Surpassed $9.0 Billion in Cumulative Debt
Commitments Since Inception
Achieved Record Quarter for New Debt and Equity
Commitments and Total Fundings of $534.8 Million and $368.1
Million, Respectively
Achieved Debt Investment Portfolio Growth of
$163.8 Million, Leading to Record Total Debt Investments of $2.08
Billion, at Cost
Set Record Total Portfolio Investments of $2.32
Billion, at Cost
Increased NAV per Share to $10.59, up 3.2% from
$10.26 in Q1 2019
Q2 2019 Financial Achievements and Highlights
- Record Net Investment Income “NII” of $35.3 million, or $0.36
per share, an increase of 54.9% year-over-year
- Record Total Investment Income of $69.3 million, an increase of
39.8% year-over-year
- Distributable Net Operating Income(1) “DNOI,” a non-GAAP
measure, of $39.1 million, or $0.40 per share
- Record new debt and equity commitments of $534.8 million, an
increase of 15.6% year-over-year
- Record total fundings of $368.1 million, an increase of 12.4%
year-over-year
- Unscheduled early principal repayments or “early loan
repayments” of $178.3 million
- 13.6% Return on Average Equity “ROAE” (NII/Average Equity)
- 6.9% Return on Average Assets “ROAA” (NII/Average Assets)
- GAAP leverage of 107.5% and regulatory leverage of
94.0%(2)
- 14.3% GAAP Effective Yields and 12.7% Core Yields(3), a
non-GAAP measure
Year-to-date ending June 30, 2019 Financial
Highlights
- NII of $64.3 million for six months ending June 30, 2019, or
$0.66 per share, an increase of 31.7%, as compared to $48.8 million
for the six months ending June 30, 2018
- Total investment income of $128.1 million, an increase of
30.3%, as compared to $98.3 million for the six months ending June
30, 2018
- New equity and debt commitments of $949.7 million, an increase
of 30.3%, as compared to $728.7 million for the six months ending
June 30, 2018
- Total fundings of $607.8 million, an increase of 7.8%, as
compared to $563.7 million for the six months ending June 30,
2018
- Record net debt investment portfolio growth of $324.3 million
for the six months ending June 30, 2019
- Unscheduled early loan repayments of $225.8 million
Footnotes:
(1) Distributable Net Operating Income, “DNOI” represents net
investment income as determined in accordance with GAAP, adjusted
for amortization of employee restricted stock awards and stock
options.
(2) Regulatory leverage represents debt-to-equity ratio,
excluding our Small Business Administration “SBA” debentures
(3) 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 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 second quarter ended June 30, 2019.
The Company announced that its Board of Directors has declared a
second quarter base and supplemental cash distribution of $0.32 and
$0.02 per share, respectively, that will be payable on August 19,
2019, to shareholders of record as of August 12, 2019.
“Our record-breaking performance in Q2 truly underscores the
capabilities and depth of our team and investment platform and the
role we play being able to finance growth companies across multiple
value inflection points,” stated Scott Bluestein, chief executive
officer and chief investment officer of Hercules. “The combination
of our scale, our industry-leading originations team and our proven
ability to access the capital markets puts us in a unique
competitive position that makes Hercules the go-to venture debt and
growth stage lender of choice. Now more than ever, it is essential
for growth stage companies and their financial sponsors to partner
with an established market leader with a strong and diversified
balance sheet when it comes to financing.”
Bluestein continued, “For the first half of 2019, our debt
investment portfolio grew by more than $324 million. The team was
able to close $950 million of new commitments which, more
importantly, were all done with the same strict underwriting
discipline and credit focus that has enabled Hercules to
consistently deliver strong shareholder returns over the last 10
years. These efforts have driven Hercules’ total cumulative
commitments to over $9 billion since the Company’s inception in
2003.”
Bluestein concluded, “Having put ourselves in an enviable
position with strong dividend coverage, combined with our ample
earnings spillover, we will focus on making key investments in both
human capital and infrastructure in the second half of 2019 to not
only position us for continued growth, but more importantly, to
continue to enhance our capital markets, credit and monitoring
framework and product capabilities as we prudently scale the
business to the next level.”
Q2 2019 Review and Operating Results
Debt Investment Portfolio
Hercules delivered a strong second quarter with new debt and
equity commitments totaling $534.8 million and fundings totaling
$368.1 million.
During the second quarter, Hercules realized early loan
repayments of $178.3 million, which along with normal scheduled
amortization of $23.5 million, resulted in total debt repayments of
$201.8 million.
