Toggle SGML Header (+)


Section 1: 8-K (FORM 8-K)

herc20200728_8k.htm

 


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


 

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):

July 29, 2020

 

Hercules Capital, Inc.
(Exact name of registrant as specified in its charter)

 

 

Maryland 

814-00702 

74-3113410 

(State or other jurisdiction

of incorporation)

(Commission File No.)

(I.R.S. Employer

Identification No.)

400 Hamilton Ave., Suite 310

Palo Alto, CA

 

94301

(Address of principal executive offices)

 

(Zip Code)

 

Registrant's telephone number, including area code: (650) 289-3060

 

 

Not Applicable

 
 

(Former name or address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

☐   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

 

 

 

Common Stock, par value $0.001 per share

HTGC

New York Stock Exchange

5.25% Notes due 2025

HCXZ

New York Stock Exchange

6.25% Notes due 2033

HCXY

New York Stock Exchange

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter)

 

Emerging growth company          ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.             ☐

 

 

 

Item 2.02 Results of Operation and Financial Condition

 

On July 30, 2020, Hercules Capital, Inc. (the “Company”) issued a press release announcing its earnings for the quarter ended June 30, 2020. The text of the press release is included as an exhibit to this Form 8-K.

 

This information disclosed under this Item 2.02 including Exhibit 99.1 hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 and shall not be deemed incorporated by reference into any filing made under the Securities Act of 1933, except as expressly set forth by specific reference in such filing.

 

Item 8.01 Other Events

 

On July 29, 2020, the Company announced that its Board of Directors has declared a quarterly dividend of $0.32 per share payable in such amount and on such date to shareholders, as forth below. The text of the press release is included as an exhibit to this Form 8-K.

 

Quarterly Dividend Payable in August 2020

Ex-Dividend Date

Record Date

Payment Date

Amount Per Share

August 7, 2020

August 10, 2020

August 17, 2020

$0.32

 

Item 9.01 Financial Statements and Exhibits 

 

(d) Exhibits

  99.1

Press Release dated July 30, 2020

  99.2 Press Release dated July 29, 2020

 

 

 

SIGNATURES 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

HERCULES CAPITAL, INC.

       

July 30, 2020

 

By:

/s/ Melanie Grace

     

Melanie Grace

General Counsel and Secretary

 

 
(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

ex_195542.htm
 

Exhibit 99.1

 

 

 

 

Hercules Capital Reports Second Quarter 2020 Financial Results

 

 

Record Available Liquidity of $510.9 Million

 

Record Total Debt Investments of $2.28 Billion, at Cost

 

New Debt and Equity Commitments of $266.2 Million

 

Undistributed Earnings Spillover of $73.2 Million, or $0.64(1) per Ending Shares Outstanding

 

Surpassed $1.0 Billion in Cumulative Shareholder Distributions since IPO in June 2005

 

 

Q2 2020 Financial Achievements and Highlights

 

Net Investment Income “NII” of $35.7 million, or $0.32 per share

 

Provides 100% coverage of base distribution payout

Total Investment Income of $68.0 million

$510.9 million of available liquidity, subject to existing terms and covenants

New debt and equity commitments of $266.2 million

 

Total gross fundings of $132.3 million

Unscheduled early principal repayments or “early loan repayments” of $85.4 million

12.7% Return on Average Equity “ROAE” (NII/Average Equity)

6.0% Return on Average Assets “ROAA” (NII/Average Assets)

GAAP leverage of 110.0% and regulatory leverage of 100.5%(2)

Net Asset Value “NAV” increased to $10.19 from $9.92, up 2.7% from Q1 2020

12.2% GAAP Effective Yield and 11.5% Core Yield(3), a non-GAAP measure

 

 

Year-to-date ending June 30, 2020 Financial Highlights

 

NII of $76.3 million, or $0.69 per share, an increase of 18.6%, compared to $64.3 million for the six months ending June 30, 2019

 

1

 

 

Total investment income of $141.6 million, an increase of 10.6%, compared to $128.1 million for the six months ending June 30, 2019

