Achieved New Debt and Equity Commitments of
$414.8 Million, up 56.0% Year-over-Year
Grew Debt Investment Portfolio by $160.5
Million, Leading to Record Total Debt Investments of $1.91 Billion,
at Cost
Set Record Total Portfolio Investments of $2.15
Billion, at Cost
Increased NAV per Share to $10.26, up 3.6% from
$9.90 in Q4 2018
Increased the Company’s Quarterly Base Cash
Distribution to $0.32 per Share
Declared Supplemental Cash Distribution of
$0.01 per Share
Q1 2019 Financial Achievements and Highlights
- Net Investment Income “NII” of $29.0
million, or $0.30 per share, which includes the one-time expense of
$1.6 million, or $0.02 per share, associated with the $83.5 million
full redemption (the “2024 Notes Redemption”) of 6.25% notes due
2024 (the “2024 Notes”)
- Adjusted NII of $30.6 million, or $0.32
per share(1)
- Total Investment Income of $58.8
million, an increase of 20.7% year-over-year
- Distributable Net Operating Income(2)
“DNOI,” a non-GAAP measure, of $32.5 million, or $0.34 per
share
- New debt and equity commitments of
$414.8 million
- Total gross fundings of $239.6
million
- Unscheduled early principal repayments
or “early loan repayments” of $47.5 million
- 12.8% Return on Average Equity “ROAE”
(NII/Average Equity)(3)
- 6.2% Return on Average Assets “ROAA”
(NII/Average Assets)(3)
- Regulatory leverage of 99.9% and net
regulatory leverage, a non-GAAP measure, of 98.2%(4)
- 13.0% GAAP Effective Yields and 12.7%
Core Yields(5), a non-GAAP measure
Footnotes:
(1) Adjusted NII represents net investment income as determined
in accordance with U.S. generally accepted accounting principles,
or GAAP, excluding the one-time impact of $1.6 million, or $0.02
per share, associated with the full 2024 Notes Redemption
(2) 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.
(3) Includes the one-time impact associated with the full 2024
Notes Redemption
(4) Net regulatory leverage is defined as regulatory leverage
less cash balance at period end
(5) 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 first quarter
ended March 31, 2019.
The Company announced that its Board of Directors has increased
and declared a first quarter base and supplemental cash
distribution of $0.32 and $0.01 per share, respectively, that will
be payable on May 20, 2019, to shareholders of record as of May 13,
2019.
“Our Q1 financial results were very strong on multiple fronts
and provided a terrific start to 2019,” stated Scott Bluestein,
interim chief executive officer and chief investment officer of
Hercules. “This performance was driven by the dedicated efforts of
our best-in-class investment professionals who delivered the second
highest quarter in Hercules’ history with $414.8 million in new
debt and equity commitments—bringing our total cumulative
commitments since inception to $8.9 billion—and net debt and equity
portfolio growth of $172.8 million in Q1. Cumulatively, these
results helped our total investment portfolio cross the $2.0
billion mark for the first time as our market-leading position in
venture lending continues to grow and strengthen.”
Bluestein continued, “We grew our debt investment portfolio
40.0% year-over-year by employing the same historical underwriting
discipline, credit focus and investment selectivity that we have
utilized on a consistent basis since inception. The vibrant venture
capital investing and fundraising environment in Q1 2019 remained
at similar levels as the end of 2018, and this along with an IPO
market that exhibits ever-increasing signs of strength continued to
fuel our investment pipeline. Many notable companies completed
their IPO debuts year-to-date including six of our own portfolio
companies, with five more that have filed for their respective IPO
debuts.”
Bluestein concluded, “With our debt investment portfolio at $1.9
billion, at cost, along with the size and quality of our deal
pipeline, combined with our ample earnings spillover of $36.2
million, or $0.38 per share, we have made the decision to increase
our quarterly base distribution to $0.32 per share, along with the
declaration of a supplemental distribution of $0.01 per share for
the first quarter. Given our strong start to 2019, we anticipate
continued NII growth in 2019 along with sustained portfolio growth
and stable yields, assuming, of course, that market conditions
remain favorable.”
