• Net Debt Portfolio Growth: Nearly $270 million in Q1.
• Bond Offering: $287.5 million of 4.75% convertible unsecured notes due 2028.
• Assets Under Management: Over $5 billion, an 11% increase year-over-year.
• First Lien Exposure: Approximately 91%.
• Liquidity: Over $1 billion across the platform.
• Total Investment Income: $119.5 million.
• Net Investment Income: $77.5 million or $0.45 per share.
• Return on Equity: 15.7% in Q1.
• GAAP Effective Yield: 13% in Q1.
• Core Yield: 12.6%, down from 12.9% in Q4.
• Gross Debt and Equity Commitments: Over $1 billion in Q1.
• Gross Fundings: Over $539 million.
• Early Loan Repayments: Approximately $132 million.
• Net Asset Value Per Share: $11.55, a decrease of 0.9% from Q4 2024.
• Unfunded Commitments: Approximately $455.7 million.
• Undistributed Earnings Spillover: Nearly $160 million or $0.92 per share.
• Quarterly Base Distribution: $0.40 per share.
• Supplemental Distribution: $0.07 per share.
• Weighted Average Cost of Debt: Just below 5%.
• SG&A Expenses: $23.2 million.
• Net Realized Losses: $1.6 million.

• Warning! GuruFocus has detected 5 Warning Signs with HTGC.

Release Date: May 01, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Hercules Capital Inc (NYSE:HTGC) reported strong originations and fundings, driving nearly $270 million of net debt portfolio growth in Q1 2025.
• The company successfully closed a $287.5 million bond offering of 4.75% convertible unsecured notes due 2028, strengthening its balance sheet and liquidity position.
• Hercules Capital Inc (NYSE:HTGC) is managing over $5 billion of assets, marking an 11% increase year-over-year.
• The company maintained a high first lien exposure at approximately 91%, which is towards the high end of its BDC peers.
• Hercules Capital Inc (NYSE:HTGC) generated a return on equity of 15.7% in Q1 2025, with a GAAP effective yield of 13% and a core yield of 12.6%.

Negative Points

• Core yields declined slightly from 12.9% in Q4 2024 to 12.6% in Q1 2025, largely due to declining base rates and spread compression on new originations.
• The number of loans and companies on nonaccrual increased by one, with two debt investments on nonaccrual representing 1.8% of the total investment portfolio at cost.
• Net asset value per share decreased by 0.9% from Q4 2024, primarily due to net unrealized depreciation on investments.
• Early loan repayments decreased significantly in Q1 2025, which reduced net investment income per share.
• The credit quality of the debt investment portfolio showed slight deterioration, with Grade 1 and 2 credits decreasing to 61.1% from 65.9% in Q4 2024.

Q & A Highlights

Q: What's driving the continuation of strong activity despite the broader macro environment? A: Scott Bluestein, CEO, explained that Hercules Capital tends to outperform during periods of market and macro volatility. The volatility makes equity more expensive and scarce, providing opportunities for Hercules to target quality companies seeking financing solutions. Additionally, some banks have moved to a risk-off model, creating a void that Hercules is filling by providing capital solutions to later-stage quality companies.

Q: How are yields and spreads on new deals looking, given some banks are pulling back? A: Scott Bluestein noted that the core yield for the quarter was 12.6%, slightly down from 12.9% in Q4, primarily due to Fed rate cuts. For Q2, they expect core yields to be between 12% and 12.5%. There has been a slight increase in yields by 25 to 50 basis points recently, but this hasn't yet impacted their numbers.

Q: Are you noticing any changes in behavior from borrowers amid recent volatility, and what's your confidence in credit stability? A: Scott Bluestein stated that while the operating environment has become more challenging, they remain confident in their credit outlook. Companies are freezing decision-making due to uncertainty, but Hercules' credit performance remains stable with only two loans on nonaccrual, representing 0.5% of their investment book at fair value.

Q: How are you balancing increasing leverage, raising additional capital, and using third-party funds to manage growth? A: Scott Bluestein explained that Hercules evaluates this continuously, focusing on driving the best possible total shareholder return. Despite significant net debt portfolio growth, their leverage remains at the low end of their historical range. They are well-capitalized with over $600 million in liquidity in the BDC and over $1 billion across the platform. The benefits from their private credit fund business also accrete to public shareholders.

Q: Are you seeing any changes in equity cushion in later-stage deals, and are sponsors putting money in alongside borrowing? A: Scott Bluestein mentioned that there hasn't been much change in how venture capital firms approach companies. Hercules' debt capital is meant to supplement, not replace, equity capital. They ensure that companies they lend to can continue raising equity capital, focusing on metrics like RML, minimum liquidity thresholds, and recent equity capital influx.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.