8-K: Hercules Capital Announces Record Fourth Quarter and Full-Year 2023 Results, Declares Supplemental Distribution
Summary
- Hercules Capital reported record total investment income of $122.6 million for Q4 2023, a 22.4% increase year-over-year.
- Net investment income (NII) for Q4 2023 reached a record $86.0 million, or $0.56 per share, a 38.5% increase year-over-year.
- For the full year 2023, total investment income was a record $460.7 million, up 43.2% year-over-year.
- Full-year 2023 NII was a record $304.0 million, a 61.7% increase year-over-year, or $2.09 per share.
- The company achieved record total gross fundings of $1.6 billion for the full year, a 9.1% increase year-over-year.
- Hercules declared a fourth quarter 2023 total cash distribution of $0.48 per share, including a $0.32 supplemental distribution to be paid over four quarters.
- The company's assets under management reached approximately $4.2 billion, a 15.3% increase year-over-year.
- The company's net asset value (NAV) per share increased to $11.43, a 4.6% increase from the previous quarter.
- The effective yield on the debt investment portfolio was 15.3% for Q4 2023, while the core yield was 14.3%.
Sentiment
Score: 9
Explanation: The document conveys a very positive sentiment due to record financial results, increased distributions, and strong growth metrics. The company's management also expresses confidence in future performance.
Positives
- The company experienced significant year-over-year growth in total investment income and net investment income for both Q4 and the full year 2023.
- The company achieved record gross fundings for the full year 2023.
- The declaration of a new supplemental cash distribution of $0.32 per share is a positive for shareholders.
- The company's assets under management and net asset value per share both increased.
- The company has a strong liquidity position with $743.9 million available.
- The company's core yield of 14.3% for Q4 2023 exceeded the expected annual range of 13.8% to 14.0%.
- The company's net cumulative realized gain/(loss) position since inception is a loss of only 0.26% of cumulative debt commitments.
- The company's non-accrual loans decreased from two to one quarter-over-quarter.
Negatives
- The net debt investment portfolio decreased by $73.2 million during Q4 2023 on a cost basis.
- The company experienced a decrease in the effective yield on its debt investment portfolio from 15.5% in Q3 2023 to 15.3% in Q4 2023.
- The company's GAAP leverage ratio was 87.1% at the end of Q4 2023.
- The company's weighted average grade of the debt investment portfolio decreased slightly from 2.28 to 2.24 quarter-over-quarter.
Risks
- The company's portfolio companies may require additional rounds of funding, which could impact their financial stability.
- The company's credit grading policy may lead to downgrades of portfolio companies as they approach their need for additional capital.
- Unfunded commitments represent a potential future cash requirement, although some may expire without being drawn.
- The company's pending commitments are subject to due diligence and may not close.
- The company's interest rate sensitivity analysis shows a potential decrease in net income if interest rates decline.
- The company's forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from expectations.
Future Outlook
The company is well-positioned to continue growing its platform and delivering shareholder returns, maintaining its base cash distribution and declaring a new supplemental cash distribution program for 2024.
Management Comments
- Scott Bluestein, chief executive officer and chief investment officer of Hercules, stated that the company was able to deliver another year of record financial performance, maintain strong credit quality and achieve year-over-year portfolio growth against a challenging market environment.
- Bluestein also noted that the Hercules Adviser funds delivered its first distribution, which is to the direct benefit of HTGC shareholders.
- Bluestein concluded that the company remains competitively very well positioned to continue growing its platform and delivering best-in-class shareholder returns.
Industry Context
Hercules Capital operates in the specialty finance sector, providing venture debt to high-growth, innovative companies. The company's strong performance reflects the demand for venture debt financing in the technology, life sciences, and sustainable/renewable technology industries. The company's results are also indicative of the broader venture capital market, where companies are seeking alternative financing options.
Comparison to Industry Standards
- Hercules Capital's 15.3% effective yield and 14.3% core yield are strong compared to other BDCs and specialty finance companies.
- The company's 61.7% year-over-year increase in NII is significantly higher than many of its peers.
- The company's ability to maintain a low loss rate of 0.26% on cumulative debt commitments is a positive indicator of its credit quality compared to industry averages.
- The company's 15.3% year-over-year growth in assets under management is a strong indicator of its market position and growth trajectory.
- Compared to other BDCs, Hercules' focus on venture debt and its strong relationships with venture capital firms give it a competitive advantage.
Stakeholder Impact
- Shareholders will benefit from the increased cash distribution and the company's strong financial performance.
- Employees may benefit from the company's success through compensation and benefits.