The strong new debt investment origination and funding
activities lead to net debt investment portfolio growth of $163.8
million during the first quarter, on a cost basis.
The Company’s total investment portfolio, (at cost and fair
value) by category, quarter-over-quarter and year-over-year are
highlighted below:
Total Investment Portfolio: Q2 2019 to
Q1 2019
(in millions) Debt Equity Warrants
Total Portfolio Balances at Cost at 3/31/19
$
1,913.4
$
205.6
$
34.3
$
2,153.3
New fundings(a)
363.6
2.9
1.6
368.1
Warrants not related to Q2 2019 fundings
—
—
0.3
0.3
Early payoffs(b)
(178.3
)
—
—
(178.3
)
Principal payments received on investments
(23.5
)
—
—
(23.5
)
Net changes attributed to conversions, liquidations, and fees
2.0
(4.9
)
(1.3
)
(4.2
)
Net activity during Q2 2019
163.8
(2.0
)
0.6
162.4
Balances at Cost at 6/30/19
$
2,077.2
$
203.6
$
34.9
$
2,315.7
Balances at Value at 3/31/19
$
1,897.1
$
157.0
$
26.9
$
2,081.0
Net activity during Q2 2019
163.8
(2.0
)
0.6
162.4
Net change in unrealized appreciation (depreciation)
0.7
9.9
(2.0
)
8.6
Total net activity during Q2 2019
164.5
7.9
(1.4
)
171.0
Balances at Value at 6/30/19
$
2,061.6
$
164.9
$
25.5
$
2,252.0
(a)New fundings amount includes $660k fundings associated
with revolver loans during Q2 2019. (b)Early payoffs include $1.77M
in unscheduled paydowns on revolvers during Q2 2019.
Debt Investment Portfolio Balances by Quarter
(in millions) Q2 2019 Q1 2019 Q4 2018
Q3 2018 Q2 2018 Ending Balance at Cost
$2,077.2
$1,913.4
$1,752.9
$1,608.0
$1,554.2
Weighted Average Balance
$1,939.0
$1,806.0
$1,685.0
$1,555.0
$1,470.0
As of June 30, 2019, 81.8% 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
14.3% during Q2 2019, as compared to 13.0% for Q1 2019. The Company
realized $178.3 million of early loan repayments in Q2 2019
compared to $47.5 million in Q1 2019, or an increase of 275.4%.
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 12.7% during Q2 2019,
within the Company’s 2019 expected range of 12.0% to 13.0%, and
equal to the 12.7% level achieved in Q1 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 $69.3 million for Q2 2019,
compared to $49.6 million in Q2 2018, an increase of 39.8%
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.
Non-interest and fee expenses increased to $18.8 million in Q2
2019 versus $13.5 million for Q2 2018. The increase was primarily
due to an increase in both compensation expenses due to
year-over-year growth in the business and legal expenses.
Interest expense and fees were $15.2 million in Q2 2019,
compared to $13.2 million in Q2 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 5.2% in Q2 2019, as compared to 6.4% for
Q2 2018.
NII – Net Investment Income
NII for Q2 2019 was $35.3 million, or $0.36 per share, based on
98.2 million basic weighted average shares outstanding, compared to
$22.8 million, or $0.26 per share, based on 87.1 million basic
weighted average shares outstanding in Q2 2018, an increase of
54.9% 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 Q2 2019 was $39.1 million, or
$0.40 per share, compared to $25.6 million, or $0.29 per share, in
Q2 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 June 30,
2019, (including net loan, warrant and equity activity) on
investments, totaled ($31.3) million, on a GAAP basis, spanning 15
years of investment activities.
When compared to total new debt investment commitments during
the same period of over $9.4 billion, the total realized
gain/(loss) since inception of ($31.3) million represents
approximately 33 basis points “bps,” or 0.33%, of cumulative debt
commitments, or an effective annualized loss rate of 2 bps, or
0.02%.
Realized Gains/(Losses)
During Q2 2019, Hercules had net realized gains/(losses) of $4.3
million primarily from gross realized gains of $6.1 million from
the sale of our public equity holdings, partially offset by the
gross realized losses of ($1.8) million primarily from the
liquidation or write-off of certain of our debt, equity and warrant
positions during the quarter.
Unrealized Appreciation/(Depreciation)
During Q2 2019, Hercules recorded $8.6 million of net unrealized
appreciation primarily related to the positive impact of our public
equity and warrant investments, as well as our private
investments.
