Company Achieves Multiple Records for FY 2019:
Total New Debt and Equity Commitments, Total Gross Fundings, Total
Investment Income, Net Investment Income, Total Investment Assets
and Total Debt Investments among others
Record FY2019 New Debt and Equity Commitments
of $1.47 Billion, up 21.6% Year-over-Year
Record FY 2019 Total Debt Investments of $2.17
Billion at Cost, Driven by Record Debt Investment Portfolio Growth
of $417.2 Million
Record FY 2019 Total Investment Income of
$267.9 Million, up 28.9% Year-over-Year
Record FY2019 Total Declared Shareholder
Distributions of $1.42 per Share, up 12.7% Year-over-Year
Record Undistributed Earnings Spillover of
$68.0 Million, or $0.67 per Weighted Average Shares Outstanding
Q4 2019 Financial Achievements and Highlights
- Record Net Investment Income “NII” of $40.1 million, or $0.38
per share, an increase of 31.1% year-over-year
- Provides 119% coverage of base distribution payout
- Total Investment Income of $70.6 million, an increase of 24.1%
year-over-year
- New debt and equity commitments of $283.9 million, an increase
of 13.8% year-over-year
- Q4 gross fundings of $240.8 million
- Unscheduled early principal repayments or “early loan
repayments” of $160.8 million
- 15.4% Return on Average Equity “ROAE” (NII/Average Equity)
- 7.3% Return on Average Assets “ROAA” (NII/Average Assets)
- GAAP leverage of 115.0% and regulatory leverage of
101.8%(1)
- 13.0% GAAP Effective Yields and 12.3% Core Yields(2), a
non-GAAP measure
Full-year ending December 31, 2019 Financial Achievements and
Highlights
- Record NII of $143.3 million, or $1.41 per share, an increase
of 31.8%, compared to $108.7 million for the twelve months ending
December 31, 2018
- Record total investment income of $267.9 million, an increase
of 28.9%, compared to $207.8 million for the twelve months ending
December 31, 2018
- Record new equity and debt commitments of $1.47 billion, an
increase of 21.6%, compared to $1.21 billion for the twelve months
ending December 31, 2018
- Record total gross fundings of $1.03 billion, an increase of
7.2%, compared to $960.8 million for the twelve months ending
December 31, 2018
- Record net debt investment portfolio growth of $417.2 million
for the twelve months ending December 31, 2019
Footnotes:
(1) Regulatory leverage represents debt-to-equity ratio,
excluding our Small Business Administration “SBA” debentures
(2) Core Yield excludes early loan repayments and one-time fees,
and includes income and fees from expired commitments
Hercules Capital, Inc. (NYSE: HTGC) (“Hercules” or the
“Company”), the largest and leading specialty financing provider to
innovative venture, growth and established stage companies backed
by some of the leading and top-tier venture capital and select
private equity firms, today announced its financial results for the
fourth quarter and full-year ended December 31, 2019.
“In fiscal year 2019, Hercules Capital’s outstanding operating
performance set new records across many of its key financial and
performance metrics, all of which were attributable to the
Company’s preeminent position in the venture and growth stage
lending markets and our seasoned and disciplined investment team
that possesses unparalleled domain experience in its core
verticals,” stated Scott Bluestein, chief executive officer and
chief investment officer of Hercules. “Total fourth quarter
commitments increased nearly 14 percent to $283.9 million, core
yields were within management’s targeted range of 12 to 13 percent,
credit quality remained high and the debt investment portfolio
expanded to $2.17 billion at cost. Hercules’ 2019 performance also
enabled the Company to declare record total shareholder
distributions in 2019. Our record fourth quarter NII produced 119%
coverage of our base shareholder distribution which combined with
our record undistributed earnings spillover, puts us in a position
of strength moving into 2020.”
Bluestein continued, “Looking forward, we have confidence in the
Hercules’ portfolio which reflects our rigorous credit-driven
investment strategy and the overall resiliency of the VC ecosystem.
As we enter 2020, the macro environment will undoubtedly be
influenced by the upcoming U.S. presidential election and the late
stages of the economic cycle, but we are well positioned
financially with $235.5 million in available liquidity, which has
been further enhanced subsequent to year end, and a diversified
balance sheet both on the asset and liability side. We believe this
strength will enable Hercules to continue to expand its platform as
the largest provider of venture and growth stage debt solutions and
meet the needs of the innovative entrepreneurs, venture capitalists
and financial sponsors it serves.”
