Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Hercules Capital Inc (HTGC, Financial) delivered record total investment income of $125.2 million in Q3 2024, marking a 7.3% increase year over year.
- The company achieved a net investment income of $83.2 million, providing 128% coverage of its base distribution of $0.40 per share.
- Hercules Capital Inc (HTGC) maintained a strong liquidity position with $572.3 million available, including access to $175 million from its fourth SBIC license.
- The company reported a return on equity of 18.9% for Q3 2024, showcasing strong financial performance.
- Hercules Capital Inc (HTGC) has a diversified asset base with a focus on technology and life sciences, allowing it to scale alongside its borrowers.
Negative Points
- The venture and growth stage markets experienced a significant slowdown in Q3 2024, impacting new originations.
- Early loan repayments decreased to approximately $230 million, indicating a slower exit activity compared to the previous year.
- The company's net asset value per share decreased slightly by 0.3% to $11.40 in Q3 2024.
- Hercules Capital Inc (HTGC) faced net realized losses of $0.6 million, primarily due to losses on warrant and equity investments.
- The credit quality of the debt investment portfolio showed slight deterioration, with an increase in rated 4 credits to 2.3% from 0.9% in Q2.
Q & A Highlights
Q: Scott, given the lighter activity in Q3, what are your expectations for deal activity in the venture capital ecosystem beyond the upcoming election and into 2025?
A: Scott Bluestein, CEO: We remain optimistic about the venture capital ecosystem's health and vibrancy. The slowdown in Q3 was expected, and many quality companies were hesitant to make financing decisions due to the Fed rate action and the upcoming election. Post-election, we anticipate an increase in activity, as reflected in our pending commitments of over $600 million. We will continue to hold our capital for better opportunities when the market is not conducive for prudent credit deployment.
Q: With the election approaching, what potential implications do you foresee for venture capital and Hercules Capital specifically?
A: Scott Bluestein, CEO: The main concern is the possibility of a disputed election without a clear winner, which could lead to market paralysis. Clarity on the election outcome is crucial for the venture capital industry and Hercules. We are managing our business conservatively to navigate potential uncertainties.
Q: How do you view the competitive landscape in the venture and growth stage lending market? Are larger private credit players entering the space?
A: Scott Bluestein, CEO: The market remains competitive, but we do not see consistent competition on most transactions. While larger asset managers occasionally enter the space, they lack the track record and consistency that Hercules has built over 20 years. Our primary competition is with equity, and we are well-positioned to compete effectively.
Q: How should we think about the base dividend heading into next year, especially with potential base rate cuts?
A: Scott Bluestein, CEO: The dividend is a board decision, but we are confident in our ability to cover the base distribution. We have consistently provided supplemental distributions due to excess spillover income, and we intend to continue this practice as long as our business performs well.
Q: What impact do you foresee from potential taxes on unrealized gains, particularly in California?
A: Seth Meyer, CFO: We expect any impact to be similar to other investment businesses. As a pass-through entity, Hercules is not disproportionately affected. We continue to monitor regulatory changes and their potential effects on our operations.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
