HTGC
Hercules Capital, INC
NYSE
8-K: Hercules Capital Announces Record Q2 Fundings and Declares $0.48 Dividend
Sentiment:
Quarterly Report
1 August 2024 4:20 PM
Hercules Capital reported record second-quarter fundings and investment income, alongside declaring a total cash distribution of $0.48 per share.
Better than expected
The company reported record total gross fundings, total investment income, and net investment income, all exceeding previous periods.
Summary
- Hercules Capital announced its financial results for the second quarter of 2024, highlighting record total gross fundings of $461.5 million, a 28.7% increase year-over-year.
- The company also achieved record total investment income of $125.0 million, a 7.5% increase year-over-year, and net investment income (NII) of $82.4 million, or $0.51 per share, an 8.8% increase year-over-year.
- Hercules' NII provided 128% coverage of the base cash distribution, and the company's undistributed earnings spillover reached $145.0 million, or $0.89 per share.
- The company's assets under management grew to approximately $4.6 billion, a 14.7% increase year-over-year.
- The board of directors declared a total cash distribution of $0.48 per share for the second quarter, consisting of a $0.40 base distribution and a $0.08 supplemental distribution.
- The company's net asset value (NAV) per share decreased by 1.7% to $11.43 from the previous quarter.
- Hercules received approval for its fourth SBIC license, providing access to $175 million of additional growth capital.
Sentiment
Score: 8
Explanation: The document presents a positive outlook with strong financial results, record fundings, and increased investment income. The approval of the fourth SBIC license is also a positive development. However, the decrease in NAV per share and unrealized losses temper the overall sentiment slightly.
Positives
- Hercules Capital experienced significant growth in fundings and investment income during the second quarter of 2024.
- The company's net investment income provides strong coverage for its base cash distribution.
- The increase in early loan repayments indicates strong performance from portfolio companies.
- The company maintains a strong liquidity position with $482 million available.
- The approval of the fourth SBIC license provides access to additional capital for future growth.
- The company's portfolio is primarily composed of first lien senior secured loans with floating interest rates.
Negatives
- The company's net asset value (NAV) per share decreased by 1.7% from the previous quarter.
- The company recorded net unrealized depreciation of $34.7 million during the quarter.
- The company had net realized losses of $5.8 million in Q2 2024.
- The weighted average grade of the debt investment portfolio decreased slightly from 2.16 to 2.18.
- The company has two debt investments on non-accrual with a fair value of $32.1 million.
Risks
- The company's portfolio companies may require additional funding, which could impact Hercules' investment performance.
- The company's credit grading policy may lead to downgrades of portfolio companies.
- Fluctuations in interest rates could impact the company's net investment income.
- Unrealized depreciation on investments could negatively affect the company's net asset value.
- The company's leverage ratios could pose risks if not managed effectively.
- The company's reliance on early loan repayments could impact future income if these repayments decrease.
Future Outlook
The company aims to maintain its disciplined growth strategy, leveraging its strong liquidity and moderate leverage to capitalize on market opportunities while adhering to stringent underwriting standards. The fourth SBIC license is expected to provide further flexibility and liquidity to support growth.
Management Comments
- Scott Bluestein, chief executive officer and chief investment officer of Hercules, stated that the company's exceptional start to 2024 continued through the second quarter with record gross fundings of $1.07 billion for the first half of 2024, an increase of nearly 28% year-over-year.
- Bluestein also noted that the company's disciplined growth strategy has put them in an advantageous competitive position to be opportunistic in the market while maintaining stringent underwriting standards.
- Bluestein concluded that the fourth SBIC license will provide further flexibility and liquidity to be able to continue to support the company's growth-stage ecosystem.
Industry Context
Hercules Capital's strong performance reflects the continued demand for venture debt financing in the technology and life sciences sectors. The company's focus on senior secured loans to high-growth, innovative companies positions it well within the current market environment. The increase in early loan repayments suggests that the portfolio companies are performing well and potentially reaching liquidity events.
Comparison to Industry Standards
- Hercules Capital's 14.7% effective yield is competitive within the BDC sector, which typically ranges from 10% to 15%.
- The company's net investment income growth of 8.8% year-over-year is strong compared to some peers, but some BDCs have seen higher growth rates in the current environment.
- The company's leverage ratios are within the typical range for BDCs, but the net regulatory leverage of 83.9% is on the higher end of the spectrum.
- Compared to Ares Capital Corporation (ARCC), a major BDC, Hercules has a higher focus on venture debt, while ARCC has a more diversified portfolio. ARCC's leverage is also typically lower than Hercules.
