Earnings Call: Q4 2018

Feb 21, 2019

Good day, ladies and gentlemen, and welcome to the Hercules Capital Q4 and Full Year twenty eighteen Earnings Conference Call. At this time, all participants are in a listen only mode. Following management's prepared remarks, we will have a question and answer session and instructions will be given at that time. As a reminder, today's It is now my pleasure to turn the conference over to Michael Harrah, Managing Director of Investor Relations. Please proceed, sir. Thank you, Haley. Good afternoon, everyone, and welcome to Hercules' conference call for the fourth quarter and full year twenty eighteen. With us on the call today from Hercules are Manuel Henriques, Founder, Chairman and CEO and David Lund, our interim Chief Financial Officer. Hercules' fourth quarter and full year twenty eighteen financial results were released just after today's market close and can be accessed from Hercules' Investor Relations section at htgc.com. We have arranged for a replay of the call at Hercules' webpage or by using the telephone number and passcode provided in today's earnings release. During this call, we may make forward looking statements based on current expectations. Actual financial results filed with the Securities and Exchange Commission may differ from those contained herein due to timing delays between the date of this release and then the confirmation and final audit results. In addition, the statements contained in this release that are not purely historical are forward looking statements. These forward looking statements are not guarantees of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward looking statements, including without limitation, the risks and uncertainties, including the uncertainties shown in the current market turbulence and other factors we identified from time to time in our filings with the Securities and Exchange Commission. Although we believe that the assumptions on which these forward looking statements are based are reasonable, any of those assumptions can prove to be inaccurate. And as a result, the forward looking statements based on those assumptions also can be incorrect. You should not place undue reliance upon these forward looking statements. The forward looking statements contained in this release are made as of the date hereof, and Hercules assumes no obligation to update the forward looking statements or subsequent events. To obtain copies of related SEC filings, please visit sec.gov or our website, htgc.com. With that, I will turn the call over to Manuel Henriques, Hercules' Chairman and CEO. Thank you, Michael, and good afternoon, everyone, and thank you for joining us today. Before I begin today's call, I want to take a brief moment to personally say thank you to David Lund for his outstanding dedication, professionalism and commitment to Hercules Capital during both of his tenures at Hercules, first as our CFO post IPO offering 02/2005 and most recently as our interim CFO where he's done an amazing job. In fact, during his most recent tenure at Hercules Capital, we successfully grew our debt invested portfolio by 33% to a new record high. We raised nearly $900,000,000 of capital including two back to back securitizations within ninety days of each other. He was instrumental in securing our investor grade rating from DBRS. He helped us integrate the Ares Capital debt investment portfolio acquisition. He was also instrumental in integrating our first asset based lending platform acquisition of Gibraltar Capital as a wholly owned operating company of Hercules Capital, has single handedly overseen the expansion and increase of our bank credit facility such as a Union Bank a new accordion that we announced yesterday for $200,000,000 And lastly, he was responsible for overseeing the accounting and finance team in completing five quarterly earnings calls and SEC filings during his tenure. As you can see, it's been a very busy sixteen months for David while at Hercules Capital. I can't thank him enough for his world class professionalism, support and mentoring that he's done to our team and through the growth period that we've experienced here at Hercules. We will be great we will greatly miss David and we wish him well in his second retirement and time with his wonderful grandchildren. Thank you, David, and thank you for everything you've done with us. Now for today's call. I will briefly discuss the following select achievements and highlights. I will provide an overview and highlights of our outstanding financial performance and numerous new records as well as key achievements for the fourth quarter and the full year 2018. I will also offer some perspective and insights into the very robust venture capital marketplace as it relates to Q4 twenty eighteen, including fundraising, new investment activities and of course M and A and IPO exits realized by the venture capital community as a whole. I will then provide a brief commentary as to a revised and optimistic, if not bullish outlook for the first half of twenty nineteen, especially as we are more than halfway through the first quarter twenty nineteen with already nearly $350,000,000 in close or pending new commitments, which if all comes to fruition puts us on pace to exceed our 2018 accomplishments of $1,200,000,000 of total commitments. This of course assumes market conditions remain favorable throughout 2019. With this renewed optimism leading into Q1 twenty nineteen, we are now anticipating generating net investment income growth in 2019 that we expect to exceed our existing dividend distribution level of $0.31 which will further bolster our already strong earnings spillover of $0.32 per share, which I will explain later on in our presentation. Because of this growing expectation in 2019, we now anticipate that this should eventually lead to an increase in our dividend distribution or even potentially an additional supplemental dividend distribution in 2019 and beyond. As a reminder, our current dividend is $0.31 per share distribution. Of course, again, this assumes favorable market conditions remain and no unexpected U. S. Government uncertainties or shutdowns that may impact the outlook for 2019. I will then turn the call over to David for a more detailed overview of the specific financial results for the quarter and key summary achievements of 2018 financial results and finally conclude the call with our Q and A session to address any of your questions. With that said, let me begin. Once again, I'd like to say thank you for the wonderful and amazing support we continue to receive for the venture capital community and the amazing entrepreneurs who have selected Hercules Capital as one of their trusted strategic financial partner. This has culminated in an outstanding 2018 record of 1,200,000,000 in total new commitments in a single year. Because of our increasing brand recognition within the venture capital community, our broad marketplace presence with six offices around the country Hercules Capital multiple fronts. In 2018, we achieved the following new records: total new debt and equity commitments of $1,200,000,000 representing a 37% increase over 2017. Honestly, it's a pretty amazing achievement. We set a new record for total gross fundings of $961,000,000 representing an increase of 25% over the same period of 2017. We also established a new record for total debt investment portfolio growth of $313,000,000 during the year. And we also established a new record for total debt investment portfolio now at $1,730,000,000 representing a 22% increase over the same period last year. Finally, on the balance sheet, we also record for total assets now standing at $1,940,000,000 representing an increase of 17%. Not to be left behind, our income statement performance was equally as strong. We saw numerous achievements on the income statement. Many of Ocado Sand's achievements also produced record high new levels. For example, record investment income of $108,000,000 representing a 12% increase over the same period last year total investment income of $2.00 $8,000,000 representing a 9% year over year growth. And lastly, another record for undistributed earnings or spillover of $30,700,000 or representing approximately $0.32 per share, representing a full quarterly distribution of our current dividend subject to the final tax true up of our twenty eighteen tax filings. This places us in great position to continue to grow and have distributions for our