Hercules Capital
HERCULES TECHNOLOGY GROWTH CAPITAL INC (Form: 10-Q, Received: 11/05/2015 16:18:13)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended September 30, 2015

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 814-00702

 

HERCULES TECHNOLOGY GROWTH

CAPITAL, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Maryland

 

743113410

(State or Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

400 Hamilton Ave., Suite 310

Palo Alto, California

(Address of Principal Executive Offices)

 

94301

(Zip Code)

 

(650) 289-3060

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this Chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   ¨     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

On November 2, 2015, there were 72,072,409 shares outstanding of the Registrant’s common stock, $0.001 par value.

 

 

 

 

 


 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

FORM 10-Q TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

  

3

 

Item 1.

 

 

Consolidated Financial Statements

  

3

 

 

 

Consolidated Statement of Assets and Liabilities as of September 30, 2015 (unaudited) and December 31, 2014

  

3

 

 

 

Consolidated Statement of Operations for the three and nine months ended September 30, 2015 and 2014 (unaudited)

  

5

 

 

 

Consolidated Statement of Changes in Net Assets for the three and nine months ended September 30, 2015 and 2014 (unaudited)

  

6

 

 

 

Consolidated Statement of Cash Flows for the nine months ended September 30, 2015 and 2014 (unaudited)

  

7

 

 

 

Consolidated Schedule of Investments as of September 30, 2015 (unaudited)

  

8

 

 

 

Consolidated Schedule of Investments as of December 31, 2014

  

22

 

 

 

Notes to Consolidated Financial Statements (unaudited)

  

36

Item 2.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

67

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

  

109

Item 4.

 

 

Controls and Procedures

  

110

 

PART II. OTHER INFORMATION

  

111

 

Item 1.

 

Legal Proceedings

  

111

 

 

 

Item 1A. Risk Factors

  

111

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

113

Item 3.

 

 

Defaults Upon Senior Securities

  

113

Item 4.

 

 

Mine Safety Disclosures

  

113

Item 5.

 

 

Other Information

  

113

Item 6.

 

 

Exhibits and Financial Statement Schedules

  

113

 

SIGNATURES

  

115

 

 

 

 

2


 

PART I: FINANCIAL INFORMATION

In this Quarterly Report, the “Company,” “Hercules,” “we,” “us” and “our” refer to Hercules Technology Growth Capital, Inc. and its wholly owned subsidiaries and its affiliated securitization trusts unless the context otherwise requires.

 

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

(unaudited)

(dollars in thousands, except per share data)

 

 

 

September 30, 2015

 

 

December 31, 2014

 

Assets

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments (cost of $1,184,913 and $1,019,799, respectively)

 

$

1,142,544

 

 

$

1,012,738

 

Affiliate investments (cost of $15,179 and $15,538, respectively)

 

 

9,184

 

 

 

7,999

 

Total investments, at value (cost of $1,200,092 and $1,035,337, respectively)

 

 

1,151,728

 

 

 

1,020,737

 

Cash and cash equivalents

 

 

147,304

 

 

 

227,116

 

Restricted cash

 

 

5,358

 

 

 

12,660

 

Interest receivable

 

 

8,528

 

 

 

9,453

 

Other assets

 

 

19,813

 

 

 

29,257

 

Total assets

 

$

1,332,731

 

 

$

1,299,223

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

19,613

 

 

$

14,101

 

Long-term Liabilities (Convertible Senior Notes)

 

 

17,461

 

 

 

17,345

 

2017 Asset-Backed Notes

 

 

 

 

 

16,049

 

2021 Asset-Backed Notes

 

 

129,300

 

 

 

129,300

 

2019 Notes

 

 

150,364

 

 

 

170,364

 

2024 Notes

 

 

103,000

 

 

 

103,000

 

Long-term SBA Debentures

 

 

190,200

 

 

 

190,200

 

Total liabilities

 

$

609,938

 

 

$

640,359

 

 

 

 

 

 

 

 

 

 

Net assets consist of:

 

 

 

 

 

 

 

 

Common stock, par value

 

 

73

 

 

 

65

 

Capital in excess of par value

 

 

757,646

 

 

 

657,233

 

Unrealized depreciation on investments (1)

 