Portfolio Asset Quality
As of June 30, 2019, the weighted average grade of the debt
investment portfolio remained level at 2.18, on a cost basis,
compared to 2.19 as of March 31, 2019, based on a scale of 1 to 5,
with 1 being the highest quality. Hercules’ policy is to generally
adjust the credit grading down on its portfolio companies as they
approach their expected need for additional growth equity capital
to fund their respective operations for the next 9-14 months.
Additionally, Hercules may selectively downgrade portfolio
companies, from time to time, if they are not meeting the Company’s
financing criteria, underperforming relative to their respective
business plans, or approaching an additional round of new equity
capital investment. It is expected that venture growth stage
companies typically require multiple additional rounds of equity
capital, generally every 9-14 months, since they are not generating
positive cash flows for their operations. Various companies in the
Company’s portfolio will require additional rounds of funding from
time to time to maintain their operations.
As of June 30, 2019, grading of the debt investment portfolio at
fair value, excluding warrants and equity investments, was as
follows:
Credit Grading at Fair Value, Q2 2019 - Q2 2018 ($ in
millions)
Q2 2019
Q1 2019
Q4 2018
Q3 2018
Q2 2018
Grade 1 - High
$
256.2
12.4
%
$
299.2
15.8
%
$
311.6
18.0
%
$
150.2
9.4
%
$
247.5
16.0
%
Grade 2
$
1,317.7
63.9
%
$
1,056.4
55.7
%
$
885.1
51.1
%
$
987.5
61.6
%
$
791.9
51.2
%
Grade 3
$
413.0
20.1
%
$
469.7
24.7
%
$
474.9
27.3
%
$
420.2
26.2
%
$
463.7
30.0
%
Grade 4
$
67.8
3.3
%
$
66.5
3.5
%
$
60.3
3.5
%
$
44.5
2.7
%
$
42.0
2.7
%
Grade 5 - Low
$
6.9
0.3
%
$
5.3
0.3
%
$
1.6
0.1
%
$
0.9
0.1
%
$
0.9
0.1
%
Weighted Avg.
2.18
2.19
2.18
2.23
2.21
Non-Accruals
Non-accruals slightly increased as a percentage of the overall
investment portfolio in the second quarter of 2019. As of June 30,
2019, the Company had four (4) debt investments on non-accrual with
an investment cost and fair value of approximately $8.8 million and
$4.8 million, respectively, or 0.4% and 0.2% as a percentage of the
Company’s total investment portfolio at cost and value,
respectively.
Compared to March 31, 2019, the Company had two (2) debt
investments on non-accrual with an investment cost and fair value
of approximately $2.4 million and $0.5 million, respectively, or
0.1% and 0.02% as a percentage of the total investment portfolio at
cost and value, respectively.
Q2 2019 Q1 2019 Q4 2018 Q3 2018 Q2
2018 Total Investments at Cost
$2,315.7
$2,153.3
$1,980.5
$1,813.1
$1,757.6
Loans on non-accrual as a % of Total Investments
at Value
0.2%
0.02%
0.0%
0.0%
0.0%
Loans on non-accrual as a % of Total
0.4%
0.1%
0.1%
0.2%
0.2%
Investments at Cost
Liquidity and Capital Resources
The Company ended Q2 2019 with $194.9 million in available
liquidity, including $13.3 million in unrestricted cash and cash
equivalents, and $181.6 million in available credit facilities,
subject to existing terms and advance rates and regulatory and
covenant requirements.
On June 17, 2019, the Company completed a public offering of
common stock, including the over-allotment option, totaling
5,750,000 of common stock for net proceeds, before expenses, of
$70.5 million, including the underwriting discount and commissions
of $2.2 million.
During both the three and six month periods ending June 30,
2019, the Company sold approximately 2.0 million shares of common
stock, which were issued under the equity ATM program, for total
accumulated net proceeds of approximately $25.1 million, including
$311,000 of offering expenses. As of July 29, 2019, approximately
10.7 million shares remain available for issuance and sale under
the Equity Distribution Agreement.