shareholders with this very strong earnings spillover. We also anticipate adding further to our earnings spillover in 2019 as we look to eventually begin to harness potential unrealized capital gains from our holdings in our portfolio companies. As an example of such harvesting of capital gains or realized gains in our portfolio is DocuSign. DocuSign alone, which has demonstrated tremendous recovery from the fourth quarter till the present period has now stands about $12,000,000 to $16,000,000 and unrealized gains in the Hercules Capital Holdings or if were harvested today as an example would represent $0.13 to $0.17 in additional earnings spillover that will be in our undistributed earnings allowing us to have now $0.45 to $0.49 in earnings spillover. This is a tremendous achievement and allows us to eventually begin to further distributions on behalf of our shareholders of this growing undistributed earnings. Clearly, this very strong position coupled with our expectations for 2019 earnings growth will only allow us to look at the dividend increase, which we expect to announce in our first quarter earnings in 2019. As evidenced by our many 2018 accomplishments, Hercules Capital has not only achieved the necessary scale to succeed, but has clearly established itself as a BDC industry leader in venture lending as we continue to build our investment portfolio, while many other small scale BDCs in venture lending are simply unable to do so or have a dangerously high level of concentrated portfolio positions. I'm happy to report our top 10 holdings represent less than 27% of our holdings in our portfolio. We have and pride ourselves in a widely distributed investment portfolio and we try to work very diligently to avoid any excessive concentration in our portfolio that we think are quite dangerous as you build out your platform. As I indicated in my opening remarks, none of these achievements and accomplishments would have been made possible if not for the strong market presence, trusted brand and brand awareness of Hercules Capital platform has established within the venture capital community as a capital partner of choice of many of the top tier and select leading venture capital firms and of course the many innovative entrepreneurs who have made this possible. Their trust and faith in Hercules Capital are measured not by hyperbole, but by strong performance and realizations in our financial results as you see in our filings. Thank you for an amazing year and we look forward to repeating many of these achievements in 2019 as we're off to a very strong start of 2019 as evidenced already by our closed or pending signed term sheet pipeline as listed out in our earnings release of representing nearly $350,000,000 of closed or pending commitments to be closed already through mid February. We are off to a tremendous start and we are very confident and optimistic in the outlook for 2019. As stated in my many times in the past and more than ever before, scale has become a critical BDC competitive differentiation and a competitive advantage. Hercules has successfully achieved such scale as nearly with nearly $2,000,000,000 in total assets and nearly $1,000,000,000 in total net assets. We anticipate adding further to our scale as we gradually begin to modestly increase the use of leverage in 2019 and beyond. We expect to also begin to see rising in our ROA or return on equity as we continue to modestly add leverage to our portfolio and continue to prudently manage the growth of our investment portfolio overall. As a reminder, we intend to prudently exercise the use of leverage in 2019. In fact, we are maintaining our target of 1.25, one point two five leverage and gradually thereafter in 2020 begin to increase that leverage subject of course to market conditions remaining favorable in 2020 or beyond. We firmly believe in disciplined growth and remain committed to our DNA of executing to the principle that has led us success through the past fifteen years. As further evidence of the discipline and approach was another critical and significant milestone achieved in Q4 twenty eighteen for Hercules Capital. As we have previously stated during our Q3 earnings call, we anticipate and now have achieved net investment income or NII of $0.32 per share in Q4 twenty eighteen, driven in no small part by a strong loan portfolio growth of 9%, a sustained effective yield and core yields above 13% during the quarter and continued sustained portfolio growth as you'll see in our press release again with a $350,000,000 of already signed or closed term sheets or commitments, I should say, in the quarter so far for Q1 twenty nineteen. As we now enter 2019 with nearly a 1,700,000,000 debt investment portfolio and growing, we expect to continue to generate ample net investment income or NII to cover, if not begin to exceed, our current dividend declared levels of $0.31 per share. That should lead us to increase our dividend distributions in the first quarter of twenty nineteen and beyond as we report our first quarter earnings call. With the anticipation of NII beginning to exceed our current dividend distribution as well as adding to already strong undistributed earnings spillover of $30,000,000 a share pre any additional harvesting of gains, we find ourselves in an incredible flexible operating position to make critical long term and short term strategic and tactical decisions to continue to invest in our platform to ensure our sustained growth over a long period of time without having to sacrifice any dividend distribution to our shareholders. The flexibility afforded to us by having a strong dividend spillover allows us to have this maximum operating leverage to ensure that our shareholders benefit from our continued investment in the platform as we continue to build for the future. All of these outstanding achievements would not have been made possible if not for our most important asset, our human capital, our employees. Our tremendous team of amazing dedicated employees now numbering over 70 and growing have once again proven the importance of teamwork and strong execution and strong work ethics. Thank you all very much for your continued dedication, loyalty and above all professionalism. You guys are amazing and it would not have been made possible without all of your hard work. As a founder of Hercules Capital and having the vision nearly fifteen years ago to create what we accomplished today is simply amazing. I take immense pride to see the many achievements and new records that we have achieved. I truly cannot underscore the amazing depth and level of talent and discipline and diligence that our origination team and for that matter all of our employees have contributed to this great success of this platform for the benefit of our shareholders. We are deeply grateful for you and we take enormous pride in our human capital and of advancing the shareholder value on your behalf our shareholders. Thank you all. Now let me take a few minutes to recap some additional operating accomplishments as well as high level achievements, which David can expand further during his presentation. Our growth has been accomplished by refusing to yield to market competitive pressures as we remain steadfast and unwilling to step away from any and all ill structured or ill priced transactions. We remain highly selective and judicious in evaluating new investment opportunities. And in fact, we refuse and remain steadfast to our historical credit discipline and underwriting discipline that we've adhered to for the past fifteen years. As evidence of our historical as evidence of our commitment to this endeavor, it is evidence in our historical and insignificant low non accrual loan ratio of merely 10 basis points, basically zero, which in addition to our massive accomplishment in our non accruals, we also have the proud achievement of a fifteen year track record related to our credit underwriting and our credit performance. Over the last fifteen years, our cumulative net credit losses over the entire fifteen year period of time represent a mere $40,000,000 which compared to our total commitments during the same fifteen year period of $8,500,000,000 represents an insignificant amount of credit losses over a span of fifteen years. Once again, this would not have been achieved if not for the hard work of our team of dedicated and loyal employees. Thank you again for that commitment. Now let me say a few words regarding our liquidity as