- Main Street Capital (MAIN) is another comparable BDC, but it has a lower yield and a more conservative approach to lending compared to Hercules.
- The increase in early loan repayments is a positive sign, but it is important to note that this can be volatile and may not be sustainable in the long term. Other BDCs such as TSLX have also seen similar increases in early repayments.
- The decrease in NAV per share is a concern, but it is not uncommon in the current market environment. Other BDCs have also seen similar decreases in NAV due to unrealized losses.
Stakeholder Impact
- Shareholders will receive a total cash distribution of $0.48 per share.
- Employees may benefit from the company's strong financial performance.
- Portfolio companies will continue to receive funding from Hercules.
- Creditors may view the company's strong liquidity position favorably.
Next Steps
- The company will continue to execute its disciplined growth strategy.
- The company will focus on maintaining ample liquidity and moderate leverage.
- The company will continue to evaluate new investment opportunities.
- The company will utilize the new SBIC license to access additional capital.
Key Dates
- 2003-12: Hercules Capital inception date.
- 2004-10: Hercules first origination activities.
- 2024-03: Latest SBA debenture pooling date.
- 2024-03-31: End of Q1 2024.
- 2024-05: Onna Technologies acquired by Reveal.
- 2024-06-30: End of Q2 2024.
- 2024-07-09: SBIC V received its license to operate as a SBIC.
- 2024-07-16: Company fully repaid the aggregate outstanding $105.0 million principal of the July 2024 Notes.
- 2024-07-29: Date of pending commitments and recent closed commitments.
- 2024-07-30: Date of press release announcing Q2 2024 cash distribution.
- 2024-08-01: Date of press release announcing Q2 2024 financial results and conference call.
- 2024-08-12: Ex-dividend date for Q2 2024 distribution.
- 2024-08-13: Record date for Q2 2024 distribution.
- 2024-08-20: Payment date for Q2 2024 distribution.
Keywords
venture debt, specialty finance, business development company, BDC, investment income, net investment income, fundings, distributions, leverage, SBIC, portfolio companies, technology, life sciences
HTGC
Hercules Capital, INC
NYSE
Sector: Financial Services
Filings with Classifications
Delay expected
8 July 2025 2:09 PM
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.
Capital raise
20 June 2025 4:17 PM
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.
Capital raise
16 June 2025 5:23 PM
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.
Capital raise
1 May 2025 4:30 PM
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).
Worse than expected
1 May 2025 4:16 PM
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.
Capital raise
24 April 2025 9:04 PM
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.
Better than expected
24 April 2025 4:16 PM
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.
Capital raise
24 April 2025 4:16 PM
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 raise
6 March 2025 1:35 AM
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.
Capital raise
5 March 2025 7:53 AM
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.
Capital raise
13 February 2025 4:30 PM
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.
Worse than expected
13 February 2025 4:30 PM
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.
Capital raise
12 December 2024 4:40 PM
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.
Capital raise
12 December 2024 11:36 AM
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.
Worse than expected
12 December 2024 11:36 AM
Prospectus Supplement
- The document indicates that the company may sell shares below NAV, which would result in immediate dilution to existing shareholders.
Better than expected
2 December 2024 4:47 PM
Credit Facility Amendment
- The increase in the credit facility and the extension of the maturity dates are better than the previous terms.
Better than expected
30 October 2024 4:30 PM
Quarterly Report
- The company reported record total investment income and net investment income, exceeding previous results and expectations.
Worse than expected
30 October 2024 4:16 PM
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.
Capital raise
30 October 2024 4:16 PM
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.
Capital raise
16 August 2024 4:16 PM
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.
Delay expected
16 August 2024 4:16 PM
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.
Better than expected
1 August 2024 4:20 PM
Quarterly Report
- The company reported record total gross fundings, total investment income, and net investment income, all exceeding previous periods.
Capital raise
21 June 2024 8:32 AM
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.
Delay expected
21 June 2024 8:32 AM
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.
Better than expected
2 May 2024 4:31 PM
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.
Capital raise
2 May 2024 4:31 PM
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.
Better than expected
2 May 2024 4:17 PM
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.
Capital raise
2 May 2024 4:17 PM
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.
Capital raise
23 April 2024 4:18 PM
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.
Capital raise
15 February 2024 4:31 PM
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.
Better than expected
15 February 2024 4:31 PM
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%.
Disclaimer: This summary was generated by artificial intelligence and its accuracy is not guaranteed. The information provided here is for general informational purposes only and does not constitute financial advice, recommendation, or endorsement of any kind. It may contain errors or omissions. You should not rely on this information to make financial decisions. Always seek the advice of a qualified financial professional before making any investment or financial decisions. Use of this information is at your own risk.