Hercules Capital, Inc. · NYSE:HTGC
Hercules Capital — Q4 2023 Earnings Presentation
46 slides from Hercules Capital's earnings presentation, Feb 15, 2024
Slide 1: Financing the Growth of Tomorrow's Companies Today
Financing the Growth of Tomorrow’s Companies Today Q4 2023 INVESTOR PRESENTATION February 15, 2024
Slide 2: Important Notice: Forward Looking Statements
Important Notice: Forward Looking Statements This presentation may contain “forward-looking However, by their nature, these forward-looking statements” within the meaning of the Private statements involve numerous assumptions, Securities Litigation Reform Act of 1995. You should uncertainties and ri
Slide 3: Hercules Capital
Hercules Capital Structure Internally Managed Business Development Company (BDC) IPO Date June 9, 2005 - Common Stock Institutional Notes PAR $1000.00/$2000.00 • 2.625% Notes due 2026 • 3.375% Notes due 2027 • 4.28% Notes due 2025 • 4.31% Notes due 2025 Investment Options • 4.50% Notes due 2026 • 4.
Slide 4: We are HTGC: a Publicly Traded, Internally Managed BDC
We are HTGC: a Publicly Traded, Internally Managed BDC Highly Regulated | Financially Efficient | Uniquely Transparent As a business development company, or BDC, we invest mostly in smaller US businesses and do so under the stringent oversight of federal regulators and an independent board of direct
Slide 5: Fourth Quarter 2023 Investor Presentation
Fourth Quarter 2023 Investor Presentation • Key Performance Highlights • Company & Strategic Overview • Financial Highlights • Portfolio Highlights • Venture Capital Market Opportunity • Analyst Coverage
Slide 6: Key Performance Highlights
Key Performance Highlights
Slide 7: Q4 2023 Highlights
Q4 2023 Highlights • Net Investment Income (NII) of $86.0M Robust Earnings • Total Investment Income of $122.6M • NII per share of $0.56 • 1YR/3YR/5YR Total Shareholder Returns(1): 38.0% / 45.1% / 112.4% • ROAE(1,2): 21.3% Strong Shareholder Returns • ROAA(1,2): 10.6% • Net Interest Margin (NIM): 13
Slide 8: Delivering Strong Sustainable Shareholder Returns
Delivering Strong Sustainable Shareholder Returns Return on Average Assets % (ROAA) Return on Average Equity % (ROAE) 12% 20% 21.3% 10% 16% 18.2% 10.6% 8% 15.4% 8.8% 12% 13.9% 12.4% 6% 7.3% 6.6% 8% 6.2% 4% 10.2% 13.7% 4.5% 4.6% 4.5% 5.1% 6.3% 8.5% 8.1% 9.5% 2% 4% 0% 0% 2019 2020 2021 2022 Q4 2023 20
Slide 9: Available Leverage for Potential Earnings Growth
Available Leverage for Potential Earnings Growth Leverage to Return on Average Equity % (ROAE) 30% 115.0% 113.7% 120% 101.8% 100.6% 101.3% 95.6% 25% 93.0% 100.1% 87.1% 96.2% 84.1% 90% 77.4% 20% 77.6% 73.9% 71.9% 15% 60% 10% 30% 5% 15.4% 13.8% 12.4% 18.2% 21.3% 0% 0% 2019 2020 2021 2022 Q4 2023 (1) (
Slide 10: Hercules Has Consistently Maintained a Premium to NAV
Hercules Has Consistently Maintained a Premium to NAV Creates a strong capital raising position to support growth and stability 1.7 $16 1.47 1.46 1.5 1.33 1.28 1.26 $14 1.3 Price to NAV Multiple (x) Net Asset Value (NAV) 1.00 1.1 0.96 $12 0.90 0.85 0.82 0.9 0.7 $10 0.5 $10.55 $11.26 $11.22 $10.53 $1
Slide 11: Hercules Key Performance Highlights
Hercules Key Performance Highlights Total Investment Income Net Investment Income “NII” ($ in millions) ($ in millions) $500 $350 $450 $300 $400 $350 $250 $300 $200 $250 $150 $200 $150 $100 $100.3 $108.7 $143.3 $157.1 $150.0 $188.1 $304.0 $139.7 $143.7 $157.1 $175.1 $190.9 $207.8 $267.9 $287.3 $281.
