No Oil and Gas, or CLO Exposure
Highlights for Full-Year 2015
- Record Total Investment Assets of $1.2
billion, at value, an increase of 18% year-over-year
- Record Gross Debt and Equity Fundings
of $712.7 million, an increase of 15% year-over-year
- $745.3 million in Total Debt and Equity
Commitments
- Record Total Investment Income of
$157.1 million, an increase of 9% year-over-year
- Second consecutive year of earnings
spillover of $8.2 million, or $0.11 per share
- Excludes potential unrealized gain on
Box, Inc. of $12.3 million at year-end 2015
- Completed stock repurchases
representing 1.2% of total outstanding shares of common stock, or
approximately 887,000 shares, since Q3 2015 through February 22,
2016
- Strong performance from Hercules
portfolio companies with 15 completed or announced IPO and M&A
liquidity events in 2015
- Reaffirmed Investment Grade Corporate
Ratings from both Standard & Poor's (BBB-) and Kroll Bond
Rating Agency, Inc. (BBB+)
- Outstanding management of total
available and unavailable unfunded commitments to $115.9 million at
year-end 2015, down 72.0% from a peak of $413.9 million in Q2 2015,
and representing 9.7% of Total Investment Assets, at value
Highlights for Q4 2015
- Net Investment Income, or “NII,” was
$20.1 million, or $0.28 per share. Adjusted Net Investment Income,
or “ANII,” was $20.9 million, or $0.29 per share, which is a
non-GAAP measure that excludes $0.01 per share non-recurring
non-cash expense related to the buy-back of $40 million of the 2019
notes
- Distributable Net Operating Income, or
“DNOI,” a non-GAAP measure, was $22.3 million, or $0.31 per share.
Adjusted DNOI, which is also a non-GAAP measure and excludes $0.01
per share, of non-recurring non-cash expense related to the
buy-back of $40 million of the 2019 notes, was $23.1 million, or
$0.32 per share
- Gross debt and equity fundings of
$180.7 million, an increase of 14% quarter-over-quarter
- Net investment portfolio growth of
$52.2 million, on a cost basis
- GAAP Effective Yields of 14.2%
- Net Interest Margin “NIM” of 10.2%
- Strong liquidity position of $195.2
million. Additional leverage capacity of ~$200.0 to $300.0 million
under regulatory limits, as of December 31, 2015, for potential
future loan portfolio growth
Hercules Capital, Inc. (NYSE: HTGC) (“Hercules” or the
“Company”), the leading specialty financing provider to innovative
venture growth stage companies backed by leading venture capital
firms, today announced its financial results for the fourth quarter
and full-year ended December 31, 2015.
The Company also announced that its Board of Directors has
declared a fourth quarter cash dividend of $0.31 per share, that
will be payable on March 14, 2016, to shareholders of record as of
March 7, 2016.
“The fourth quarter of 2015 was a strong end to another record
year,” said Manuel A. Henriquez, chairman and chief executive
officer of Hercules. “As indicated at the beginning of the year,
2015 was also a building year for the Company as we invested in our
future by growing both the infrastructure of the organization as
well as the investment portfolio. We expanded our national office
network, grew our board of directors with three independent
members, bolstered our senior management team with a new CFO and
General Counsel, and enhanced and strengthened our liquidity
position. In 2015, we executed our focused growth strategy and
positioned ourselves for 2016 and beyond, while also exceeding last
year’s record performance on a number of fronts including gross
fundings, loan portfolio growth and year-end loan balance, total
investment assets and investment income.”
Henriquez added, “During the fourth quarter, we generated over
$180 million in new debt and equity fundings, culminating in net
loan portfolio growth of over $200 million for the year, despite
another record year in total loan repayments of over $500 million.
More importantly, our strong brand and reputation helped us achieve
our record performance as we expanded and built new relationships
with select innovative, venture growth stage companies and our
venture capital partners. This growth was achieved while still
maintaining our rigorous underwriting standards and credit analysis
discipline that have served us well over 12 years. This is
evidenced by our overall loan investment portfolio weighted average
Loan-To-Value or “LTV” of less than 16%, based on last round
financing valuations of our portfolio companies.”