we continue to bolster our liquidity as you've seen in our various press releases. We remain extremely active in the capital markets and we remain extremely active in analyzing and evaluating multiple deal flows. We feel very confident of our outlook for 2019. As we continue to grow our balance sheet, we also remain committed to broadening the multiple sources of available liquidity, while ensuring we maintain a broad source of access to liquidity, while maintaining a very strong balance sheet and highly liquid balance sheet. As he ends the year, we finished with $156,000,000 of total liquidity to continue to invest in new investment opportunities. However, because of our continued growth in our pipeline and opportunities that we see, we actively reenter the market in Q1 with recently announcing the successful close of an additional securitization of $250,000,000 completed in January 2019 at a price of 4.7%, which is also further bolstered by David's hard work recently of also closing an additional $100,000,000 under our AMETUFG Union Bank credit facilities, which now tops $200,000,000 for additional liquidity to continue to fund our portfolio growth. Now, let me take a few moments to share with you our views related to our strong portfolio growth and that of the robust venture capital investment activities. We continue to see and realize very strong loan demand and transactional deal flows volumes driven in no small part by the impressive and robust performance by the venture capital investment community, which in the fourth quarter alone originated $43,000,000,000 in new investment activities culminating in $130,000,000,000 of venture capital investments for the period of 2018. This amount in 2018 of $130,000,000,000 is a new record for the venture capital marketplace and the data is based on Dow Jones VentureSource data. Showing an equally strong performance was the level of new venture capital marketplace fundraising activities. Said differently, new funds formed by the venture industry. This is an important leading indicator because as venture capitals are able to raise new forms of financing or capital, they're able to deploy that capital eventually in new investment opportunities to which we will take ample advantage of as we're looking at new investment opportunities by the venture capital. We are very encouraged to see the amount of new venture capital dollars being raised by new venture investment funds, another strongly encouraging sign of the vibrance in the venture capital community. Realized exits. Venture capitals were quite actively in M and A and less active in the IPO market driven in no spark by the SEC shutdown that actually stymied many companies looking to go public in the fourth quarter and spilling over now to the first quarter. We with the extreme market volatility that we witnessed in Q4 and specifically in December of twenty eighteen, the government shutdown among the ongoing geopolitical tension occurring in the fourth quarter all served to have a bit of a stymie effect in the IPO market activities realized in the fourth quarter. However, much of that backlog has spilled over to the first quarter and certainly the second quarter of twenty nineteen, which I'll cover here briefly. With that said, we saw 17 companies complete their successful IPO debuts in the fourth quarter representing a total of 86 IPO companies in 2018. This still, believe it or not, represents a very strong showing as compared to the total activities of 60 companies completing their IPO exits in 2017. However, as an encouraging and growing sign of optimism and improved outlook for 2019, we are certainly seeing a robust and growing pipeline of IPO registrations going on in the marketplace today. We are especially seeing very strong signs of unicorns and decacorns that are expected to complete their IPO offerings in 2019. Adding further to my IPO optimism are encouraging signs from the new SEC Chairman, Mr. Jay Clayton on the new changes of allowing private companies seeking IPO exits to begin to explore the potential IPO exit opportunities by holding and plans and meeting with investors I. E. Testing the waters privately with potential investors both institutional and accredited before making any public announcements or filings. As a potential catalyst to increasing the number of IPO offerings. We are strongly supportive of this initiative and we think this is a great change in how the Jobs Act will be put into effect to help encourage the earlier IPO process and accelerate IPO process by many companies. I would like to caution, however, that the new proposal by the SEC, which we support strongly, is subject to a sixty day public comment period after which the SEC will decide whether to move forward or not. We hope that this initiative does move forward and we think we'll have tremendous positive impact in many of our IPO candidate companies today. Now turning my attention to M and A activities. Unlike the LPO market, M and A market continued to deliver extremely strong and healthy levels of activities with two zero three transactions completed in the fourth quarter, presenting a total transaction volume of seven eighty four companies in 2018. Total M and A transaction values paid in 2018 represented nearly $150,000,000,000 of transaction, easily surpassing the $89,000,000,000 in 2017. With the equity markets now fully recovering and in some cases surpassing or exceeding the December valuation pullback, we are certainly seeing encouraging signs of stabilizing and we're also seeing the potential IPO activity pipeline picking up. As an example of this growing optimism in the IPO pipeline, in this area alone, there are 12 significant companies, many of which are Unicorns or Decacorns that are queuing up for their much anticipated IPO offerings. Ironically, many of those companies happen to be some of our portfolio companies. For example, existing portfolio companies in IPO excuse me portfolio companies that are either have or expected to be filing for their IPOs soon include such names as Lyft, DoorDash, Nextdoor, Palantir, Pinterest and Postmates. These are existing portfolio companies to which we have the high expectations in the marketplace when and if they complete their IPO debuts. Other potential well known names not in the Hercules Capital portfolio, but certainly waiting to make their IPO debuts on their outright include such great bellwether names as Uber, Airbnb or Peloton Interactive or Slack to name some of the higher profile names as well who are expected to make their IPO debuts here shortly. I'm proud to say that year to date, Hercules own portfolio companies have now completed two successful IPOs in the marketplace Stealth Bio Therapeutics and Avedro both just completed their IPO debuts. I believe it was just last week alone. In addition, Hercules Capital has five existing companies in IPO registrations and expect to see potential liquidities from those registrations later on in 2019, of course, assuming market issues remain favorable. We are anticipating a very healthy IPO marketplace and activities in March and the early part of Q2 twenty nineteen, and we expect to start seeing potential harvesting of the over 130 warrant positions and over 40 equity positions that we have in our portfolio begin to monetize in 2019. As always, I'd like to caution that IPO registrations does not necessarily mean they'll complete their IPO transactions. We hope that they do, but we have to leave that in the hands of the market and when they make their IPO's debut. But we are certainly encouraged by what we're seeing. Now let me take a brief opportunity to discuss our views of the marketplace and activities as we enter the first quarter twenty nineteen. We remain very optimistic by what we're seeing so far in Q1 of twenty nineteen as we continue to be hyperly selective in evaluating and reviewing the potential pipeline that now stands at over $1,500,000,000 of new investment opportunities that we're evaluating. This is above and beyond the already $345,000,000,000 of close or pending to close commitments that we already have in house today as outlined in our earnings release this afternoon. Although some of you may be tired of hearing me speak of our long standing strategy, we remain fully committed to our slow and steady growth strategy that has served us well for over a decade. As we see further signs of an improving competitive market environment, we continue to capitalize on that