005, representing investments in 7 portfolio companies.
The change in our portfolio position was the result of the sale of Labopharm
shares and the investment in one existing portfolio company. Our current
investment portfolio at fair value is comprised of the following -- 92.8% of the
portfolio is in debt investments; 4.5% in warrant value; and 2.7% in equity
investments.
At March 31, 2006, the overall weighted average yield to maturity on the
Company's loan portfolio was 12.6%. As for operating results for the first
quarter, during the first quarter, investment income was $6.5 million, an
increase of approximately $2.2 million or 50% compared with $4.3 million in the
previous quarter.
Interest expense and loan fees were $1.9 million during the first quarter,
representing an increase of approximately $700,000 from $1.2 million in the
fourth quarter. The increase in interest expense was primarily related to the
interest rate on the outstanding Farallon loan of 9.76 in the fourth quarter
compared to 3 --13.5% for the two months of the first quarter, and the fact that
the loan remained outstanding longer than anticipated.
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
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This higher interest rate resulted in approximately $160,000 of higher interest
expenses that anticipated. In March 2006, we repaid principal of $10 million to
Farallon and lowered the interest rate to 10.86%. The higher interest rate and
fees were also due in part to the increase in our existing Citigroup credit
facility, which was increased to $125 million and additional borrowings of $20
million.
Total operating expense, including interest and loan fees were $2.5 million an
increase of $300,000 from $2.2 million in the fourth quarter. This increase was
primarily due to Sarbanes-Oxley related compliance expenses and higher legal,
audit and tax services.
Net investment income before taxes for the first quarter was approximately $2
million, compared with approximately $941,000 in the fourth quarter of 2005, an
increase of approximately 115%. Basic net investment income before taxes during
the first quarter increased 110% to $0.21 per share based on 9.9 million
weighted average shares outstanding, compared with $0.10 per share in the fourth
quarter based on 9.8 million weighted average shares outstanding.
The net unrealized appreciation on investments was approximately $700,000 in the
first quarter of 2006, compared with an unrealized loss of approximately $1.4
million in the fourth quarter of 2005. This net unrealized appreciation was the
results of an unrealized appreciation of $2.0 million on our warrant portfolio
offset by unrealized depreciation of approximately $1.3 million in the
investment and equity portfolio.
Net income in the first quarter was $2.5 million after taking into account a tax
provision of approximately $1.8 million, compared with a net loss of $200,000 in
the fourth quarter. Basic net income was $0.25 per share as compared with a net
loss of $0.02 per share in the fourth quarter.
Taxable income approximated $750,000 in the first quarter, as adjusted for the
effects of deferred revenue, timing differences for book and tax, the impact of
FAS 123R expense, and tax accounting as a C Corp. Basic taxable income was $0.08
per share as compared with 26% -- $0.26 per share in the fourth quarter of 2005.
On a pro forma basis, taxable income as a RIC would have been $0.30 per share
based on $9.9 million weighted average shares outstanding. During the first
quarter, we reported our GAAP operating results and taxable income as a C Corp.
We anticipate resolving this reclassification in the next 60 days.
Now, I'd like to discuss our Liquidity and Capital resources. During the
quarter, we raised $5 million from the Farallon investments and we borrowed $20
million under the Citigroup credit facility. As Manuel mentioned, we raised
approximately $34 million in net proceeds through our rights offering and these
proceeds combined with $30 million in cash at the end of the quarter, normal
principal repayments to be received in future periods and additional $54 million
available under the Citigroup facility will gives us financial flexibility as we
progress into 2006. And we will be used for -- to fund future investment and
operations.
Now, for our portfolio quality. At March 31, 2006, grading of the debt
portfolio, excluding the warrants and equity investments, was as follows; Grade
1 investments totaled approximately 8% of the portfolio. Grade 2 investments
totaled approximately 82.8% of the total portfolio. Grade 3 investments totaled
approximately 7.4% of the total portfolio. Grade 4 investments totaled
approximately 1.8% of the total portfolio. And we had no Grade 5 investments.