Henriquez continued, “What I am most proud of, however, is the
repeated unparalleled high-integrity performance of our loan
origination team, which over the past two years, has been
responsible for nearly $320 million of loan growth, despite having
nearly $1 billion in cumulative principal repayments over the past
two years without ever sacrificing our credit disciplines at
Hercules. They are one of the reasons for our continued success and
a clear differentiator between the Hercules platform and other
venture debt lending-focused BDCs.”
Henriquez concluded, “Finally, more than 12 years after the
founding of Hercules, we are unveiling our new name and corporate
brand, Hercules Capital. Our new name is not only a better
reflection of our 12-year evolution, but also gives Hercules a
broader mandate to pursue new potential opportunities, expand
product offerings to better meet the needs of our existing
portfolio companies, increase our strategic partnerships,
potentially expand into new industries, and grow our company
through potential acquisitions – all of which will build on our
existing and unrivaled venture lending platform. The new name and
brand in no way signify a move away from venture lending, and we
will actually look to expand upon our market leadership position
within venture debt by increasing our size and having the ability
to continue to meet the changing needs of the innovative companies
we serve today and those of tomorrow.”
Q4 2015 Review and Operating Results - Another Solid Quarter
and Year of Growth
Investment Portfolio
Hercules had a solid Q4, reflective of the market for venture
capital-backed high growth companies, having successfully entered
into new debt and equity commitments of $116.3 million, and funded
$180.7 million of debt and equity to both new and existing
portfolio companies.
During the quarter, Hercules experienced a slightly higher than
anticipated level of unscheduled early principal repayments of
$105.5 million primarily from older companies in our portfolio,
thereby having a materially lower impact on effective yields driven
by lower prepayment and fee accelerations, which along with our
normal scheduled amortization of $23.8 million, represented $129.3
in loan repayments. Despite these unexpected higher levels of
prepayments, Hercules platform proved its resiliency with the
combination of our strong Q4 2015 new commitments as well as new
debt and equity fundings of $180.7 million, helping to grow our
total portfolio balance by $52.2 million (which includes $9.1
million in equity and warrants) to $1.25 billion, on a cost basis,
during the quarter.
The Company’s total investment portfolio, valued at cost and
fair value by category, quarter-over-quarter and year-over-year,
respectively, are highlighted below:
(dollars in millions)
Loans Equity Warrants Total Portfolio
Balances at Cost at 9/30/2015 $ 1,109.2
$ 48.3 $ 42.6 $
1,200.1 New fundings(a) 168.4 10.8 1.5 180.7 Warrants
not related to Q4 fundings (0.2 ) (0.2 ) Unscheduled paydowns(b)
(105.5 ) - - (105.5 ) Principal reduction on investments (23.8 ) -
- (23.8 ) Net changes attributed to conversions, liquidations, and
fees 4.0 0.1 (3.1 ) 1.0
Net activity during Q4 2015 43.1 10.9
(1.8 ) 52.2
Balances at Cost at
12/31/15 $ 1,152.3 $ 59.2
$ 40.8 $ 1,252.3
Balances at Value at 9/30/15
$ 1,077.6 $ 52.8 $
21.3 $ 1,151.7 Net activity
during Q4 2015 43.1 10.9 (1.8 ) 52.2 Net change in unrealized
appreciation / (depreciation) (10.5 ) 3.7
3.5 (3.3 )
Balances at Value at
12/31/15 $ 1,110.2 $ 67.4
$ 23.0 $ 1,200.6
(a)New fundings amount includes $12.9M total new fundings
associated with revolver loans during Q4 2015. (b)Unscheduled
paydowns include $11.2M paydown on revolvers during Q4 2015.