opportunity and use our surface strength on our balance sheet and scale to take advantage of those opportunities to continue to grow our portfolio for the benefit of our shareholders. We remain increasingly optimistic and anticipate continuing our disciplined growth approach in the first part of twenty nineteen. However, as we always do, we remain cautious until the second half of twenty nineteen, reassess the market at the second half of twenty nineteen and determine if our growth strategies will continue and reassess our growth strategies at that point. Now for a brief word on expectations related to early loan repayments and payoff activities in Q4 and twenty nineteen. We anticipate early loan activities to remain at the levels currently evidenced in our fourth quarter and slightly begin to increase in the second half of twenty nineteen. As a reminder, in evidence in Q4 twenty eighteen, predicting early repayment activities remains a very difficult task since we do not control or have insight as to which company or when a company may choose to pay off its loans or be acquired. In fact, we typically have less than thirty day notice or visibility, so it's subject to tremendous significant variability and market conditions. We do our best to try to predict it, but it's extremely difficult to do so. With that said, our outlook for the early loan repayments in 2019 represent an aggregate of $350,000,000 to $375,000,000 which we anticipate both Q1 and Q2 each of twenty nineteen to represent approximately $75,000,000 in early payoffs or $150,000,000 to which the balance of it will back end weighted in the second half of twenty nineteen. So again to reinforce the statement, we expect $75,000,000 of early payoff in Q1, '70 '5 million dollars in payoffs in Q2, followed by the balance of $200,000,000 to $225,000,000 of early payoff in the preceding third and fourth quarter. In closing, we had an outstanding 2018, setting multiple records across the business. In addition, our record debt investment portfolio growth coupled with our combined strong core and effective yield growth, we delivered on what we had indicated in Q3 of net investment income growth and solid reported net investment income of $0.32 a share, exceeding our dividend distribution. Given our new optimistic outlook for 2019, we anticipate continuing to see NII growth in each of the quarters of 2019 assuming of course market issue remain favorable along with sustained portfolio growth and yields. Upon realizing many of these expectations in 2019, I hope to eventually share with you potentially as early as Q1 the possibility of a future dividend increase distribution levels above $0.31 I'm highly encouraged of what I'm seeing with our portfolio growth. I'm encouraged to see by our earnings growth, which should lead to an eventuality of increase in our dividend and of course beginning to also consider supplemental dividends related to our impressively growing earnings spillover. With that, thank you very much everyone. And David, over to you. Thank you, Manuel, and good afternoon, ladies and gentlemen. Before I address the financial results for the quarter, I would like to say that it has been a pleasure being back here at Hercules for these last sixteen months. We have certainly achieved great many milestones together in such a short period of time, and I look forward to watching the continued success of Hercules in the coming years. The professional way the firm operates and conducts business and its outstanding performance is a tribute to you, Manuel, and the rest of the management team. I would especially like to thank the accounting team here at Hercules for the work they have done to support me in my role. This team is a very high caliber group of people that made my job an easy assignment, and I will truly miss working with them. Now to address our financial results. We are pleased to report our fourth quarter and 2018 year end results. This afternoon, I will focus on the following financial areas: income statement performance, NAV and return performance, credit performance and liquidity. With that, let's turn our attention to the income statement. On a GAAP basis, our net investment income for the quarter was $30,600,000 or $0.32 per share covering our dividend of $0.31 per share from operations. Total investment income was $56,900,000 in the fourth quarter, an increase of 8.2% from $52,600,000 in the third quarter. The increase in total investment income is due to the higher interest income of $52,700,000 on a larger weighted loan portfolio and the increase in core yield. Our weighted average principal outstanding increased by $130,000,000 to $1,690,000,000 from 1,550,000,000 in the third quarter. Our fee income increased by 19.7% to $4,200,000 during the fourth quarter, primarily due to one time and facility expiration fees. Our core yields increased 12.9% in the fourth quarter from 12.7 in the prior quarter, and our effective yield remained constant at 13.5%. NII margin decreased to 53.8% in the fourth quarter to 55.7% in the third quarter. The decrease in margin is due to high interest rate and fee expense related to our $200,000,000 securitization, borrowings under our credit facilities and higher compensation expense. Our SG and A increased to $14,400,000 in the fourth quarter from $12,300,000 in the prior quarter, driven primarily by an increase in variable compensation due to our originators meeting our funding goals for 2018. We anticipate our operating expenses to be between $14,500,000 to $15,000,000 in the first quarter of twenty nineteen. During the fourth quarter, primarily December, we all witnessed a significant volatility in the stock market, which in turn impacted the fair value of our investment portfolio. We had total unrealized losses of $47,100,000 comprised of unrealized losses of $14,700,000 our loan portfolio, $30,100,000 of our equity portfolio and $2,400,000 in our warrant portfolio. The unrealized losses in our loan portfolio were attributed to collateral based impairments of $9,100,000 primarily related to two loans and $6,600,000 due to market yield adjustments. Our equity and warrant portfolio had an unrealized depreciation of $33,500,000 related to mark to mark adjustments, primarily driven by volatility in the market, offset by $1,000,000 of appreciation due to the reversal of unrealized depreciation, primarily related to the liquidation of three positions. Based on analysis we prepared as of the close of market on February 11, we estimate that the warrant and equity portfolio would have recovered approximately 45% of these unrealized losses due to the general recovery in the market, representing approximately $0.15 per share. In contrast, the S and P technology and biotech indices dropped by approximately 1823% in the fourth quarter and through February 20 have recovered approximately 1218%, respectively. Now I would like to discuss our NAV performance and credit outlook. We saw our NAV decrease by approximately $48,700,000 or $0.48 per share to $9.9 dollars per share principally related to the $47,100,000 unrealized losses I discussed previously. I would like to emphasize to our investors that this decline is not related to the credit performance of our loan portfolio, which remains very strong, but from the impact of what appears to have been a short pullback in the market. SAR return on average equity increased to 13.6% in the fourth quarter, up from 12.7 in the prior quarter. The increase was due to the higher interest income on the higher weighted average portfolio in Q4. Next, I would like to discuss our credit performance for the quarter. As I noted earlier, the credit performance of our loan portfolio remained very strong in the fourth quarter as demonstrated by the weighted average credit rating of 2.18 as compared to 2.23 in the third quarter. Our non accruals remained at historic lows at just 0.1% as a percentage of our total investment portfolio on a cost basis and 0% on a value basis. This makes six consecutive quarters where non accruals as a percentage of total investment at cost were below 1%. Lastly, I would like to discuss our liquidity. We finished the end of the fourth quarter with 156,200,000 in available liquidity, which was comprised of $34,200,000 in cash and $122,000,000 of undrawn availability under our revolving credit facilities, which are subject to borrowing base leverage and other restrictions. During the quarter, we closed our third securitization for $200,000,000 at an interest rate of 4.605%, and we use these proceeds to continue to make investments in our portfolio. As a result of this transaction, our weighted average cost of debt decreased to 5.3 at the December 2018. Subsequent to year end, we announced renewal of our $75,000,000 credit facility with Wells Fargo that can accordion to $125,000,000 And as we announced yesterday, we entered into a new union credit facility, which includes a syndicate of four new lenders for $200,000,000 that can accordion to $300,000,000 The new facility has a term of four years, reduced cost of borrowing at LIBOR plus two seventy basis points and enhanced terms. Additionally, in January, we closed our fourth securitization for $250,000,000 at 4.703%, which was partially used to repay $83,500,000 of our 2024 notes. We expect to incur approximately $1,600,000 or $0.02 per share of additional fee expense in Q1 twenty nineteen related to the early repayment of the 2024 notes. Based on our remarks today and our overall financial performance, we are very pleased with the fourth quarter results. Thus in closing, we are well positioned as we head into 2019. Our long term focused approach and disciplined underwriting standards and access to diversified funding sources will enable us to deliver strong results for the foreseeable future. With that, I will now turn the call over to the operator to begin the Q and A part of our call. Operator, over to you, please. Thank you. Our first question comes from John Hecht of Jefferies. Your line is now open. Thanks very much guys. I'm going to ask three questions. First one is just a clarification. David, what was that cost of repayment in the quarter for Q1 that we would just want to one off it? $1,600,000 or about $0.02 a little less than $0.02 a share. Okay. Second question, your strong effective yield up 20 basis points quarter to quarter. I'm wondering, meanwhile, you've got obviously you're somewhat must be price maker in the market. It sounds like you've got a lot of looks at different transactions and this and that and the pricing is going your way. Maybe can you tell us where pricing is coming on in new deals versus some of the repayments that you're seeing and how that might affect yield going forward? So we're actually quite encouraged by what we're seeing in the marketplace. There's been somewhat of a to use a California term, tectonic shift that has taken place in the marketplace through the competitive landscape. I think that the combination of the prime rate increases that are now are beginning to be digested in the market and being reflected in our new deal originations. So the answer to your question is, the new deals that we're onboarding are being onboarded at slightly higher rates than the yields that are being paid back. So we're actually going in the right direction if you will. However, our guidance for yields, we think that the range for the core yields is going to be 12.5% to 13.5% is I think the new range of core yields that we anticipate in 2019. And I expect that to probably hover in that 12.9% to 13.2% core yields on a blended basis as we continue to digest all the new onboarding of loans that we're seeing in the portfolio as the core yields gravitate to that level. The effective yield is materially impacted by early payoff activities. As we saw in the fourth quarter with only $64,000,000 of early payoff activities, the it has a bit of a dampening effect. And if you look at our slide deck on page 28 on our website, you'll see that the effective yield have ostensibly remained flat for the last three quarters at $13,500,000 for the last sequential two quarters in arrears, driven in no small part by obviously Q3 and Q4 having sequentially the same early amount of early payoff activities of $64,000,000 or so in that. So that's what we're seeing right now. Okay. And my follow-up question is, you've had several quarters of strong demand, strong commitments. I'm wondering, can you tell us how maybe at the industry level, you may be deploying capital, is that changing where the industry is a focus and where might you see better opportunity more opportunity in 2019? Well, respectfully, I'm not going to answer the second part of the question because a lot of our competitors seem to be listening to our calls and trying to gauge our perspective on what we're doing. So rather have a look at our wake as opposed to where we're going. With that said, the California market remains very robust. The life sciences, biotechnology sector remains great. I think we have one of the best teams in the industry as reflected our credit discipline and underwriting history there. And so we think the portfolio is going to remain well in balance at 50% tech and 50% life sciences at a high level. Of course below that there's a bunch of subsectors behind that. But I'm safe to say that we anticipate portfolio to remain in that cadence of fiftyfifty between those two primary asset classes of life and tech. Okay. Appreciate that. Congratulations. A good quarter. And David, congratulations on two successful tenures with the company. Okay. Thank you very much. It really has been a pleasure. Our next question comes from Tim Hayes of B. Riley FBR. Just the first one, can you just touch on how you intend to approach the dividend over the coming year? Will you try to match it with NII as it grows over the course of the year? Or do you intend to leave a little bit of cushion to grow into? Well, as a reminder, dividend and policy are set by our Board of Directors. I have my strong views on what I think that should be. But as a deference to governance, the dividend policy is ultimately set by our Board of Directors. As to your salient point to your question, I always believe that you should leave a little bit of a buffer. However, the issue with that is on the benefit for our shareholders, the fact that we have a very strong and robust undistributed earnings spillover coupled with the unrealized gains they expect to harvest, I think will be a combination of both distributing some of our unrealized let me back up. I think it will be a combination of organic NII growth as well as some distribution from our earnings spillover that will set the new dividend policy going forward. And because those two items are currently being shown to be very strong leading into 2019, it will be my recommendation to our directors that we look at a dividend policy that will lead to potentially growth itself in 2019. Okay. Appreciate the comments there. And just a quick follow-up. The grade one investment balance increased a lot this quarter. Can you just talk about the composition there? How many investments were upgraded? And if the two companies that filed for IPOs are a part of that? And if this maybe indicates even more exits in the near future? Clearly, you hit the nail on the head. The level one is a leading indicator of exit activities that we expect in the portfolio. I don't recall that we actually disclosed a number of candidates or constituents that are located in our bucket one category. So I don't think we've ever done that publicly. I don't think we disclosed that publicly as a company count. I will say that the number if you look at an average of our holdings, you can extrapolate that number to be anywhere between 12 to 15 companies. I would tell you at a high level look at it that way. But I'm not aware that we disclosed the components of those buckets. Okay. Question comes from Aaron Deer of Sandler O'Neill. Your line is now open. Good afternoon, everyone. I apologize if I missed it in your opening comments, but you've been providing some measure of guidance in terms of your expectation for net portfolio growth in recent quarters. Can you maybe give us a sense of what your expectations are for 02/2009 given the what sounds like a pretty strong pipeline and your expectation for early payoffs? Well, Aaron, with all respect, 02/2009 has already been accomplished. No, Harry. I knew what he was saying. In 2019, I think that at this level, again, it's only February. So I need to preface it with my optimism and it's only February. But with what we're seeing at this level is sustained, I think that a conservative level you're looking at $300,000,000 to $400,000,000 net of hundred million dollars net portfolio gain that will be similar to what we achieved in 2018. As obviously the year goes as the year progresses, we'll obviously tighten that number for you. But the fact that it's still early