At March 31, 2006, the weighted average loan portfolio graded average for
Hercules's loan portfolio was 2.05 on a scale of 1 to 5, with 1 being the
highest quality as compared to 2.05 as of December 31, 2005.
With that I will now turn the call back to the operator.
QUESTION AND ANSWER
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OPERATOR
[OPERATOR INSTRUCTIONS] And your first question comes from the line of Don
Destino. Please proceed.
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DON DESTINO - JMP SECURITIES - ANALYST
How are you guys? Congratulations on a nice quarter.
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FINAL TRANSCRIPT
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
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MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Thanks, Don.
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DON DESTINO - JMP SECURITIES - ANALYST
Couple of questions. Can you tell us how many companies in the portfolio, maybe
during the first quarter and to-date have received some rounds of financing
subsequent to the Hercules debt investments?
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DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
I'm sorry. How far are you asking the question to go back?
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DON DESTINO - JMP SECURITIES - ANALYST
I guess, I'd like to know, how many in the first quarter got -- net received and
then if you have it handy, how many total had received subsequent rounds of
financing after your investment?
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MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
So -- I'm sure, you're fully aware, we said it as on various occasions in the
past not all of our companies necessarily allow us to report their financial
activities because some of them are private. But net said, we had approximately
seven of them our portfolio companies during the first quarter 2006 had received
financings, or new top offices as we like to call them, and in fact, if -- so, a
few of them have made a very significant media announcement. Merrimack, in
particular, a few weeks back made it to the front page of the Section C of The
Wall Street Journal announcing a 60 million plus equity financing that they
raised. In fact the numbers are out $65 million.
And just to that most recently you had other announcement for example RazorGator
also disclosed that they raised approximately $23 million of capital during the
quarter and Sling Media also raised something in the order $46 to $47 million of
new capital during the quarter as well as others in our portfolio. So we
continue to see very strong edification or I should say validation of our
selections of portfolio companies as these companies continues to receive
additional rounds of equity capital at higher valuations.
Why it is important for us is two fold, one we get a stronger balance sheet,
which means we have additional capital on the balance sheet to amortize a debt
or significantly mitigate the risk in our -- on our debt outstanding by having
more cash on the balance sheet.
And then secondly, we see an instant accretion as we then realize an unrealized
appreciation in our warrant holdings in those private companies.
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DON DESTINO - JMP SECURITIES - ANALYST
That's great. Thanks. And then next question on, you mentioned you have three
pay-offs in the first quarter, is it safe to assume that you now hold once on
those three pay-offs without any principle exposure and are those the only three
thus far that can be described that way?
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MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Yes. I mean, you should always expect us to see that unless we opt to either
recall the credit or some other circumstances, it is generally that when a
company repays back its loan, we are not obligated to cancel the warrant. In
fact as a reminder it is fairly atypical that our warrant portfolio has an
estimated average life between five to seven years, since the inception of the
credit or the initial transaction with the Company. So the -- to answer you
question specifically, all three companies, who are by the way performing
extremely well, we continue to remain and hold the equity -- the warrants in
those companies.
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FINAL TRANSCRIPT
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
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DON DESTINO - JMP SECURITIES - ANALYST
Got you. And then I know in the past calls you've mentioned that Grade 3
investments are sometimes companies that aren't distressed in any way but are
just going through the process of a new round of financing and so they warrant
extra scrutiny. Is that the case with any of the -- well I think you said 7.4%
of the portfolio that's Grade 3 or should we assume that those are ones that are
at least modestly underperforming in your view?
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MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
No. As we signaled in our prior calls and unlike other BDC's out there because
all of our technology companies require additional rounds of financial support
for their venture capital private equity sponsors, we will always in the normal
course of business as the Company approaches an imminent round of financing --
as they approach that round of financing, will naturally degrade the credit
rating from a 2 to a 3 in order to enhance or increase our watch of that company
until the financing event closes.
