PART I. FINANCIAL INFORMATION [Item 1. Consolidated Financial Statements](index=3&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents Hercules Capital, Inc.'s unaudited consolidated financial statements for Q2 2025 and FY 2024, including statements, schedules, and detailed notes [Consolidated Statements of Assets and Liabilities](index=3&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) Total assets and net assets increased for Hercules Capital, Inc. as of June 30, 2025, driven by investments and common stock growth | Metric (in millions) | June 30, 2025 (unaudited) | December 31, 2024 | | :-------------------- | :------------------------ | :------------------ | | Total investments, at fair value | $4,176.5 | $3,660.0 | | Cash and cash equivalents | $52.2 | $42.7 | | Total assets | $4,284.5 | $3,831.6 | | Total liabilities | $2,133.4 | $1,842.0 | | Total net assets | $2,151.1 | $1,989.6 | | Shares of common stock outstanding (in thousands) | 181,729 | 170,575 | | Net asset value per share | $11.84 | $11.66 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Total investment income increased for Q2 and H1 2025, but a net realized loss in 2025 impacted net assets from operations | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total investment income | $137.5 | $125.0 | $257.0 | $246.6 | | Total net operating expenses | $48.7 | $42.6 | $90.8 | $85.0 | | Net investment income | $88.7 | $82.4 | $166.2 | $161.5 | | Total net realized gain (loss) | $(57.6) | $(5.8) | $(59.2) | $2.4 | | Total net change in unrealized appreciation (depreciation) | $47.8 | $(34.7) | $22.2 | $(31.1) | | Net increase (decrease) in net assets resulting from operations | $78.9 | $41.9 | $129.2 | $132.8 | | Basic EPS (Net investment income before gains and losses) | $0.50 | $0.51 | $0.95 | $1.01 | | Basic EPS (Change in net assets from operations) | $0.44 | $0.26 | $0.74 | $0.83 | [Consolidated Statements of Changes in Net Assets](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Total net assets increased for Q2 and H1 2025, driven by operations and public offerings, partially offset by distributions | Metric (in millions) | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :----------------------------- | :------------------------------- | :----------------------------- | | Balance as of March 31/December 31 | $2,000.6 | $1,989.6 | $1,885.9 | $1,802.7 | | Net increase (decrease) in net assets from operations | $78.9 | $129.2 | $41.9 | $132.8 | | Public offering, net of expenses | $149.4 | $188.9 | $(0.0) | $66.4 | | Distributions | $(83.1) | $(164.5) | $(77.9) | $(153.9) | | Balance as of June 30 | $2,151.1 | $2,151.1 | $1,856.5 | $1,856.5 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating activities used more cash in H1 2025, while financing activities provided significantly more cash due to increased debt and equity issuance | Metric (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash (used in) operating activities | $(367.0) | $(181.4) | | Net cash (used in) investing activities | $(0.0) | $(0.7) | | Net cash provided by financing activities | $303.9 | $105.0 | | Net increase (decrease) in cash, cash equivalents, foreign cash and restricted cash | $(63.1) | $(77.1) | | Cash, cash equivalents, foreign cash and restricted cash at end of period | $53.3 | $38.9 | - Operating activities used **$367.0 million** in cash for the six months ended June 30, 2025, an increase from **$181.4 million** used in the same period of 2024, primarily due to increased investment purchases and decreased principal/fee repayments[364](index=364&type=chunk) - Financing activities provided **$303.9 million** in cash for the six months ended June 30, 2025, a significant increase from **$105.0 million** in 2024, driven by **$122.5 million** more in equity issued and **$89.0 million** more in net borrowing activity[366](index=366&type=chunk) [Consolidated Schedule of Investments as of June 30, 2025 (unaudited)](index=7&type=section&id=Consolidated%20Schedule%20of%20Investments%20as%20of%20June%2030,%202025%20(unaudited)) Detailed breakdown of the investment portfolio as of June 30, 2025, showing debt securities as the majority, concentrated in Drug Discovery & Development and Software sectors Investment Portfolio by Type | Investment Type | Cost (in millions) | Value (in millions) | | :---------------- | :------------------ | :------------------- | | Debt Investments | $3,977.3 | $3,978.7 | | Equity Investments | $179.6 | $155.8 | | Warrant Investments | $31.3 | $35.5 | | Investment Funds & Vehicles