(dollars in millions) Loans
Equity Warrants Total Balances at Cost at
12/31/2014 952.0 44.4
38.9 1,035.3 New
fundings(a) 686.3 18.2 7.8 712.3 Warrants not related to 2015
fundings 0.1 0.1 Unscheduled paydowns(b) (388.5 ) - - (388.5 )
Principal reduction on investments (115.1 ) - - (115.1 ) Net
changes attributed to conversions, liquidations, and fees
17.6 (3.4 ) (6.0 ) 8.2 Net
activity during 2015 200.3 14.8
1.9 217.0
Balances at Cost at 12/31/15
$ 1,152.3 $ 59.2 $
40.8 $ 1,252.3
Balances at Value at 12/31/14 $
923.9 $ 71.7 $
25.1 $ 1,020.7 Net activity
during 2015 200.3 14.8 1.9 217.0 Net change in unrealized
appreciation / (depreciation) (14.0 ) (19.1 )
(4.0 ) (37.1 )
Balances at Value at 12/31/15 $
1,110.2 $ 67.4 $
23.0 $ 1,200.6 (a)New fundings
amount includes $61.3M total new fundings associated with revolver
loans during 2015. (b)Unscheduled paydowns include $60.7M paydown
on revolvers during 2015.
As of December 31, 2015, 89.4% of the Company’s debt investments
were in a “true first lien” senior secured position.
Rising Interest Rates and High Asset Sensitivity Will Benefit
Hercules Significantly
We are well positioned and have constructed a very asset
sensitive investment portfolio for any eventual increases in market
rates that may occur in the near future with 93.7% of our loan
investment portfolio being priced at floating interest rates or
floating interest rates with a Prime or LIBOR-based interest rate
floor, which coupled with our existing fixed interest rate
outstanding bond obligations, would potentially lead to higher net
investment income to our shareholders.
Based on our Consolidated Statement of Assets and Liabilities as
of December 31, 2015, 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 our investments and
borrowings.
We expect each 25 bps increase in the Prime Rate to contribute
approximately $2.0 million, or $0.03 per share, of net investment
income.
(in thousands)
Interest
Interest
Net
EPS(1)
Basis Point
Change
Income
Expense
Income
-100 $ (2,677 ) $ (200 ) $ (2,477 ) $ (0.04 ) 25 $ 2,160 $
78 $ 2,082 $ 0.03 50 $ 4,320 $ 156 $ 4,164 $ 0.06 75 $ 6,480 $ 234
$ 6,246 $ 0.09 100 $ 8,640 $ 313 $ 8,328 $ 0.12 200 $ 19,186 $ 625
$ 18,561 $ 0.27 300 $ 30,668 $ 938 $ 29,730 $ 0.43 (1) EPS
calculated on basic weighted shares outstanding of 69,479
Unfunded Commitments – Down 72% from its peak in Q2 2015 and
representing approximately 10% of total investments assets
The Company’s unfunded commitments and contingencies consist
primarily of unused commitments to extend credit in the form of
loans to select Company’s 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 December 31, 2015, the Company had $115.9 million of total
unfunded commitments, but only $75.4 million of unfunded
commitments, including undrawn revolving facilities, were available
at the request of the portfolio company and unencumbered by any
milestones, representing only 6.5% of Hercules’ loan balance, at
cost, and down from 9.9% in Q3 2015. In addition, we had $40.5
million of specific milestone requirement driven unavailable
commitments to portfolio companies or other covenant restrictions
limiting availability.
Signed Term Sheets
Hercules finished Q4 2015 with $86.0 million in signed
non-binding term sheets outstanding to eight new and existing
companies.
Since the close of Q4 2015 and as of February 22, 2016, Hercules
closed debt and equity commitments of $126.4 million to new and
existing portfolio companies, and funded $98.4 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.
Existing Equity and Warrant Portfolio
Equity Portfolio
Hercules held equity positions in 51 portfolio companies with a
fair value of $67.4 million and a cost basis of $59.2 million as of
December 31, 2015. On a fair value basis, $30.7 million is related
to public equity positions, primarily concentrated in Box, Inc.
which had a fair value of $18.0 million, compared to a cost basis
of $5.7 million, at December 31, 2015. As of December 31, 2015, the
potential unrealized gain in Box was approximately $12.3
million.
Warrant Portfolio
Hercules held warrant positions in 129 portfolio companies with
a fair value of $23.0 million and a cost basis of $40.8 million as
of December 31, 2015. Hercules’ historical realized gross
warrant/equity multiples range from 1.0x to 14.9x, with an average
gross warrant/equity multiple of 3.74x and a weighted average fully
realized IRR of 24.2%.