So it is fairly typical to see a company go from a 2 -- a Grade 2 to a grade 3
and then progress up again. But as of right now, the three companies -- the
companies, excuse me that make up the Grade 3, those are companies that we
continue to watch and are either have closed or are about to close a round of
financing.
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DON DESTINO - JMP SECURITIES - ANALYST
And then can I assume that the Grade 4, that's just one company?
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MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
That is in fact only one company. And I would like to happily report but I will
be able to do that probably next week that that company will be - will have
closed it's new round of financing, some time early next week. But because of
the timing delay and until it occurs, we opt to be more conservative and
highlight it as a Grade 4. But once we are confident, the capital in fact has
gone into the company, we will then rearrange the credit or revisit the credit
rating at that point.
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DON DESTINO - JMP SECURITIES - ANALYST
Got you. And then last one, Dave you -- you started to go -- or you did go
through this. But just -- I just wanted to check my math. So I think you said
81.7 million binding commitments outstanding, 62 million proposed but not
binding. And if I take those, if I add those two up and then add up all of the
sources of liquidity that you cited, am I going to find that there is more
liquidity than commitments and proposed commitments?
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DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
Yes that's right. Because of the -- the additional principal payment, payments
that we'll be receiving back as well and the borrowing capacity under the
Citibank loan, I think you'll find that we have plenty of liquidity at this
point.
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DON DESTINO - JMP SECURITIES - ANALYST
Great.
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MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
And John, the other thing I want to also point out, that we also have already
disclosed unfunded commitments instead of 81 -- basically $82 million of
unfunded commitment and just wanted to make sure people understand, not all fund
commitments get funded because there could be contingencies where the
acquisitions or other factors by which we can control or not control that the
Company will actually draw down or not draw down money. So it does not
necessarily mean that all of our commitments get drawn down.
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
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DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
Yes. Nor will all of the 52 necessarily be funded because they still have to go
through the additional due diligence and scrutiny with the investment committee.
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DON DESTINO - JMP SECURITIES - ANALYST
Understood. All right. I will let them be up on the chat. Thank you very much.
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MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Yes. Thank you Don.
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OPERATOR
And your next question comes from the line of Paul Hamilos. Please proceed sir.
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PAUL HAMILOS - AG EDWARDS - ANALYST
Okay. Thank you very much. For those of us who haven't followed your company for
that long, can you just help us understand exactly what's going on with the [RIC
collection] and walk us through, what -- I guess everything that we need to know
to understand the reconciliation that you provided on the last page and where
you'll plan to be starting when you qualify as a RIC?
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MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Sure. Let me give you kind of an overview of where we stand on the RIC issue.
Partly, to be honest with everybody on the call here, the Rights offering took a
little longer than we anticipated and in fact, took away management's kind of
bandwith from getting the RIC status issues finally resolved and put behind us.
And the matter is actually more simple than that. The RIC test is something that
actually takes place at the end of 2006 when we file our tax form, our IRS form,
that's when we make the election. The issue why we have not a firmly state that
we are RIC now, is a very simple issue. And that issue evolves around the
definition of what's called free income and under the RIC test there is
something that's called good income and bad income, and it - the test is as
simple as this.
If we were deemed to be have what's called fee income, and that fee income
exceeds 10% of the aggregated revenues of the company, under the IRS ruling as a
RIC, that in fact, could be deemed to be bad income. Now where does that put us?
Because if we actually realize what's called facility fee income or origination
income, or commitment fees, these fees that we ascribed the term fees are no
different than paying down your mortgage on your home, where you actually pay
points in advance and you buy down your rates.