February, the number that we use around here is about $300,000,000 to $400,000,000 of net growth. Okay. That's helpful. Thank you. And then, obviously, you guys have some pretty good asset sensitivity structured into the portfolio. I'm curious, is that rate sensitivity symmetrical on the downside as well if we were to start seeing the prime rate move lower at some point later in the year or next year? And as you kind of look out prospectively at where rates could go over the next year or two, are you making any specific changes to the loans that you're underwriting or how you're structuring the balance sheet that might mitigate any downside if rates do move lower at some point along the way? So a very critical part of your question and I don't have the percent, but I can assure you it's a policy that we've adopted since 02/2008. I think most of our deals have LIBOR I'm sorry, have prime based floors. So we are protected on a downside of prime. And the few deals that we do have LIBOR, I want to say that probably half of the ones that we have a LIBOR do not have a LIBOR floor on them. However, as a reminder, LIBOR will be going away. But that said, in the interim period before LIBOR does evaporate, I believe 50% of the LIBOR deals we have do not have LIBOR floors on them. But our prime based deals which are nearly 87% or 85% of loan book does have a prime based floor. Okay. And how far are those floors typically below the all in rate? They are generally at the spot prime rate. Okay. And then just one last question on the just any color, obviously, credit metrics have been terrific. Just curious though about the two loans that generated the $9,000,000 of collateral based impairment, if you could give any color behind what caused that? Sure. One of them was it's an international company and with the government shutdown and what's going on there, there's a lot of activities going on in that sector. And because of that development, they make I got to be careful what's public. They basically make a circuit that lights up for use of mobile devices. The company has demonstrated tremendous technology achievement. It's a very complicated physics issue to scale a circuitry say by 2x2 to 4x4 to 8x8. And one of the issues that they're doing right now is actually scaling the circuitry. And because of the shutdown that took place and the concerns that we had at the time in the marketplace, we took the prudent approach to doing markdown. However, we believe given this company's demonstrated technology advancements and its achievements that it has done that the fourth quarter impairment that we took should be reversed or we expect it to be reversed in 2019 with what we are aware of with the company's ongoing dialogue and discussion its technology offering. But an abundance of prudence and caution, at the time, we felt that that was the right thing to do from a fair value point of view and that's what we did. The second one was a similar situation. It's in the solar industry. It's had a bit of a bumpy issue. You can imagine with our President and his jaundice or negative view on the solar industry and versus his carbon fuel vision. We support more of a clean earth and we think this company will start seeing some growth there. And then the third one that we had a small impairment is an Asian based, China based exposure that with all the trade tensions going on, we felt that it was prudent to take a small impairment related to an Asian exposure. We only have I believe two companies left in our portfolio that have China exposure to it. As a reminder, we have actively managed down our China exposure. Okay, great. Thank you for taking my questions. Thank you. Our next question comes from Ryan Lynch of KBW. Your line is now open. Hey, good afternoon. First question, I wanted to talk about the slowing of repayments that we've seen in the second half of twenty eighteen. And I know you said you expect them to be fairly light in the first half of twenty nineteen. Is there anything we can read into that slowing of prepayments? I would think from a competitive standpoint, if there was fierce competition out there, I think that would seems logical that that would actually increase prepayments. And then also, I know in the past you've talked about pruning a portfolio, getting out of some weaker credits or some issues you don't want to be in have also driven some higher prepayments. So with the fact that prepayments have slowed in the second half of twenty eighteen, you expect them to be fairly slow in early twenty nineteen. Is there anything we can read from a competitive standpoint and or how you guys view the overall quality of your portfolio? Well, I can't win with you guys. If it's too slow, you guys give me grief. If it's too much, you give me grief. So I'll take it because the dampening of early portfolio repayment really allows us to achieve that optimal performance level of NII growth that we're seeing by having the portfolio repayments tapered off. The first part of your question is a very critical and important one. We have seen a significant shift in the competitive landscape in the marketplace. Scale is a major factor in that issue. Those with the balance sheets that we have and the capabilities to do transactions that we do are few to very little players out in the marketplace. The banking regulators who I send chocolates to every night also have assisted in that out level with many banks being asked to pull back or hold on to higher capital ratios when it comes to cash flow negative term loans or they're having to participate those loans out as one of our larger player tends to do with their transaction. So we're seeing a material shift in the competitive landscape not to mention that the smaller players that exist do not have capabilities to underwrite life sciences because they have no expertise in that area or they have an insignificant balance sheet unable to compete in that level. So I'm happy to say that as you saw evidence in Q3 and Q4, the competitive landscape is really manifests itself in our balance sheet on the early repayment activities as you pointed out. So they're directly correlated to each other in that. So unless there's been some or some unexpected change in the competitive landscape going into 2019, we're pretty confident that the early repayment activities are going to be driven probably most in part by M and A and IPO exits as opposed to the typical or historical levels of refinancing from a competitor right now. But again, as I indicated in my opening remarks, early repayments visibility is only a thirty day outlook for us. But with what we expect and what we see in our portfolio and the Covetta landscape, we feel pretty confident that the $75,000,000 for Q1 and Q2 of twenty nineteen are the right levels to model into. Sure. Okay. And then my follow-up, Manuel, I wanted to talk about the commentary you provided in the press release when you discussed hiring Seth Meyers as the new CFO. Several times in that press release, you mentioned him being a key hire as you evaluate new potential strategic growth opportunities. Can you shed some light on exactly what these strategic growth opportunities, what does that mean? Does that mean portfolio acquisitions? Does that mean new teams? Does that mean new products like Gibraltar, all of the above, something else? Just any color you can provide on that would be helpful considering you mentioned it several times in the press release. Sure. Look, Seth brings a lot of incredible experience and global talent that as you saw me announce, we've expanded our Board of Directors. We now have three women in our Board of Directors absolutely embracing the diversity of Board of Directors. We think every public company should in fact have a nice diversified composition of the Boards. We've expanded our liquidity in the marketplace. We have a broad distribution of that, I. E. Signaling growth. We brought in a CFO that has a tremendous experience in capital markets and strategic initiatives. Not that David does not have any of that, but we're looking to expand on that platform and those capabilities. And Seth brings a very strong bench experience in that area. And we felt that again not taking anything away from David, I think David's done a phenomenal job that as you look to kind of widen our universe of opportunities that we're evaluating, the business model is shifting. And the last part of your question is all of the above. We are evaluating actively