Hercules Capital, Inc. · NYSE:HTGC
Hercules Capital — Q1 2021 Earnings Presentation
48 slides from Hercules Capital's earnings presentation, Apr 29, 2021
Slide 1: First Quarter 2021 Investor Presentation
April 29, 2021 FIRST QUARTER 2021 INVESTOR PRESENTATION Financing the Growth of Tomorrow’s Companies TodayTM
Slide 2: Important Notice: Forward Looking Statements
IMPORTANT NOTICE: FORWARD LOOKING STATEMENTS This presentation 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
Slide 3: Hercules Capital
HERCULES CAPITAL Structure Internally Managed Business Development Company (BDC) IPO Date June 9, 2005 HTGC (NYSE) – Common Stock Institutional Notes PAR $1000.00 • 4.625% Notes due 2022 · 4.31% Notes due 2025 • 4.77% Notes due 2024 · 4.50% Notes due 2026 • 4.28% Notes due 2025 · 4.55% Notes due 202
Slide 4: First Quarter 2021 Investor Presentation
FIRST QUARTER 2021 INVESTOR PRESENTATION Key Performance Highlights Company & Strategic Overview Financial Highlights Portfolio Highlights Venture Capital Market Opportunity Analyst Coverage Supplemental Information
Slide 5: Key Performance Highlights
KEY PERFORMANCE HIGHLIGHTS \ercules. Cc A PIT AOL
Slide 6: Q1 2021 Highlights
Q1 2021 HIGHLIGHTS • Net Investment Income (“NII”) of $34.6M Robust Earnings • Total Investment Income of $68.8M • NII per share of $0.30 • 1YR/3Yr/5YR Total Shareholder Returns(1): 126.6%/63.9%/85.8% • ROAE(1,2,): 11.6% Strong Shareholder Returns • ROAA(1,2,): 5.6% • Net Interest Margin (“NIM”): 9.
Slide 7: Total Shareholder Return vs. BDCs & Wells Fargo Index
TOTAL SHAREHOLDER RETURN (TSR)vs. BDCs & WELLS FARGO INDEX (b) 140% 120% 100% 80% 60% 40% 20% 126.6% 88.4% 87.9% 63.9% 21.5% 27.7% 85.8% 49.8% 48.2% 76.2% 30.4% 38.2% 0% 1- Year 3-Year 5-Year 7-Year HTGC Peer Group(a) Wells Fargo BDCS Index (a) Peer Group: AINV, ARCC, BKCC, OCSL, FSK, GBDC, GSBD, MA
Slide 8: Delivering Strong Sustainable Shareholder Returns
DELIVERING STRONG SUSTAINABLE SHAREHOLDER RETURNS Return on Average Assets % (ROAA) 18% Return on Average Equity % (ROAE) 8% 16% 7% 14% 15.4% 7.3% 7.2% 13.9% 6.8% 6% 13.6% 12% 6.6% 6.3% 12.6% 12.0% 5.8% 5% 11.6% 10% 5.7% 5.7% 5.6% 10.4% 10.2% 4% 9.6% 9.6% 8% 4.3% 8.5% 8.1% 3.8% 3% 6% 3.7% 2% 4% 1% 2
Slide 9: Available Leverage for Potential Earnings Growth
AVAILABLE LEVERAGE FOR POTENTIAL EARNINGS GROWTH (1) Leverage to Return on Average Equity % (ROAE) 16% 140% 14% 115.0% 120% 102.6% 12% 101.8% 100.6% 95.5% 94.6% 100% 87.0% 10% 84.7% 96.2% 89.2% 93.0% 84.7% 72.9% 80% 83.4% 83.5% 8% 77.6% 60% 60.6% 62.0% 6% 40% 4% 20% 2% 12.6% 12.0% 13.6% 15.4% 13.8%
Slide 10: Hercules Consistently Maintains a Premium to NAV
HERCULES CONSISTENTLY MAINTAINS A PREMIUM TO NAV CREATES A STRONG CAPITAL RAISING POSITION TO SUPPORT GROWTH 1.43 1.5 1.41 $16 1.32 1.33 1.4 1.28 1.3 Price to NAV Multiple (x) $14 1.2 Net Asset Value (NAV) 1.11 1.1 0.96 1 $12 0.92 0.96 0.86 0.86 0.84 0.9 0.8 $10 0.7 0.6 $9.90 $9.96 $9.90 $10.55 $11.