Now, the reason why it's important to make the distinctions, is the following,
if you want to literally interpret the regulation regarding the RIC status, the
uses of word fee is a little bit ambiguous. So all that we need to do is, simply
make sure that when we make our election that the fees that we have deemed to be
origination fees attributed to a loan origination that are viewed as basically
early payment of principle, I'm sorry, of interest does not necessarily
jeopardize description under the IRS rules on RIC.
Last point on this issue. Because our small size in terms of our revenue base,
this problem will quickly go away as a more meaningful part of our revenues
actually become interest income. Now, the reason why we opted to be more
conservative in this quarter is that until we have a chance to really make sure
that we believe that we're going to qualify for it, which by the way management
does believe that we will qualify as a RIC, but until we can make that
affirmative statement and spend time with our auditors, explaining to them and
walk them through why our facility fees are in fact pay downs of our interest
rates or points we paid in advance, that's how we simply opted to report this
quarter as a C Corp.
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
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Now, another footnote, and I'll let David expand this in a second. As we report
the C Corp in the first quarter, you will see us when we qualify for RIC in
calendar 2006, you will see that the corresponding accrual attributed to the
income tax expense of being a C Corp will in fact be reversed and that's why
we're reporting this quarter the pro forma equivalent of a taxable income. And
I'll let David elaborate, if there's anything to elaborate on that.
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DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
No, I think you pretty much covered it well.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Does that explain it, Paul or do you want me go a little deeper?
- --------------------------------------------------------------------------------
PAUL HAMILOS - AG EDWARDS - ANALYST
Well, I think it explains it, but I'm going to need a minute to digest that. I
also wanted to ask you about the particularly the large cash balance at the end
of the quarter. Did you receive some repayments close to the end of the quarter
that you just weren't able to deploy or what exactly explains why that number is
so large?
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
That's exactly right, Paul. As that the very end of March, we received a
repayment from one company, a fairly substantial repayment, and we are
continuing to obviously invest all the funds. But that's why we ended up with
$32 million at the end of the quarter. And the principle payments that we
received during the period.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Yes, Paul. The only thing I'd take some issue with your words is it's not that
we couldn't deploy them, in fact that payment came in at the last few days of
the month. And in fact, it's not that we can't deployed them because the fact of
the matter is we have $82 million of unfunded commitments and $62 million of
signed term sheets. So the issue is just the timing issue on when we get these
early prepayments as they come in.
- --------------------------------------------------------------------------------
PAUL HAMILOS - AG EDWARDS - ANALYST
Okay. Great. Thank you.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
It's how we can deploy. Okay.
- --------------------------------------------------------------------------------
OPERATOR
And your next questions come from the line of Henry Coffey. Please proceed.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Good afternoon everyone. I think that explanation on the RIC issue was very
helpful. How long you're saying that in 60 days you'll have a definitive answer
on this?
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
- --------------------------------------------------------------------------------
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
- --------------------------------------------------------------------------------
Yes. We'll be working with our tax accountants attorneys just to resolve this
very quickly. And we certainly want to get result in 60 days.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Who are your -- or it doesn't matter who they are? I think the real question is
what has been their preliminary read on this issue?
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
Well, I think it come downs the fact that the IRS code is extremely ambiguous
- --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Right.
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
- -- as Manuel mentioned. And it's just a matter of our defining it and showing
that we believe that these revenues do not necessarily represent bad income. We
believe that they are good income and we're taking that position and we'll be
discussing it.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Is this an item that will be ruled on by your auditors or is this an item that
could be successfully resolved with your tax attorneys?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Well, the answer is actually somewhat more pragmatic then that. I mean, Heny
the issue is as simple is this. We believe our interpretation and every other
BDC's interpretation out there is that the fee income that we generated is in
fact attributed to loan origination --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Right.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
- -- and interest rates.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
And I mean it almost seem it's several of your peers especially ACAD's for them
to generate a tremendous amount of fee income every year and have obviously
gotten through this hurdle.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Yes. And our issue as I said a minute ago is primarily, management still
believes that in fact we will qualify as a RIC, but rather than getting into the
distraction we have with the rights offering, this issue will now be full
attention of management and getting resolved. And it will be resolved in very
short order here, in our position. We believe that we can and will qualify as a
RIC, BDC and I will also tell you that a big part of that is under our control,
to make it occur that we will qualify in 2006.