Q4 2019 Review and Operating Results
Debt Investment Portfolio
Hercules delivered new debt and equity commitments totaling
$283.9 million and gross fundings totaling $240.8 million.
During the fourth quarter, Hercules realized early loan
repayments of $160.8 million, which along with normal scheduled
amortization of $14.9 million, resulted in total debt repayments of
$175.7 million.
The new debt investment origination and funding activities lead
to net debt investment portfolio growth of $68.8 million during the
fourth quarter, on a cost basis.
The Company’s total investment portfolio, (at cost and fair
value) by category, quarter-over-quarter is highlighted
below:
Total Investment Portfolio: Q4 2019 to
Q3 2019
(in millions) Debt Equity Warrants
Total Portfolio Balances at Cost at 9/30/19
$
2,101.3
$
201.0
$
34.1
$
2,336.4
New fundings(a)
239.3
0.6
0.9
240.8
Warrants not related to Q4 2019 fundings
—
—
0.3
0.3
Early payoffs(b)
(160.8
)
—
—
(160.8
)
Principal payments received on investments
(14.9
)
—
—
(14.9
)
Net changes attributed to conversions, liquidations, and fees
5.2
(4.7
)
(0.3
)
0.2
Net activity during Q4 2019
68.8
(4.1
)
0.9
65.6
Balances at Cost at 12/31/19
$
2,170.1
$
196.9
$
35.0
$
2,402.0
Balances at Value at 9/30/19
$
2,079.9
$
148.4
$
18.9
$
2,247.2
Net activity during Q4 2019
68.8
(4.1
)
0.9
65.6
Net change in unrealized appreciation (depreciation)
(0.1
)
0.7
1.1
1.7
Total net activity during Q4 2019
68.7
(3.4
)
2.0
67.3
Balances at Value at 12/31/19
$
2,148.6
$
145.0
$
20.9
$
2,314.5
(a) New fundings amount includes $6.0M fundings associated
with revolver loans during Q4 2019. (b) Early payoffs include $2.7M
paydown on revolvers during Q4 2019.
Debt Investment Portfolio Balances by Quarter
(in millions) Q4 2019 Q3 2019 Q2 2019
Q1 2019 Q4 2018 Ending Balance at Cost
$2,170.1
$2,101.3
$2,077.2
$1,913.4
$1,752.9
Weighted Average Balance
$2,164.0
$2,061.0
$1,939.0
$1,806.0
$1,685.0
As of December 31, 2019, 84.0% of the Company’s debt investments
were in a senior secured first lien position.
Effective Portfolio Yield and Core Portfolio Yield (“Core
Yield”)
Effective yields on Hercules’ debt investment portfolio were
13.0% during Q4 2019, as compared to 13.4% for Q3 2019. The Company
realized $160.8 million of early loan repayments in Q4 2019
compared to $140.1 million in Q3 2019, or an increase of 14.8%.
Effective yields generally include the effects of fees and income
accelerations attributed to early loan repayments, and other
one-time events. Effective yields are materially impacted by the
elevated or reduced levels of early loan repayments and derived by
dividing total investment income by the weighted average earning
investment portfolio assets outstanding during the quarter, which
excludes non-interest earning assets such as warrants and equity
investments.
Core yields, a non-GAAP measure, were 12.3% during Q4 2019,
within the Company’s 2019 expected range of 12.0% to 13.0%, and
decreased slightly compared to 12.4% in Q3 2019. Hercules defines
core yield as yields that generally exclude any benefit from income
related to early repayments attributed to the acceleration of
unamortized income and prepayment fees and includes income from
expired commitments.
Income Statement
Total investment income increased to $70.6 million for Q4 2019,
compared to $56.9 million in Q4 2018, an increase of 24.1%
year-over-year. The increase is primarily attributable to a higher
average debt investment balance between periods.
Non-interest and fee expenses were $14.5 million in Q4 2019
versus $14.4 million for Q4 2018. The slight increase was due to an
increase in general and administrative expenses and compensation
and benefits, offset by a decrease in stock-based compensations
expenses.
Interest expense and fees were $16.0 million in Q4 2019,
compared to $11.9 million in Q4 2018. The increase was due to
higher weighted-average borrowings as well as increased average
borrowing under our credit facilities.