Strong Portfolio Company IPO Activity in 2015
According to Dow Jones VentureSource report for Q4 2015, there
were 66 U.S. venture-backed IPOs in 2015, of which seven (7) were
Hercules portfolio companies, representing 11% of the completed
IPOs in 2015.
During Q4 2015, two Hercules’ portfolio companies, Edge
Therapeutics, Inc. and Cerecor Inc., completed their
initial public offerings (“IPO”).
As of December 31, 2015, Hercules held warrant and equity
positions in three (3) portfolio companies that had confidentially
filed Form S-1 Registration Statements under the JOBS Act with the
SEC in contemplation of a potential IPO. Hercules’ portfolio
company Gelesis, Inc. formally withdrew its Form S-1
Registration during the quarter.
There can be no assurances that companies that have yet to
complete their IPOs will do so.
Portfolio Company M&A Events
During Q4 2015, four Hercules’ portfolio companies, nContact
Surgical, Inc., Gazelle, Inc., Education
Dynamics, and Good Technology Corporation completed
their acquisition transactions.
Effective Portfolio Yield and Core Portfolio Yield (“Core
Yield”)
Our Effective Yields were 14.2% during Q4 of 2015, representing
more normalized levels as the amount of unscheduled early
repayments are expected to decreased and normalize from the record
setting levels over the past two years of over $350 million per
year.
The early payoffs realized in Q4 2015 were from older tenure
loans as compared to those loans paid off in Q3, thereby generating
significantly lower prepayment and accelerated fees. Our effective
portfolio yields generally include the effects of fees and income
accelerations attributed to early payoffs, as well as other
activities, or one-time event fees. Our effective yields are
materially impacted by elevated levels of unscheduled early
principal repayments, and are 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 were at 13.3% during Q4 2015, and are within our
expected normalized levels of 12.5% to 13.5%. Hercules defines Core
Yield as yields which generally exclude any benefits from the
accretion of fees and income related to early loan repayments
attributed to the acceleration of unamortized origination fees and
income as well as prepayment fees.
Income Statement
Total investment income for Q4 of 2015 was $39.4 million, an
increase of 6.8%, as compared to $36.9 million in Q4 2014. The
increase is primarily attributable to loan portfolio growth,
specifically a greater weighted average principal outstanding of
the Company’s debt portfolio between the periods.
Interest expense and loan fees were $9.5 million as compared to
$9.3 million in Q4 2014. Adjusted interest expense and loan fees, a
non-GAAP measure, which excludes $0.8 million of non-recurring
non-cash expense related to the buy-back of $40 million partial
redemption of the Company’s 7.00% Notes due September 2019 (the
“Notes”)1, was $8.7 million.
Excluding the one-time charge, the decrease was primarily due to
lower weighted average principal balances outstanding on our asset
backed notes, convertible senior notes and baby bonds.
The Company had a weighted average cost of debt comprised of
interest and fees, excluding the non-cash expense related to the
buy-back of $40 million of our 2019 notes, of 5.7% in Q4 2015
versus 6.7% during Q4 2014, and 6.2% including the non-cash
expense.
The decrease was primarily driven by a reduction in the weighted
average principal outstanding on our higher yielding debt
instruments.
Total operating expenses was $19.2 million as compared to $20.4
million for Q4 2014. Adjusted operating expenses, a non-GAAP
measure, which excludes interest expense and loan fees, for Q4 2015
was $9.8 million for Q4 2015. The decrease was primarily due to
changes in variable compensation related to origination activities,
slightly offset by an increase in general and administrative
expenses due to corporate legal expenses and outside consulting
services.
1 The Notes were issued pursuant to the indenture (the “Base
Indenture”) dated as of March 6, 2012, between the Company and U.S.
National Bank Association, as trustee, as supplemented by the
second supplemental indenture dated as of September 24, 2012
(together with the Base Indenture, the “Indenture”).
NII – Net Investment Income
NII for Q4 2015 was $20.1 million, or $0.28 per share, based on
71.2 million basic weighted average shares outstanding, compared to
$15.9 million, $0.25 per share, based on 63.1 million basic
weighted average shares outstanding in Q4 2014, representing an
increase of 26.7% and 13.8%, respectively.