- --------------------------------------------------------------------------------
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
When you say it's under your control meaning -- ?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
We could change it -- if for whatever reason the fees are in fact deemed to be
bad income, we can change the characteristics of the fees to change the make up
of the fees to make it more like pure interest.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
You could -- if you found yourself in - let's assume a technical situation where
whatever you get was "wrong," could you then in cooperation with your borrowers
in essence, technically rebate those fees, restructure the contract --
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Yes.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
- -- and still qualify under the RIC rules?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
That is correct. That is our believe that we can referral it easily. We can
change the makeup of the underlying fees that are deemed to be bad income which
I don't think they will be and simply change the characteristic of those fees to
be basically interest payments.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Well, that's extremely helpful. Getting onto the issues more of substance, the
pipeline is it, if we were going to call what you've got going on a pipeline is
it safe to simply add the $62 million in unfunded commitments in $82 million
together to get a pipeline figure or is there some double counting there?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
No, there's not a double counting, and let me kind of give you --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Well, I mean I know that that would be aggressive to add those two, but --
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Well. So here's the way we should look at it. Signed term sheets to us that are
in final loan documentation and due diligence, we generally see approximately 75
to 80% of those convert into a portfolio company status or closed funding
commitment on behalf of Hercules on a historical basis. So you can simply
extrapolate from that comment 62 million of that, and 80%, for example, should
convert in the proceeding next few weeks into a portfolio company status,
meaning $50 million
- --------------------------------------------------------------------------------
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FINAL TRANSCRIPT
- --------------------------------------------------------------------------------
APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Of a signed commitment.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Signed commitment. Now, of the signed commitments, we have a couple of different
things that we've talked about in the past and I want to take this opportunity
to reinforce what we've been saying is the following. It is a rare circumstance,
and I've been doing this for a long time, that you will see a 100% of your sign
commitment actually become fully drawn down --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Right
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
It is historically -- again, not to use the same average, but it happens to be a
coincidence -- that is also 75% to 80% of the signed contractual commitments
that we have actually fund. Of that, it is typically seen between 35 to 50% of
the commitment signed in that quarter will draw down the corresponding balances
in that quarter, then proceeded over the next two quarters of the remaining
distribution expense.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Right. So you've got what we can call -- with a little jiggering, we could
probably calculate what we're going to call the pipeline by adding those two
and, essentially, multiplying them by 0.75.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
That is correct. David?
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
That is correct.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
So that's a tremendous sort of line up of volume. I've just got a -- I've got a
series of questions here, so I apologize. $1.3 million of unrealized
depreciation, how much of that was the reversal of other appreciation or was
that a true write-down of assets?
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
Part of that was the reversal of the Labopharm out of --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Right. And could you have that -- how much of that was --
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
That was approximately $1.3 million that we actually flipped out of --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
So the $1.3 million of unrealized depreciation was completely tied to the
oddities of RIC accounting where you've gains, and so there wasn't really a
write-down of anything?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
No. That's not correct. We actually had a write-down of an investment in the
quarter by only $1 million. And then, of course, that was offset by numerous
appreciation of other investors in the quarter as well.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
So you had -- going through this -
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
The asoteric --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
- -- you had $2 million of gains -- of unrealized gains --
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
Right.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
- -- and then you had $1.3 million of unrealized depreciation. And of that $1.3
million of unrealized depreciation, how much of it was simply the reversal of
appreciation tied to Labopharm and how much of that was the write-down of actual
investments?
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
Okay. I'll just add this here for you real quick.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Sure.
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
So because we had -- we also had an unrealized appreciation of the equity as
well in one portfolio of approximately --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Right. And that's what I'm trying to sort through.