The Company had a weighted average cost of borrowings comprised
of interest and fees, of 5.0% in Q4 2019, as compared to 5.3% for
Q4 2018.
NII – Net Investment Income
NII for Q4 2019 was $40.1 million, or $0.38 per share, based on
105.6 million basic weighted average shares outstanding, compared
to $30.6 million, or $0.32 per share, based on 96.4 million basic
weighted average shares outstanding in Q4 2018, an increase of
31.1% year-over-year. The increase is primarily attributable to a
higher average debt investment balance between periods and
increased income from acceleration from early loan repayments.
DNOI - Distributable Net Operating Income
DNOI, a non-GAAP measure, for Q4 2019 was $41.9 million, or
$0.40 per share, compared to $33.9 million, or $0.35 per share, in
Q4 2018.
DNOI is a non-GAAP financial measure. The Company believes that
DNOI provides useful information to investors and management
because it measures Hercules’ operating performance, exclusive of
employee stock compensation, which represents expense to the
Company, but does not require settlement in cash. DNOI includes
income from payment-in-kind, or “PIK”, and back-end fees that are
generally not payable in cash on a regular basis, but rather at
investment maturity. Hercules believes disclosing DNOI and the
related per share measures are useful and appropriate supplements
and not alternatives to GAAP measures for net operating income, net
income, earnings per share and cash flows from operating
activities.
Continued Credit Discipline and Strong Credit
Performance
Hercules’ net cumulative realized gain/(loss) position, since
its first origination activities in October 2004 through December
31, 2019, (including net loan, warrant and equity activity) on
investments, totaled ($23.6) million, on a GAAP basis, spanning
over 15 years of investment activities.
When compared to total new debt investment commitments during
the same period of over $9.9 billion, the total realized
gain/(loss) since inception of ($23.6) million represents
approximately 24 basis points “bps,” or 0.24%, of cumulative debt
commitments, or an effective annualized loss rate of 1.6 bps, or
0.016%.
Realized Gains/(Losses)
During Q4 2019, Hercules had net realized gains/(losses) of $2.9
million primarily from gross realized gains of $3.2 million from
the sale of our public equity holdings, partially offset by the
gross realized losses of ($0.3) million primarily from the
liquidation or write-off of certain of our debt, equity and warrant
positions during the quarter.
Unrealized Appreciation/(Depreciation)
During Q4 2019, Hercules recorded $1.7 million of net unrealized
appreciation primarily related to the mark-to-market impact of our
public equity and warrant investments, as well as our private
equity investments.
Portfolio Asset Quality
As of December 31, 2019, the weighted average grade of the debt
investment portfolio improved to 2.15, on a cost basis, compared to
2.17 as of September 30, 2019, based on a scale of 1 to 5, with 1
being the highest quality. Hercules’ policy is to generally adjust
the credit grading down on its portfolio companies as they approach
their expected need for additional growth equity capital to fund
their respective operations for the next 9-14 months. Various
companies in the Company’s portfolio will require additional rounds
of funding from time to time to maintain their operations.
Additionally, Hercules may selectively downgrade portfolio
companies, from time to time, if they are not meeting the Company’s
financing criteria, or underperforming relative to their respective
business plans.
As of December 31, 2019, grading of the debt investment
portfolio at fair value, excluding warrants and equity investments,
was as follows:
Credit Grading at Fair Value, Q4 2019 - Q4 2018 ($ in
millions)
Q4 2019
Q3 2019
Q2 2019
Q1 2019
Q4 2018
Grade 1 - High
$
387.3
18.0
%
$
237.9
11.4
%
$
256.2
12.4
%
$
299.2
15.8
%
$
311.6
18.0
%
Grade 2
$
1,180.5
55.0
%
$
1,331.2
64.0
%
$
1,317.7
63.9
%
$
1,056.4
55.7
%
$
885.1
51.1
%
Grade 3
$
509.9
23.7
%
$
479.0
23.1
%
$
413.0
20.1
%
$
469.7
24.7
%
$
474.9
27.3
%
Grade 4
$
69.0
3.2
%
$
29.7
1.4
%
$
67.8
3.3
%
$
66.5
3.5
%
$
60.3
3.5
%
Grade 5 - Low
$
1.8
0.1
%
$
2.1
0.1
%
$
6.9
0.3
%
$
5.3
0.3
%
$
1.6
0.1
%
Weighted Avg.