- Portfolio companies may benefit from the company's continued investment and support.
- The company's strong performance may attract new investors and partners.
Next Steps
- The company will pay the declared cash distribution on March 6, 2024.
- The company will continue to execute its investment strategy and manage its portfolio.
- The company will continue to monitor its portfolio companies and their need for additional funding.
- The company will continue to evaluate opportunities for new investments and growth.
Key Dates
- December 2003: Hercules Capital's inception date.
- October 2004: Hercules' first origination activities.
- February 13, 2024: Date of press releases announcing the distribution and supplemental distribution.
- February 15, 2024: Date of press release announcing Q4 and full-year 2023 financial results and date of the earnings conference call.
- February 27, 2024: Ex-dividend date for the Q4 2023 distribution.
- February 28, 2024: Record date for the Q4 2023 distribution.
- March 6, 2024: Payment date for the Q4 2023 distribution.
Keywords
Filings with Classifications
Beneficial Ownership Disclosure Amendment
- The filing is a remediation for a disclosure that should have been submitted in 2021, indicating a delay in the initial reporting of beneficial ownership.
Annual Meeting Results
- Proposal 3 sought authorization for the Company to sell or issue shares of its common stock at a price below its then-current net asset value (NAV) per share.
- This proposal was not authorized by stockholders, which limits the company's ability to raise capital through equity issuance below NAV.
Debt Offering and Credit Facility Amendment
- The company issued and sold $350,000,000 in aggregate principal amount of its 6.000% Notes due 2030 in a public offering.
Earnings Release
- The company closed an offering of $287.5 million of 4.750% convertible unsecured notes due 2028.
- During the first quarter 2025, the Company sold 2.0 million shares of common stock under the equity ATM program for total net proceeds of $39.4 million (net of $0.7 million of offering expenses).
- During April 2025, the Company sold 2.2 million shares of common stock under the equity ATM program for total net proceeds of $41.5 million (net of $0.3 million of offering expenses).
Quarterly Report
- The company experienced a net decrease in net assets resulting from operations, indicating a less favorable financial performance compared to previous periods.
- Net realized losses were recorded for the period, suggesting challenges in the company's investment strategies.
- There was a net change in unrealized depreciation on investments, indicating a decline in the value of the company's portfolio.
Proxy Statement
- The company is seeking authorization to sell or issue shares of its common stock at a price below its then-current net asset value per share.
- The company has no immediate plans to sell or issue shares of its common stock at a price below net asset value, but is asking for stockholder approval now so that it has flexibility if in the future it determines that such a sale is in stockholders best interests.
- These sales typically must be undertaken quickly in an attempt to protect the value of your investment so it is critical that we have stockholder approval ahead of time.
Proxy Statement
- The company's performance relative to its peer group was generally at or above the 90th percentile, and in most cases at the 100th percentile, measured using ROAA, ROE and AASR.
Proxy Statement
- Hercules Capital is seeking stockholder approval to sell or issue Shares, in one or multiple public or private offerings, at a purchase price below the then-current NAV during the 12-month period expiring on the anniversary of the Annual Meeting, subject to the conditions and stockholder protections described herein.
- The number of Shares sold or issued in Below-NAV Sale may not exceed 25% of the number of thencurrent outstanding Shares.
- The purchase price of each Share sold in a Below-NAV Sale may not be more than 25% below the then-current NAV per Share.
Capital Markets Transaction
- Hercules Capital is issuing $250 million in convertible unsecured notes due 2028 in a private placement.
- The initial purchasers have an option to purchase an additional $37.5 million to cover overallotments.
- The notes are convertible into common stock at an initial conversion price of approximately $21.48 per share.
- The company intends to use the net proceeds for investments and general corporate purposes.
8-K Filing
- Hercules Capital plans to offer $250.0 million aggregate principal amount of its Convertible Unsecured Notes due 2028.
- The Company plans to grant the initial purchasers an option to purchase up to an additional $37.5 million principal amount of the Convertible Notes to cover overallotments, if any.
Earnings Release
- During Q4 2024, the Company sold 8.0 million shares of common stock under the agreement for total net proceeds of approximately $152.0 million (net of $1.6 million of offering expenses).
- During January 2025, the Company sold 2.0 million shares of common stock under the equity ATM program for total net proceeds of $39.8 million (net of $0.3 million of offering expenses).
- The Company has 30.0 million shares remaining available for issuance and sale under the equity ATM program, as of December 31, 2024.