Slide 11: Hercules Key Performance Highlights
HERCULES KEY PERFORMANCE HIGHLIGHTS $300 Total Investment Income $160 Net Investment Income “NII” ($ in millions) ($ in millions) $140 $250 $120 $200 $100 $150 $80 $60 $100 $40 $100.3 $108.7 $143.3 $157.1 $50 $139.7 $143.7 $157.1 $175.1 $190.9 $207.8 $267.9 $287.3 $34.6 $68.8 $39.6 $48.1 $73.1 $71.8
Slide 12: Portfolio Growth with Underwriting Discipline
PORTFOLIO GROWTH WITH UNDERWRITING DISCIPLINE Cumulative Net Debt Commitment and Fundings, Since Inception $13 $11.6 $12 $11.1 $11 $9.9 $10 $9 $8.5 $8.3 $8.6 $7.6 $ in billions $8 $7.3 $6.5 $6.5 $7 $5.6 $6 HTGC $5.7 $4.9 $4.9 $5 IPO $4.0 $4.2 $4 $3.4 $3.5 $2.7 $2.9 $3 $2.1 $2.4 $1.4 $1.5 $1.5 $1.9 $
Slide 13: Company & Strategic Overview
COMPANY & STRATEGIC OVERVIEW
Slide 14: Hercules At-A-Glance
HERCULES AT-A-GLANCE LARGEST BDC FOCUSED ON PROVIDING FINANCING TO HIGH-GROWTH VENTURE CAPITAL-BACKED COMPANIES $2.0 $2.18 96 $550.0 BILLION BILLION COMPANIES MILLION MARKET DEBT INVESTMENT WARRANT & EQUITY LIQUIDITY & BALANCE CAPITALIZATION PORTFOLIO PORTFOLIO SHEET FOUNDED DECEMBER 2003 DEBT INVES
Slide 15: Why Is Hercules Different Than Other BDCs
WHY IS HERCULES DIFFERENT THAN OTHER BDCs WE INVEST IN INNOVATIVE VENTURE GROWTH-STAGE COMPANIES What We Don’t Do No direct oil and gas exposure No CLO exposure No CMBS or RMBS exposure No metals or minerals exposure What We Do We focus primarily on pre-IPO and M&A, innovative high-growth
Slide 16: Strategic Access to Equity and Debt Capital Markets
STRATEGIC ACCESS TO EQUITY AND DEBT CAPITAL MARKETS HERCULES’ SUCCESSFUL ATM DISTRIBUTION PROGRAM Hercules’ At-the-Market “ATM” Equity Distribution Agreement Equity Distribution Agreement: Up to a total of 16.5 million shares of common stock The Benefits and Competitive Advantages “Just-in-Time”
Slide 17: We Are at Center Stage of the Innovation Economy
WE ARE AT CENTER STAGE OF THE INNOVATION ECONOMY HERCULES HAS DOMAIN EXPERTISE IN FIVE SPECIALIZED LENDING GROUPS “WE ARE NOT GENERALISTS” Technology Life SaaS Sustainable Special Sciences Financing and Renewable Situations Technology We Invest at the Expansion “Venture Growth” and Established Stage
Slide 18: Financial Highlights
FINANCIAL HIGHLIGHTS \ercules. Cc A PIT AOL
Slide 19: Income Statement: Q1 2021 vs. Q1 2020 Summary Results
INCOME STATEMENT: Q1 2021 VS. Q1 2020 SUMMARY RESULTS Three Months Ended March 31, 2021 2020 Year/Year ($ in 000's, except per share amounts) (unaudited) (unaudited) Change Interest Income $ 63,782 $ 66,204 -4% Fee Income 4,977 7,415 -33% Total Investment Income 68,759 73,619 -7% Interest and Loan F
Slide 20: Current and Historical Income Statements
