UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 814-00702
HERCULES CAPITAL, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland |
|
74-3113410 |
(State or Jurisdiction of Incorporation or Organization) |
|
(IRS Employer Identification Number) |
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)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Common Shares, par value $0.001 per share |
HTGC |
New York Stock Exchange |
6.25% Notes due 2033 |
HCXY |
New York Stock Exchange |
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 ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☐ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
|
☒ |
|
Accelerated filer |
|
☐ |
Non-accelerated filer |
|
☐ |
|
Smaller reporting company |
|
☐ |
Emerging growth company |
|
☐ |
|
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with a new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |
|
☐ |
||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
On July 22, 2022, there were 127,238,854 shares outstanding of the Registrant’s common stock, $0.001 par value.
HERCULES CAPITAL, INC.
FORM 10-Q TABLE OF CONTENTS
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3 |
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Item 1. |
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3 |
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3 |
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4 |
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5 |
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Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited) |
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6 |
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Consolidated Schedule of Investments as of June 30, 2022 (unaudited) |
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7 |
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Consolidated Schedule of Investments as of December 31, 2021 |
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18 |
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29 |
Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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61 |
Item 3. |
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77 |
Item 4. |
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78 |
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79 |
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Item 1. |
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79 |
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Item 1A. |
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79 |
Item 2. |
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80 |
Item 3. |
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80 |
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Item 4. |
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80 |
Item 5. |
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80 |
Item 6. |
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81 |
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86 |
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PART I: FINANCIAL INFORMATION
In this Quarterly Report, the “Company,” “Hercules,” “we,” “us” and “our” refer to Hercules Capital, Inc. its wholly owned subsidiaries, and its affiliated securitization trust unless the context otherwise requires.
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
HERCULES CAPITAL, INC.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(in thousands, except per share data) |
|
June 30, 2022 |
|
|
December 31, 2021 |
|
||
|
|
(unaudited) |
|
|
|
|
||
Assets |
|
|
|
|
|
|
||
Investments, at fair value: |
|
|
|
|
|
|
||
Non-control/Non-affiliate investments (cost of $2,667,854 and $2,293,398, respectively) |
|
$ |
2,632,403 |
|
|
$ |
2,351,560 |
|
Control investments (cost of $87,228 and $84,039, respectively) |
|
|
82,875 |
|
|
|
73,504 |
|
Affiliate investments (cost of $8,245 and $13,547, respectively) |
|
|
3,613 |
|
|
|
9,458 |
|
Total investments, at fair value (cost of $2,763,327 and $2,390,984, respectively; amounts related to a VIE $234,170 and $0, respectively) |
|
|
2,718,891 |
|
|
|
2,434,522 |
|
Cash and cash equivalents |
|
|
115,309 |
|
|
|
133,115 |