2.15
2.17
2.18
2.19
2.18
Non-Accruals
Non-accruals remained relatively flat as a percentage of the
overall investment portfolio in the fourth quarter of 2019. As of
December 31, 2019, the Company had three (3) debt investments on
non-accrual with an investment cost and fair value of approximately
$9.0 million and $1.0 million, respectively, or 0.4% and 0.0% as a
percentage of the Company’s total investment portfolio at cost and
value, respectively.
Compared to September 30, 2019, the Company had three (3) debt
investments on non-accrual with an investment cost and fair value
of approximately $9.2 million and $2.2 million, respectively, or
0.4% and 0.1% as a percentage of the total investment portfolio at
cost and value, respectively.
Q4 2019 Q3 2019 Q2 2019 Q1 2019 Q4
2018 Total Investments at Cost
$2,402.0
$2,336.3
$2,315.7
$2,153.3
$1,980.5
Loans on non-accrual as a % of Total Investments
at Value
0.0%
0.1%
0.2%
0.02%
0.0%
Loans on non-accrual as a % of Total
0.4%
0.4%
0.4%
0.1%
0.1%
Investments at Cost
Liquidity and Capital Resources
The Company ended Q4 2019 with $235.5 million in available
liquidity, including $64.4 million in unrestricted cash and cash
equivalents, and $171.1 million in available credit facilities,
subject to existing terms and advance rates and regulatory and
covenant requirements.
During the three months ending December 31, 2019, the Company
sold 2.6 million shares of common stock under the equity ATM
program, for total accumulated net proceeds of approximately $37.6
million, including $341,000 of offering expenses. During the twelve
months ending December 31, 2019, the Company sold approximately 4.6
million shares of common stock, which were issued under the equity
ATM program, for total accumulated net proceeds of approximately
$62.7 million, including $652,000 of offering expenses. As of
December 31, 2019, approximately 8.1 million shares remain
available for issuance and sale under the Equity Distribution
Agreement.
Bank Facilities
As of December 31, 2019, there were $103.9 million in
outstanding borrowings under the Hercules’ $200.0 million committed
credit facility with Union Bank and no outstanding borrowings under
the Hercules’ $75.0 million committed credit facility with Wells
Fargo Capital Finance, for a total of $103.9 million.
Leverage
As of December 31, 2019, Hercules’ GAAP leverage ratio,
including its Small Business Administration “SBA” debentures, was
115.0%. Hercules’ regulatory leverage, or debt-to-equity ratio,
excluding our SBA debentures, was 101.8% and net regulatory
leverage, a non-GAAP measure (excluding cash of approximately $64.4
million), was 96.2%. Hercules’ net leverage ratio, including its
SBA debentures, was 109.3%.
Available Unfunded Commitments – Representing 5.4% of Total
Assets
The Company’s unfunded commitments and contingencies consist
primarily of unused commitments to extend credit in the form of
loans to select portfolio companies. A portion of these unfunded
contractual commitments are dependent upon the portfolio company
reaching certain milestones in order to gain access to additional
funding. Furthermore, our credit agreements contain customary
lending provisions that allow us relief from funding obligations
for previously made commitments. In addition, since a portion of
these commitments may also expire without being drawn, unfunded
contractual commitments do not necessarily represent future cash
requirements.
As of December 31, 2019, the Company had $133.7 million of
available unfunded commitments at the request of the portfolio
company and unencumbered by any milestones, including undrawn
revolving facilities, representing 5.4% of Hercules’ total assets.
This decreased from the previous quarter of $167.5 million of
available unfunded commitments or 7.2% of Hercules’ total
assets.
Existing Pipeline and Signed Term Sheets
After closing $283.9 million in new debt and equity commitments
in Q4 2019, Hercules has pending commitments of $72.3 million in
signed non-binding term sheets outstanding as of February 14, 2020.
Since the close of Q4 2019 and as of February 14, 2020, Hercules
has closed new debt and equity commitments of $172.3 million and
funded $101.6 million.