Q1 2019 Review and Operating Results
Debt Investment Portfolio
Hercules achieved a strong start to 2019 with new debt and
equity commitments totaling $414.8 million and gross fundings
totaling $239.6 million.
During the first quarter, Hercules realized early loan
repayments of $47.5 million, which along with normal scheduled
amortization of $18.3 million, resulted in total debt repayments of
$65.8 million.
The strong new debt investment origination and funding
activities lead to net debt investment portfolio growth of $160.5
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:
Q1 2019 to Q4 2018
(in millions) Debt
Equity Warrants Total Portfolio Balances at
Cost at 12/31/18 $ 1,752.9 $
191.9 $ 35.7 $
1,980.5 New fundings(a) 224.5 13.9 1.3 239.7 Warrants
not related to Q1 2019 fundings — — (0.1 ) (0.1 ) Early payoffs(b)
(47.5 ) — — (47.5 ) Principal payments received on investments
(18.3 ) — — (18.3 ) Net changes attributed to conversions,
liquidations, and fees 1.8 (0.2 ) (2.6
) (1.0 ) Net activity during Q1 2019 160.5
13.7 (1.4 ) 172.8
Balances at
Cost at 3/31/19 $ 1,913.4 $
205.6 $ 34.3 $
2,153.3
Balances at Value at 12/31/18 $ 1,733.5
$ 120.2 $ 26.7 $
1,880.4 Net activity during Q1 2019 160.5 13.7 (1.5 )
172.7 Net change in unrealized appreciation (depreciation)
3.1 23.1 1.7 27.9
Total net activity during Q1 2019 163.6 36.8
0.2 200.6
Balances at Value
at 3/31/19 $ 1,897.1 $ 157.0
$ 26.9 $ 2,081.0
(a)New fundings amount includes $1.3M fundings associated
with revolver loans during Q1 2019. (b)Early payoffs include $2.6M
in unscheduled paydowns on revolvers during Q1 2019.
Debt Investment Portfolio Balances by Quarter
(in millions) Q1 2019 Q4 2018
Q3 2018 Q2 2018
Q1 2018 Ending Balance at Cost $1,913.4
$1,752.9 $1,608.0 $1,554.2 $1,368.6
Weighted Average
Balance $1,806.0 $1,685.0 $1,555.0 $1,470.0 $1,364.0
As of March 31, 2019, 82.0% 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 Q1 2019, as compared to 13.5% for Q4 2018. The Company
realized $47.5 million of early loan repayments in Q1 2019 compared
to $63.9 million in Q4 2018, or a decrease of 25.7%. Effective
portfolio 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 Q1 2019, near
the mid-point of the Company’s 2019 expected range of 12.5% to
13.0%, and slightly lower than the 12.9% level achieved in Q4 2019,
due to a sequentially lower level of expired commitments. 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 $58.8 million for Q1 2019,
compared to $48.7 million in Q1 2018, an increase of 20.7%
year-over-year. The increase is primarily attributable to a higher
average debt investment balance between periods along with an
increase in the core yields from 11.9% in Q1 2018 to 12.7% in Q1
2019.
Non-interest and fee expenses increased to $14.2 million in Q1
2019 versus $12.1 million for Q1 2018. The increase was primarily
due to an increase in variable compensation expense and stock-based
compensation due to year-over-year growth in the business.
Interest expense and fees were $15.6 million in Q1 2019,
compared to $10.6 million in Q1 2018. The increase was due to the
one-time non-cash acceleration of unamortized fees associated with
the 2024 Notes Redemption, along with a 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 5.8% in Q1 2019, which included the
one-time expense of $1.6 million associated with the 2024 Notes
Redemption, as compared to 5.3% for Q1 2018.