|
Restricted cash (amounts related to a VIE $3,371 and $0, respectively) |
|
|
3,371 |
|
|
|
3,150 |
|
Interest receivable |
|
|
22,112 |
|
|
|
17,365 |
|
Right of use asset |
|
|
6,349 |
|
|
|
6,761 |
|
Other assets |
|
|
3,691 |
|
|
|
5,100 |
|
Total assets |
|
$ |
2,869,723 |
|
|
$ |
2,600,013 |
|
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Debt (net of debt issuance costs - Note 5; amounts related to a VIE $147,663 and $0, respectively) |
|
$ |
1,498,612 |
|
|
$ |
1,236,303 |
|
Accounts payable and accrued liabilities |
|
|
36,711 |
|
|
|
47,781 |
|
Operating lease liability |
|
|
6,660 |
|
|
|
7,382 |
|
Total liabilities |
|
$ |
1,541,983 |
|
|
$ |
1,291,466 |
|
|
|
|
|
|
|
|
||
Net assets consist of: |
|
|
|
|
|
|
||
Common stock, par value |
|
$ |
128 |
|
|
$ |
117 |
|
Capital in excess of par value |
|
|
1,242,618 |
|
|
|
1,091,907 |
|
Total distributable earnings |
|
|
84,994 |
|
|
|
216,523 |
|
Total net assets |
|
$ |
1,327,740 |
|
|
$ |
1,308,547 |
|
Total liabilities and net assets |
|
$ |
2,869,723 |
|
|
$ |
2,600,013 |
|
|
|
|
|
|
|
|
||
Shares of common stock outstanding ($0.001 par value and 200,000,000 authorized) |
|
|
127,285 |
|
|
|
116,619 |
|
Net asset value per share |
|
$ |
10.43 |
|
|
$ |
11.22 |
|
See notes to consolidated financial statements
3
HERCULES CAPITAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data) |
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Investment income: |
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|
|
|
|
|
|
|
|
|
|
|
||||
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-control/Non-affiliate investments |
|
$ |
67,511 |
|
|
$ |
60,276 |
|
|
$ |
127,601 |
|
|
$ |
123,258 |
|
Control investments |
|
|
1,144 |
|
|
|
1,029 |
|
|
|
2,259 |
|
|
|
1,828 |
|
Affiliate investments |
|
|
76 |
|
|
|
1 |
|
|
|
1,123 |
|
|
|
2 |
|
Total interest income |
|
|
68,731 |
|
|
|
61,306 |
|
|
|
130,983 |
|
|
|
125,088 |
|
Fee income: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-control/Non-affiliate investments |
|
|
3,367 |
|
|
|
8,238 |
|
|
|
6,256 |
|
|
|
13,207 |
|
Control investments |
|
|
17 |
|
|
|
15 |
|
|
|
33 |
|
|
|
23 |
|
Total fee income |
|
|
3,384 |
|
|
|
8,253 |
|
|
|
6,289 |
|
|
|
13,230 |
|
Total investment income |
|
|
72,115 |
|
|
|
69,559 |
|
|
|
137,272 |
|
|
|
138,318 |
|
|
|
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|
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|
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||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Interest |
|
|
12,698 |
|
|
|
14,490 |
|
|
|
24,345 |
|
|
|
29,240 |
|
Loan fees |
|
|
1,492 |
|
|
|
2,220 |
|
|
|
3,334 |
|
|
|
5,020 |
|
General and administrative |
|
|
4,322 |
|
|
|
4,068 |
|
|
|
8,140 |
|
|
|
7,664 |
|
Tax expenses |
|
|
1,821 |
|
|
|
1,746 |
|
|
|
2,533 |
|
|
|
3,184 |
|
Employee compensation: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Compensation and benefits |
|
|
11,060 |
|
|
|
8,349 |
|
|
|
19,389 |
|
|
|
18,153 |
|
Stock-based compensation |
|
|
3,661 |
|
|
|
2,926 |
|
|
|
8,085 |
|
|
|
5,670 |
|
Total employee compensation |
|
|
14,721 |
|
|
|
11,275 |
|
|
|
27,474 |
|
|
|
23,823 |
|
Total gross operating expenses |
|
|
35,054 |
|
|
|
33,799 |
|
|
|
65,826 |
|
|
|
68,931 |
|
Expenses allocated to the Adviser Subsidiary |
|
|
(3,070 |
) |
|
|
(1,204 |
) |
|
|
(4,472 |
) |
|
|
(2,137 |
) |
Total net operating expenses |
|
|
31,984 |
|
|
|
32,595 |
|
|
|
61,354 |
|
|
|
66,794 |
|
Net investment income |
|
|
40,131 |
|
|
|
36,964 |
|
|
|
75,918 |
|
|
|
71,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net realized gain (loss) and net change in unrealized appreciation (depreciation): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net realized gain (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-control/Non-affiliate investments |
|
|
(2,133 |
) |
|
|
47,861 |
|
|
|
(4,600 |
) |
|
|
55,631 |
|
Affiliate investments |
|
|
— |
|
|
|
(62,143 |
) |
|
|
3,772 |
|
|
|
(62,143 |
) |
Loss on debt extinguishment |
|
|
— |
|
|
|
— |
|
|
|
(3,686 |
) |
|
|
— |
|
Total net realized gain (loss) |
|
|
(2,133 |
) |
|
|
(14,282 |
) |
|
|
(4,514 |
) |
|
|
(6,512 |
) |