ANII for Q4 2015 was $20.9 million, which excludes $0.8 million
of non-recurring non-cash expense related to the buy-back of $40.0
million of the 2019 senior unsecured notes, compared to
$15.9 million in Q4 2014, representing an increase of 31.4%,
due to a greater weighted average principal outstanding of the
Company’s debt portfolio between the periods.
ANII per share for Q4 2015 was $0.29, which excludes $0.01 per
share of non-recurring non-cash expense related to the buy-back,
based on 71.2 million basic weighted average shares outstanding,
compared to $0.25 based on 63.1 million basic weighted average
shares outstanding in Q4 2014, representing an increase of
16.0%.
ANII is a non-GAAP financial measure. The Company believes that
ANII provides useful information to investors and management
because it excludes the non-recurring non-cash expense related to
the buy-back of $40 million of the 2019 notes. ANII should not be
considered as an alternative to NII (which is prepared in
accordance with GAAP).
DNOI - Distributable Net Operating Income
DNOI for Q4 2015 was $22.3 million compared to $18.6 million in
Q4 2014 representing a 20.0% increase. Adjusted DNOI, which
excludes $0.8 million of non-recurring non-cash expense related to
the buy-back of $40.0 million of the 2019 senior unsecured notes,
was $23.1 million, representing an increase of 24.2%, due to a
greater weighted average principal outstanding of the Company’s
debt portfolio between the periods.
DNOI per share for Q4 2015 was $0.31 compared to $0.29 in Q4
2014, representing an increase of 6.9%. Adjusted DNOI per share,
which excludes $0.01 per share of non-recurring non-cash expense
related to the buy-back, was $0.32.
DNOI and Adjusted DNOI are non-GAAP financial measures. 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. The Company
believes Adjusted DNOI provides useful information to investors and
management because it excludes non-recurring charges relating to
the buy-back of 2019 senior unsecure notes. 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 Adjusted
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.
Realized Gains/ (Losses)
For the year ending December 31, 2015, Hercules had net realized
gains of $5.1 million. This net gain was comprised of $12.6 million
of gross realized gains primarily from the sale of investments in
seven portfolio companies and the subsequent recoveries received on
two previously written-off debt investments. These gains were
partially offset by gross realized losses of $7.5 from the
liquidation of our investments in sixteen portfolio companies,
nearly all comprised of expiring warrants and loan charge offs.
Continued Credit Discipline and Cumulative in Strong Credit
Performance
Cumulative net realized losses on investments, since our first
origination commencing in October 2004, through December 31, 2015,
totaled $6.9 million, on a GAAP basis. When compared to total
commitments of $5.7 billion over the same period, the net realized
loss since inception represents 12 basis points “bps” or 0.12% of
total commitments, or an annualized loss rate of 1 bps.
Unrealized Appreciation/ (Depreciation)
A break-down of the net unrealized appreciation/ (depreciation)
in the investment portfolio is highlighted below:
Three Months Ended December 31, 2015 (dollars in millions)
Loans Equity Warrants Total Collateral based
impairments $ (10.2 ) $ (0.2 ) $ (0.0 ) $ (10.4 ) Reversals of
Prior Period Collateral based impairments - -
- -
Net Collateral based
impairments (10.2 ) (0.2 )
(0.0 ) (10.4 ) Reversals due
to Debt Payoffs & Warrant/Equity sales 5.7
0.3 2.2 8.2 Fair Value Market/Yield
Adjustments Level 1 & 2 Assets (1.1 ) 0.5 (0.0 ) (0.6 ) Level 3
Assets (4.9 ) 3.1 1.3
(0.5 )
Total Fair Value Market/Yield Adjustments (6.0
) 3.6 1.3 (1.1 )
Total Unrealized Appreciation/(Depreciation)*
$
(10.5
) $ 3.7 $ 3.5
$ (3.3 ) * Excludes unrealized depreciation
from escrow receivable and taxes payable
Dividends
The Board of Directors has declared a fourth quarter cash
dividend of $0.31 per share. This dividend would represent the
Company’s 42nd consecutive dividend declaration since its IPO,
bringing the total cumulative dividend declared to date to $11.54
per share. The following shows the key dates of our fourth quarter
2015 dividend payment:
Record Date March 7, 2016 Payment Date March 14, 2016
Hercules' Board of Directors maintains a variable dividend
policy with the objective of distributing four quarterly
distributions in an amount that approximates 90% to 100% of our
taxable quarterly income or potential annual income for a
particular year. In addition, at the end of the year, our Board of
Directors may choose to pay an additional special dividend, or
fifth dividend, so that we may distribute approximately all of our
annual taxable income in the year it was earned, or electing to
maintain the option to spill over our excess taxable income into
the coming year for future dividend 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
dividends declared during the fiscal year ended December 31, 2015,
100% were distributions derived from our current and accumulated
earnings and profits. There can be no certainty to stockholders
that this determination is representative of what the tax
attributes of our 2016 distributions to stockholders.