Bank Facilities
As of June 30, 2019, Hercules has two committed accordion credit
facilities, one with Wells Fargo Capital Finance, part of Wells
Fargo & Company (NYSE: WFC) (the “Wells Fargo Facility”), and
another with Union Bank (the “Union Bank Facility”) for $75.0
million and $200.0 million, respectively. The Wells Fargo and Union
Bank Facilities both include an uncommitted accordion feature that
enables the Company to increase the existing facilities to a
maximum value of $125.0 million and $300.0 million, respectively,
or $425.0 million in aggregate. Pricing at June 30, 2019 under the
Wells Fargo Facility and Union Bank Facility were LIBOR+3.00% and
LIBOR+2.70%, respectively. There were $82.3 million in outstanding
borrowings under the Union Bank Facility and $11.1 million in
outstanding borrowings under the Wells Fargo Facility, for a total
of $93.4 million at June 30, 2019.
Leverage
As of June 30, 2019, Hercules’ GAAP leverage ratio, including
its Small Business Administration “SBA” debentures, was 107.5%.
Hercules’ regulatory leverage, or debt to equity ratio, excluding
our SBA debentures, was 94.0% and net regulatory leverage, a
non-GAAP measure (excluding cash of approximately $13.3 million),
was 92.8%. Hercules’ net leverage ratio, including its SBA
debentures, was 106.3%.
Available Unfunded Commitments – Representing 7.7% 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 June 30, 2019, the Company had $177.2 million of available
unfunded commitments at the request of the portfolio company and
unencumbered by any milestones, including undrawn revolving
facilities, representing 7.7% of Hercules’ total assets. This
increased from the previous quarter of $154.2 million of available
unfunded commitments at the request of the portfolio company or
7.2% of Hercules’ total assets.
Existing Pipeline and Signed Term Sheets
After closing $534.8 million in new debt and equity commitments
in Q2 2019, Hercules has pending commitments of $160.0 million in
signed non-binding term sheets outstanding as of July 29, 2019.
Since the close of Q2 2019 and as of July 29, 2019, Hercules has
funded $10.7 million of existing commitments.
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 June 30, 2019, the Company’s net assets were $1.10
billion, compared to $990.3 million at the end of Q1 2019. NAV per
share increased 3.2% to $10.59 on 104.3 million outstanding shares
of common stock as of June 30, 2019, compared to $10.26 on 96.5
million outstanding shares of common stock as of March 31, 2019.
The increase in NAV per share was primarily attributed to the $95.4
million equity raised at a premium to NAV, the net change in
unrealized and realized gains and the excess earnings above the
paid distribution in the quarter.
Interest Rate Sensitivity
Hercules has an asset sensitive debt investment portfolio with
97.7% of our debt investment portfolio being priced at floating
interest rates as of June 30, 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 June 30, 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)
$
(10,473
)
$
(161
)
$
(10,312
)
$
(0.10
)
(50)
$
(7,460
)
$
(107
)
$
(7,353
)
$
(0.07
)
(25)
$
(3,784
)
$
(54
)
$
(3,730
)
$
(0.04
)
25
$
4,569
$
54
$
4,515
$
0.05
50
$
9,362
$
107
$
9,255
$
0.09
75
$
14,306
$
161
$
14,145
$
0.14
100
$
19,774
$
214
$
19,560
$
0.20
200
$
39,249
$
429
$
38,820
$
0.40
(1)
Source: Hercules Capital Form 10-Q for Q2
2019
(2)
EPS calculated on basic weighted shares
outstanding of 98,233. 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 55 portfolio companies with a
fair value of $164.9 million and a cost basis of $203.6 million as
of June 30, 2019. On a fair value basis, 35.0% or $58.2 million is
related to existing public equity positions, at June 30, 2019.
Warrant Portfolio
Hercules held warrant positions in 125 portfolio companies with
a fair value of $25.5 million and a cost basis of $34.9 million as
of June 30, 2019. On a fair value basis, 38.0% or $9.6 million is
related to existing public warrant positions, at June 30, 2019.
Portfolio Company IPO and M&A Activity in Q2 2019
IPO Activity
As of July 29, 2019, Hercules held warrant and equity positions
in eight (8) portfolio companies that had either completed their
IPOs or filed Registration Statements in contemplation of a
potential IPO, including:
- In April 2019, Hercules’ portfolio company Pinterest,
Inc. (NYSE: PINS), a provider of a content sharing platform
designed for collecting, organizing and sharing items from the web,
completed its IPO offering of 75.0 million shares of Class A common
stock at an initial public offering price of $19.00 per share on
the New York Stock Exchange. Hercules currently holds 206,666
shares of Preferred Series Seed stock, as of June 30, 2019.