New equity and debt commitments of $523.0 million

 

Total fundings of $365.9 million

Net debt investment portfolio growth of $108.8 million

Unscheduled early loan repayments of $235.9 million

 

 

Footnotes:

 

(1)

$0.66 per Weighted Average Shares Outstanding

(2)

Regulatory leverage represents debt-to-equity ratio, excluding our Small Business Administration “SBA” debenture

(3)

Core Yield excludes early loan repayments and one-time fees, and includes income and fees from expired commitments

 

 

PALO ALTO, Calif., July 30, 2020 - Hercules Capital, Inc. (NYSE: HTGC) (“Hercules” or the “Company”), the largest and leading specialty financing provider to innovative venture, growth and established 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, 2020.

 

“During the second quarter, we originated total commitments of $266.2 million which modestly grew our debt investment portfolio to a record $2.28 billion at cost, and our net interest income fully covered our base shareholder distribution,” stated Scott Bluestein, chief executive officer and chief investment officer of Hercules. “Further, core yields were within our targeted range of 11.0 to 12.0 percent, and fully reflected the Fed Funds cuts of 150 basis points.”

 

Bluestein added, “Throughout the first half of the year, we have been vigilantly monitoring our portfolio companies and their future liquidity needs in the face of the economic uncertainty associated with the ongoing global health pandemic. Furthermore, we strategically tapped our equity ATM program to enhance our liquidity position to $510.9 million and used the proceeds to deleverage the balance sheet. By implementing steps such as these we feel we are entering the second half of 2020 from a position of strength.”

 

Q2 2020 Review and Operating Results

 

Debt Investment Portfolio

 

Hercules delivered new debt and equity commitments totaling $266.2 million and gross fundings totaling $132.3 million.

 

During the second quarter, Hercules realized early loan repayments of $85.4 million, which along with normal scheduled amortization of $16.3 million, resulted in total debt repayments of $101.7 million.

 

The new debt investment origination and funding activities lead to net debt investment portfolio growth of $36.0 million during the first quarter, on a cost basis.

 

2

 

The Company’s total investment portfolio, (at cost and fair value) by category, quarter-over-quarter is highlighted below:

 

Total Investment Portfolio: Q2 2020 to Q1 2020

 

(in millions)

 

Debt

   

Equity

   

Warrants

   

Total Portfolio

 

Balances at Cost at 3/31/20

  $ 2,242.9     $ 190.3     $ 33.1     $ 2,466.3  

New fundings(a)

    130.4       1.0       0.9       132.3  

Warrants not related to Q2 2020 fundings

                (0.3 )     (0.3 )

Early payoffs(b)

    (85.4 )                 (85.4 )

Principal payments received on investments

    (16.3 )                 (16.3 )

Net changes attributed to conversions, liquidations, and fees

    7.3       0.4       (2.9 )     4.8  

Net activity during Q2 2020

    36.0       1.4       (2.3 )     35.1  

Balances at Cost at 6/30/20

  $ 2,278.9     $ 191.7     $ 30.8     $ 2,501.4  
                                 
                                 

Balances at Value at 3/31/20

  $ 2,195.6     $ 94.5     $ 12.4     $ 2,302.5  

Net activity during Q2 2020

    36.0       1.4       (2.3 )     35.1  

Net change in unrealized appreciation (depreciation)

    (15.3 )     29.8       11.4       25.9  

Total net activity during Q2 2020

  20.7       31.2       9.1       61.0  

Balances at Value at 6/30/20

  $ 2,216.3     $ 125.7     $ 21.5     $ 2,363.5  

 

(a)New fundings amount includes $3.6 million of fundings associated with revolver loans during Q2 2020.

(b)Early payoffs include $575k of paydowns on revolvers during Q2 2020.