Net change in unrealized appreciation (depreciation): |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Non-control/Non-affiliate investments |
|
|
(51,749 |
) |
|
|
3,075 |
|
|
|
(90,698 |
) |
|
|
21,097 |
|
Control investments |
|
|
4,728 |
|
|
|
(5,255 |
) |
|
|
6,182 |
|
|
|
(3,553 |
) |
Affiliate investments |
|
|
(1,295 |
) |
|
|
62,229 |
|
|
|
(542 |
) |
|
|
64,338 |
|
Total net change in unrealized appreciation (depreciation) |
|
|
(48,316 |
) |
|
|
60,049 |
|
|
|
(85,058 |
) |
|
|
81,882 |
|
Total net realized gain (loss) and net change in unrealized appreciation (depreciation) |
|
|
(50,449 |
) |
|
|
45,767 |
|
|
|
(89,572 |
) |
|
|
75,370 |
|
Net increase (decrease) in net assets resulting from operations |
|
$ |
(10,318 |
) |
|
$ |
82,731 |
|
|
$ |
(13,654 |
) |
|
$ |
146,894 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net investment income before investment gains and losses per common share: |
|
|||||||||||||||
Basic |
|
$ |
0.32 |
|
|
$ |
0.32 |
|
|
$ |
0.62 |
|
|
$ |
0.62 |
|
Change in net assets resulting from operations per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
(0.09 |
) |
|
$ |
0.71 |
|
|
$ |
(0.12 |
) |
|
$ |
1.27 |
|
Diluted |
|
$ |
(0.09 |
) |
|
$ |
0.65 |
|
|
$ |
(0.12 |
) |
|
$ |
1.21 |
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
|
124,255 |
|
|
|
114,654 |
|
|
|
121,292 |
|
|
|
114,480 |
|
Diluted |
|
|
124,255 |
|
|
|
129,572 |
|
|
|
121,292 |
|
|
|
122,188 |
|
Distributions paid per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic |
|
$ |
0.48 |
|
|
$ |
0.39 |
|
|
$ |
0.96 |
|
|
$ |
0.76 |
|
See notes to consolidated financial statements
4
HERCULES CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(unaudited)
(amounts in thousands) |
|
|
|
|
|
|
Capital in |
|
|
Distributable |
|
|
|
|
|||||
|
Common Stock |
|
|
excess |
|
|
Earnings |
|
|
Net |
|
||||||||
For the Three Months Ended June 30, 2022 |
Shares |
|
|
Par Value |
|
|
of par value |
|
|
(loss) |
|
|
Assets |
|
|||||
Balance as of March 31, 2022 |
|
123,194 |
|
|
$ |
124 |
|
|
$ |
1,178,019 |
|
|
$ |
155,305 |
|
|
$ |
1,333,448 |
|
Net increase (decrease) in net assets resulting from operations |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,318 |
) |
|
|
(10,318 |
) |
Public offering, net of offering expenses |
|
4,061 |
|
|
|
4 |
|
|
|
61,851 |
|
|
|
— |
|
|
|
61,855 |
|
Issuance of common stock due to stock option exercises |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Retired shares from net issuance |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Issuance of common stock under restricted stock plan |
|
23 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Retired shares for restricted stock vesting |
|
(54 |
) |
|
|
— |
|
|
|
(894 |
) |
|
|
— |
|
|
|
(894 |
) |
Distributions reinvested in common stock |
|
61 |
|
|
|
— |
|
|
|
921 |
|
|
|
— |
|
|
|
921 |
|
Distributions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(59,993 |
) |
|
|
(59,993 |
) |
Stock-based compensation (1) |
|
— |
|
|
|
— |
|
|
|
2,721 |
|
|
|
— |
|
|
|
2,721 |
|
Balance as of June 30, 2022 |
|
127,285 |
|
|
$ |
128 |
|
|
$ |
1,242,618 |
|
|
$ |
84,994 |
|
|
$ |
1,327,740 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
For the Six Months Ended June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance as of December 31, 2021 |
$ |
116,619 |
|
|
$ |
117 |
|
|
$ |
1,091,907 |
|
|
$ |
216,523 |
|
|
$ |
1,308,547 |
|
Net increase (decrease) in net assets resulting from operations |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13,654 |
) |
|
|
(13,654 |
) |
Public offering, net of offering expenses |
|
8,921 |
|
|
|
9 |
|
|
|
147,095 |
|
|
|
— |
|
|
|
147,104 |
|
Issuance of common stock due to stock option exercises |
|
37 |
|
|
|
— |
|
|
|
454 |
|
|
|
— |
|
|
|
454 |
|
Retired shares from net issuance |
|
(2 |
) |
|
|
— |
|
|
|
(32 |
) |
|
|
— |
|
|
|
(32 |
) |
Issuance of common stock under restricted stock plan |
|
788 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
Retired shares for restricted stock vesting |
|
(180 |
) |
|
|
— |
|
|
|
(4,588 |
) |
|
|
— |
|
|
|
(4,588 |
) |
Distributions reinvested in common stock |
|
121 |
|
|
|
— |
|
|
|
1,946 |
|
|
|
— |
|
|
|
1,946 |
|
Issuance of common stock from conversion of 2022 Convertible Notes |
|
981 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