right now as we speak other strategic initiatives that do include teams and portfolios that can be acquired as well as bolting on of additional ABL providers and other which I'm not going to say other business initiative that will be extremely complementary to our underlying portfolio companies that continue to provide strategic capital for them to grow and allow us to continue to service the needs of our constituents portfolio companies and be the capital partner of choice that we are to them. And so I felt very strongly that strategically we should continue to look at new product offerings that complement our existing portfolio pool of companies and service their needs. Okay. Thanks, Manuel. I appreciate the time today. Thank you. Our next question comes from Casey Alexander of Compass Point. Your line is now open. Hi, good afternoon. I only have one question and that's at several points in the past, Manuel, presidential elections, fear of tweets or tariffs, you've taken a more circumspect approach to originations. And yet the fourth quarter of twenty eighteen was a period of high volatility both in the credit markets as well as government shutdown, trade tariffs, trade talks, and yet your team seemed to kind of bowl straightforward ahead. What allowed you to have a different level of confidence to attack the market despite these external factors that arguably might have caused you to be a little bit more circumspect in the past? Well, God, if I'm going to say something, I'm going to hate. Our President has been caged a bit. So I think that the threat of a government shutdown has I think hopefully behind us. So that should not occur. I think as we're turning our attention to an election year, I think that he's not going to do something that will be precipitously dangerous to the economy as he wants to ensure that he shows good performance. But I think at a more macro level, the pullback in competitive landscape and now as a reminder, we had to manage through the one to one or the 200% asset coverage ratio through December. So we were not able to unlock the growth capabilities until we had that shareholder vote insured, which we did. And having the operating flexibility of additional leverage, it allows us to take a much more pragmatic view on originations. And I would also add that with the portfolio grooming and pruning that we did in Q1 and Q2, we cycled out of sectors that we had some concerns about. And I think that right now, we feel pretty comfortable with the credit book that we have and the underwriting discipline, which has not changed, that our confidence level in the companies that we're evaluating and underwriting today remains quite strong with a competitive environment that is arguably ebbing right now. Okay. Thank you for that color. And just to clarify, my understanding is that you believe that through February 11, I believe the date is you've gotten back about forty five percent of the market based impairments that you took in the fourth quarter based upon your estimate. Is that correct? Yes. I mean as an example, we kind of do some more evidence of what that looks like. Here's a tangible example. DocuSign alone was a fair value of $20,000,000 in Q3, had a fair value of $15,000,000 in Q4 and today has approximately a $21,000,000 fair value representing a $5,500,000 recovery on that alone. And if you go through the list of Republic Holdings which you can do as well as I can, you can quickly see all the recoveries and the fair value marks that occurred in Q4. So we feel pretty confident with the mark to market impairments that excuse me, the mark to market depreciation because they're not credit related, have and will continue to recover as we progress later on in 2019. So the portfolio of NAV decline with the exception of $9,000,000 was non credit related. Right. Okay. Great. Thank you for taking my questions. Thank you. Our next question comes from Christopher Nolan of Ladenburg Thalmann. Your line is now open. Then the 1.25 leverage, is that for regulatory leverage or overall leverage? It is GAAP leverage. Okay. And so before you were saying 0.95 to 1.25. So we're now skewing towards the higher end of that range now? Yes, we are, because we actually see a very good robust marketplace and we want to take advantage of that marketplace opportunities before we start seeing any effects that may start spilling into 2019 for the potential election in 2020. And so we'd rather make sure that we harvest the good investment opportunities that we're seeing today and bolster our earnings growth with the early part of twenty nineteen, which building the portfolio in the first half will do to much more sustaining earning power in the second half of twenty nineteen. Great. Thank you. And congratulations David and wish you well going forward. Thank you. I appreciate that. Thank you. Our next question comes from Henry Coffey of Wedbush. Your line is now open. Yes, good afternoon, everyone, and thanks for taking my questions. And David, it's been a great experience. I was just delighted when you came back. So when we look at leverage here, you're going to see a lot of growth in 2019. How willing are you going to be to fund all of that growth with just debt? Because you have the regulatory capacity to do so. And how willing would you be to basically stop any equity issuance and just build out the debt side of your balance sheet? As you know, we're not going to respond as to when our timing of equity offerings are or may not be. However, I will answer the question that with the added flexibility and the trust that our shareholders have afforded us with the asset coverage ratio down to 150%, we however have chosen to be more prudent and judicious in deploying that leverage. So I think that the first half of twenty nineteen will be mostly driven by reliance on our bank lines which is why David has done a phenomenal job of securing our partnership with Union Bank and the rest of the participating banks in our syndicate. We expect to begin to draw down our bank partners' capital lines and use that initiative. Obviously, we have to be cognizant as leverage begins to increase that we will have the reliance and the use of the ATM as that kind of regulator to allow us to ensure that we don't trip over the bump in a self imposed 125 leverage issue. And if and when needed, I think that we'll use the ATM regulator as a way of kind of ensuring that we stay within the tolerance levels. But from everything that we have, I guess, modeled internally, we don't anticipate leverage levels to eclipse the 125 for a period of 2019. And as such, we will manage to that level. And then distributed net operating income, isn't that closer to taxable income? Yes. DNOI I'm old school, so I've been doing this since 02/2005. Yes, DNOI is a much more closer proxy to taxable income than of NII because people forget in the BDC world distributions to the shareholders in a form of dividend are not done in NII. They're legally technically done on the RIC tax filing which is emulates the DNOI number that you're stating. So yes, DNOI is much more closer proximity a proximity to that of the distributable taxable income. Well, doesn't that suggest that there's room for a much more aggressive dividend increase, say for example, maybe it doesn't come in the regular dividend, but it comes in the way of a twice yearly special than probably most of us are anticipating. I mean, I think most people would think you'd bump the dividend a $0.01 or $0.02 But when you look at it from the point of view of DNOI and you look at the likely realized gains, there's room for maybe it doesn't have to be the regular dividend, but isn't there room for another $0.05 or $0.1 in specials? Henry, you are spot on. There is no question that the undistributed earnings belongs to our shareholders. We use it from time to time to allow us to have operating flexibility to invest in a platform and ensure that we don't cut the dividend as we make these strategic both short term and long term investments to ensure the platform's growth. But you're absolutely right with the anticipation of a lot of these IPO candidate companies that we have in our portfolio coupled with the potential harvesting of the DocuSign, we will be sitting on literally 0.45 to $0.5 of undistributed earnings coupled with the NII growth that we're anticipating. I don't quibble with what you just said. I think that that is not an unrealistic expectations of seeing organic dividend