NII – Net Investment Income
NII for Q1 2019 was $29.0 million, or $0.30 per share, based on
96.2 million basic weighted average shares outstanding, compared to
$26.1 million, or $0.31 per share, based on 84.6 million basic
weighted average shares outstanding in Q1 2018, an increase of
11.4% year-over-year. The increase is primarily attributable to a
higher average debt investment balance between periods along with
an increase in the core yield from 11.9% in Q1 2018 to 12.7% in Q1
2019.
Adjusted NII, a non-GAAP measure, was $30.6 million, or $0.32
per share, adding back the one-time non-cash expense of $0.02 per
share associated with the 2024 Notes Redemption.
DNOI - Distributable Net Operating Income
DNOI, a non-GAAP measure, for Q1 2019 was $32.5 million, or
$0.34 per share, compared to $28.4 million, or $0.34 per share, in
Q1 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 March 31,
2019, (including net loan, warrant and equity activity) on
investments, totaled ($35.5) million, on a GAAP basis, spanning
more than 15 years of investment activities.
When compared to total new debt investment commitments during
the same period of over $8.9 billion, the total realized
gain/(loss) since inception of ($35.5) million represents
approximately 40 basis points “bps,” or 0.40%, of cumulative debt
commitments, or an effective annualized loss rate of 3 bps, or
0.03%.
Realized Gains/(Losses)
During Q1 2019, Hercules had net realized gains/(losses) of $4.6
million primarily from gross realized gains of $8.8 million from
the sale of holdings due to merger and acquisitions, partially
offset by the gross realized losses of ($4.2) million primarily
from the liquidation or write-off of certain of our debt, equity
and warrant positions during the quarter.
Unrealized Appreciation/(Depreciation)
During Q1 2019, Hercules recorded $28.0 million of net
unrealized appreciation primarily related to the positive impact of
our public equity and warrant investments, as well as our private
investments, from the reversal of mark-to-market due to the market
volatility experienced in Q4 2018.
Portfolio Asset Quality
As of March 31, 2019, the weighted average grade of the debt
investment portfolio remained level at 2.19, on a cost basis,
compared to 2.18 as of December 31, 2018, based on a scale of 1 to
5, with 1 being the highest quality. Hercules’ policy is to
generally adjust the credit grading down on its portfolio companies
as they approach their expected need for additional growth equity
capital to fund their respective operations for the next 9-14
months.
Additionally, Hercules may selectively downgrade portfolio
companies, from time to time, if they are not meeting the Company’s
financing criteria, underperforming relative to their respective
business plans, or approaching an additional round of new equity
capital investment. It is expected that venture growth stage
companies typically require multiple additional rounds of equity
capital, generally every 9-14 months, since they are not generating
positive cash flows for their operations. Various companies in the
Company’s portfolio will require additional rounds of funding from
time to time to maintain their operations.
As of March 31, 2019, grading of the debt investment portfolio
at fair value, excluding warrants and equity investments, was as
follows:
Credit Grading at Fair Value, Q1 2019 - Q1 2018 ($ in
millions)
Q1 2019
Q4 2018 Q3
2018 Q2 2018
Q1 2018 Grade 1 - High $ 299.2
15.8% $ 311.6 18.0% $ 150.2
9.4% $ 247.5 16.0% $
141.8 10.6%
Grade 2 $ 1,056.4 55.7% $ 885.1 51.1% $
987.5 61.6% $ 791.9 51.2% $ 599.8 44.9%
Grade 3 $ 469.7
24.7% $ 474.9 27.3% $ 420.2 26.2% $ 463.7 30.0% $ 548.0 41.0%
Grade 4 $ 66.5 3.5% $ 60.3 3.5% $ 44.5 2.7% $ 42.0 2.7% $
33.6 2.5%
Grade 5 - Low $ 5.3 0.3% $ 1.6 0.1% $ 0.9 0.1% $
0.9 0.1% $ 13.2 1.0%
Weighted Avg. 2.19
2.18
2.23 2.21
2.43
Non-Accruals
Non-accruals remained relatively flat as a percentage of the
overall investment portfolio in the first quarter of 2019. As of
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 Company’s total investment portfolio at cost and
value, respectively.