Earnings Release
- Q4 2024 NII decreased compared to Q4 2023 due to a lower weighted average yield on the debt investment portfolio and an increase in total net operating expenses.
Equity Offering Announcement
- Hercules Capital may issue and sell up to 30,000,000 shares of its common stock.
- The company intends to use the net proceeds from this offering to fund investments in debt and equity securities, make acquisitions, retire certain debt obligations, and for other general corporate purposes.
Prospectus Supplement
- Hercules Capital is offering up to 30 million shares of common stock through an at-the-market offering.
- The company intends to use the net proceeds to fund investments, acquisitions, retire debt, and for general corporate purposes.
Prospectus Supplement
- The document indicates that the company may sell shares below NAV, which would result in immediate dilution to existing shareholders.
Credit Facility Amendment
- The increase in the credit facility and the extension of the maturity dates are better than the previous terms.
Quarterly Report
- The company reported record total investment income and net investment income, exceeding previous results and expectations.
Quarterly Report
- The company's net change in unrealized appreciation (depreciation) was negative for the three and nine months ended September 30, 2024.
- The company's net realized gain (loss) was negative for the three months ended September 30, 2024.
Quarterly Report
- The Company may from time-to-time issue and sell shares of its common stock through public or ATM offerings.
- The Company currently sells shares through its equity distribution agreement with JMP Securities LLC (JMP) and Jefferies LLC (the 2023 Equity Distribution Agreement).
- The 2023 Equity Distribution Agreement provides that the Company may offer and sell up to 25.0 million shares of its common stock from time to time through JMP or Jefferies, as the Company's sales agents.
- Sales of the Company's common stock, if any, may be made in negotiated transactions or transactions that are deemed to be at the market, as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices.
- Additionally, on August 7, 2023, the Company sold 6.5 million shares of common stock through an upsized public offering pursuant to an underwriting agreement with Morgan Stanley & Co. LLC, UBS Securities, and Wells Fargo Securities, LLC as joint book-running managers to sell.
- As of September 30, 2024, approximately 13.6 million shares remain available for issuance and sale under the current equity distribution agreement.
Shareholder Meeting Results
- The document details the approval for the company to sell or issue shares of its common stock at a price below its then-current NAV per share.
- This authorization provides the company with the option to raise capital by issuing shares below NAV.
Shareholder Meeting Results
- The annual meeting was initially held on June 20, 2024, and then adjourned to August 15, 2024, specifically to vote on Proposal 3.
Quarterly Report
- The company reported record total gross fundings, total investment income, and net investment income, all exceeding previous periods.
Annual Meeting Results
- Proposal 3, which was adjourned, concerns the authorization of the Company to sell or issue shares of its common stock at a price below its then-current NAV per share.
Annual Meeting Results
- The vote on Proposal 3, regarding the authorization to sell shares below NAV, was delayed and will be held on August 15, 2024.
Quarterly Report
- The company reported record Q1 commitments and fundings, significantly exceeding previous periods.
- Net investment income increased by 20.9% year-over-year, indicating strong financial performance.
- The company's net asset value per share increased by 1.7%, demonstrating growth in shareholder value.
Quarterly Report
- The company sold 3.7 million shares of common stock under the ATM program during Q1 2024 for net proceeds of approximately $66.4 million.
- The company has 13.6 million shares remaining available for issuance and sale under the equity ATM program.
Quarterly Report
- The company's net investment income increased by approximately 21% year-over-year.
- The company's total assets increased by approximately 8% since the end of 2023.
- The company's net asset value per share increased by approximately 2% since the end of 2023.
Quarterly Report
- The company issued and sold 3.7 million shares of its common stock through its equity distribution agreement, receiving net proceeds of approximately $66.4 million.
- As of March 31, 2024, approximately 13.6 million shares remain available for issuance and sale under the current equity distribution agreement.
Proxy Statement
- The company is seeking authorization to sell or issue shares below NAV, up to 25% of outstanding shares, with a maximum discount of 25%.
- The company argues that this flexibility is needed to take advantage of investment opportunities during volatile market conditions, maintain RIC status, manage debt-to-equity ratios, and avoid less favorable capital-raising methods.
Earnings Release
- The company sold 6.5 million shares of common stock under the ATM program for total net proceeds of approximately $99.9 million during Q4 2023.
- The company has 17.3 million shares remaining available for issuance and sale under the equity ATM program.
Earnings Release
- The company's Q4 and full-year results exceeded expectations with record total investment income and net investment income.
- The company's core yield of 14.3% for Q4 2023 exceeded the expected annual range of 13.8% to 14.0%.
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