- In April 2019, Hercules portfolio company TransMedics Group,
Inc. (NASDAQ: TMDX), a medical device company that provides a
proprietary system to enable the transplantation of functioning
organs, completed its IPO offering of 6.5 million shares of common
stock at an initial public offering price of $16.00 per share on
the Nasdaq Global Market. Hercules initially committed $10.0
million in venture debt financing in May 2008, and currently holds
162,617 shares of common stock as of June 30, 2019.
- In May 2019, Hercules’ portfolio company Fastly, Inc.
(NYSE: FSLY), a technology provider of a leading-edge cloud
platform intended to accelerate the pace of technical innovation,
mitigate evolving threats and scale on demand, completed its IPO
offering of 11.25 million shares of common stock at an initial
public offering price of $16.00 per share on the New York Stock
Exchange. Hercules initially committed $10.0 million in venture
debt financing in December 2018, and currently holds warrants for
76,098 shares of common stock, as of June 30, 2019.
- In May 2019, Hercules’ portfolio company Dermavant Sciences,
Inc., a wholly-owned subsidiary of Roivant Sciences, and a
clinical-stage biopharmaceutical company dedicated to developing
and commercializing innovative therapeutics in medical dermatology,
publicly filed its S-1 registration statement with the SEC in
contemplation of an initial public offering. Dermavant plans to
list on the Nasdaq Global Market under the symbol “DRMT.” Hercules
initially committed $20.0 million in venture debt financing in May
2019, and currently holds warrants for 223,642 shares of common
stock, as of June 30, 2019.
- In June 2019, Hercules’ portfolio company BridgeBio Pharma,
Inc. (NASDAQ: BBIO), a clinical-stage biopharmaceutical company
focused on genetic diseases, completed its IPO offering of 20.5
million shares of common stock at an initial public offering price
of $17.00 per share on the Nasdaq Global Market. Hercules initially
committed a total of $77.0 million in venture debt financing
beginning in May 2018, and currently holds 203,578 shares of common
stock, as of June 30, 2019.
- In July 2019, Hercules’ portfolio company Oportun Financial
Corporation, a high-growth, mission-driven Community
Development Financial Institution providing inclusive, affordable
financial services powered by a deep, data-driven understanding of
its customers and advanced proprietary technology, publicly filed
it S-1 registration statement with the SEC in contemplation of an
IPO. Oportun plans to list on the Nasdaq Global Market under the
symbol “OPRT.” Hercules committed a total of $8.5 million in
venture debt financing beginning in June 2013, and currently holds
218,351 shares of Preferred Series G and 87,802 shares of Preferred
Series H stock as of June 30, 2019.
- Two (2) portfolio company 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 April 2019, Hercules’ portfolio company WildTangent,
Inc., a game network that powers game services for several
personal computer manufacturers, was acquired by gamigo AG, a
Hamburg-based publisher of free-to-play online and mobile games in
Europe and North America. Terms of the acquisition were not
disclosed. Hercules initially committed $20.0 million in venture
debt financing beginning in November 2007.
- In May 2019, Hercules’ portfolio company Aquantia,
Corporation (NYSE: AQ), a leader in Multi-Gig Ethernet
Connectivity, announced a definitive agreement to be acquired by
Marvell Technology Group Ltd. (NASDAQ: MRVL), a leader in
infrastructure semiconductor solutions. Marvell will acquire all
outstanding shares of Aquantia common stock in exchange
consideration of $13.25 per share in cash.
- In May 2019, Hercules’ portfolio company Microsystems
Holding Company, LLC (a.k.a Litera Microsystems), a software
provider for drafting, proofreading, comparing, repairing and
cleaning documents in the legal and life sciences industries, was
acquired by Hg, a specialist private equity investor. Terms of the
transaction were not disclosed. Hercules initially committed $12.0
million in venture debt in December 2017.
- In June 2019, Hercules’ portfolio company Brigade Group,
Inc., a technology company focused on providing business
process outsourcing services and knowledge process outsourcing
service for global corporation sourcing services for global
corporations, was acquired by Countable Corporation, a provider of
a web and mobile-based modern civic engagement platform designed to
understand summaries of upcoming and active legislation. Terms of
the transaction were not disclosed. Hercules currently holds 9,023
shares of common stock as of June 30, 2019.
- In June 2019, Hercules’ portfolio company Brickell Biotech,
Inc., a privately-held clinical-stage medical dermatology
company, announced they entered into a definitive merger agreement
with Vical Incorporated (NASDAQ: VICL), under which Brickell would
merge with a wholly-owned subsidiary of Vical in an all-stock
transaction. The merger would create a pharmaceutical company
focused on developing novel and differentiated prescription
therapies addressing unmet patient needs in hyperhidrosis,
cutaneous T-cell lymphoma, psoriasis, and other debilitating
dermatologic disorders. Hercules initially committed $7.5 million
in venture debt in February 2016. Hercules currently holds warrants
for 26,086 shares of Preferred Series C stock as of June 30,
2019.