Compared to December 31, 2018, the Company had two (2) debt
investments on non-accrual with an investment cost and fair value
of approximately $2.7 million and $0.0 million, respectively, or
0.1% and 0.0% as a percentage of the total investment portfolio at
cost and value, respectively.
Q1 2019 Q4 2018 Q3
2018 Q2 2018 Q1 2018
Total Investments at Cost $2,153.3 $1,980.5 $1,813.1
$1,757.6 $1,576.3
Loans on non-accrual as a % of
Total Investments at Value 0.02% 0.0% 0.0% 0.0% 0.0%
Loans on non-accrual as a % of Total 0.1% 0.1% 0.2%
0.2% 0.8%
Investments at Cost
Liquidity and Capital Resources
The Company ended Q1 2019 with $247.2 million in available
liquidity, including $16.5 million in unrestricted cash and cash
equivalents, and $230.7 million in available credit facilities,
subject to existing terms and advance rates and regulatory and
covenant requirements.
On January 22, 2019, the Company completed a term debt
securitization in connection with an affiliate of the Company which
made an offering of $250.0 million in aggregate principal amount of
fixed-rate asset-backed notes due 2028 (the “2028 Asset-Backed
Notes”). The 2028 Asset-Backed Notes were rated A(sf) by KBRA.
Interest on the 2028 Asset-Backed Notes will be paid, to the extent
of funds available, at a fixed rate of 4.703% per annum. The 2028
Asset-Backed Notes have a stated maturity of February 22, 2028.
On December 7, 2018, the Board of Directors approved a full
redemption, in two equal transactions, of $83.5 million of the
outstanding aggregate principal amount of the 2024 Notes. The 2024
Notes were fully redeemed on January 14, 2019 and February 4,
2019.
Bank Facilities
As of March 31, 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 March 31, 2019 under the Wells
Fargo Facility and Union Bank Facility were LIBOR+3.00% and
LIBOR+2.70%, respectively. There were $39.7 million in outstanding
borrowings under the Union Bank Facility and $4.6 million in
outstanding borrowings under the Wells Fargo Facility, for a total
of $44.3 million at March 31, 2019.
On January 11, 2019, the Company entered into the Seventh
Amendment to the Wells Facility. Among others, the amendment amends
certain key provisions of the Wells Facility to increase Wells
Fargo Capital Finance’s commitments thereunder from $75.0 million
to $125.0 million, reduces the current interest rate to LIBOR plus
3.00% with a natural floor of 3.00%, and extends the maturity date
to January 2023. The advance rate was increased to 55.0% against
eligible loans.
On February 20, 2019, the Company replaced its existing $100.0
million credit facility with MUFG Union Bank with a new credit
facility under which City National, Umpqua Bank, Hitachi Capital
America Corporation and Mutual of Omaha Bank, together with MUFG
Union Bank, have committed a total of $200.0 million in credit
capacity subject to borrowing base, leverage and other
restrictions. The new credit facility also includes an uncommitted
accordion feature of $100.0 million. The interest rate applicable
to borrowings under the new credit facility has been reduced to
LIBOR plus 2.70%. The new credit facility matures in February 2022,
plus a 12-month amortization period. The advance rate under the new
credit facility has been increased to 55.0% against eligible
loans.
Leverage
Hercules’ GAAP leverage ratio, including its SBA debentures, was
114.9%, as of March 31, 2019. Hercules’ regulatory leverage, or
debt to equity ratio, excluding our Small Business Administration
“SBA” debentures, was 99.9% and net regulatory leverage, a non-GAAP
measure (excluding cash of approximately $16.5 million), was 98.2%,
as of March 31, 2019. Hercules’ net leverage ratio, including its
SBA debentures, was 113.3%, as of March 31, 2019.
Available Unfunded Commitments – Representing 7.2% 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 March 31, 2019, the Company had $154.2 million of
available unfunded commitments at the request of the portfolio
company and unencumbered by any milestones, including undrawn
revolving facilities, representing 7.2% of Hercules’ total assets.