Distributions |
|
— |
|
|
|
— |
|
|
|
|
|
|
(117,875 |
) |
|
|
(117,875 |
) |
|
Stock-based compensation (1) |
|
— |
|
|
|
— |
|
|
|
5,838 |
|
|
|
— |
|
|
|
5,838 |
|
Balance as of June 30, 2022 |
$ |
127,285 |
|
|
$ |
128 |
|
|
$ |
1,242,618 |
|
|
$ |
84,994 |
|
|
$ |
1,327,740 |
|
(amounts in thousands) |
|
|
|
|
|
|
|
Capital in |
|
|
Distributable |
|
|
|
|
|||||
|
|
Common Stock |
|
|
excess |
|
|
Earnings |
|
|
Net |
|
||||||||
For the Three Months Ended June 30, 2021 |
|
Shares |
|
|
Par Value |
|
|
of par value |
|
|
(loss) |
|
|
Assets |
|
|||||
Balance as of March 31, 2021 |
|
|
115,768 |
|
|
$ |
116 |
|
|
$ |
1,160,519 |
|
|
$ |
154,759 |
|
|
$ |
1,315,394 |
|
Net increase (decrease) in net assets resulting from operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
82,731 |
|
|
|
82,731 |
|
Public offering, net of offering expenses |
|
|
— |
|
|
|
— |
|
|
|
(3 |
) |
|
|
— |
|
|
|
(3 |
) |
Issuance of common stock due to stock option exercises |
|
|
41 |
|
|
|
— |
|
|
|
888 |
|
|
|
— |
|
|
|
888 |
|
Retired shares from net issuance |
|
|
(12 |
) |
|
|
— |
|
|
|
(486 |
) |
|
|
— |
|
|
|
(486 |
) |
Issuance of common stock under restricted stock plan |
|
|
36 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Retired shares for restricted stock vesting |
|
|
(33 |
) |
|
|
— |
|
|
|
(725 |
) |
|
|
— |
|
|
|
(725 |
) |
Distributions reinvested in common stock |
|
|
67 |
|
|
|
— |
|
|
|
1,070 |
|
|
|
— |
|
|
|
1,070 |
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(45,158 |
) |
|
|
(45,158 |
) |
Stock-based compensation (1) |
|
|
— |
|
|
|
— |
|
|
|
2,647 |
|
|
|
— |
|
|
|
2,647 |
|
Balance as of June 30, 2021 |
|
|
115,867 |
|
|
$ |
116 |
|
|
$ |
1,163,910 |
|
|
$ |
192,332 |
|
|
$ |
1,356,358 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
For the Six Months Ended June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Balance as of December 31, 2020 |
|
|
114,726 |
|
|
$ |
115 |
|
|
$ |
1,158,198 |
|
|
$ |
133,391 |
|
|
$ |
1,291,704 |
|
Net increase (decrease) in net assets resulting from operations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
146,894 |
|
|
|
146,894 |
|
Public offering, net of offering expenses |
|
|
— |
|
|
|
— |
|
|
|
(198 |
) |
|
|
— |
|
|
|
(198 |
) |
Issuance of common stock due to stock option exercises |
|
|
263 |
|
|
|
— |
|
|
|
3,633 |
|
|
|
— |
|
|
|
3,633 |
|
Retired shares from net issuance |
|
|
(62 |
) |
|
|
— |
|
|
|
(1,089 |
) |
|
|
— |
|
|
|
(1,089 |
) |
Issuance of common stock under restricted stock plan |
|
|
960 |
|
|
|
1 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
Retired shares for restricted stock vesting |
|
|
(154 |
) |
|
|
— |
|
|
|
(3,906 |
) |
|
|
— |
|
|
|
(3,906 |
) |
Distributions reinvested in common stock |
|
|
134 |
|
|
|
— |
|
|
|
2,110 |
|
|
|
— |
|
|
|
2,110 |
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(87,953 |
) |
|
|
(87,953 |
) |
Stock-based compensation (1) |
|
|
— |
|
|
|
— |
|
|
|
5,163 |
|
|
|
— |
|
|
|
5,163 |
|
Balance as of June 30, 2021 |
|
|
115,867 |
|
|
$ |
116 |
|
|
$ |
1,163,910 |
|
|
$ |
192,332 |
|
|
$ |
1,356,358 |
|
See notes to consolidated financial statements
5
HERCULES CAPITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(amounts in thousands) |
For the Six Months Ended June 30, |
|
|||||
|
2022 |
|
|
2021 |
|
||
Cash flows used in operating activities: |
|
|
|
|
|
||
Net increase (decrease) in net assets resulting from operations |
$ |
(13,654 |
) |
|
$ |
146,894 |
|
Adjustments to reconcile net increase in net assets resulting from |
|
|
|
|
|
||
Purchases of investments |
|
(790,706 |
) |
|
|
(629,146 |
) |
Fundings assigned to Adviser Funds |
|
189,806 |
|
|
|
75,286 |
|
Principal and fee repayments received and proceeds from the sale of debt investments |
|
237,178 |
|
|
|
394,801 |
|
Proceeds from the sale of equity investments |
|
7,749 |
|
|
|
70,596 |
|
Net unrealized (appreciation) depreciation |
|
85,058 |
|
|
|
(81,882 |
) |
Net realized (gain) loss on investments |
|
828 |
|
|
|
6,512 |
|
Accretion of paid-in-kind principal |
|
(9,943 |
) |
|
|
(4,990 |
) |
Accretion of loan discounts |
|
(1,982 |
) |
|
|
(1,789 |
) |
Accretion of loan discount on convertible notes |
|
112 |
|||||