Slide 12: Portfolio Growth with Underwriting Discipline
Portfolio Growth with Underwriting Discipline Cumulative Net Debt Commitment and Fundings, $20 $18 Since Inception $17.3 $15.7 $16 $13.4 $14 $ in billions $11.9 $12 $11.1 $10.7 $9.9 $9.6 $10 $8.3 $7.3 $7.6 $8 HTGC $5.7 $5.6 $6 IPO $4.0 $4.2 $4 $2.7 $2.9 $1.5 $1.2 $1.9 $2 $0.9 $0.7 $0.2 $0.2 $0 2005
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 $2.58 $3.06 103 $743.9 BILLION BILLION COMPANIES MILLION MARKET DEBT INVESTMENT WARRANT LIQUIDITY & BALANCE CAPITALIZATION PORTFOLIO PORTFOLIO SHEET FOUNDED DECEMBER 2003 DEBT INVESTMENTS
Slide 15: Why Hercules is Different from Other BDCs
Why Hercules is Different from Other BDCs We invest in innovative venture growth-stage companies What We Don’t Do What We Do • No direct oil and gas exposure • We focus primarily on pre-IPO and M&A, innovative high-growth venture capital backed companies at their • No CLO exposure expansion (venture
Slide 16: We are at Center Stage of the Innovation Economy
We are at Center Stage of the Innovation Economy Hercules has domain expertise in five specialized lending groups “We are not generalists” Technology Life SaaS Sustainable Special Sciences Financing and Renewable Situations Technology • We Invest at the Expansion “Venture Growth” • Offices in key ve
Slide 17: Financial Highlights
Financial Highlights
Slide 18: Income Statement: Q4 2023 vs. Q4 2022 Summary Results
Income Statement: Q4 2023 vs. Q4 2022 Summary Results Three Months Ended December 31, 2023 2022 Year/Year ($ in 000's, except per share amounts) (unaudited) (unaudited) Change Interest Income $ 115,203 $ 94,867 21% Fee Income 7,400 5,320 39% Total Investment Income 122,603 100,187 22% Interest and L
Slide 19: Current and Historical Income Statements
Current and Historical Income Statements Twelve Months Ended December 31, 2023 2022 Year/Year ($ in 000's, except per share amounts) Change Interest Income $ 434,425 $ 307,258 41% Fee Income 26,243 14,430 82% Total Investment Income 460,668 321,688 43% Interest and Loan Fees 77,465 62,347 24% Genera
Slide 20: Current and Historical Balance Sheets
Current and Historical Balance Sheets December 31, December 31, ($ in 000's, except per share amounts) 2023 2022 ASSETS Total Investments, at fair value $ 3,248,046 $ 2,963,955 C ash and cash equivalents 98,899 15,797 Restricted cash 17,114 10,079 Interest receivable 32,741 31,682 Right of use asset
Slide 21: Effective Yield vs. Core Yield
Effective Yield vs. Core Yield – Leads to Strong Earnings Median Core Yield of 11.7% (Q1 2020 – Q4 2023) 16.0% 16% 15.5% 15.3% 15.1% 14.7% 14% 13.6% 13.3% 13.2% 13.0% 14.2% 14.3% 12.7% 12.7% 12.9% 14.0% 14.1% 12.6% 13.8% 12.2% Effective Yield 12% 11.5% 11.5% 12.4% 12.0% 12.0% 12.0% 11.9% 11.8% 11.8%
Slide 22: NAV Roll-Forward - Q4 2023
NAV Roll-Forward -— Q4 2023 $11.90 mien $11.70 $0.02 $11.50 — 11.43 $(0.48) $11.30 $11.10 $10.90 $10.70 $10.50 $10.30 Net Investment Income Net Unreal. Appreciation Stock Compensation NAV/Share at Q4 2023 NAV/Share at Q3 2023 Net Realized Gain Public Offering Dividends Paid ™ Increase “ Decrease @®
Slide 23: High-Yield Portfolio of Earning Assets