 

Debt Investment Portfolio Balances by Quarter

 

(in millions)

 

Q2 2020

   

Q1 2020

   

Q4 2019

   

Q3 2019

   

Q2 2019

 
                                         

Ending Balance at Cost

  $ 2,278.9     $ 2,242.9     $ 2,170.1     $ 2,101.3     $ 2,077.2  
                                         

Weighted Average Balance

  $ 2,248.0     $ 2,178.0     $ 2,164.0     $ 2,061.0     $ 1,939.0  
                                         

 

Debt Investment Portfolio Composition by Quarter

 

(% of debt investment portfolio)

 

Q2 2020

   

Q1 2020

   

Q4 2019

   

Q3 2019

   

Q2 2019

 
                                         

First Lien Senior Secured

    83.5 %     83.0 %     84.0 %     84.8 %     81.8 %
                                         

Floating Rate w/Floors

    97.9 %     97.8 %     97.4 %     97.6 %     97.7 %
                                         

 

Effective Portfolio Yield and Core Portfolio Yield (“Core Yield”)

 

The effective yield on Hercules’ debt investment portfolio was 12.2% during Q2 2020, as compared to 13.6% for Q1 2020. The Company realized $85.4 million of early loan repayments in Q2 2020 compared to $150.5 million in Q1 2020, or a decrease of 43.3%. 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.

 

3

 

Core yield, a non-GAAP measure, was 11.5% during Q2 2020, within the Company’s expected range of 11.0% to 12.0%, and decreased compared to 11.8% in Q1 2020. 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 decreased to $68.0 million for Q2 2020, compared to $69.3 million in Q2 2019, a decrease of 1.9% year-over-year. The decrease is primarily attributable to lower core yields due to the impact of the Fed Funds cut in March 2020 and a decrease in early loan repayments between periods.

 

Non-interest and fee expenses were $15.6 million in Q2 2020 versus $18.8 million for Q2 2019. The decrease was due to lower compensation and benefits and a decrease in stock-based compensation expenses.

 

Interest expense and fees were $16.7 million in Q2 2020, compared to $15.2 million in Q2 2019. The increase was due to higher weighted-average borrowings between periods.

 

The Company had a weighted average cost of borrowings comprised of interest and fees, of 5.0% in Q2 2020, as compared to 5.2% for Q2 2019.

 

NII – Net Investment Income

 

NII for Q2 2020 was $35.7 million, or $0.32 per share, based on 111.6 million basic weighted average shares outstanding, compared to $35.3 million, or $0.36 per share, based on 98.2 million basic weighted average shares outstanding in Q2 2019, an increase of 1.2% year-over-year. The increase is attributable to a higher average debt investment balance between periods and a decrease in compensation and benefits and stock-based compensation expenses offset by lower core yields and a decrease in early loan repayments.

 

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, 2020, (including net loan, warrant and equity activity) on investments, totaled ($16.5) million, on a GAAP basis, spanning over 15 years of investment activities.

 

When compared to total new debt investment commitments during the same period of over $10.5 billion, the total realized gain/(loss) since inception of ($16.5) million represents approximately 16 basis points “bps,” or 0.16%, of cumulative debt commitments, or an effective annualized loss rate of 1.0 bps, or 0.01%.

 

Realized Gains/(Losses)

 

During Q2 2020, Hercules had net realized gains/(losses) of $141,000 primarily from gross realized gains of $2.5 million from the sale of our public equity holdings, partially offset by the gross realized losses of ($2.4) million primarily from the liquidation or write-off of certain of our equity and warrant positions during the quarter.

 

4

 

Unrealized Appreciation/(Depreciation)

 

During Q2 2020, Hercules recorded $25.9 million of net unrealized appreciation primarily related to the mark-to-market recovery of our public equity and warrant investments, as well as our private equity investments and debt investments.

 

Portfolio Asset Quality

 

As of June 30, 2020, the weighted average grade of the debt investment portfolio, at fair value, improved to 2.30, compared to 2.34 as of March 31, 2020, 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. Various companies in the Company’s portfolio will require additional rounds of funding from time to time to maintain their operations.

 

Additionally, Hercules may selectively downgrade portfolio companies, from time to time, if they are not meeting the Company’s financing criteria, or underperforming relative to their respective business plans.