Distributions
The Board of Directors declared a second quarter cash
distribution of $0.32 per share. In addition, the Board of
Directors declared a supplemental cash distribution of $0.02 per
share. This distribution would represent the Company’s 56th
consecutive distribution declaration since its IPO, bringing the
total cumulative distributions declared to date to $15.95 per
share. The following shows the key dates of each of our second
quarter 2019 distribution payments:
Record Date
August 12, 2019
Payment Date
August 19, 2019
Hercules' Board of Directors maintains a variable distribution
policy with the objective of distributing four quarterly
distributions in an amount that approximates 90% to 100% of the
Company’s taxable quarterly income or potential annual income for a
particular year. In addition, during the year, the Company’s Board
of Directors may choose to pay additional supplemental
distributions, so that the Company may distribute approximately all
its annual taxable income in the year it was earned, or it can
elect to maintain the option to spill over the excess taxable
income into the coming year for future distribution payments.
The determination of the tax attributes of the Company's
distributions is made annually as of the end of the Company's
fiscal year based upon its taxable income for the full year and
distributions paid for the full year. Therefore, a determination
made on a quarterly basis may not be representative of the actual
tax attributes of its distributions for a full year. Of the
distributions declared during the quarter ended June 30, 2019, 100%
were distributions derived from the Company’s current and
accumulated earnings and profits. There can be no certainty to
stockholders that this determination is representative of the tax
attributes of the Company’s 2019 full year distributions to
stockholders.
Subsequent Events
1.
As of July 29, 2019, Hercules has:
a. Funded $10.7 million to existing commitments since the close of
the second quarter. b. Pending commitments (signed non-binding term
sheets) of $160.0 million.
The table below summarizes our year-to-date closed and pending
commitments as follows:
Closed Commitments and Pending
Commitments (in millions)
January 1 – June 30, 2019 Closed
Commitments(a)
$949.7
Q3 2019 Closed Commitments (as of July 29,
2019)(a)
$0.0
Year-to-Date 2019 Closed
Commitments
$949.7
Q3 2019 Pending Commitments (as of July
29, 2019)(b)
$160.0
Year-to-Date 2019 Closed and Pending
Commitments
$1,109.7
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.
On July 13, 2019, we entered into a
Separation Agreement with Manuel Henriquez, our former Chairman and
Chief Executive Officer which became effective on July 23, 2019.
Under the terms of the Separation Agreement, Mr. Henriquez is no
longer an employee of ours and has relinquished his claims to (i)
1,287,006 restricted stock units and shares of restricted stock
awards whether vested or unvested, plus all related distribution
equivalent units, under certain Restricted Stock Unit Award
Agreements and Restricted Stock Award Agreements, (ii) all of his
Retention PSUs, which at target performance represented 812,348
units and could have ranged from 406,174 units at minimum
performance to 1,624,696 units at maximum performance (and no units
being awarded for performance falling under the minimum performance
threshold), plus all related distribution equivalent units, under
the Retention Performance Stock Unit Award Agreement, effective as
of May 2, 2018, and (iii) all severance benefits under the
Retention Agreement, effective as of October 26, 2017. In exchange
for relinquishing his claims under, and the termination of, each of
the retention and other award agreements between us and Mr.
Henriquez, Mr. Henriquez will receive (i) 692,841 shares of our
common stock (from settlement and/or acceleration of certain equity
awards under certain outstanding equity award agreements) and (ii)
three cash payments from us ($1,500,000 promptly after the
effective date of the Separation Agreement (the “Effective Date”),
$500,000 on the six-month anniversary of the Effective Date if Mr.
Henriquez has complied with all of the covenants in the Separation
Agreement as of such date and $500,000 on the one-year anniversary
of the Effective Date if Mr. Henriquez has complied with all of the
covenants in the Separation Agreement as of such date). The cost of
the settlement does not have a material impact on our financial
results for the quarter ended June 30, 2019 and it does not
materially exceed the amounts that we have already expensed with
respect to the awards and related agreements that Mr. Henriquez
will no longer receive.
3.