High-Yield Portfolio of Earning Assets Median Effective Yield of 13.1% (Q1 2020 to Q4 2023) 16.0% $3,500 15.5% 15.3% 16% 15.1% 14.7% 13.6% 13.2% 13.3% 14% $3,000 13.0% 12.9% 12.6% 12.7% 12.7% 12.2% 13.1% Total Debt Investments, at value (millions) 11.5% 11.5% 12% $2,500 10% Effective Yield (%) $2,00
Slide 24: Strong, Consistent Net Interest Margin
Strong, Consistent Net Interest Margin - NIM Median NIM of 10.2% (Q1 2020 to Q4 2023) 13.7% 13.7% $100,000 13.3% 14% 12.7% 12.7% $90,000 12% 11.1% $80,000 Net Interest Margin (in thousands) 10.3% 10.3% 10.0% 9.7% $70,000 9.5% 9.3% 9.4% 9.2% 9.4% 10% 10.2% 8.9% $60,000 Net Interest Margin (%) 8% $50,
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 Effective Yields 15.1% 16.0% 15.5% 15.3% 16% 14.7% 13.3% 13.2% 13.0% 12.9% 13.6% 12.6% 12.7% 12.7% 12.2% 11.5% 11.5% 14.0% 14.1% 14.2% 14.3% 12% 13.8% 12.4% 11.8% 11.5% 11.8% 11.6% 11.5% 12.0% 12.0
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 2.3% (Q1 2020 to Q4 2023) $20,000 3% 2.7% 2.4% 2.4% 2.3% $18,000 2.5% 2.4% 2.4% $16,000 2.3% 2.3% 2.2% 2.2% 2.2% 2.2% 2.1% 2.3% $14,000 2.0% 1.7% 2% OPEX as a % of Total Assets (%) OPEX (in thousands
Slide 27: Unfunded Commitments as a Percentage of Total Assets
Unfunded Commitments as a Percentage of Total Assets $700 25% 22.5% Available Unfunded Commitments as % Total Assets $650 20.8% Available Unfunded Commitments (in millions) $600 17.3% $550 17.0% 20% $500 13.8% $450 12.0% 15% $400 12.7% 11.8% 11.0% $350 11.1% 9.8% 9.7% 10.0% $300 10% $250 6.7% 6.9% $
Slide 28: Consistent and Disciplined Underwriting Standards
Consistent and Disciplined Underwriting Standards Our disciplined credit underwriting standards have delivered consistent long-term results $3,000 1.0 High Quality 1.93 1.92 Debt Portfolio Value $2,500 2.01 2.10 2.10 2.13 2.34 2.22 2.16 2.20 2.23 2.26 2.24 2.28 2.24 2.30 ($ in millions) 2.0 Credit R
Slide 29: Diversified Sources of Funding: Q4 2023
Diversified Sources of Funding: Q4 2023 Capital Sources as of 12/31/23 $ in Millions % of Total Equity $1,802.7 53.4% SBA License 3 – HC IV $175.0 5.2% January 2027 Notes (Institutional) $350.0 10.4% July 2024 Notes (Institutional) $105.0 3.1% Entity September 2026 Notes (Institutional) October 2033
Slide 30: Diversified Sources of Funding: Q4 2023
Diversified Sources of Funding: Q4 2023 Notes SBA Debenture SMBC SMBC MUFG Bank January 2027 Sept. 2026 October 2033 July 2024 February 2025 June 2025 March 2026 June 2025 License 3 LOC Facility Credit Facility Credit Facility Inst. Notes Inst. Notes Retail Notes Inst. Notes Inst. Notes Inst. Notes
Slide 31: Interest Rates & Asset Sensitivity
Interest Rates & Asset Sensitivity Basis Point Movement in Prime Rate $30,000 $0.16 $0.12 $0.12 $20,000 $0.08 $0.08 $0.04 Net Income ($ in thousands) $10,000 Earning per Share $0.04 $0 $0.00 -200 -100 -75 -50 -25 25 50 75 -$0.04 -$10,000 -$0.04 -$0.08 -$0.07 -$20,000 -$0.12 -$0.10 -$0.13 -$0.16 -$30
Slide 32: Portfolio Highlights
Portfolio Highlights
Slide 33: Hercules' Investment Portfolio: Q4 2023
Hercules’ Investment Portfolio: Q4 2023 Floating vs. Fixed Rate Investment Type Breakout 4.1% 4.8% 1.0% 2.2% Sr. Sec. 1st Pos. Debt Investments 8.4% Sr. Sec. 2nd Pos. Debt Floating Investments Unsecured Debt Fixed Investments Equity Investments 83.6% 95.9% Warrant Positions Industry Breakout Percent
Slide 34: Hercules' Warrant & Equity Portfolio