Signed non-binding term sheets are subject to satisfactory
completion of Hercules’ due diligence and final investment
committee approval process as well as negotiations of definitive
documentation with the prospective portfolio companies. These
non-binding term sheets generally convert to contractual
commitments in approximately 90 days from signing. It is important
to note that not all signed non-binding term sheets are expected to
close and do not necessarily represent future cash requirements or
investments.
Net Asset Value
As of December 31, 2019, the Company’s net assets were $1.13
billion, compared to $1.09 billion at the end of Q3 2019. NAV per
share increased 1.6% to $10.55 on 107.4 million outstanding shares
of common stock as of December 31, 2019, compared to $10.38 on
104.6 million outstanding shares of common stock as of September
30, 2019. The increase in NAV per share was primarily attributed to
earnings exceeding the distribution paid in Q4 of $0.06 per share
(including realized gains) and accretion to NAV on ATM offering by
$0.08 per share.
Interest Rate Sensitivity
Hercules has an asset sensitive debt investment portfolio with
97.4% of our debt investment portfolio being priced at floating
interest rates as of December 31, 2019, with a Prime or LIBOR-based
interest rate floor, combined with 92.0% of our of our outstanding
debt borrowings bearing fixed interest rates, leading to higher net
investment income sensitivity.
Based on Hercules’ Consolidated Statement of Assets and
Liabilities as of December 31, 2019, the following table shows the
approximate annualized increase/(decrease) in components of net
income resulting from operations of hypothetical base rate changes
in interest rates, such as Prime Rate, assuming no changes in
Hercules’ debt investments and borrowings. These estimates are
subject to change due to the impact from active participation in
the Company’s equity ATM program and any future equity
offerings.
(in thousands) Interest Interest Net
EPS(2) Basis Point Change Income(1)
Expense Income
(75)
$
(5,182
)
$
(195
)
$
(4,987
)
$
(0.05
)
(50)
$
(3,655
)
$
(130
)
$
(3,525
)
$
(0.03
)
(25)
$
(1,992
)
$
(65
)
$
(1,927
)
$
(0.02
)
25
$
2,591
$
65
$
2,526
$
0.02
50
$
5,576
$
130
$
5,446
$
0.05
75
$
9,038
$
195
$
8,843
$
0.08
100
$
13,628
$
261
$
13,367
$
0.13
200
$
33,953
$
521
$
33,432
$
0.32
(1)
Source: Hercules Capital Form 10-K for 2019
(2)
EPS calculated on basic weighted shares outstanding of 105,634.
Estimates are subject to change due to impact from active
participation in the Company's equity ATM program and any future
equity offerings.
Existing Equity and Warrant Portfolio – Potential Future
Additional Returns to Shareholders
Equity Portfolio
Hercules held equity positions in 53 portfolio companies with a
fair value of $145.1 million and a cost basis of $196.9 million as
of December 31, 2019. On a fair value basis, 29.0% or $41.8 million
is related to existing public equity positions.
Warrant Portfolio
Hercules held warrant positions in 120 portfolio companies with
a fair value of $20.9 million and a cost basis of $35.0 million as
of December 31, 2019. On a fair value basis, 34.0% or $7.2 million
is related to existing public warrant positions.
Portfolio Company IPO and M&A Activity in Q4 2019
IPO Activity
As of February 17, 2020, Hercules held warrant and equity
positions in four (4) portfolio companies that had either completed
their IPOs or filed Registration Statements in contemplation of a
potential IPO, including:
- In November 2019, Hercules’ portfolio company TELA Bio,
Inc. (NASDAQ: TELA), a regenerative medicine company leading
the development of advanced medical devices for soft tissue
reconstruction, completed is IPO offering of 4.0 million shares of
common stock at an initial public offering price of $13.00 per
share on the Nasdaq Global Market. Hercules initially committed
$5.0 million in venture debt financing in March 2017, and currently
holds warrants for 15,712 shares of Preferred Series B stock, as of
December 31, 2019.
- Three (3) portfolio companies filed confidentially under the
JOBS Act.
There can be no assurances that companies that have yet to
complete their IPOs will do so.
M&A Activity
- In November 2019, Hercules’ portfolio company Myovant
Sciences , Ltd. (NYSE: MYOV), a healthcare company focused on
developing innovative treatments for women’s health and prostate
cancer, had its ownership interest held by Roivant Sciences
transferred to Sumitovant Biopharma Ltd., a newly formed company
from the completion of a strategic alliance between Sumitomo
Dainippon Pharma Co., Ltd. and Roivant Sciences. Hercules initially
committed $40.0 million in venture debt financing in October 2017,
and currently holds warrants for 73,710 shares of common stock, as
of December 31, 2019.