On July 16, 2019, the Company entered into
a Note Purchase Agreement governing the issuance of $105.0 million
in aggregate principal amount of senior unsecured notes (the “July
2024 Notes”) to qualified institutional investors in a private
placement. The July 2024 Notes have a fixed interest rate of 4.77%
and are due on July 16, 2024, unless redeemed, purchased or prepaid
prior to such date by the Company or its affiliates in accordance
with their terms. Interest on the July 2024 Notes will be due
semiannually and the July 2024 Notes are general unsecured
obligations of the Company that rank pari passu with all
outstanding and future unsecured unsubordinated indebtedness issued
by the Company.
4.
On July 17, 2019, the Board of Directors
appointed Scott Bluestein, our Interim Chief Executive Officer and
Chief Investment Officer, as Chief Executive Officer and President
and elected Mr. Bluestein as a director of ours effective July 17,
2019. Mr. Bluestein will continue in his role of Chief Investment
Officer. Mr. Bluestein will hold office as a Class III director for
a term expiring in 2022 and does not currently serve on any of our
committees.
Conference Call
Hercules has scheduled its second quarter 2019 financial results
conference call for August 1, 2019 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: 6294285 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 6294285.
About Hercules Capital, Inc.
Hercules Capital, Inc. (NYSE: HTGC) (“Hercules”) 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 $9.4
billion to over 480 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 the ticker symbol “HTGC.” In addition, Hercules has
six outstanding bond issuances of:
Institutional Notes PAR $1000.00
Retail Notes (“Baby Bonds”) PAR $25.00
- 5.25% Notes due 2025 (NYSE: HCXZ)
- 6.25% Notes due 2033 (NYSE: HCXY)
Convertible Notes
- 4.375% Convertible Notes due 2022
Securitization Notes
- 4.605% Asset-backed Notes due 2027
- 4.703% Asset-backed Notes due 2028
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 STATEMENT OF ASSETS
AND LIABILITIES (dollars in thousands, except per share
data) June 30, 2019 December 31, 2018
Assets Investments: Non-control/Non-affiliate investments
(cost of $2,162,377 and $1,830,725, respectively)
2,174,691
1,801,258
Control investments (cost of $65,143 and $64,799, respectively)
55,894
57,619
Affiliate investments (cost of $88,142 and $85,000, respectively)
21,414
21,496
Total investments in securities, at value (cost of $2,315,662 and
$1,980,524, respectively)
2,251,999
1,880,373
Cash and cash equivalents
13,261
34,212
Restricted cash
15,339
11,645
Interest receivable
18,206
16,959
Right of use asset
8,493
—
Other assets
4,269
2,002
Total assets
$
2,311,567
$
1,945,191
Liabilities Accounts payable and accrued liabilities
$
27,274
$
25,961
Operating lease liability
$
8,530
—
2027 Asset-Backed Notes, net (principal of $200,000 and $200,000
respectively)(1)
197,171
197,265
2028 Asset-Backed Notes, net (principal of $250,000 and $0,
respectively)(1)
247,266
—
2022 Convertible Notes, net (principal of $230,000 and $230,000,
respectively)(1)
225,832
225,051
2022 Notes, net (principal of $150,000 and $150,000,
respectively)(1)
148,252
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)
72,780
72,590
2033 Notes, net (principal of $40,000 and $40,000, respectively)(1)
38,447
38,427
SBA Debentures, net (principal of $149,000 and $149,000,
respectively)(1)
147,910
147,655
Credit Facilities
93,421
52,956
Total liabilities
$
1,206,883
$
989,747
Net assets consist of: Common stock, par value
104
96
Capital in excess of par value
1,149,774
1,052,269
Total distributable earnings (loss)(2)
(45,194
)
(92,859
)
Treasury Stock, at cost, no shares as of June 30, 2019 and 376,466
shares as of December 31, 2018
—
(4,062
)
Total net assets
$
1,104,684
$
955,444
Total liabilities and net assets
$
2,311,567
$
1,945,191
Shares of common stock outstanding ($0.001 par value,
200,000,000 authorized)
104,282
96,501
Net asset value per share
$
10.59
$
9.90
(1)
The Company’s SBA Debentures, 2033 Notes,
2025 Notes, 2022 Notes, 2024 Notes, 2027 Asset-Backed Notes, 2028
Asset-Backed Notes and 2022 Convertible 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 STATEMENT OF