growth related to NII earnings and DNOI as well as doing some distribution related to the undistributed earnings as a special or supplemental dividend. I don't think you're incorrect on that statement. Thank you. Thank you. Our next question comes from Robert Dodd of Raymond James. Your line is now open. Thank you. Almost going back a little bit to Ryan's question. I mean, the press release announcing Seth's hiring talks about strategic acquisition opportunities. Obviously, the earnings release talks about expansion of product offerings and organic growth. So would it be reasonable to conclude that your expectation is maybe that you can add kind of the same way you did with the asset backed lending, that you can add more products through the acquisition channel rather than just organically on the product front? That's correct. But our earnings outlook as of right now for 2019 are all embedded in organic. They do not include any of the strategic initiatives that we're evaluating right now. And you're absolutely correct, it's a fusion of both. It's both product and team or company acquisitions as we have done with the Gibraltar platform which has done phenomenally well for us so far as an ABL shop. They're very strong management team there. So we're very happy with what they're doing and continue to do there. But there's could there's absolutely no question that we're evaluating actively other strategic opportunities as we speak right now that may or may not fall into place. But I want to give Seth time to also get his feet on the ground. But he will be spearheading a lot of those efforts as well as we evaluate these strategic opportunities that will be accretive to our earnings growth. Got it. So just to clarify on that $300,000,000 to $400,000,000 in net portfolio growth you're talking about, that's all organic, right? That is absolutely all organic, current core Hercules team. Got it, got it. Now just look at it from another growth angle. I mean, obviously, in 'eighteen record new commitments at the $1,200,000,000 you expect that to grow, I think. The close rate from commitments to funding in 2018 was about 80%. If we go back to 2017, it was 87%. I mean, so obviously that's just two data points. Do you expect the close rate to continue to drop? And if you do, what's kind of the driver? Because fundings versus commitments, I wouldn't expect any change in the ratio that would be competitively driven. It would be something else. Well, it is something else and it's purposely and consciously being done by us. It has to do with portfolio mix and portfolio diversification. A lot of the components on unfunded commitments tend to the ratio tends to drop as the increase in life sciences companies rises and decreases meaning goes up excuse me, increases going up to the 80%, eighty five % when the ratio of new company onboarding is technology driven. So it is absolutely a risk mitigation strategy that we embark on. It's also used as competitive advantage in the marketplace, especially given our scale or our balance sheet that if we're comfortable we will do more structured milestone driven transactional business if we think it's prudent to do that. But it is absolutely an industry mix to respond to your question. And historically, the funding ratio was 75% to 80%. So we're within our wheelhouse of commitments to funding ratio today. Got it. Thank you. Thank you. Our next question comes from Finian O'Shea of Wells Fargo Securities. Congratulations David on your retirement. Just first one a bit of housekeeping on the spillover. Can you give a breakdown and forgive me if you already had on your spillover income versus capital gains? And then if you want to expand, if that plays into your view of maintaining that versus a special or a raise? Look, historically, you know that I run a pretty conservative balance sheet and income statement outlook. I'd like to have a high level of flexibility, modest levels of leverage and I'd like to have the ability to have earnings spillover in order to address investments in the platform without sacrificing earnings. And you'll see that throughout our history where NII may have been below our distributions of dividends, but because we had a strong earnings spillover, we had the flexibility to make these short term and long term critical investments in the platform to ensure the continuation of growth that we're doing. I don't think that the next major forklift investment will take place until we approach the $2,300,000,000 2 point 5 billion dollars loan portfolio is when I expect to make the next major infrastructure investment in the platform. Anything in the interim may be driven by headcount additions. What I mean by that is as we add headcounts and those headcounts become accretive, a new hire on the origination team or business development team will typically take anywhere between nine months to one point five years before they're productive if you will. And therefore, we're making a G and A investment in those individuals that may pinch our NII earnings, but you'll see that fifteen months, twelve months later become very accretive on the NII side. And by having that earnings spillover, it affords us that flexibility without having to worry about the dividend rate. So the next element of your question is that because of our confidence in our sustained growth in NII, there's no question that an eventual dividend increase will happen. And I think that with the growing harvesting of the realized gains in our portfolio when they become realized the confidence level of that undistributed earnings now eclipsing say $0.5 a share that will give us a lot more confidence in looking at bolstering a supplement to twice a year or even once a quarter, if and when that threshold of undistributed earnings approaches a level that we think merits distribution to our shareholders. And I think we're getting to that level very quickly here. Makes sense. Thanks. And then just a portfolio strategy question. Can you talk about your SaaS business? I think a lot of BDCs are increasing this exposure. What kind of revenue or revenue levels and multiples are you seeing in your segment of the market? So the issue of multiple revenue is a bit of an anomaly or a misconception because although it is a proxy, the better way of looking at SaaS models without getting into competitive issues too much is whether or not as an MMR or an ARR. The acronym stands for monthly recurring revenues versus annual recurring revenues. And not all revenues are the same. So you have to have a deep bench of understanding on SaaS business models. Not all SaaS companies are the same. A lot of people try to call themselves SaaS when they're not necessarily SaaS enabled or SaaS light if you will. We have a very rigid credit underwriting parameter when it comes to our SaaS businesses. There are plenty of SaaS companies out there and there are plenty of SaaS companies that we pass on. We are pretty highly selective in our SaaS models. I'm not going to tell you what our multiples are because that's a competitive advantage on how we evaluate our LTVs loan to value and how we extrapolate the reoccurring revenue models whether it's monthly or annual because each one of those models has different multiples and every segment of the industry has different multiples. So to simply apply a blanket lien statement on multiples, I think will be a horrific mistake to do that. My competitors are doing that, but I welcome them to continue to do that. Very well. Thank you for taking my question. Thank you. Ladies and gentlemen, that concludes today's question and answer session. I would now like to turn the call back over to Manuel for any closing comments. Thank you, Haley, and thanks everybody for joining us today on the call. I will be attending or we will be attending, excuse me, the RBC Capital Markets Financial Institutions Conference. I guess we'll be debuting Seth at that conference as well as engaging in various non deal ROCE throughout the month of March and April. We intend to engage in a very active shareholder outreach program throughout the first half of twenty nineteen. And with that, thank you everybody for joining us today and thank you Michael and everybody. And if you look if you like us to join us in an NDR, Non Deal Roadshow, please reach out to Michael Harr, our Investor Relations department. With that said, thank you everybody. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. Everyone have a great day.