Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hercules Capital Inc (HTGC, Financial) achieved record total gross fundings of $1.07 billion for the first half of 2024, marking the first time in its 20-year history to surpass $1 billion in gross fundings in the first half of a calendar year.
- The company generated record total investment income of $125 million in Q2 2024, up nearly 8% year over year.
- Hercules Capital Inc (HTGC) maintained a strong liquidity position with $482 million available at the end of Q2 2024.
- The company achieved a return on equity of 19.2% in Q2 2024.
- Hercules Capital Inc (HTGC) received approval for its fourth SBIC license, providing access to $175 million of additional growth capital.
Negative Points
- Net asset value per share decreased by 1.7% from Q1 2024, ending at $11.43 per share.
- The company experienced net realized losses of $5.8 million in Q2 2024, primarily due to losses on debt investments and foreign exchange rate fluctuations.
- Hercules Capital Inc (HTGC) reported a slight decrease in core yield to 13.7% in Q2 2024, attributed to more first lien exposure and heavier payoffs from legacy higher-yielding assets.
- The company had two loans on nonaccrual status, with an investment cost and fair value of approximately $91.8 million and $32.1 million, respectively.
- There is an expectation of higher than normal market and macro volatility in the second half of 2024 due to the presidential election and potential changes in the global geopolitical environment.
Q & A Highlights
Q: How might upcoming rate cuts from the Fed impact Hercules Capital's deal activity and funding?
A: Scott Bluestein, CEO, expects demand activity to increase in a declining rate environment. Many quality late-stage companies have been holding off due to the current rate environment, and as rates decrease, demand for secured debt solutions is likely to rise.
Q: Can you provide more details on the credit quality and any write-offs in the quarter?
A: Scott Bluestein noted that the overall credit quality remains strong, with a slight increase in the weighted average credit rating to 2.18. The percentage of Grade 4 and 5 credits decreased to 1.8% of the portfolio. There was a write-off of a small loan, which resulted in a net realized loss, but it was managed in cooperation with the company and board.
Q: How is Hercules Capital managing its interest expenses and debt repayment strategy?
A: Seth Meyer, CFO, explained that they used credit facilities to repay $105 million of debt. They are monitoring interest rates for refinancing opportunities and have added liquidity with a new SBIC license, which offers more attractive rates than the open market.
Q: Is Hercules Capital transitioning to a hybrid lender model, focusing more on larger companies?
A: Scott Bluestein confirmed that Hercules has evolved from a venture lending firm to a venture and growth stage lending firm. While many companies are still institutionally backed, the focus is now on later-stage companies, including publicly traded ones, particularly in the life sciences sector.
Q: What is the outlook for growth in the coming quarters, and how will it be balanced between third-party capital and the balance sheet?
A: Seth Meyer expressed optimism about new commitments and gross fundings in the second half of the year. While they don't provide specific growth guidance due to unpredictability in early repayments, the private fund business continues to perform above expectations, contributing significantly to fundings.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