This increased from the previous quarter of $139.0 million of
available unfunded commitments at the request of the portfolio
company or 7.1% of Hercules’ total assets.
Existing Pipeline and Signed Term Sheets
After closing $414.8 million in new debt and equity commitments
in Q1 2019, Hercules has pending commitments of $150.7 million in
signed non-binding term sheets outstanding as of April 30, 2019.
Since the close of Q1 2019 and as of April 30, 2019, Hercules
closed new debt and equity commitments of $153.5 million to new and
existing portfolio companies and funded $76.9 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 March 31, 2019, the Company’s net assets were $990.3
million, compared to $955.4 million at the end of Q4 2018. NAV per
share increased 3.6% to $10.26 on 96.5 million outstanding shares
of common stock as of March 31, 2019, compared to $9.90 on 96.5
million outstanding shares of common stock as of December 31, 2018.
The increase in NAV per share was primarily attributed to net
realized gains on investments and a net change in unrealized
appreciation during the quarter.
On December 17, 2018, the Board of Directors authorized a stock
repurchase plan to acquire up to $25.0 million in the aggregate of
Hercules’ common stock at prices that may be above or below net
asset value, in accordance with the guidelines specified in Rule
10b-18 and Rule 10b5-1 of the Securities Exchange Act of 1934. The
Company may repurchase shares of its common stock in the open
market, including block purchases, at prices that may be above or
below NAV as reported in the most recently published financial
statements. Unless extended or terminated by its Board of
Directors, Hercules expects the share repurchase program to be in
effect until June 18, 2019, or until the approved dollar amount has
been used to repurchase shares.
During the three months ended March 31, 2019, the Company did
not repurchase any shares.
High Asset Sensitivity – Potential Increase in Prime Rate
Will Benefit Hercules and Help Drive Future Earnings Growth
Hercules has purposely constructed an asset sensitive debt
investment portfolio and has structured its debt borrowings for any
eventual increases in market rates that may occur in the near
future. With 97.5% of our debt investment portfolio being priced at
floating interest rates as of March 31, 2019, with a Prime or
LIBOR-based interest rate floor, coupled with 96.1% of our
outstanding debt borrowings bearing fixed interest rates, this
leads to higher net investment income to our shareholders.
Based on Hercules’ Consolidated Statement of Assets and
Liabilities as of March 31, 2019, the following table shows the
approximate annualized increase 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.
We expect each 25-bps increase in the Prime Rate to contribute
approximately $4.4 million, or $0.05 per share, of net investment
income annually.
(in thousands) Interest
Interest Net EPS(2) Basis Point
Change Income(1) Expense Income
25 $ 4,414 $ 9 $ 4,405 $ 0.05 50 $ 9,053 $ 19 $ 9,034 $ 0.09
75 $ 13,742 $ 28 $ 13,714 $ 0.14 100 $ 18,431 $ 37 $ 18,394 $ 0.19
200 $ 37,225 $ 75 $ 37,150 $ 0.39 300 $ 56,032 $ 112 $ 55,920 $
0.58
(1)
Source: Hercules Capital Form 10-Q for Q1
2019
(2)
EPS calculated on basic weighted shares
outstanding of 96,218. 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 57 portfolio companies with a
fair value of $157.0 million and a cost basis of $205.6 million as
of March 31, 2019. On a fair value basis, 33.7% or $52.9 million is
related to existing public equity positions, at March 31, 2019.
Warrant Portfolio
Hercules held warrant positions in 126 portfolio companies with
a fair value of $26.9 million and a cost basis of $34.3 million as
of March 31, 2019. On a fair value basis, 31.0% or $8.4 million is
related to existing public warrant positions, at March 31,
2019.