 

As of June 30, 2020, grading of the debt investment portfolio at fair value, excluding warrants and equity investments, was as follows:

 

Credit Grading at Fair Value, Q2 2020 - Q2 2019 ($ in millions)

   

Q2 2020

   

Q1 2020

   

Q4 2019

   

Q3 2019

   

Q2 2019

 

Grade 1 - High

  $ 443.6       20.1%     $ 390.4       17.7%     $ 387.3       18.0%     $ 237.9       11.4%     $ 256.2       12.4%  

Grade 2

  $ 877.9       39.6%     $ 818.1       37.3%     $ 1,180.5       55.0%     $ 1,331.2       64.0%     $ 1,317.7       63.9%  

Grade 3

  $ 849.7       38.3%     $ 917.2       41.8%     $ 509.9       23.7%     $ 479.0       23.1%     $ 413.0       20.1%  

Grade 4

  $ 25.0       1.1%     $ 54.3       2.5%     $ 69.0       3.2%     $ 29.7       1.4%     $ 67.8       3.3%  

Grade 5 - Low

  $ 20.1       0.9%     $ 15.5       0.7%     $ 1.8       0.1%     $ 2.1       0.1%     $ 6.9       0.3%  
                                                                                 

Weighted Avg.

    2.30               2.34               2.15               2.17               2.18          

 

Non-Accruals 

 

Non-accruals increased as a percentage of the overall investment portfolio in the second quarter of 2020. As of June 30, 2020, the Company had five (5) debt investments on non-accrual with an investment cost and fair value of approximately $61.1 million and $11.5 million, respectively, or 2.4% and 0.5% as a percentage of the Company’s total investment portfolio at cost and value, respectively.

 

Compared to March 31, 2020, the Company had four (4) debt investments on non-accrual with an investment cost and fair value of approximately $20.4 million and $0.4 million, respectively, or 0.8% and 0.0% as a percentage of the total investment portfolio at cost and value, respectively.

 

5

 

   

Q2 2020

   

Q1 2020

   

Q4 2019

   

Q3 2019

   

Q2 2019

 
                                         

Total Investments at Cost

  $ 2,501.4     $ 2,466.3     $ 2,402.0     $ 2,336.3     $ 2,315.7  
                                         

Loans on non-accrual as a % of Total Investments at Value

    0.5 %     0.0 %     0.0 %     0.1 %     0.2 %
                                         

Loans on non-accrual as a % of Total Investments at Cost

    2.4 %     0.8 %     0.4 %     0.4 %     0.4 %

 

                                       

 

 

Liquidity and Capital Resources

 

In February 2020, the Company announced a private offering totaling $120.0 million in aggregate principal amount of $50.0 million 4.28% Notes due February 2025 (the “February Notes”) and $70.0 million 4.31% Notes due June 2025 (the “June Notes”). The issuance of $50.0 million of the February Notes occurred on February 5, 2020 and the issuance of $70.0 million of the June Notes occurred on June 3, 2020.

 

The Company ended Q2 2020 with $510.9 million in available liquidity, including $35.9 million in unrestricted cash and cash equivalents, and $475.0 million in available credit facilities, subject to existing terms and advance rates and regulatory and covenant requirements.

 

During the three months ending June 30, 2020, the Company sold 3.6 million shares of common stock under the equity ATM program, for total accumulated net proceeds of approximately $38.7 million, including $352,000 of offering expenses, all accretive to net asset value. During the six months ending June 30, 2020, the Company sold approximately 5.97 million shares of common stock, which were issued under the equity ATM program, for total accumulated net proceeds of approximately $73.9 million, including $714,000 of offering expenses, all accretive to net asset value. As of July 29, 2020, approximately 16.5 million shares remain available for issuance and sale under the Equity Distribution Agreement.

 

Bank Facilities

 

As of June 30, 2020, there were no outstanding borrowings under the Hercules’ $400.0 million committed credit facility with Union Bank as Agent and no outstanding borrowings under the Hercules’ $75.0 million committed credit facility with Wells Fargo Capital Finance.

