Sign in

You're signed outSign in or to get full access.

HC

Hercules Capital, Inc. (HTGC)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 delivered strong operating results: Total Investment Income of $121.8M and NII of $81.1M ($0.49/share), with 123% coverage of the $0.40 base distribution; NAV/share rose 2.3% q/q to $11.66 .
  • Originations momentum re-accelerated: $619.5M gross commitments and $468.5M gross fundings in Q4; early repayments moderated to $225.2M, supporting net portfolio growth .
  • Management initiated a 2025 supplemental distribution program of $0.28/share ($0.07/quarter), maintaining the $0.40 base, for total Q4 distributions of $0.47/share; liquidity robust at $658.8M and net regulatory leverage conservative at 69.9% .
  • Core yield declined to 12.9% (vs. 13.3% in Q3) on lower base rates and some spread compression; Q1 2025 core yield guided to 12.25–12.75% with prepayments guided to $100–$200M, setting expectations for NII trajectory amid planned leverage normalization .
  • Stock reaction catalysts: new supplemental dividend program, accelerating pipeline ($250.2M closed and $578.5M pending in early Q1), increasing leverage plan to offset yield compression, and NAV accretion from ATM equity issuance .

What Went Well and What Went Wrong

What Went Well

  • Record FY achievements and resilient Q4: FY 2024 Total Investment Income $493.6M (+7.1% y/y) and NII $325.8M (+7.2% y/y); Q4 NII of $0.49/share covered 123% of base dividend, and NAV/share increased to $11.66 .
  • Strong origination/funding momentum: Q4 gross commitments $619.5M and fundings $468.5M; net portfolio cost increased by ~$99.7M, reflecting balanced deployment across tech and life sciences and nine new borrower relationships .
  • Shareholder distributions enhanced: new $0.28/share supplemental program for 2025 (paid over four quarters), adding $0.07 to Q4 distributions; total Q4 distribution $0.47/share .

Management quotes:

  • “We are maintaining our current base distribution and declaring a new supplemental cash distribution program for 2025… our newly declared supplemental distribution… represents our 18th consecutive quarter of issuing a supplemental dividend.” — Scott Bluestein, CEO .
  • “Our balance sheet… remains very well positioned… and provides us with the ability to continue to focus on quality originations instead of chasing higher-yielding assets.” — Scott Bluestein .

What Went Wrong

  • Yield pressure and modest income decline: Q4 Total Investment Income fell slightly y/y to $121.8M (from $122.6M), with core yield down to 12.9% on ~100bps base rate cuts and spread compression .
  • Realized losses crystallized: Q4 net realized losses of ($33.5M), driven by ~$53.9M from two debt write-offs (including completion of the Convoy workout) and small equity/warrant losses; majority pre-reserved, limiting NAV impact .
  • Credit watchlist uptick: Grade 4 increased to 4.6% from 2.3% in Q3 as three credits facing fundraising challenges were proactively downgraded; management monitoring syndicate support amid valuation resets .

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Total Investment Income ($USD Millions)$125.0 $125.2 $121.8
Net Investment Income ($USD Millions)$82.4 $83.2 $81.1
NII per Share ($USD)$0.51 $0.51 $0.49
GAAP Effective Yield (%)14.7 14.4 13.7
Core Yield (%)13.7 13.3 12.9
Gross Fundings ($USD Millions)$461.5 $272.0 $468.5
Gross Commitments ($USD Millions)$686.5 $430.7 $619.5
Early Loan Repayments ($USD Millions)$306.1 $229.6 $225.2
Balance Sheet & CapitalQ2 2024Q3 2024Q4 2024
Available Liquidity ($USD Millions)—$572.3 $658.8
GAAP Leverage (%)—94.6% 89.6%
Regulatory Leverage (%)—85.1% 75.6%
Net GAAP Leverage (%)93.3% 92.5% 83.9%
Net Regulatory Leverage (%)83.9% 83.0% 69.9%
NAV per Share ($USD)$11.43 $11.40 $11.66
Portfolio KPIsQ2 2024Q3 2024Q4 2024
First Lien Senior Secured (% of Debt Portfolio)90.1% 89.5% 91.0%
Floating Rate with Floors (%)97.4% 97.3% 97.4%
ROAE (%)—18.9% 17.0%
ROAA (%)—9.5% 8.9%
Non-Accruals (% of Total Investments at Cost)2.5% 2.6% 1.7%
Non-Accruals (% of Total Investments at Value)0.9% 0.6% 0.5%
Portfolio Composition (Cost, $USD Millions)Q3 2024Q4 2024
Debt$3,415.7 $3,515.4
Equity & Other$163.5 $162.2
Warrants$30.7 $31.2