 

(50,118

)

 

 

(17,076

)

Accumulated realized gains on investments

 

 

22,503

 

 

 

14,079

 

Undistributed net investment income (Distributions in excess of net investment income)

 

 

(7,311

)

 

 

4,563

 

Total net assets

 

$

722,793

 

 

$

658,864

 

Total liabilities and net assets

 

$

1,332,731

 

 

$

1,299,223

 

 

 

 

 

 

 

 

 

 

Shares of common stock outstanding ($0.001 par value, 200,000,000 and 100,000,000 authorized, respectively)

 

 

72,109

 

 

 

64,715

 

Net asset value per share

 

$

10.02

 

 

$

10.18

 

 

 

(1)

Amounts includes $1.8 million in net unrealized depreciation on other assets and accrued liabilities, including escrow receivables, estimated taxes payable and Citigroup warrant participation agreement liabilities.

See notes to consolidated financial statements.

3


 

T he following table presents the assets and liabilities of our consolidated securitization trusts for the asset-backed notes (see Note 4), which are variable interest entities (“VIE”). The assets of our securitization VIEs can only be used to settle obligat ions of our consolidated securitization VIEs, these liabilities are only the obligations of our consolidated securitization VIEs, and the creditors (or beneficial interest holders) do not have recourse to our general credit. These assets and liabilities ar e included in the Consolidated Statement of Assets and Liabilities above.

 

  (Dollars in thousands)

 

September 30, 2015

 

 

December 31, 2014

 

Assets

 

 

 

 

 

 

 

 

Restricted Cash

 

$

5,358

 

 

$

12,660

 

Total investments, at value (cost of $254,165 and $296,314, respectively)

 

 

254,564

 

 

 

291,464

 

Total assets

 

$

259,922

 

 

$

304,124

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Asset-Backed Notes

 

$

129,300

 

 

$

145,349

 

Total liabilities

 

$

129,300

 

 

$

145,349

 

See notes to consolidated financial statements.

4


 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

(in thousands, except per share data)

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Investment income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Control/Non-Affiliate investments

$

40,256

 

 

$

33,210

 

 

$

105,861

 

 

$

92,975

 

Affiliate investments

 

83

 

 

 

130

 

 

 

278

 

 

 

1,747

 

Total interest income

 

40,339

 

 

 

33,340

 

 

 

106,139

 

 

 

94,722

 

Fees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Control/Non-Affiliate investments

 

6,793

 

 

 

3,671

 

 

 

11,611

 

 

 

12,037

 

Affiliate investments

 

 

 

 

8

 

 

 

1

 

 

 

30

 

Total fees

 

6,793

 

 

 

3,679

 

 

 

11,612

 

 

 

12,067

 

Total investment income

 

47,132

 

 

 

37,019

 

 

 

117,751

 

 

 

106,789

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest

 

7,818

 

 

 

6,495

 

 

 

23,243

 

 

 

20,177

 

Loan fees

 

1,072

 

 

 

1,364

 

 

 

4,166

 

 

 

4,531

 

General and administrative

 

4,504

 

 

 

2,397

 

 

 

12,190

 

 

 

6,984

 

Employee Compensation:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

7,969

 

 

 

3,922

 

 

 

17,621

 

 

 

11,375

 

Stock-based compensation

 

2,179

 

 

 

2,823

 

 

 

7,166

 

 

 

6,849

 

Total employee compensation

 

10,148

 

 

 

6,745

 

 

 

24,787

 

 

 

18,224

 

Total operating expenses

 

23,542

 

 

 

17,001

 

 

 

64,386

 

 

 

49,916

 

Loss on debt extinguishment (Long-term Liabilities - Convertible Senior Notes)

 

 

 

 

(1,023

)

 

 

(1

)

 

 

(1,023

)

Net investment income

 

23,590

 

 

 

18,995

 

 

 

53,364

 

 

 

55,850

 

Net realized gain on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Control/Non-Affiliate investments

 

6,366

 

 

 

5,664

 

 

 

8,424

 

 

 

13,007

 

Total net realized gain on investments

 

6,366

 

 

 

5,664

 

 

 

8,424

 

 

 

13,007

 

Net increase in unrealized appreciation (depreciation) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-Control/Non-Affiliate investments