 

Leverage 

 

As of June 30, 2020, Hercules’ GAAP leverage ratio, including its Small Business Administration “SBA” debentures, was 110.0%. Hercules’ regulatory leverage, or debt-to-equity ratio, excluding its SBA debentures, was 100.5% and net regulatory leverage, a non-GAAP measure (excluding cash of approximately $35.9 million), was 97.4%. Hercules’ net leverage ratio, including its SBA debentures, was 106.9%.

 

Available Unfunded Commitments – Representing 6.7% 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.

 

6

 

As of June 30, 2020, the Company had $165.1 million of available unfunded commitments at the request of the portfolio company and unencumbered by any milestones, including undrawn revolving facilities, representing 6.7% of Hercules’ total assets. This increased from the previous quarter of $134.7 million of available unfunded commitments or 5.6% of Hercules’ total assets.

 

Existing Pipeline and Signed Term Sheets

 

After closing $266.2 million in new debt and equity commitments in Q2 2020, Hercules has pending commitments of $150.3 million in signed non-binding term sheets outstanding as of July 28, 2020. Since the close of Q2 2020 and as of July 28, 2020, Hercules has closed new debt and equity commitments of $10.0 million and funded $15.0 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 June 30, 2020, the Company’s net assets were $1.16 billion, compared to $1.10 billion at the end of Q1 2020. NAV per share increased 2.7% to $10.19 on 114.2 million outstanding shares of common stock as of June 30, 2020, compared to $9.92 on 110.6 million outstanding shares of common stock as of March 31, 2020. The increase in NAV per share was primarily attributed to the unrealized appreciation due to the mark-to-market recovery on our public equity and warrant investments, as well as our private equity, warrant and debt investments, plus net accretion of $0.04 per share to NAV on ATM offering and stock-based compensation.

 

Interest Rate Sensitivity

 

Hercules has an asset sensitive debt investment portfolio with 97.9% of our debt investment portfolio being priced at floating interest rates as of June 30, 2020, with a Prime or LIBOR-based interest rate floor, combined with 100% 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, 2020, 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.

 

7

 

(in thousands)

   

Interest

   

Interest

   

Net

   

EPS(2)

 

Basis Point Change

   

Income(1)

   

Expense

   

Income

         
(75)     $ (650 )   $ (180 )   $ (470 )   $ -  
(50)     $ (492 )   $ (120 )   $ (372 )   $ -  
(25)     $ (307 )   $ (60 )   $ (247 )   $ -  
25     $ 1,663     $ 60     $ 1,603     $ 0.01  
50     $ 3,363     $ 120     $ 3,243     $ 0.03  
75     $ 5,062     $ 180     $ 4,882     $ 0.04  
100     $ 6,888     $ 240     $ 6,648     $ 0.06  
200     $ 17,051     $ 479     $ 16,572     $ 0.15  

 

(1) Source: Hercules Capital Form 10-Q for Q2 2020

(2) EPS calculated on basic weighted shares outstanding of 111,588.  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

 

Equity Portfolio

 

Hercules held equity positions in 53 portfolio companies with a fair value of $125.7 million and a cost basis of $191.6 million as of June 30, 2020. On a fair value basis, 19.1% or $23.9 million is related to existing public equity positions.

 

Warrant Portfolio

 

Hercules held warrant positions in 103 portfolio companies with a fair value of $21.5 million and a cost basis of $30.8 million as of June 30, 2020. On a fair value basis, 32.6% or $7.0 million is related to existing public warrant positions.

 

Portfolio Company IPO and M&A Activity in Q2 2020

 

IPO Activity

 

As of July 27, 2020, Hercules held debt, warrant or equity positions in five (5) portfolio companies that had filed Registration Statements in contemplation of a potential IPO, including:

 

 

Four (4) portfolio companies filed confidentially under the JOBS Act.

 

 

In July 2020, Hercules portfolio company Oak Street Health, Inc., a fast-growing network of value-based, primary care centers for adults on Medicare, filed a registration statement on Form S-1 with the U.S. Securities and Exchange Commission for a proposed initial public offering of shares of its common stock and intends to list its common stock on the New York Stock Exchange under the symbol “OSH.” Oak Street Health had previously filed confidentially under the JOBS Act.