Portfolio Company IPO and M&A Activity in Q1 2019
IPO Activity
As of April 29, 2019, Hercules held warrant and equity positions
in 11 portfolio companies that had either completed their IPOs or
filed Registration Statements in contemplation of a potential IPO,
including:
- In February 2019, Hercules’ portfolio
company Stealth Bio Therapeutics Corp., (NASDAQ: MITO), a
clinical-stage biopharmaceutical company developing therapeutics to
treat mitochondrial dysfunction, completed its IPO offering 6.5
million American Depositary Shares (“ADS”) at an initial public
offering price of $12.00 per ADS. Hercules currently holds warrants
for 41,667 ADSs, as of March 31, 2019.
- In February 2019, Hercules portfolio
company Avedro, Inc. (NASDAQ: AVDR), a leading
commercial-stage ophthalmic medical technology company focused on
treating corneal ectatic disorders and improving vision to reduce
dependency on eyeglasses or contact lenses, completed its IPO
offering of 5.0 million shares of common stock at an initial public
offering price of $14.00 per share. Hercules currently holds
warrants for 67,415 shares of common stock, as of March 31,
2019.
- In March 2019, Hercules portfolio
company Lightspeed POS, Inc. (aka Lightspeed
Retail)(LSPD.TO), a cloud-based point-of-sale (POS) software
solution used by more than 50,000 retailers and restaurants,
completed its IPO offering of 17.25 million subordinate voting
shares at an initial public offering price of C$16 per share on the
Toronto Stock Exchange. Hercules currently holds 107,177 shares of
common stock and warrants for 61,402 shares of common stock, as of
March 31, 2019.
- In March 2019, Hercules portfolio
company Lyft, Inc. (NASDAQ: LYFT), a transportation network
company primarily providing ride-hailing services, completed its
IPO offering of 30.77 million Class A shares at an initial public
offering price of $68.00 per share. Hercules currently holds
200,738 shares of common stock, as of March 31, 2019.
- In March 2019, Hercules portfolio
company X4 Pharmaceuticals, Inc. (NYSE: XFOR), a
clinical-stage biopharmaceutical company focused on the development
of novel therapeutics for the treatment of rare diseases, completed
its reverse merger IPO offering with Arsanis, Inc. (NASDAQ: ASNS,
through March 13, 2019), effective as of March 13, 2019. Hercules
currently holds warrants for 25,000 shares of common stock, as of
March 31, 2019.
- 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 common stock, as of
March 31, 2019.
- In April 2019, Hercules portfolio
company TransMedics, Inc., a medical device company that
provided a proprietary system to enable the transplantation of
functioning organs, filed a public registration with the SEC to
raise up to $86.0 million in contemplation of an initial public
offering. TransMedics plans to list on the Nasdaq stock market
under the symbol “TMDX.” Hercules initially committed $10.0 million
in venture debt financing in May 2008, and currently holds 88,961
shares of Preferred Series B, 119,999 shares of Preferred Series C,
260,000 shares of Preferred Series D, and 100,200 shares of
Preferred Series F stock, as well as warrants for 175,000 shares of
Preferred Series D and 50,444 shares of Preferred Series F stock,
as of March 31, 2019.
- In April 2019, Hercules portfolio
company Fastly, Inc., a technology provider of a
leading-edge cloud platform intended to accelerate the pace of
technical innovation mitigate evolving threats and scale on demand,
filed a public registration with the SEC in contemplation of an
initial public offering. Fastly plans to list on the New York Stock
Exchange under the symbol “FSLY.” Hercules initially committed
$10.0 million in venture debt financing in December 2018, and
currently holds warrants for 152,195 shares of Preferred Series F
stock, as of March 31, 2019.
- Three (3) 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 January 2019, Hercules’ portfolio
company Labcyte Inc., a global biotechnology tools company
developing acoustic liquid handling, was acquired by Beckman
Coulter Life Sciences, a developer and manufacturer of products
that simplify, automate and innovate complex biomedical testing.
Labcyte will transition into Beckman Coulter Life Sciences under
the larger Danaher Life Sciences platform of companies. Terms of
the acquisition were not disclosed. Hercules committed $12.5
million in venture debt financing beginning in October 2009, and
held warrants for 1,127,624 shares of Preferred Series C stock as
of December 31, 2018, which were terminated and exchanged for the
applicable per share merger consideration, less the applicable per
share exercise price.