Investments | $4.5 | $6.5 | | Total Investments in Securities | $4,188.1 | $4,170.0 | Debt Investments by Industry Sector | Industry Sector (Debt Investments) | Value (in millions) | Percentage of Total Debt | | :--------------------------------- | :------------------- | :----------------------- | | Drug Discovery & Development | $984.3 | 24.74% | | Software | $1,433.5 | 36.03% | | Healthcare Services, Other | $744.4 | 18.71% | | Consumer & Business Services | $361.7 | 9.09% | | Defense Technologies | $137.2 | 3.45% | - As of June 30, 2025, **97.8%** of debt investments bear a floating rate, with **81.1%** linked to the Prime rate (**7.50%**) and **16.7%** linked to SOFR, SONIA, or BSBY rates[59](index=59&type=chunk)[310](index=310&type=chunk) [Consolidated Schedule of Investments as of December 31, 2024](index=21&type=section&id=Consolidated%20Schedule%20of%20Investments%20as%20of%20December%2031,%202024) Investment portfolio as of December 31, 2024, showing slightly lower overall fair values than June 2025, with concentrations in Drug Discovery & Development and Software Investment Portfolio by Type | Investment Type | Cost (in millions) | Value (in millions) | | :---------------- | :------------------ | :------------------- | | Debt Investments | $3,515.5 | $3,494.6 | | Equity Investments | $157.7 | $128.7 | | Warrant Investments | $31.2 | $30.5 | | Investment Funds & Vehicles Investments | $4.5 | $6.2 | | Total Investments in Securities | $3,704.4 | $3,653.8 | Debt Investments by Industry Sector | Industry Sector (Debt Investments) | Value (in millions) | Percentage of Total Debt | | :--------------------------------- | :------------------- | :----------------------- | | Drug Discovery & Development | $1,036.6 | 29.66% | | Software | $1,050.6 | 30.06% | | Healthcare Services, Other | $600.6 | 17.18% | | Consumer & Business Services | $358.8 | 10.27% | | Electronics & Computer Hardware | $161.7 | 4.63% | - As of December 31, 2024, **97.4%** of debt investments bore a floating rate, with **75.7%** linked to the Prime rate (**7.50%**) and **21.6%** linked to SOFR, SONIA, or BSBY rates[98](index=98&type=chunk)[310](index=310&type=chunk) [Notes to Consolidated Financial Statements (unaudited)](index=34&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements%20(unaudited)) Essential notes provide context and detailed explanations for Hercules Capital's financial position and performance, covering business, accounting, valuation, and debt [1. Description of Business](index=35&type=section&id=1.%20Description%20of%20Business) Hercules Capital, Inc. is a specialty finance company providing senior secured loans to high-growth, venture capital-backed technology and life sciences companies - Hercules Capital, Inc. is a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed and institutional-backed companies in technology and life sciences industries[100](index=100&type=chunk) - The Company operates as an internally managed, non-diversified closed-end investment company regulated as a Business Development Company (BDC) under the 1940 Act and has elected to be treated as a Regulated Investment Company (RIC) for U.S. federal income tax purposes[101](index=101&type=chunk) - Hercules Capital also manages wholly-owned Small Business Investment Companies (SBICs), HC IV and SBIC V, and an Adviser Subsidiary (Hercules Adviser LLC) that provides investment advisory services to external investment vehicles (Adviser Funds)[103](index=103&type=chunk)[105](index=105&type=chunk) [2. Summary of Significant Accounting Policies](index=35&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines key accounting policies, including U.S. GAAP presentation, VIE consolidation, and fair value measurements for investments, income, and taxes - The financial statements are prepared in accordance with U.S. GAAP for interim financial information and follow ASC Topic 946 for investment companies, measuring portfolio companies at fair value rather than consolidating them, except for certain subsidiaries providing services to the Company[106](index=106&type=chunk)[107](index=107&type=chunk) - Fair value measurements categorize investments into a three-tier hierarchy (Level 1, 2, 3) based on the observability of inputs, with substantially all of the Company's investments considered Level 3 due to the absence of readily available market values[114](index=114&type=chunk)[115](index=115&type=chunk)[116](index=116&type=chunk)[117](index=117&type=chunk)[119](index=119&type=chunk) - The valuation of investments, particularly Level 3 assets, is a significant estimate determined in good faith by the Valuation Committee and approved by the Board, involving a multi-step process and, for selected investments, assistance from independent valuation firms[118](index=118&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk)[122](index=122&type=chunk) - Investment income is recognized on an accrual basis, including contractual interest, PIK interest, and accreted loan exit fees. Debt investments are placed on non-accrual status when collection is improbable[140](index=140&type=chunk)[142](index=142&type=chunk)[144](index=144&type=chunk) [3. Fair Value of Financial Instruments](index=44&type=section&id=3.