• Total Gross Fundings (2024): $1.81 billion, an increase of 13% year over year.
• Total Investment Income (2024): $493.6 million, an increase of 7.1% year over year.
• Net Investment Income (2024): $325.8 million, an increase of 7.2% year over year.
• Return on Average Equity (ROAE) (2024): 17.2%.
• Return on Average Assets (ROAA) (2024): 7.3%.
• Total Platform AUM: Approximately $4.8 billion, an increase of more than 14% year over year.
• Q4 Total Investment Income: $121.8 million.
• Q4 Net Investment Income: $81.1 million or $0.49 per share.
• Q4 Return on Equity: 17%.
• Q4 GAAP Effective Yield: 13.7%.
• Q4 Core Yield: 12.9%.
• Net Asset Value (NAV) per Share (Q4): $11.66, an increase of 2.3% from Q3 2024.
• Liquidity (End of Q4): $658.8 million in the BDC and over $1.1 billion across the platform.
• Weighted Average Cost of Debt (2024): Approximately 5%.
• Q4 Gross Operating Expenses: $43.5 million.
• Q4 Interest Expense and Fees: $22.1 million.
• Q4 SG&A Expenses: $21.4 million.
• Q4 Net Realized Losses: $33.5 million.
• Q4 Net Unrealized Appreciation: $13.8 million.
• Q4 Pre-payments: Approximately $225 million.
• Supplemental Distribution (2025): $0.28, distributed equally over the next four quarters.

• Warning! GuruFocus has detected 9 Warning Signs with HTGC.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Hercules Capital Inc (NYSE:HTGC) achieved record total investment income of $493.6 million in 2024, marking a 7.1% increase year over year.
• The company reported record net investment income of $325.8 million, a 7.2% increase from the previous year.
• Hercules Capital Inc (NYSE:HTGC) managed approximately $4.8 billion in assets by the end of 2024, reflecting a 14% growth from 2023.
• The company maintained a strong liquidity position with over $1.1 billion across the platform and no material near-term debt maturities.
• Hercules Capital Inc (NYSE:HTGC) declared a new supplemental distribution program for shareholders, continuing its trend of delivering supplemental distributions for five consecutive years.

Negative Points

• The company experienced net realized losses of $33.5 million in Q4 2024, primarily due to the write-off of two debt investments.
• Core yields declined from 13.3% in Q3 to 12.9% in Q4, largely due to declining base rates and spread compression on new originations.
• Approximately 50% of the portfolio has reached the contractual floor on rates, limiting the impact of future rate reductions.
• The weighted average internal credit rating increased slightly to 2.26% in Q4, indicating a slight deterioration in credit quality.
• Hercules Capital Inc (NYSE:HTGC) noted challenges in the venture capital market, with some companies struggling to raise new capital due to high valuations from previous rounds.

Q & A Highlights

Q: Based on the current pipeline, could 2025 be another record year for Hercules Capital in terms of origination activity and investment portfolio growth? A: Scott Bluestein, CEO, expressed optimism for 2025, stating that if credit quality remains strong, Hercules Capital is well-positioned for another record year. The company has already seen a strong start with $250 million in closed commitments and $578 million in signed pending commitments, marking the best start in the last five years.

Q: Can you discuss the potential size and timeline for the next private credit fund, and its expected earnings contribution to Hercules Capital? A: Scott Bluestein noted that while there is no specific disclosure on the next fund, the company plans to raise additional funds over the next year. The focus remains on quality over quantity in capital deployment. Seth Meyer, CFO, added that the earnings growth from the private funds business is reflected in the updated dividend expectations, but significant impact on 2025 earnings is not anticipated.

Q: What drove the $54 million in realized losses from debt investments, and how does this affect your view on credit quality? A: Seth Meyer explained that $43 million of the $54 million was related to the realization of a previous unrealized loss from the Convoy investment. Scott Bluestein added that the largest realized loss was from a public biotech company filing for bankruptcy. Despite these, the overall credit quality remains stable, with a slight increase in grade 4 credits due to fundraising challenges.

Q: What factors contributed to the significant pickup in funding in Q4, and do you expect this momentum to continue? A: Scott Bluestein attributed the Q4 funding increase to the resolution of election and Fed rate uncertainties, as well as companies taking advantage of lower base rates. He expects the momentum to continue, as companies recognize the current rate environment may persist.

Q: How do you plan to manage leverage in 2025, especially in light of declining rates? A: Scott Bluestein stated that Hercules Capital intends to increase leverage to offset yield compression from declining rates. The company is currently under-levered, providing a competitive advantage to deploy capital aggressively and maintain market share.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.