 

There can be no assurances that companies that have yet to complete their IPOs will do so.

 

8

 

M&A Activity 

 

 

In May 2020, Hercules’ portfolio company Machine Zone, a game developer best known as the developer of top-grossing mobile games including Game of War: Fire Age, Mobile Strike and Final Fantasy XV: A New Empire, announced that it has entered into a definitive agreement to be acquired by AppLovin, a mobile games company that fuels many of the world's most popular mobile games through its game studios and marketing technology. Terms of the acquisition were not disclosed. Hercules initially committed $100.0 million in venture debt financing in April 2015.

 

 

In May 2020, Hercules’ portfolio company Metuchen Pharmaceuticals, LLC, a privately held biopharmaceutical company focused on identifying, developing, acquiring, and commercializing innovative therapeutics for men’s health conditions, announced that they have entered into a definitive merger agreement with Neurotrope Bioscience, Inc. (NASDAQ: NTRP), a clinical-stage biopharmaceutical company that has historically worked to develop novel therapies for neurodegenerative diseases, to form a new holding company to be renamed Petros Pharmaceuticals, Inc. Petros is expected to become a Nasdaq traded company focused solely on men’s health conditions. The transaction has been approved by the boards of directors of both companies. The merger is expected to close during the third quarter of 2020, subject to customary closing conditions, including the approval of the merger agreement by the shareholders of Neurotrope. Hercules initially committed $45.6 million in venture debt financing in September 2016.

 

 

In June 2020, Hercules’ portfolio company Lastline Inc., the leader in AI-powered network detection and response, was acquired by VMware, Inc. (NYSE: VMW), a leading innovator in enterprise software. Terms of the acquisition were not disclosed. Hercules initially committed $6.0 million in venture debt financing in June 2019.

 

 

In July 2020, Hercules’ portfolio company Postmates Inc., a leader in on-demand food delivery, announced that they have reached a definitive agreement to be acquired by Uber Technologies, Inc. (NYSE: UBER), a ride-hailing company offering services that include peer-to-peer ridesharing, ride service hailing, and food delivery, for approximately $2.65 billion in an all-stock transaction. Hercules initially committed $20.0 million in venture debt financing in July 2018 and currently holds warrants for 189,865 shares of common stock as of June 30, 2020.

 

Subsequent Events 

 

 

1.

As of July 28, 2020, Hercules has:

 

 

a.

Funded $15.0 million to new and existing commitments since the close of the second quarter 2020.

 

 

b.

Pending commitments (signed non-binding term sheets) of $150.3 million.

 

9

 

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, 2020 Closed Commitments(a)

  $ 523.0  

 Q3 2020 Closed Commitments (as of July 28, 2020)(a)

  $ 10.0  

 Year-to-Date 2020 Closed Commitments

  $ 533.0  

 Q3 2020 Pending Commitments (as of July 28, 2020)(b)

  $ 150.3  

 Year-to-Date 2020 Closed and Pending Commitments

  $ 683.3  

 

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.

 

Conference Call

 

Hercules has scheduled its second quarter 2020 financial results conference call for July 30, 2020 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: 1268909 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 1268909.

 

About Hercules Capital, Inc.

 

Hercules Capital, Inc. (NYSE: HTGC) 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 $10.5 billion to over 500 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 [email protected], or call 650.289.3060.

 

Hercules’ common stock trades on the New York Stock Exchange (NYSE) under ticker symbol HTGC. In addition, Hercules has two retail bond issuances of 5.25% Notes due 2025 (NYSE: HCXZ) and 6.25% Notes due 2033 (NYSE: HCXY).

 

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.

 

10

 

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.

 

Contact:

 

Michael Hara

Investor Relations and Corporate Communications

Hercules Capital, Inc.