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Core YieldQ1 2025Company’s expected annual range 13.3–13.5% (Q3 context) 12.25–12.75% Lowered
Early Loan RepaymentsQ1 2025Q4 guidance range was $150–$250M (Q4 actual within range) $100–$200M Lowered
SG&A (Gross)Q1 2025—$23.5–$24.5M; RIA allocation ~$2.8M New quarterly guidance
Interest ExpenseQ1 2025—Expected flat vs Q4 Maintained
RIA Dividend to HTGCQ1 2025—~$1.8–$2.0M quarterly Raised vs prior guidance per CFO
Leverage Strategy2025Conservative below historical norms Plan to increase leverage; ceiling 1.25x; historically ≤1.15x Raised
Shareholder Distributions2025Base $0.40; prior supplemental $0.08 in Q3 Base $0.40 maintained; new $0.28 supplemental program ($0.07/qtr); Q4 total $0.47 Raised (supplemental program)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3)Current Period (Q4 2024)Trend
Originations & FundingsQ2 record fundings $461.5M ; Q3 fundings $272.0M amid caution Q4 commitments $619.5M; fundings $468.5M; strong Q1 pipeline ($250.2M closed, $578.5M pending) Accelerating
Rates & YieldsQ2 core yield 13.7% ; Q3 core yield 13.3% Q4 core yield 12.9%; Q1 guide 12.25–12.75% Declining, stabilizing ~12–13%
Credit QualityQ2 non-accrual 2.5% cost / 0.9% value ; Q3 2.6% / 0.6% Q4 1.7% / 0.5%; Grade-4 rose to 4.6% on fundraising pressure; realized losses largely pre-reserved Stable-to-improving non-accrual; watch Grade-4
LeverageQ3 net regulatory leverage 83.0% Q4 net regulatory leverage 69.9%; plan to increase leverage in 2025 Conservative now; increasing
Private Funds/RIASBIC license added; platform AUM growth $6.8M FY RIA dividends; quarterly $1.8–$2.0M expected Growing contribution
Macro & PolicyQ3 caution pre-election/Fed Expect more M&A and capital markets activity; watch volatility Improving activity; volatile backdrop
Unfunded Commitments$489.0M (13.4% of assets) in Q3 $448.5M (11.7% of assets) in Q4 Decreasing
Exits (M&A/IPO)4 M&A events Q3/QTD Q4 4 Q4 M&A events; 1 confidential IPO in Jan-25 Healthy exits

Management Commentary

  • Strategic positioning: “We intend to continue to manage our business and balance sheet defensively… maintain maximum flexibility to take advantage of market opportunities… we believe that we are incredibly well positioned to benefit from a more favorable originations market in 2025.” — Scott Bluestein .
  • Risk discipline and yield: “Portfolio generated a GAAP effective yield of 13.7% in Q4 and a core yield of 12.9%… focus on first lien securities… approximately 50% of our loans are at the contractual floor after recent rate reductions.” — Seth Meyer .
  • Shareholder returns: “We are maintaining our quarterly base distribution of $0.40, and we declared a new supplemental distribution of $0.28 for 2025… total of $0.47 of shareholder distributions each quarter.” — Scott Bluestein .

Q&A Highlights

  • Record-year potential: Management is “very optimistic” about 2025 new business, contingent on credit quality; early Q1 activity is the “best start” in five years (closed $250.2M; $578.5M pending) .
  • Private funds earnings: RIA distributions guided at $1.8–$2.0M quarterly; next fund timing TBD, prioritizing controlled growth over rapid deployment .
  • Credit events: ~$53.9M realized losses driven by Convoy workout crystallization and one public biotech bankruptcy; ~$42M was pre-unrealized, limiting NAV impact; Grade-4 increased to 4.6% on fundraising issues .
  • Rates and demand drivers: Post-election and Fed clarity plus ~100bps lower base rates spurred Q4 activity; companies less likely to wait for further cuts .
  • Leverage trajectory and capital structure: Expect to increase leverage in 2025 to offset yield compression; unsecured to remain the majority of debt mix, opportunistic on secured if attractive .

Estimates Context

  • Wall Street consensus (S&P Global/Capital IQ) for Q4 2024 EPS and revenue was unavailable due to a system limit at retrieval time; as a result, formal beat/miss vs consensus cannot be presented in this recap. If needed, we can re-run once access resumes to anchor comparisons on S&P Global.
  • Internally observed coverage: Q4 NII of $0.49/share provided 123% coverage of the $0.40 base distribution; total Q4 distribution $0.47/share including $0.07 supplemental .

Key Takeaways for Investors

  • Dividend profile strengthened: base $0.40 maintained and new $0.28 supplemental program for 2025; Q4 total distribution $0.47/share, supported by robust spillover earnings and 123% base dividend coverage .
  • Growth re-accelerating: Q4 commitments and fundings rebounded strongly with an accelerating Q1 pipeline, positioning for net portfolio growth even as prepayments moderate .
  • Yield normalization in focus: Core yield guided to 12.25–12.75% for Q1; plan to increase leverage should partially offset rate-driven yield compression to support NII stability .
  • Credit quality broadly stable: Non-accruals fell to 1.7% cost/0.5% value; proactive downgrades lifted Grade-4 to 4.6%—monitor fundraising conditions and syndicate support for legacy high-valuation credits .
  • NAV accretion and liquidity: NAV/share rose to $11.66 with ATM accretion; $658.8M liquidity and four investment-grade ratings support opportunistic deployment .
  • Platform diversification: First lien exposure at 91% and high floating-rate composition with floors underpin risk-adjusted returns; RIA contributes recurring dividends, adding to earnings durability .
  • Trading implications: Near term, dividend visibility and pipeline momentum are constructive; medium term, watch core yield trajectory, leverage deployment pace, and credit fundraising dynamics as key narratives influencing multiple expansion and NII sustainability .