CURRENT AND HISTORICAL INCOME STATEMENTS Three Months Twelve Months Ended March 31, Ended December 31, 2021 2020 ($ in 000's, except per share amounts) Interest Income $ 63,782 $ 263,379 Fee Income 4,977 23,879 Total Investment Income 68,759 287,258 Interest and Loan Fees 17,550 66,874 General and A
Slide 21: Current & Historical Balance Sheet
CURRENT & HISTORICAL BALANCE SHEET March 31, December 31, ($ in 000's, except per share amounts) 2021 2020 ASSETS Total Investments $ 2,464,355 $ 2,354,078 Cash and cash equivalents 74,987 198,282 Restricted cash 11,829 39,340 Interest receivable 20,597 19,077 Other assets 12,083 13,220 Total Assets
Slide 22: Effective Yield vs. Core Yield
EFFECTIVE YIELD VS. CORE YIELD – LEADS TO STRONG EARNINGS MEDIAN CORE YIELD OF 12.3% (Q1 2018 TO Q1 2021) 18% 16% 14.3% 14.3% 13.5% 13.5% 13.5% 13.4% 13.6% 14% 13.3% 13.2% Effective Yield 13.0% 13.0% 12.6% 12.2% 12% 12.7% 12.7% 12.9% 12.7% 12.7% 12.4% 12.3% 11.9% 11.8% 11.8% 11.5% 11.6% 11.3% 10% 10
Slide 23: High-Yield Portfolio of Earning Assets
HIGH-YIELD PORTFOLIO OF EARNING ASSETS MEDIAN EFFECTIVE YIELD OF 13.4% (Q1 2018 TO Q1 2021) $3,000 18% 16% $2,500 14.3% 14.3% 13.5% 13.6% Total Debt Investments, at value (millions) 13.5% 13.5% 13.4% 12.6% 13.3% 14% 13.0% 13.2% 13.0% 12.2% 13.4% $2,000 12% Effective Yield (%) 10% $1,500 8% $1,000 6%
Slide 24: Strong, Consistent Net Interest Margin
STRONG, CONSISTENT NET INTEREST MARGIN - NIM MEDIAN NIM OF 10.5% (Q1 2018 TO Q1 2021) $80,000 14% $70,000 11.8% 11.6% 12% 11.0% 11.0% 11.1% 10.8% 10.5% Net Interest Margin (in thousands) 10.3% 10.3% $60,000 9.7% 10.5% 9.5% 9.5% 9.3% 10% Net Interest Margin (%) $50,000 8% $40,000 6% $30,000 4% $20,00
Slide 25: Impact of Early Payoffs on Effective Yields
IMPACT OF EARLY PAYOFFS ON EFFECTIVE YIELDS Early Payoffs Lead to Higher Effective Yields and Earnings 19% 14.3% 14.3% 13.5% 13.5% 13.5% 13.4% 13.6% 13.3% 13.2% 13.0% 13.0% 12.6% 14% 12.2% 12.7% 12.7% 12.9% 12.7% 12.7% 12.4% 11.9% 12.3% 11.8% 11.8% 11.5% 11.3% 11.6% 9% 10.4% 10.4% 10.3% 10.3% 10.1%
Slide 26: Non-Interest and Fee Expense to Average Total Assets
NON-INTEREST AND FEE EXPENSE TO AVERAGE TOTAL ASSETS MEDIAN ADJUSTED OPEX TO AVERAGE TOTAL ASSETS OF 2.4% (Q1 2018 TO Q1 2021) $20,000 4% $18,000 3.2% $16,000 2.8% 3% 2.7% $14,000 2.6% 2.5% OPEX (in thousands) 2.4% 2.4% 2.4% 2.4% 2.3% 2.4% $12,000 2.2% 2.2% 2.4% OPEX as a % of Total Assets (%) $10,0
Slide 27: Unfunded Commitments as a Percentage of Total Assets
UNFUNDED COMMITMENTS AS A PERCENTAGE OF TOTAL ASSETS $300 16% Available Unfunded Commitments (in millions) $270 Available Unfunded Commitments as % Total Assets 14% $240 12% $210 10.0% 9.7% 9.4% 10% $180 7.7% $150 7.1% 7.2% 7.2% 8% 6.7% 6.9% $120 7.2% 5.6% 5.4% 6% $90 4% $60 3.2% 2% $30 $129.7 $171.