- In November 2019, Hercules’ portfolio company Urovant
Sciences, Ltd. (NASDAQ: UROV), a clinical-stage
biopharmaceutical company focused on developing and commercializing
innovative therapies for urologic conditions, had its ownership
interest held by Roivant Sciences transferred to Sumitovant
Biopharma Ltd., a newly formed company from the completion of a
strategic alliance between Sumitomo Dainippon Pharma Co., Ltd. and
Roivant Sciences. Hercules initially committed $45.0 million in
venture debt financing in February 2019, and currently holds
warrants for 99,777 shares of common stock, as of December 31,
2019.
Subsequent Events
1.
As of February 14, 2020, Hercules has:
a. Funded $101.6 million to new and existing commitments
since the close of the fourth quarter 2019. b. Pending
commitments (signed non-binding term sheets) of $72.3 million.
The table below summarizes our year-to-date closed and pending
commitments as follows:
Closed Commitments and Pending
Commitments (in millions)
Q1 2020 Closed Commitments (as of February
14, 2020)(a)
$172.3
Q1 2020 Pending Commitments (as of
February 14, 2020)(b)
$72.3
Year-to-Date 2020 Closed and Pending
Commitments
$244.6
Notes:
a. Closed Commitments may include renewals
of existing credit facilities. Not all Closed Commitments result in
future cash requirements. Commitments generally fund over the two
succeeding quarters from close.
b. Not all pending commitments (signed
non-binding term sheets) are expected to close and do not
necessarily represent any future cash requirements.
2.
In February 2020, the Company announced a
private offering totaling $120.0 million in aggregate principal
amount of $50.0 million 4.28% Notes due February 2025 (the
“February Notes”) and $70.0 million 4.31% Notes due June 2025 (the
“June Notes”).
The February Notes are unsecured and bear
an interest rate of 4.28% per year, payable semiannually and will
mature on February 5, 2025, and may be redeemed in whole or in part
at any time or from time to time at the Company’s option at any
time plus a premium, if applicable. The issuance of $50.0 million
of the February Notes occurred on February 5, 2020.
The June Notes are unsecured and bear an
interest rate of 4.31% per year, payable semiannually and will
mature in June 2025, and may be redeemed in whole or in part at any
time or from time to time at the Company’s option at any time plus
a premium, if applicable. The issuance of $70.0 million of the June
Notes is expected to occur in June 2020.
3.
Subsequent to December 31, 2019 and as of
February 14, 2020, the Company sold approximately 2.4 million
shares of common stock under the equity ATM program, for total
accumulated net proceeds of approximately $35.2 million, including
$319,000 of offering expenses. As of February 14, 2020,
approximately 5.7 million shares remain available for issuance and
sale under the Equity Distribution Agreement.
Conference Call
Hercules has scheduled its fourth quarter and full-year 2019
financial results conference call for February 20, 2020 at 2:00
p.m. PT (5:00 p.m. ET). To listen to the call, please dial (877)
304-8957 (or (408) 427-3709 internationally) and reference
Conference ID: 2976335 if asked, approximately 10 minutes prior to
the start of the call. A taped replay will be made available
approximately three hours after the conclusion of the call and will
remain available for seven days. To access the replay, please dial
(855) 859-2056 or (404) 537-3406 and enter the passcode
2976335.
About Hercules Capital, Inc.
Hercules Capital, Inc. (NYSE: HTGC) is the leading and largest
specialty finance company focused on providing senior secured
venture growth loans to high-growth, innovative venture
capital-backed companies in a broad variety of technology, life
sciences and sustainable and renewable technology industries. Since
inception (December 2003), Hercules has committed more than $10.0
billion to over 490 companies and is the lender of choice for
entrepreneurs and venture capital firms seeking growth capital
financing. Companies interested in learning more about financing
opportunities should contact info@htgc.com, or call
650.289.3060.
Hercules’ common stock trades on the New York Stock Exchange
(NYSE) under ticker symbol HTGC. In addition, Hercules has two
retail bond issuances of 5.25% Notes due 2025 (NYSE: HCXZ) and
6.25% Notes due 2033 (NYSE: HCXY).