- --------------------------------------------------------------------------------
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FINAL TRANSCRIPT
- --------------------------------------------------------------------------------
APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Can I cut to the chase, Henry? The easiest way of looking at it is the
following. We had a $1 million write-down in the portfolio attributed to the
asset -- one of the assets in the portfolio.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
An unrealized depreciation.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Correct. Unrealized depreciation. And then we had the nuances attributed to RIC
BDC accounting --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Of 300,000.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
- -- reversing the Labopharm unrealized to a realized status.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Right.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
And then, on top of that we had then realized gains in the quarter 00
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Of?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Of -- I'm sorry. I don't have that in front of me.
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
Approximately $700,000 of what we had.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
No. Then you had the realized -- you had the appreciation of $2 million, and
then you had the realized gains?
- --------------------------------------------------------------------------------
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FINAL TRANSCRIPT
- --------------------------------------------------------------------------------
APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
Yes, correct.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Great. And again, one more set of questions. We've got really four investments
with a public face.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Right.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Labopharm, which you've sold for a gain; Alcmene which is appreciated nicely
from $16 to $20 a share this quarter. Can you give us a sense of how many share
of Alcmene you actually own, if we convert your preferred in your stock
positions?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Sure. I think, the share count is approximately 60 - a little over 60,000 shares
is the share count at an effective price on a blended base of around $4 a share.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
That is your "cost."
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
That is my effective cost on the position.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
And it's now a $20 stock?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
It's now a $20 stock, that's correct.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Yes.
- --------------------------------------------------------------------------------
DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
So we looked at, basically a 5x appreciation of securities --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Exactly.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
- -- in under two years.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Now the two other companies that have gone - are in or gone through their IPO's
QuatRx is still going through the filing process?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Yes. QuatRx you and I have the same --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Q, U, A, T, capital R, X I think there is a Z Q and a V in there.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
There is another one with a Z as well. We seem to like the latter part of the
alphabet.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
QuatRx Pharmaceuticals, you've got an S1 in process with no real information in
there?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Well, the most - the most recent S1 updated on Edgar gives you a filing range of
$10 to $13 per share.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Okay.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
And we are in a -- it's a fairly difficult amalgamation of the calculation. But
in essence, looking at us, depending if it's priced at the low end of the range
to be conservative, you're looking at anywhere between a $7 and $8 strike price,
if you will.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
So the strike price is going to be a function of --
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
The effective price.
- --------------------------------------------------------------------------------
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
The effective price.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Right. And then of course, there's two other factors attributed to that -- the
amount of capital raised and the time elapsed [inaudible - cross talk]--
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Right.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
- -- the commitment.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
So, now -- and -- but I'm just trying to keep it simple, because I was so
complex in my last set of questions. On the Omrix that went public at 10. And
your -- have they paid down the debt.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
No. Despite -- at this juncture, despite what they said in their N2 - in their
S1 - pardon me, I'm stuck in BDC world - they have not indicated any interest as
of right now to pay down the debt.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
And what's the status of your warrants there?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
The warrant's right now at a strike price of $11.50 and the fair value of the
stock, I think it close to maybe $10 today.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
But you got -- you got a good solid loan there and opportunity for some upside.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
You got it. In fact, the company having raised a little over $30 million plus
of capital, and given what the progress the company has made and it's also --
it's generating revenues, we continue to think that's a very good company and
stand right behind that company 100%.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
And I know we had some, there were some other questions on this issue, but
looking at your rating system, but the lowest rated stock is simply someone
that's going through an equity -- a capital raise.
- --------------------------------------------------------------------------------
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- --------------------------------------------------------------------------------
APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
It is generally we're at the lowest. We will lower and degrade --
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
I'm just -- I am looking at the page 6. The grade 4 investment, you got $3
million?