Hercules' Warrant & Equity Portfolio: Potential Future Upside for Shareholder’s Total Return 3 Portfolio Companies Current Warrant & Equity Portfolio – Q4 2023 completed/filed for Initial Public • 103 warrant holdings Offerings – 2023 • GAAP fair value: $34.0 million • enGene (completed) • GAAP cost
Slide 35: Selected List of Warrant and Equity Portfolio Holdings
Selected List of Warrant and Equity Portfolio Holdings Technology Life Sciences 35
Slide 36: A Broadly Diversified Portfolio Re-Balanced
A Broadly Diversified Portfolio Re-Balanced According to our Assessment of Ongoing Market Conditions Mitigates Risk ($M) $1,880.4 $2,314.5 $2,354.1 $2,434.5 $2,964.0 $3,248.0 100% 2.1% 2.1% 2.7% 2.3% 3.5% 3.4% 1.6% 0.3% 3.2% 4.5% 2.4% 5.0% 6.7% 9.3% Diversified Financial Services 90% 5.9% 3.3% 1.6%
Slide 37: Select List of Diversified Portfolio Companies
Select List of Diversified Portfolio Companies Technology Life Sciences SaaS Financing Sustainable & Renewable Technology Special Situations 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 More than Technology Expansion or Key VC Investment 1000 Venture SaaS Financing “Venture Growth” Centers Capital Life Sciences & Silicon Va
Slide 39: 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) Venture Capital/ Public Markets/ Equity Capital Provider Private Equity Private Equity Expectation for Addit
Slide 40: Venture Capital Market Opportunity
Venture Capital Market Opportunity
Slide 41: Over $1.9 Trillion in VC Investments Since 1997
Over $1.9 Trillion in VC Investments Since 1997 Venture Capital Investment Activity 2012 – 2023 $400 19,025 17,592 20,000 18,000 Dollars Invested (billions) $350 13,680 13,608 16,000 $300 14,000 $250 # of Deals 12,000 $200 10,000 $150 8,000 4,649 4,995 3,906 4,048 4,278 4,379 4,496 4,341 6,000 $100
Slide 42: Exits of Venture Capital-Backed Companies
Exits of Venture Capital–Backed Companies Mergers & Acquisitions $140 1311 1,400 Amount Paid (billions) $120 1018 1,200 $100 730 869 1,000 742 675 759 # of Deals 645 703 708 698 $80 632 800 $60 600 $40 400 $20 200 $69.3 $67.8 $133.0 $84.7 $120.5 $89.0 $129.5 $123.4 $69.2 $103.1 $40.3 $26.7 $0 0 2012
Slide 43: Hercules' Total Commitments Vs. VC Dollars Invested
Hercules’ Total Commitments VS. VC Dollars Invested Venture Capital Investment Activity 2012 – 2023 $350 VC Dollars Invested $3,500 Hercules Debt & Equity Commitments $3,121 $300 Hercules Debt & Equity Commitments $3,000 $2,639 Note: Represents US VC investments only VC Dollars Invested $250 $2,174
Slide 44: Investment Highlights
Investment Highlights Large Market Opportunity and Differentiated Asset Class of Investments Experienced Attractive Yields and Management Team Upside from Equity and with Domain Expertise Warrant Portfolio Strict Focus on Credit Strong Venture Capital and Underwriting Process Private Equity Relation
Slide 45: Analyst Coverage
Analyst Coverage
Slide 46: Broad Industry Analyst Coverage
Broad Industry Analyst Coverage Finian O’Shea John Hecht Devin Ryan Transferred Coverage Initiated Coverage Re-initiated Coverage 7/13/2018 6/30/2015 11/2/2020 Ryan Lynch Crispin Love Casey Alexander Re-initiated Coverage Re-initiated Coverage Initiated Coverage 2/19/2013 7/20/2020 6/23/15 Mitchel P