- In February 2019, Hercules’ portfolio
company Art.com Inc., one of the largest online sellers of
art and wall décor globally, was acquired by Walmart (NYSE: WMT), a
multinational retail corporation that operates a chain of
hypermarket, discount department stores and grocery stores. Terms
of the acquisition were not disclosed. Hercules initially committed
$12.0 million in venture debt financing beginning in March 2018,
and held warrants for 311,005 shares of Preferred Series B stock as
of December 31, 2018, which were subsequently written off.
Distributions
The Board of Directors declared a first quarter cash
distribution of $0.32 per share. In addition, the Board of
Directors declared a supplemental cash distribution of $0.01 per
share. This distribution would represent the Company’s 55th
consecutive distribution declaration since its IPO, bringing the
total cumulative distribution declared to date to $15.61 per share.
The following shows the key dates of each of our first quarter 2019
distribution payments:
Record Date
May 13, 2019 Payment Date May 20, 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 March 31, 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 April 30, 2019, Hercules has:
a. Closed new debt and equity commitments of
$153.5 million to new and existing portfolio companies and funded
$76.9 million since the close of the first quarter.
b. Pending commitments (signed non-binding
term sheets) of $150.7 million.
The table below summarizes our year-to-date closed and pending
commitments as follows:
Closed Commitments and Pending Commitments (in
millions) Q1 2019 Closed Commitments(a) $414.8 Q2 2019
Closed Commitments (as of April 30, 2019)(a) $153.5
Year-to-Date 2019 Closed Commitments $568.3 Q2 2019
Pending Commitments (as of April 30, 2019)(b) $150.7
Year-to-Date 2019 Closed and Pending Commitments
$719.0
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. Subsequent to March 31, 2019 and as of
April 30, 2019, the Company sold approximately 679,000 shares of
common stock for total accumulated net proceeds of approximately
$8.5 million, including approximately $78,000 of offering expenses,
under the Equity Distribution Agreement. As of April 29, 2019,
approximately 4.6 million shares remain available for issuance and
sale under the Equity Distribution Agreement.
3. 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, and currently
holds 100,000 shares of Preferred Series 3 stock, as of March 31,
2109.
Conference Call
Hercules has scheduled its first quarter 2019 financial results
conference call for May 2, 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: 5566835 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 5566835.
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 $8.9
billion to over 460 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) March 31, 2019 December
31, 2018 Assets Investments: Non-control/Non-affiliate
investments (cost of $2,000,508 and $1,830,725, respectively)
2,003,062 1,801,258 Control investments (cost of $64,968 and
$64,799, respectively) 54,913 57,619 Affiliate investments (cost of
$87,787 and $85,000, respectively) 23,067
21,496 Total investments in securities, at value (cost of
$2,153,263 and $1,980,524, respectively) 2,081,042 1,880,373 Cash
and cash equivalents 16,465 34,212 Restricted cash 10,149 11,645
Interest receivable 18,366 16,959 Right of use asset 8,856 — Other
assets 3,753 2,002
Total assets
$ 2,138,631 $ 1,945,191
Liabilities
Accounts payable and accrued liabilities $ 18,256 $ 25,961
Operating lease liability $ 8,856 — 2027 Asset-Backed Notes, net
(principal of $200,000 and $200,000 respectively)(1) 197,102
197,265 2028 Asset-Backed Notes, net (principal of $250,000 and $0,
respectively)(1) 247,352 — 2022 Convertible Notes, net (principal
of $230,000 and $230,000, respectively)(1) 225,441 225,051 2022
Notes, net (principal of $150,000 and $150,000, respectively)(1)
148,121 147,990 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) 72,685 72,590 2033 Notes, net (principal
of $40,000 and $40,000, respectively)(1) 38,420 38,427 SBA
Debentures, net (principal of $149,000 and $149,000,
respectively)(1) 147,783 147,655 Credit Facilities 44,266
52,956
Total liabilities $ 1,148,282 $
989,747
Net assets consist of: Common stock, par
value 96 96 Capital in excess of par value 1,051,427 1,052,269
Total distributable earnings (loss)(2) (61,174 ) (92,859 )
Treasury Stock, at cost, no shares as of
March 31, 2019 and 376,466 shares as of December 31, 2018
— (4,062 )
Total net assets $ 990,349
$ 955,444
Total liabilities and net assets $
2,138,631 $ 1,945,191
Shares of common
stock outstanding ($0.001 par value, 200,000,000 authorized)
96,543 96,501
Net asset value per share $ 10.26 $ 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
effecive November 5, 2018.