Slide 28: Consistent and Disciplined Underwriting Standards
CONSISTENT AND DISCIPLINED UNDERWRITING STANDARDS Disciplined credit underwriting standards deliver consistent long-term results $3,000 1.0 High Quality Debt Portfolio Value $2,500 2.15 2.16 2.01 2.21 2.23 2.18 2.19 2.18 2.17 2.34 2.30 2.22 2.43 2.0 ($ in millions) Credit Rating $2,000 $1,500 3.0 $1
Slide 29: Diversified Sources of Funding: Q1 2021
DIVERSIFIED SOURCES OF FUNDING: Q1 2021 Capital Sources as of 3/31/21 $ in Millions % of Total Entity Capitalization Equity $1,315.4 51.4% SBA Debentures $71.5 2.8% 2027 Asset-Backed Notes $131.5 5.1% 2028 Asset-Backed Notes $221.4 8.7% 2022 Convertible Notes $230.0 9.0% 2022 Notes (Institutional) $
Slide 30: Diversified Sources of Funding (as of 3/31/21)
DIVERSIFIED SOURCES OF FUNDING (AS OF 3/31/21) Notes SBA Debentures Wells Fargo Union Bank October February Credit Credit January 2022 2022 April 2025 October July 2024 2025 Inst. June 2025 March 2026 License 2 License 3 Securitizations Facility Facility Conv. Notes Inst. Notes Notes 2033 Notes Inst
Slide 31: Interest Rates & Asset Sensitivity
INTEREST RATES & ASSET SENSITIVITY $29,900 $0.22 $0.24 Net Income EPS $24,900 $0.20 Net Income ($ in thousands) Earning per Share(1) $19,900 $0.16 $14,900 $0.12 $0.10 $0.08 $9,900 $0.08 $0.05 $4,900 $0.03 $0.04 $0.00 $0.00 $0.00 -$100 $0.00 -75 -50 -25 25 50 75 100 200 Basis Point Movement in Prime
Slide 32: Portfolio Highlights
PORTFOLIO HIGHLIGHTS \ercules. Cc A PIT AOL
Slide 33: Hercules' Investment Portfolio: Q1 2021
HERCULES’ INVESTMENT PORTFOLIO: Q1 2021 Floating vs. Fixed Rate Investment Type Breakout 3.2% 1.7% 9.6% Debt Investments Floating Equity Investments Warrant Positions Fixed 96.8% 88.7% Industry Breakout Percentage of Portfolio Companies by Region (Portfolio Companies as of December 31, 2020) Communi
Slide 34: Hercules' Warrant & Equity Portfolio: Potential Future Upside
HERCULES' WARRANT & EQUITY PORTFOLIO: POTENTIAL FUTURE UPSIDE FOR SHAREHOLDER'S TOTAL RETURN 7 Portfolio Companies in Registration or SPAC Agreements – YTD 2021 Sprinklr, Privia Health, Achronix Semiconductor, Wheels Up, Proterra, Varisty Tutors, and 23andMe 4 Portfolio Company M&A Liquidity Event
Slide 35: Select List of Warrant and Equity Portfolio Holdings
SELECT LIST OF WARRANT AND EQUITY PORTFOLIO HOLDINGS Technology Life Sciences 35 35
Slide 36: A Broadly Diversified Portfolio Re-Balanced to Mitigate Risk
A BROADLY DIVERSIFIED PORTFOLIO RE-BALANCED ACCORDING TO OUR ASSESSMENT OF ONGOING MARKET CONDITIONS MITIGATES RISK ($M) $1,200.6 $1,423.9 $1,542.2 $1,880.4 $2,314.5 $2,354.1 $2,464.4 100% 2.2% 1.3% 2.1% 2.1% 2.4% 3.0% 3.4% 2.0% 3.1% 2.1% 4.7% 43.2% 4.5% 2.4% 3.5% Diversified Financial Services 90%
Slide 37: Select List of Diversified Portfolio Companies
SELECT LIST OF DIVERSIFIED PORTFOLIO COMPANIES Technology Life Sciences SaaS Financing Sustainable & Special Renewable Situations Technology 37 37
Slide 38: Diversified Investment Approach Mitigates Risk