OPERATIONS
(in thousands, except per
share data)
Three Months Ended June
30,
Six Months Ended June 30,
2019
2018
2019
2018
Investment income:
Interest Income
Non-control/Non-affiliate investments
$
59,932
$
44,535
$
113,872
$
86,369
Control investments
1,040
841
2,064
1,427
Affiliate investments
738
500
1,247
1,061
Total interest income
61,710
45,876
117,183
88,857
Fee Income
Commitment, facility and loan fee income
Non-control/Non-affiliate investments
5,028
1,930
7,478
4,370
Control investments
4
—
8
—
Affiliate investments
72
84
160
192
Total Commitment, facility and loan fee income
5,104
2,014
7,646
4,562
One-time fee income
Non-control/Non-affiliate investments
2,450
1,672
3,230
4,843
Total one-time fee income
2,450
1,672
3,230
4,843
Total fee income
7,554
3,686
10,876
9,405
Total investment income
69,264
49,562
128,059
98,262
Operating expenses:
Interest
13,515
9,878
26,070
19,264
Loan fees
1,646
3,362
4,655
4,537
General and administrative
Legal expenses
1,963
637
2,626
1,212
Other expenses
3,832
3,037
7,322
6,471
Total general and administrative
5,795
3,674
9,948
7,683
Employee compensation
Compensation and benefits
9,190
7,017
15,813
12,775
Stock-based compensation
3,851
2,857
7,273
5,166
Total employee compensation
13,041
9,874
23,086
17,941
Total operating expenses
33,997
26,788
63,759
49,425
Net investment income
35,267
22,774
64,300
48,837
Net realized gain (loss) on investments
Non-control/Non-affiliate investments
4,271
(3,953
)
8,826
(7,465
)
Control investments
—
(2,900
)
—
(4,308
)
Affiliate investments
—
(2,058
)
—
(2,058
)
Total net realized gain (loss) on investments
4,271
(8,911
)
8,826
(13,831
)
Net change in unrealized appreciation (depreciation) on
investments
Non-control/Non-affiliate investments
9,794
32,700
41,884
18,360
Control investments
808
3,957
(2,068
)
3,337
Affiliate investments
(2,009
)
1,540
(3,226
)
1,303
Total net unrealized appreciation (depreciation) on investments
8,593
38,197
36,590
23,000
Total net realized and unrealized gain(loss)
12,864
29,286
45,416
9,169
Net increase(decrease) in net assets resulting from
operations
$
48,131
$
52,060
$
109,716
$
58,006
Net investment income before investment gains and losses per common
share:
Basic
$
0.36
$
0.26
$
0.66
$
0.57
Change in net assets resulting from operations per common share:
Basic
$
0.49
$
0.59
$
1.13
$
0.67
Diluted
$
0.49
$
0.59
$
1.12
$
0.67
Weighted average shares outstanding:
Basic
98,223
87,125
97,226
85,868
Diluted
98,737
87,199
97,630
85,939
Distributions paid per common share:
Basic
$
0.33
$
0.31
$
0.64
$
0.62
HERCULES CAPITAL, INC.
NON GAAP FINANCIAL
MEASURES
(in thousands, except per
share data)
Three Months Ended June 30, Reconciliation of Net
Investment Income to DNOI
2019
2018
Net investment income
$
35,267
$
22,774
Stock-based compensation
3,851
2,857
DNOI
$
39,118
$
25,631
DNOI per share-weighted average common shares Basic
$
0.40
$
0.29
Weighted average shares outstanding Basic
98,223
87,125
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.
HERCULES CAPITAL, INC.
NON GAAP FINANCIAL
MEASURES
(in thousands, except per
share data)
June 30, 2019 Total Debt (Principal Outstanding)
$
1,187,421
Long-term SBA Debentures
$
(149,000
)
Cash and cash equivalents
(13,261
)
Numerator: net debt (total debt less cash and cash equivalents and
SBA Debentures)
$
1,025,160
Denominator: Total net assets
$
1,104,684
Net Leverage Ratio
92.8
%
Net leverage ratio is calculated by deducting the outstanding
cash of $13.3 million and long-term SBA debentures of $149.0
million, at June 30, 2019 from total principal outstanding of
$1,187.4 million divided by our total equity of $1,104.7 million,
resulting in a net leverage ratio of 92.8%. Net leverage ratio is a
non-GAAP measure and is not intended to replace financial
performance measures determined in accordance with GAAP. Rather,
they are presented as additional information because management
believes they are useful indicators of the current financial
performance of the Company’s core businesses.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190801005895/en/
Michael Hara Investor Relations and Corporate Communications
Hercules Capital, Inc. 650-433-5578 mhara@htgc.com
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