Forward-Looking Statements
This press release may contain “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act
of 1995. You should understand that under Section 27A(b)(2)(B) of
the Securities Act of 1933, as amended, and Section 21E(b)(2)(B) of
the Securities Exchange Act of 1934, as amended, or the Exchange
Act, the “safe harbor” provisions of the Private Securities
Litigation Reform Act of 1995 do not apply to forward-looking
statements made in periodic reports we file under the Exchange
Act.
The information disclosed in this press release is made as of
the date hereof and reflects Hercules’ most current assessment of
its historical financial performance. Actual financial results
filed with the SEC may differ from those contained herein due to
timing delays between the date of this release and confirmation of
final audit results. 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, uncertainties, including
the uncertainties surrounding the current market volatility, and
other factors the Company identifies from time to time in its
filings with the SEC. Although Hercules believes that the
assumptions on which these forward-looking statements are based are
reasonable, any of those assumptions could prove to be inaccurate
and, as a result, the forward-looking statements based on those
assumptions also could be incorrect. You should not place undue
reliance on 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 for subsequent events.
HERCULES CAPITAL, INC. CONSOLIDATED STATEMENTS OF ASSETS
AND LIABILITIES (dollars in thousands, except per share
data) December 31, 2019 December 31, 2018
Assets Investments: Non-control/Non-affiliate investments
(cost of $2,248,524 and $1,830,725, respectively)
$
2,232,972
$
1,801,258
Control investments (cost of $65,333 and $64,799, respectively)
59,746
57,619
Affiliate investments (cost of $88,175 and $85,000, respectively)
21,808
21,496
Total investments in securities, at value (cost of $2,402,032 and
$1,980,524, respectively)
2,314,526
1,880,373
Cash and cash equivalents
64,393
34,212
Restricted cash
50,603
11,645
Interest receivable
20,207
16,959
Right of use asset
11,659
—
Other assets
580
2,002
Total assets
$
2,461,968
$
1,945,191
Liabilities Accounts payable and accrued liabilities
$
30,306
$
25,961
Operating lease liability
11,538
—
2027 Asset-Backed Notes, net (principal of $200,000 and $200,000
respectively)(1)
197,312
197,265
2028 Asset-Backed Notes, net (principal of $250,000 and $0,
respectively)(1)
247,395
—
2022 Convertible Notes, net (principal of $230,000 and $230,000,
respectively)(1)
226,614
225,051
2022 Notes, net (principal of $150,000 and $150,000,
respectively)(1)
148,514
147,990
2024 Notes, net (principal of $0 and $83,510, respectively)(1)
—
81,852
2025 Notes, net (principal of $75,000 and $75,000, respectively)(1)
72,970
72,590
2033 Notes, net (principal of $40,000 and $40,000, respectively)(1)
38,501
38,427
July 2024 Notes, net (principal of $105,000 and $0,
respectively)(1)
103,685
—
SBA Debentures, net (principal of $149,000 and $149,000,
respectively)(1)
148,165
147,655
Credit Facilities
103,919
52,956
Total liabilities
$
1,328,919
$
989,747
Net assets consist of: Common stock, par value
108
96
Capital in excess of par value
1,145,106
1,052,269
Total distributable earnings (loss)(2)
(12,165
)
(92,859
)
Treasury Stock, at cost, no shares as of December 31, 2019 and
376,466 shares as of December 31, 2018
—
(4,062
)
Total net assets
$
1,133,049
$
955,444
Total liabilities and net assets
$
2,461,968
$
1,945,191
Shares of common stock outstanding ($0.001 par value,
200,000,000 authorized)
107,364
96,501
Net asset value per share
$
10.55
$
9.90
(1)
The Company’s SBA Debentures, 2033 Notes, 2025 Notes, 2022 Notes,
2024 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, 2022
Convertible Notes, and July 2024 Notes, as each term is defined
herein, are presented net of the associated debt issuance costs for
each instrument.
(2)
Certain prior year numbers have been adjusted to conform with the
SEC final rules on disclosure updates and simplification effective
November 5, 2018.