Liquidity and Capital Resources
The Company ended Q4 2015 in a strong liquidity position with
$195.2 million in available liquidity, including $95.2 million in
unrestricted cash and $100.0 million in available credit
facilities, subject to existing terms and advance rates and
regulatory and covenant requirements. As of December 31, 2015,
91.7% of the Company’s long-term debt financing was in fixed rate
debt instruments, well positioning Hercules for any increase in
short term rates, should they occur.
In addition, Hercules has an SEC exemptive order relief, thereby
allowing it to exclude from its regulatory leverage limitations
(1:1) of all outstanding SBA debentures of $190.2 million,
providing the Company with the potential capacity to add leverage
of $306.9 million to its balance sheet, for potential loan
portfolio growth.
Bank Facilities
Hercules has two committed credit facilities with Wells
Fargo and Union Bank for $75.0 million each. The Wells
facility includes an accordion feature able to increase the
existing $75.0 million facility up to a $300.0
million accordion credit facility. Pricing at December
31, 2015 under the Wells facility and Union Bank facility
was LIBOR+3.25% with no floor and LIBOR+2.25% with no floor,
respectively. In December 2015, the Company extended the Wells
facility, under which Wells Fargo Capital Finance, LLC has
committed $75.0 million through August 2018 at the same terms.
Leverage
Hercules’ net regulatory leverage, or debt to equity less cash
ratio and excluding SBA debentures, was 43.9%, at December 31,
2015. Including our SBA debentures, our net regulatory leverage
ratio was 70.4%.
On a GAAP basis, net debt to equity leverage ratio was 83.7%,
including the SBA debentures, at December 31, 2015.
Net leverage is derived by deducting the outstanding cash at
December 31, 2015 of $95.2 million from total debt of $600.4
million and divided by total equity of $717.1 million.
Hercules has an SEC exemptive order relief, thereby allowing it
to exclude from its regulatory leverage limitations (1:1) of all
outstanding SBA debentures of $190.2 million, providing the Company
with the potential capacity to add leverage of $306.9 million to
its balance sheet, bringing the maximum potential leverage to
$907.3 million, or 126.5% (1.26:1), as of December 31, 2015, if it
had access to such additional leverage.
On December 18, 2015, President Obama signed H.R. 2029, the
Fiscal Year 2016 Consolidated Appropriation Act, which included a
significant change to the Small Business Investment Company
(“SBIC”) program. Specifically, Section 521 increases the maximum
amount of leverage available to two or more SBICs under common
control from $225 million to $350 million. Hercules anticipates
filing an application for its third SBIC license, to gain access to
additional capital under the SBIC debenture program late in the
2016, or early 2017, subject to market conditions.
As of December 31, 2015, the Company’s asset coverage ratio
under our regulatory requirements as a business development company
was 274.8%, excluding the SBIC debentures as a result of our
exemptive order from the SEC.
Net Asset Value
As of December 31, 2015, the Company’s net assets were $717.1
million, an increase of 8.8% as compared to $658.9 million as of
December 31, 2014, due in part to the $100.1 million equity
offering completed in March 2015. Net assets were $722.8 million at
the end of Q3 2015.
As of December 31, 2015, net asset value per share was $9.94 on
72.1 million outstanding shares, compared to $10.02 on 72.1 million
outstanding shares as of September 30, 2015.