650-433-5578

[email protected]

 

11

 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(dollars in thousands, except per share data)

 

   

June 30, 2020

   

December 31, 2019

 

Assets

               

Investments:

               

Non-control/Non-affiliate investments (cost of $2,347,547 and $2,248,524, respectively)

  $ 2,297,180     $ 2,232,972  

Control investments (cost of $65,227 and $65,333, respectively)

    54,431       59,746  

Affiliate investments (cost of $88,584 and $88,175, respectively)

    11,910       21,808  

Total investments in securities, at value (cost of $2,501,357 and $2,402,032, respectively)

    2,363,521       2,314,526  

Cash and cash equivalents

    35,884       64,393  

Restricted cash

    33,599       50,603  

Interest receivable

    19,458       20,207  

Right of use asset

    10,492       11,659  

Other assets

    5,547       580  

Total assets

  $ 2,468,501     $ 2,461,968  
                 

Liabilities

               

Accounts payable and accrued liabilities

  $ 29,162     $ 30,306  

Operating lease liability

    10,178       11,538  

SBA Debentures, net (principal of $110,250 and $149,000, respectively)(1)

    109,808       148,165  

2022 Notes, net (principal of $150,000 and $150,000, respectively)(1)

    148,776       148,514  

July 2024 Notes, net (principal of $105,000 and $105,000, respectively)(1)

    103,795       103,685  

February 2025 Notes, net (principal of $50,000 and $0, respectively)(1)

    49,465        

2025 Notes, net (principal of $75,000 and $75,000, respectively)(1)

    73,161       72,970  

June 2025 Notes, net (principal of $70,000 and $0, respectively)(1)

    69,217        

2033 Notes, net (principal of $40,000 and $40,000, respectively)(1)

    38,555       38,501  

2027 Asset-Backed Notes, net (principal of $200,000 and $200,000 respectively)(1)

    197,448       197,312  

2028 Asset-Backed Notes, net (principal of $250,000 and $250,000, respectively)(1)

    247,511       247,395  

2022 Convertible Notes, net (principal of $230,000 and $230,000, respectively)(1)

    227,395       226,614  

Credit Facilities

          103,919  

Total liabilities

  $ 1,304,471     $ 1,328,919  
                 

Net assets consist of:

               

Common stock, par value

    115       108  

Capital in excess of par value

    1,223,263       1,145,106  

Total distributable earnings (loss)

    (59,348 )     (12,165 )

Total net assets

  $ 1,164,030     $ 1,133,049  

Total liabilities and net assets

  $ 2,468,501     $ 2,461,968  
                 

Shares of common stock outstanding ($0.001 par value, 200,000,000 authorized)

    114,230       107,364  

Net asset value per share

  $ 10.19     $ 10.55  

 

(1) The Company’s SBA Debentures, February 2025 Notes, June 2025 Notes, 2033 Notes, 2025 Notes, 2022 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, 2022 Convertible Notes, and July 2024 Notes, as each term is defined herein, are presented net of the associated debt issuance costs for each instrument. 

 

12

 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Investment income:

                               

Interest income

                               

Non-control/Non-affiliate investments

  $ 62,667     $ 59,932     $ 128,005     $ 113,872  

Control investments

    731       1,040       1,377       2,064  

Affiliate investments

    157       738       377       1,247  

Total interest income

    63,555       61,710       129,759       117,183  

Fee income

                               

Commitment, facility and loan fee income

                               

Non-control/Non-affiliate investments

    3,511       5,028       7,707       7,478  

Control investments

    5       4       10       8  

Affiliate investments

          72             160  

Total commitment, facility and loan fee income

    3,516       5,104       7,717       7,646  

One-time fee income

                               

Non-control/Non-affiliate investments

    897       2,450       4,111       3,230  

Total one-time fee income

    897       2,450       4,111       3,230  

Total fee income

    4,413       7,554       11,828       10,876  

Total investment income

    67,968       69,264       141,587       128,059  

Operating expenses:

                               

Interest

    15,076       13,515       29,608       26,070  

Loan fees

    1,650       1,646       3,444       4,655  

General and administrative

                               

Legal expenses

    991       1,963       1,860       2,626  

Tax expenses

    899       593       2,034       891  

Other expenses

    3,973       3,239       7,998       6,431  

Total general and administrative

    5,863       5,795       11,922       9,948  

Employee compensation

                               