HERCULES
CAPITAL, INC. CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data) Three
Months Ended March 31, 2019 2018 Investment
income: Interest Income Non-control/Non-affiliate investments $
53,941 $ 41,834 Control investments 1,024 586 Affiliate investments
508 561 Total interest income
55,473 42,981 Fee Income Commitment, facility
and loan fee income: Non-control/Non-affiliate investments 2,450
2,440 Control investments 4 — Affiliate investments 88
108 Total Commitment, facility and loan fee
income 2,542 2,548 One-time fee income
Non-control/Non-affiliate investments 780 3,171 Total one-time fee
income 780 3,171 Total fee income
3,322 5,719
Total investment
income 58,795 48,700
Operating
expenses: Interest 12,555 9,386 Loan fees 3,009 1,175 General
and administrative 4,153 4,009 Employee compensation: Compensation
and benefits 6,623 5,758 Stock-based compensation 3,422
2,309 Total employee compensation
10,045 8,067
Total operating expenses
29,762 22,637
Net investment
income 29,033 26,063
Net realized gain (loss) on
investments Non-control/Non-affiliate investments 4,555 (3,512
) Control investments — (1,408 ) Total net
realized gain (loss) on investments 4,555
(4,920 )
Net change in unrealized appreciation (depreciation) on
investments Non-control/Non-affiliate investments 32,091
(14,340 ) Control investments (2,875 ) (620 ) Affiliate investments
(1,219 ) (237 ) Total net unrealized appreciation
(depreciation) on investments 27,997 (15,197 )
Total net realized and unrealized gain(loss) 32,552
(20,117 )
Net increase(decrease) in net assets
resulting from operations $ 61,585 $ 5,946
Net investment income before investment gains and losses per common
share: Basic $ 0.30 $ 0.31 Change in net assets
resulting from operations per common share: Basic $ 0.64 $
0.07 Diluted $ 0.64 $ 0.07 Weighted average
shares outstanding Basic 96,218 84,596
Diluted 96,508 84,666 Distributions
paid per common share: Basic $ 0.31 $ 0.31
HERCULES CAPITAL, INC.
NON GAAP FINANCIAL MEASURES
(in thousands, except per share
data)
Three Months Ended March 31, Reconciliation
of Net Investment Income to DNOI 2019 2018
Net investment income $ 29,034 $ 26,063 Stock-based compensation
3,422 2,309 DNOI $ 32,455 $ 28,371 DNOI per
share-weighted average common shares Basic $ 0.34 $ 0.34
Weighted average shares outstanding Basic 96,218
84,596
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)
March 31, 2019 Total Debt (Principal Outstanding) $
1,138,266 Long-term SBA Debentures $ (149,000 ) Cash and cash
equivalents (16,465 )
Numerator: net debt (total debt less cash
and cash equivalents and SBA Debentures)
$ 972,801 Denominator: Total net assets $ 990,349 Net Leverage
Ratio 98.2 %
Net leverage ratio is calculated by deducting the outstanding
cash of $16.5 million and long-term SBA debentures of $149.0
million, at March 31, 2019 from total principal outstanding of
$1,138.3 million divided by our total equity of $990.3 million,
resulting in a net leverage ratio of 98.2%. 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/20190502005779/en/
Michael HaraInvestor Relations and Corporate
CommunicationsHercules Capital, Inc.650-433-5578mhara@htgc.com
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