Portfolio Asset Quality
At December 31, 2015, the weighted average loan grade of the
portfolio at cost was 2.16 on a scale of 1 to 5, with 1 being the
highest quality, compared with 2.24 as of December 31, 2014 and
2.33 as of September 30, 2015. Hercules’ policy is to generally
adjust the grading down on its portfolio companies as they approach
the need for additional equity capital.
As of December 31, 2015, grading of the loan portfolio at fair
value, excluding warrants and equity investments, was as
follows:
Credit Grading at Fair Value, Q4 2014 - Q4 2015 ($ in
millions)
Q4
2014
Q1
2015
Q2
2015
Q3
2015
Q4
2015
Grade 1 195.8 188.4 233.8 198.7
215.2
Grade 2 479.0 590.9 645.7 636.5 759.3
Grade
3 183.5 174.9 140.2 99.0 44.8
Grade 4 39.9 90.2 70.0
59.7 34.2
Grade 5 25.7 13.6 47.9 83.7 56.7
Weighted
Avg.
2.24 2.26 2.25
2.33 2.16
Subsequent Events
1. As of February 22, 2016, Hercules has: a. Closed debt and
equity commitments of $126.4 million to new and existing portfolio
companies, and funded $98.4 million since the close of the fourth
quarter. b. Pending commitments (signed non-binding term
sheets) of $143.5 million.
The table below summarizes our year-to-date closed and pending
commitments as follows:
Closed Commitments and Pending Commitments (in millions)
Q1-16 Closed Commitments (as of February 22, 2016)(a) $126.4 Q1-16
Pending Commitments (as of February 22, 2016) (b) $143.5
Year-to-date 2016 Closed and Pending Commitments
$269.9
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. On
February 24, 2015, the Company’s Board of Directors approved a
$50.0 million open market share repurchase program, and on February
17, 2016 the Company’s Board of Directors extended the program
until August 23, 2016. Subsequent to December 31, 2015 and as of
February 22, 2016, the Company repurchased $4.8 million, or 449,588
shares of its common stock. As of February 22, 2016, approximately
$40.6 million of common stock remains for repurchase under the
stock repurchase plan.
Conference Call
Hercules has scheduled its fourth quarter and full-year 2015
financial results conference call for February 25, 2016 at 2:00
p.m. PST (5:00 p.m. EST). To listen to the call, please dial (877)
304-8957 (or (408) 427-3709 internationally) and reference
Conference ID: 30845803 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
30845803.
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 broadly diversified variety of
technology, life sciences and sustainable and renewable technology
industries. Since inception (December 2003), Hercules has committed
more than $5.7 billion to over 335 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 three outstanding bond issuances of
7.00% Notes due April 2019, 7.00% Notes due September 2019, and
6.25% Notes due July 2024, which trade on the NYSE under the
symbols “HTGZ,” “HTGY,” and “HTGX,” respectively.
Forward-Looking Statements
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) December 31, 2015 December
31, 2014 Assets Investments: Non-control/Non-affiliate
investments (cost of $1,283,539 and $1,019,799, respectively) $
1,192,652 $ 1,012,738 Affiliate investments (cost of $13,742 and
$15,538, respectively) 7,986 7,999
Total investments, at value (cost of $1,252,281 and $1,035,337,
respectively) 1,200,638 1,020,737 Cash and cash equivalents 95,196
227,116 Restricted cash 9,191 12,660 Interest receivable 9,239
9,453 Other assets 20,497 29,257
Total assets $ 1,334,761 $ 1,299,223
Liabilities Accounts payable and accrued liabilities $
17,241 $ 14,101 Long-term Liabilities (Convertible Senior Notes)
17,522 17,345 Wells Facility 50,000 - 2017 Asset-Backed Notes -
16,049 2021 Asset-Backed Notes 129,300 129,300 2019 Notes 110,364
170,364 2024 Notes 103,000 103,000 Long-term SBA Debentures
190,200 190,200
Total liabilities $
617,627 $ 640,359
Net assets consist of: Common