Compensation and benefits

    7,180       9,190       15,394       15,813  

Stock-based compensation

    2,515       3,851       4,955       7,273  

Total employee compensation

    9,695       13,041       20,349       23,086  

Total operating expenses

    32,284       33,997       65,323       63,759  

Net investment income

    35,684       35,267       76,264       64,300  

Net realized gain (loss) on investments

                               

Non-control/Non-affiliate investments

    141       4,271       7,108       8,826  

Total net realized gain (loss) on investments

    141       4,271       7,108       8,826  

Net change in unrealized appreciation (depreciation) on investments

                               

Non-control/Non-affiliate investments

    23,613       9,794       (34,816 )     41,884  

Control investments

    2,642       808       (5,209 )     (2,068 )

Affiliate investments

    (315 )     (2,009 )     (10,305 )     (3,226 )

Total net unrealized appreciation (depreciation) on investments

    25,940       8,593       (50,330 )     36,590  

Total net realized and unrealized gain(loss)

    26,081       12,864       (43,222 )     45,416  

Net increase(decrease) in net assets resulting from operations

  $ 61,765     $ 48,131     $ 33,042     $ 109,716  

Net investment income before investment gains and losses per common share:

                               

Basic

  $ 0.32     $ 0.36     $ 0.69     $ 0.66  

Change in net assets resulting from operations per common share:

                               

Basic

  $ 0.55     $ 0.49     $ 0.29     $ 1.13  

Diluted

  $ 0.55     $ 0.49     $ 0.29     $ 1.12  

Weighted average shares outstanding:

                               

Basic

    111,558       98,223       110,256       97,226  

Diluted

    111,729       98,737       110,504       97,630  

Distributions paid per common share:

                               

Basic

  $ 0.32     $ 0.33     $ 0.72     $ 0.64  

 

13
(Back To Top)

Section 3: EX-99.2 (EXHIBIT 99.2)

ex_195642.htm

Exhibit 99.2

 

 

 

Hercules Capital Surpasses $1.0 Billion in Cumulative Distributions to Shareholders since IPO

 

Declares Cash Distribution of $0.32 per Share for the Second Quarter of 2020

 

PALO ALTO, Calif., July 29, 2020 Hercules Capital, Inc. (NYSE: HTGC) (“Hercules” or the “Company”), the largest and leading specialty finance provider to innovative, venture, growth and established stage companies backed by some of the leading and top-tier venture capital and select private equity firms, today announced that its Board of Directors has declared a second quarter 2020 cash distribution of $0.32 per share.

 

“We are proud of the fact that this cash distribution payment marks a significant milestone for the Company and its shareholders,” said Scott Bluestein, chief executive officer and chief investment officer of Hercules Capital. “Since June 2005, we have paid 60 consecutive quarterly base distributions on our common shares totaling in excess of $1.0 billion. The ability to do this is a true testament to the resiliency of our venture lending platform and discipline of our seasoned investment team especially when considering the multiple credit cycles, interest rate changes and varying economic conditions the portfolio has been able to successfully navigate over the last 15 years.”

 

The following shows the key dates of the second quarter 2020 distribution payment:

 

  Record Date August 10, 2020
  Payment Date August 17, 2020

        

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, 2020, 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 2020 full year distributions to stockholders.

 

 

 

About Hercules Capital, Inc.

 

Hercules Capital, Inc. (NYSE: HTGC) 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 $10.2 billion to over 500 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 [email protected], or call (650) 289-3060.

 

Hercules’ common stock trades on the New York Stock Exchange (NYSE) under ticker symbol HTGC. In addition, Hercules has two retail bond issuances of 5.25% Notes due 2025 (NYSE: HCXZ) and 6.25% Notes due 2033 (NYSE: HCXY).

 

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.

 

Contact:

 

Michael Hara                                   

Investor Relations and Corporate Communications          

Hercules Capital, Inc.                

(650) 433-5578                              

[email protected]

 
(Back To Top)