 

(25,032

)

 

 

(10,029

)

 

 

(34,585

)

 

 

(15,447

)

Affiliate investments

 

(849

)

 

 

547

 

 

 

1,543

 

 

 

(2,857

)

Total net unrealized depreciation on investments

 

(25,881

)

 

 

(9,482

)

 

 

(33,042

)

 

 

(18,304

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total net realized and unrealized loss

 

(19,515

)

 

 

(3,818

)

 

 

(24,618

)

 

 

(5,297

)

Net increase in net assets resulting from operations

$

4,075

 

 

$

15,177

 

 

$

28,746

 

 

$

50,553

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.33

 

 

$

0.30

 

 

$

0.76

 

 

$

0.89

 

Change in net assets per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.05

 

 

$

0.24

 

 

$

0.40

 

 

$

0.80

 

Diluted

$

0.05

 

 

$

0.23

 

 

$

0.40

 

 

$

0.78

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

71,462

 

 

 

62,356

 

 

 

68,897

 

 

 

61,444

 

Diluted

 

71,496

 

 

 

63,779

 

 

 

69,123

 

 

 

63,554

 

Dividends declared per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.31

 

 

$

0.31

 

 

$

0.93

 

 

$

0.93

 

See notes to consolidated financial statements.

5


 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

(unaudited)

(dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Undistributed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

net investment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

income/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

Accumulated

 

 

(Distributions

 

 

Provision for

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

Appreciation

 

 

Realized

 

 

in excess of

 

 

Income Taxes

 

 

 

 

 

 

Common Stock

 

 

excess

 

 

(Depreciation)

 

 

Gains (Losses)

 

 

investment

 

 

on Investment

 

 

Net

 

 

Shares

 

 

Par   Value

 

 

of par value

 

 

on Investments

 

 

on Investments

 

 

income)

 

 

Gains

 

 

Assets

 

Balance at December 31, 2013

 

61,837

 

 

$

62

 

 

$

656,594

 

 

$

3,598

 

 

$

(15,240

)

 

$

5,335

 

 

$

(342

)

 

$

650,007

 

Net increase (decrease) in net assets

   resulting from operations

 

 

 

 

 

 

 

 

 

 

(18,304

)

 

 

13,007

 

 

 

55,850

 

 

 

 

 

 

50,553

 

Public offering, net of offering expenses

 

1,574

 

 

 

2

 

 

 

9,180

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,182

 

Issuance of common stock due to

   stock option exercises

 

256

 

 

 

 

 

 

2,873

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,873

 

Retired shares from net issuance

 

(193

)

 

 

 

 

 

(2,980

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,980

)

Issuance of common stock under

   restricted stock plan

 

982

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired shares for restricted stock

   vesting

 

(350

)

 

 

 

 

 

(3,012

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,012

)

Issuance of common stock as

   stock dividend

 

76

 

 

 

 

 

 

1,152

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,152

 

Dividends distributed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(58,482

)

 

 

 

 

 

(58,482

)

Stock-based compensation

 

 

 

 

 

 

 

6,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,905

 

Balance at September 30, 2014

 

64,182

 

 

$

65

 

 

$

670,711

 

 

$

(14,706

)

 

$

(2,233

)

 

$

2,703

 

 

$

(342

)

 

$

656,198

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

 

64,715

 

 

$

65

 

 

$

657,233

 

 

$

(17,076

)

 

$

14,079

 

 

$

4,905

 

 

$

(342

)

 

$

658,864

 

Net increase (decrease) in net assets

   resulting from operations

 

 

 

 

 

 

 

 

 

 

(33,042

)

 

 

8,424

 

 

 

53,364

 

 

 

 

 

 

28,746

 

Public offering, net of offering expenses

 

7,591

 

 

 

8

 

 

 

100,084

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100,092

 

Acquisition of common stock under repurchase plan

 

(423

)

 

 

 

 

 

(4,498

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,498

)

Issuance of common stock due to

   stock option exercises

 

51

 

 

 

 

 

 

428

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

428

 

Retired shares from net issuance

 

(29

)

 

 

 

 

 

(423

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(423

)

Issuance of common stock under

   restricted stock plan

 