DIVERSIFIED INVESTMENT APPROACH MITIGATES RISK Four Key Diversification Strategies FINANCIAL INDUSTRY STAGES OF GEOGRAPHIC SPONSORS SECTORS DEVELOPMENT LOCATION Technology Key VC More than SaaS Financing Investment Expansion or 1000 Venture Life Sciences Centers “Venture Growth” Palo Alto Capital Fi
Slide 39: Venture Capital Market Opportunity
VENTURE CAPITAL MARKET OPPORTUNITY
Slide 40: Over $1.2 Trillion in Venture Capital Investments
OVER $1.2 TRILLION IN VENTURE CAPITAL INVESTMENTS Venture Capital Investment Activity 1997 – Q1 2021 $180 11,930 12,000 $160 10,000 $140 Dollars Invested (billions) 4,995 $120 6,350 4,341 8,000 $100 4,379 4,649 6,000 # of Deals 4,295 3,042 $80 4,590 4,048 4,278 3,204 3,729 3,906 $60 3,341 2,892 3,15
Slide 41: Exits of Venture Capital-Backed Companies
EXITS OF VENTURE CAPITAL-BACKED COMPANIES Mergers & Acquisitions $140 759 826 900 742 703 708 730 800 Amount Paid (billions) $120 667 675 663 632 645 700 $100 # of Deals 600 $80 456 440 500 $60 400 275 300 $40 200 $20 $11.7 100 $26.5 $22.8 $55.6 $56.7 $69.3 $67.8 $133.0 $84.7 $120.5 $89.0 $129.5 $12
Slide 42: Hercules' Total Commitments vs. VC Dollars Invested
HERCULES’ TOTAL COMMITMENTS VS. VC DOLLARS INVESTED VENTURE CAPITAL INVESTMENT ACTIVITY 2005 – Q1 2021 $180 $1,600 Hercules Debt and Equity Commitments $1,475 VC Dollars Invested $1,213 $1,188 $160 $1,400 VC Dollars Invested (billions) Hercules Debt & Equity Commitments $140 Note: Represents VC inve
Slide 43: Investment Highlights
INVESTMENT HIGHLIGHTS Large Market Opportunity Attractive Yields and Experienced Upside from Equity and Management Team Warrant Portfolio Strict Focus on Strong Venture Credit Underwriting Capital and Private Process Equity Relationships Strong Balance Platform in Place Sheet and Diverse to Grow Por
Slide 44: Analyst Coverage
ANALYST COVERAGE \ercules. Cc A PIT AOL
Slide 45: Broad Industry Analyst Coverage – 11 Firms
BROAD INDUSTRY ANALYST COVERAGE – 11 FIRMS Finian O’Shea John Hecht Devin Ryan Ryan Lynch (Transferred Coverage 7/13/2018) (Initiated Coverage 6/30/2015) (Re-Initiated Coverage 11/2/2020) (Re-initiated Coverage 2/19/2013) Sarkis Sherbetchyan Crispin Love Casey Alexander Christopher Nolan (Re-initiat
Slide 46: Supplemental Information
SUPPLEMENTAL INFORMATION \ercules. Cc A PIT AOL
Slide 47: Regulation and Structure
REGULATION AND STRUCTURE Hercules is an Internally Managed BDC under the 1940 Act and a RIC for Tax Purposes Business Development Company (BDC) Regulated by the SEC under the Investment Company Act of 1940 Leverage limited to approximately 2:1 debt/equity, unless an SEC exemptive order exists to
Slide 48: Primarily Invest at Stages of High Growth
PRIMARILY INVEST AT STAGES OF HIGH GROWTH Expansion Stage Established Follow-on Rounds Private Late Stage/ Type of Company of Growth Capital Select Public Companies (Series B-Liquidity Event) Equity Capital Venture Capital/ Public Markets/ Provider Private Equity Private Equity Expectation for Addit