HERCULES CAPITAL, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS (in thousands, except per share
data) Three Months Ended December 31, Twelve
Months Ended December 31,
2019
2018
2019
2018
Investment income: Interest Income Non-control/Non-affiliate
investments
$
64,925
$
51,156
$
241,491
$
185,187
Control investments
894
1,043
4,014
3,391
Affiliate investments
267
488
2,008
2,058
Total interest income
66,086
52,687
247,513
190,636
Fee Income Non-control/Non-affiliate investments
4,486
4,125
20,157
16,776
Control investments
5
4
18
5
Affiliate investments
—
73
186
336
Total fee income
4,491
4,202
20,361
17,117
Total investment income
70,577
56,889
267,874
207,753
Operating expenses: Interest
14,669
10,720
54,596
39,435
Loan fees
1,285
1,221
7,078
7,260
General and administrative
4,573
3,802
19,183
14,517
Tax expenses
519
282
2,226
971
Employee compensation Compensation and benefits
7,621
6,993
30,993
25,062
Stock-based compensation
1,811
3,281
10,526
11,779
Total employee compensation
9,432
10,274
41,519
36,841
Total operating expenses
30,478
26,299
124,602
99,024
Net investment income
40,099
30,590
143,272
108,729
Net realized gain (loss) on investments
Non-control/Non-affiliate investments
2,890
(606
)
16,523
(4,721
)
Control investments
—
—
—
(4,308
)
Affiliate investments
—
—
—
(2,058
)
Total net realized gain (loss) on investments
2,890
(606
)
16,523
(11,087
)
Net change in unrealized appreciation (depreciation) on
investments Non-control/Non-affiliate investments
(458
)
(35,409
)
15,074
(13,082
)
Control investments
1,174
(4,937
)
1,595
(1,222
)
Affiliate investments
906
(6,776
)
(2,866
)
(6,842
)
Total net unrealized appreciation (depreciation) on investments
1,622
(47,122
)
13,803
(21,146
)
Total net realized and unrealized gain(loss)
4,512
(47,728
)
30,326
(32,233
)
Net increase(decrease) in net assets resulting from
operations
$
44,611
$
(17,138
)
$
173,598
$
76,496
Net investment income before investment gains and losses per
common share: Basic
$
0.38
$
0.32
$
1.41
$
1.19
Change in net assets resulting from operations per common share:
Basic
$
0.42
$
(0.18
)
$
1.71
$
0.83
Diluted
$
0.42
$
(0.18
)
$
1.71
$
0.83
Weighted average shares outstanding: Basic
105,634
96,357
101,132
90,929
Diluted
106,072
96,357
101,569
91,057
Distributions paid per common share: Basic
$
0.35
$
0.31
$
1.33
$
1.26
HERCULES CAPITAL, INC.NON GAAP FINANCIAL MEASURES(in thousands,
except per share data)
Three Months Ended December
31,
Reconciliation of Net Investment Income to DNOI
2019
2018
Net investment income
$
40,099
$30,590
Stock-based compensation
1,811
3,281
DNOI
$
41,910
$33,871
DNOI per share-weighted average common shares Basic
$
0.40
$0.35
Weighted average shares outstanding Basic
105,634
96,357
Distributable Net Operating Income, “DNOI” represents net
investment income as determined in accordance with U.S. generally
accepted accounting principles, or GAAP, adjusted for amortization
of employee restricted stock awards and stock options. Hercules
views DNOI and the related per share measures as useful and
appropriate supplements to net operating income, net income,
earnings per share and cash flows from operating activities. DNOI
is a non-GAAP financial measure. The Company believes that DNOI
provides useful information to investors and management because it
serves as an additional measure of Hercules’ operating performance
exclusive of employee restricted stock amortization, which
represents expenses of the Company but does not require settlement
in cash. DNOI does include paid-in-kind, or PIK, interest and back
end fee income which are generally not payable in cash on a regular
basis, but rather at investment maturity or when declared. DNOI
should not be considered as an alternative to net operating income,
net income, earnings per share and cash flows from operating
activities (each computed in accordance with GAAP). Instead, DNOI
should be reviewed in connection with net operating income, net
income (loss), earnings (loss) per share and cash flows from
operating activities in Hercules’ consolidated financial
statements, to help analyze how Hercules’ business is
performing.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200220005790/en/
Michael Hara Investor Relations and Corporate Communications
Hercules Capital, Inc. 650-433-5578 mhara@htgc.com
Hercules Capital (NYSE:HTGC)
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