676

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired shares for restricted stock

   vesting

 

(595

)

 

 

(1

)

 

 

(3,997

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,998

)

Issuance of common stock as

   stock dividend

 

123

 

 

 

 

 

 

1,589

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,589

 

Dividends distributed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65,238

)

 

 

 

 

 

(65,238

)

Stock-based compensation

 

 

 

 

 

 

 

7,231

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,231

 

Balance at September 30, 2015

 

72,109

 

 

$

73

 

 

$

757,646

 

 

$

(50,118

)

 

$

22,503

 

 

$

(6,969

)

 

$

(342

)

 

$

722,793

 

 

See notes to consolidated financial statements.

6


 

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

(dollars in thousands)

 

 

For the Nine Months Ended September 30,

 

Cash flows from operating activities:

2015

 

 

2014

 

Net increase in net assets resulting from operations

$

28,746

 

 

$

50,553

 

Adjustments to reconcile net increase in net assets resulting from

   operations to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Purchase of investments

 

(532,048

)

 

 

(415,399

)

Principal and fee payments received on investments

 

379,247

 

 

 

322,820

 

Proceeds from the sale of investments

 

16,523

 

 

 

17,977

 

Net unrealized depreciation on investments

 

33,042

 

 

 

18,304

 

Net realized gain on investments

 

(8,424

)

 

 

(13,007

)

Accretion of paid-in-kind principal

 

(2,796

)

 

 

(1,990

)

Accretion of loan discounts

 

(6,369

)

 

 

(7,690

)

Accretion of loan discount on Convertible Senior Notes

 

185

 

 

 

738

 

Loss on debt extinguishment (Long-term Liabilities - Convertible Senior Notes)

 

1

 

 

 

1,023

 

Payment of loan discount on Convertible Senior Notes

 

(5

)

 

 

(2,500

)

Accretion of loan exit fees

 

(10,493

)

 

 

(9,457

)

Change in deferred loan origination revenue

 

1,275

 

 

 

(616

)

Unearned fees related to unfunded commitments

 

(271

)

 

 

(862

)

Amortization of debt fees and issuance costs

 

3,498

 

 

 

4,131

 

Depreciation

 

152

 

 

 

161

 

Stock-based compensation and amortization of restricted stock grants

 

7,231

 

 

 

6,905

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Interest and fees receivable

 

925

 

 

 

(184

)

Prepaid expenses and other assets

 

4,833

 

 

 

(1,942

)

Accounts payable

 

171

 

 

 

1,126

 

Accrued liabilities

 

6,065

 

 

 

(4,203

)

Net cash used in operating activities

 

(78,512

)

 

 

(34,112

)

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of capital equipment

 

(158

)

 

 

(94

)

Reduction of restricted cash

 

7,302

 

 

 

4,175

 

Net cash provided by investing activities

 

7,144

 

 

 

4,081

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Issuance of common stock, net

 

100,092

 

 

 

9,853

 

Repurchase of common stock, net

 

(4,498

)

 

 

 

Retirement of employee shares

 

(3,993

)

 

 

(3,119

)

Dividends paid

 

(63,649

)

 

 

(57,330

)

Issuance of 2024 Notes Payable

 

 

 

 

99,655

 

Repayments of 2019 Notes Payable

 

(20,000

)

 

 

 

Repayments of 2017 Asset-Backed Notes

 

(16,049

)

 

 

(61,606

)

Repayments of Long-Term SBA Debentures

 

 

 

 

(34,800

)

Borrowings on credit facilities

 

53,365

 

 

 

 

Repayments of credit facilities

 

(53,365

)

 

 

 

Cash Paid for redemption of Convertible Senior Notes

 

(65

)

 

 

(31,577

)

Fees paid for credit facilities and debentures

 

(282

)

 

 

(786

)

Net cash used in financing activities

 

(8,444

)

 

 

(79,710

)

Net decrease in cash and cash equivalents

 

(79,812

)

 

 

(109,741

)

Cash and cash equivalents at beginning of period

 

227,116

 

 

 

268,368

 

Cash and cash equivalents at end of period

$

147,304

 

 

$

158,627

 

 

 

 

 

 

 

 

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

 

Dividends Reinvested

$

1,589

 

 

$

1,152