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
That's a sole investment there, that company is in fact going through a
financing right now. The reason why it became a grade 4 is that the window - or
I should say the timing of which we expected that financing to close lapsed, but
now we've been in -- obviously in dialogue with the company. And we're now
fairly confident that financing will in fact come together early next week.
- --------------------------------------------------------------------------------
HENRY COFFEY - FERRIS, BAKER WATTS - ANALYST
Excellent. Well, thank you very much. Obviously, very strong trends here and I
look forward to the resolution of this other issue.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
So, do we, Henry. Thank you.
- --------------------------------------------------------------------------------
OPERATOR
And your next question comes from the line form [Greg Mason]. Please proceed.
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GREG MASON ANALYST
Thank you. I was wondering if you could talk about the change in your G&A
expenses quarter-over-quarter, and what we should be kind of expecting going
forward there?
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DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
Okay. As we indicated we were a few hundred thousand dollars higher than the
prior quarter. And that was really related to the fact that we have started the
Sarbanes-Oxley process and have begun the typical process of documentation
incurring more expenses related to that process. And also, we've had slightly
higher legal and accounting expenses in this quarter with the number of filings
that we've had with the SEC, negotiations with the [FBA] in resolving our final
approval for that and so on.
And so, we would expect the go-forward expenses would not necessarily include
the expenses of the audit and tax, but we will be incurring the expenses of
Sarbanes-Oxley.
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GREG MASON ANALYST
Okay. And then just a clarifying statement if you could. You talked about the
future equity in 18 companies in your portfolio, and I was under the impression
that you had equity rights in all 41 companies in your portfolio. Am I just
misunderstanding that statement?
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MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Well, the answer is we've actually exercised equity rights on various companies
already. I think we indicated that we have $4.9 million or basically $5 million
of current equity position, that is consisting of 7 additional companies, and we
also have numerous other equity rights that we let lapse or expire, because
we've opted not to make the equity investments to get either valuations or other
factors that we may have deemed not to be of interest to us to put an equity
exposure in the company.
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publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
FINAL TRANSCRIPT
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APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
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GREG MASON ANALYST
Okay. Great. And last question. Can you give us the rate on the city facility
that you have?
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DAVID LUND - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
VP OF FINANCE AND SENIOR CORPORATE CONTROLLER
It's LIBOR plus 1.65.
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GREG MASON ANALYST
Great. Thanks.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
One month LIBOR plus 1.65 bps.
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OPERATOR
[OPERATOR INSTRUCTIONS] Gentlemen, I'm showing there are no questions at this
time. I'd like to turn the call back over to Mr. Manuel Henriquez.
- --------------------------------------------------------------------------------
MANUEL HENRIQUEZ - HERCULES TECHNOLOGY GROWTH CAPITAL, INC. -
PRESIDENT, CHAIRMAN AND CEO
Okay. Well, thank you everyone for your continued interest and support of
Hercules Technology Growth Capital. We're committed to building our portfolio
companies into market leaders. We have started 2006 on a solid ground, and we're
excited about our future and our future prospects and opportunities.
I'd like to let everybody know that we'll be traveling to meet with our
investors throughout the coming quarter. And if you would like to arrange a
meeting or have additional questions, please contact Christina Carrabino at
415-929-9307 or of course, you're welcome to call the management company as well
at Hercules here at 650-289-3061, or visit our website. And again, thank you
very much for your time and your support.
- --------------------------------------------------------------------------------
OPERATOR
Ladies and gentlemen, this concludes the presentation. You may now disconnect.
Good day.
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(C) 2006 Thomson Financial. Republished with permission. No part of this
publication may be reproduced or transmitted in any form or by any means without
the prior written consent of Thomson Financial.
FINAL TRANSCRIPT
- --------------------------------------------------------------------------------
APR. 27. 2006 / 4:00PM CT, HTGC - Q1 2006
HERCULES TECHNOLOGY GROWTH CAPITAL EARNINGS CONFERENCE CALL
- --------------------------------------------------------------------------------
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