stock, par value $ 73 $ 65 Capital in excess of par value 752,244
657,233 Unrealized depreciation on investments (52,808 ) (17,076 )
Accumulated realized gains on investments 27,993 14,079
Undistributed net investment income (Distributions in excess of net
investment income) (10,368 ) 4,563
Total
net assets $ 717,134 $ 658,864
Total
liabilities and net assets $ 1,334,761 $ 1,299,223
Shares of common stock outstanding
($0.001 par value, 200,000,000 and 100,000,000 authorized,
respectively)
72,118 64,715
Net asset value per share $ 9.94 $ 10.18
HERCULES CAPITAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS (dollars in
thousands, except per share data) (unaudited)
Three Months Ended December 31, Year Ended December
31, 2015 2014 2015 2014
Investment income: Interest income Non-Control/Non-Affiliate
investments $ 34,058 $ 31,800 $ 139,919 $ 124,776 Affiliate
investments 69 95 347
1,842 Total interest income 34,127
31,895 140,266 126,618
Fees Non-Control/Non-Affiliate investments 5,253 4,976 16,865
17,013 Affiliate investments - 4
1 34 Total fees 5,253
4,980 16,866 17,047
Total
investment income 39,380 36,875 157,132 143,665
Operating
expenses: Interest 7,591 7,864 30,834 28,041 Loan fees 1,889
1,388 6,055 5,919 General and administrative 4,468 3,226 16,658
10,209 Employee Compensation: Compensation and benefits 3,091 5,229
20,713 16,604 Stock-based compensation 2,204
2,711 9,370 9,561 Total employee
compensation 5,295 7,940 30,083
26,165
Total operating expenses 19,243
20,418 83,630 70,334 Loss on debt extinguishment (Long-term
Liabilities - Convertible Senior Notes) - (558
) (1 ) (1,581 )
Net investment income 20,137
15,899 73,501 71,750
Net realized gain(loss) on investments
Non-Control/Non-Affiliate investments (3,277 ) 7,106
5,147 20,112 Total net realized
gain(loss) on investments (3,277 ) 7,106 5,147 20,112
Net change
in unrealized appreciation (depreciation) on investments
Non-Control/Non-Affiliate investments (3,325 ) (1,945 ) (36,839 )
(17,392 ) Affiliate investments 635 (425 )
1,107 (3,282 ) Total net unrealized
depreciation on investments (2,690 ) (2,370 )
(35,732 ) (20,674 )
Total net realized and unrealized
loss (5,967 ) 4,736 (30,585 )
(562 )
Net increase in net assets resulting from
operations $ 14,170 $ 20,635 $ 42,916 $
71,188 Net investment income before investment gains and
losses per common share: Basic $ 0.28 $ 0.25 $ 1.04
$ 1.13 Change in net assets per common share: Basic $
0.20 $ 0.32 $ 0.60 $ 1.12 Diluted $
0.20 $ 0.32 $ 0.59 $ 1.10 Weighted
average shares outstanding Basic 71,205 63,105
69,479 61,862 Diluted
71,239 63,766 69,663
63,225 Dividends declared per common share: Basic $ 0.31 $
0.31 $ 1.24 $ 1.24
HERCULES CAPITAL,
INC.
NON GAAP FINANCIAL MEASURES
(in thousands, except per share
data)
Three Months Ended December 31, Reconciliation of
Net investment income to DNOI 2015 2014 Net
investment income $ 20,137 $ 15,899 Stock-based compensation
2,204 2,711 DNOI $ 22,341 $ 18,610 DNOI per
share-weighted average common shares Basic $ 0.31 $ 0.29
Weighted average shares outstanding Basic 71,205
63,105
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)
December 31, 2015 Total Debt $ 600,386 Cash and cash
equivalents (95,196 ) Numerator: net debt (total debt less
cash and cash equivalents) $ 505,190 Denominator: Total net
assets $ 717,134 Net Leverage Ratio 70.4 %
Net leverage ratio is calculated by deducting the outstanding
cash at December 31, 2015 of $95.2 million from total debt of
$600.4 million divided by our total equity of $717.1 million,
resulting in a net leverage ratio of 70.4%. These measures are 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: http://www.businesswire.com/news/home/20160225006621/en/
Hercules Capital, Inc.Michael Hara, 650-433-5578 HT-HNInvestor
Relations and Corporate Communicationsmhara@htgc.com
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