%20Fair%20Value%20of%20Financial%20Instruments) This section details fair value measurements, categorizing instruments into Level 1, 2, and 3, and provides quantitative information on unobservable inputs for valuations Fair Value Hierarchy of Investments | Description (in millions) | Balance as of June 30, 2025 | Level 1 | Level 2 | Level 3 | | :------------------------- | :-------------------------- | :------ | :------ | :------ | | Senior Secured Debt | $3,912.2 | — | — | $3,912.2 | | Unsecured Debt | $66.5 | — | — | $66.5 | | Preferred Stock | $54.6 | — | — | $54.6 | | Common Stock | $101.1 | $36.9 | — | $64.2 | | Warrants | $35.5 | — | $11.1 | $24.5 | | Total Investments, at fair value | $4,170.0 | $36.9 | $11.1 | $4,122.0 | Level 3 Debt Investments by Industry | Level 3 Debt Investments (in millions) | Fair Value as of June 30, 2025 | Unobservable Input (Weighted Average) | | :-------------------------------------- | :----------------------------- | :------------------------------------ | | Pharmaceuticals | $700.9 | Hypothetical Market Yield: 13.34% | | Technology | $1,309.2 | Hypothetical Market Yield: 13.14% | | Lower Middle Market | $627.8 | Hypothetical Market Yield: 14.07% | Level 3 Equity and Warrant Investments by Valuation Method | Level 3 Equity and Warrant Investments (in millions) | Fair Value as of June 30, 2025 | Unobservable Input (Weighted Average) | | :---------------------------------------------------- | :----------------------------- | :------------------------------------ | | Equity Investments (Market Comparable Companies) | $51.7 | Revenue Multiple: 7.9x | | Equity Investments (Discounted Cash Flow) | $54.2 | Discount Rate: 29.94% | | Warrant Investments (Market Comparable Companies) | $22.2 | Revenue Multiple: 4.7x | [4. Investments](index=51&type=section&id=4.%20Investments) This section details the investment portfolio by control, asset class, geography, and industry, highlighting senior secured debt and concentrations in Software and Drug Discovery & Development Investment Portfolio by Asset Class | Asset Class (in millions) | June 30, 2025 Fair Value | Percentage of Total Portfolio | | :------------------------- | :----------------------- | :---------------------------- | | Senior Secured Debt | $3,912.2 | 93.7% | | Unsecured Debt | $66.5 | 1.6% | | Common Stock | $101.1 | 2.4% | | Warrants | $35.5 | 0.8% | | Total | $4,176.5 | 100.0% | Investment Portfolio by Industry Sector | Industry Sector (in millions) | June 30, 2025 Fair Value | Percentage of Total Portfolio | | :----------------------------- | :----------------------- | :---------------------------- | | Software | $1,471.1 | 35.2% | | Drug Discovery & Development | $1,035.8 | 24.8% | | Healthcare Services, Other | $755.2 | 18.1% | | Consumer & Business Services | $375.2 | 9.0% | | Defense Technologies | $140.0 | 3.4% | - As of June 30, 2025, **91.0%** of debt investments are in a Senior Secured First Lien position, with **69.6%** collateralized by all assets including intellectual property[210](index=210&type=chunk) - The company uses foreign currency forward contracts to mitigate foreign exchange rate impacts on foreign-denominated investments, with a total fair value of **$(507) thousand** as of June 30, 2025[211](index=211&type=chunk) [5. Debt](index=56&type=section&id=5.%20Debt) This section details the company's debt structure, including new convertible and unsecured notes issued in 2025, repayments, and credit facility amendments Debt Instruments Outstanding | Debt Instrument (in millions) | June 30, 2025 Principal Outstanding | December 31, 2024 Principal Outstanding | | :----------------------------- | :---------------------------------- | :------------------------------------ | | SBA Debentures | $350.0 | $279.0 | | 2028 Convertible Notes | $287.5 | — | | June 2030 Notes | $350.0 | — | | 2031 Asset-Backed Notes | $111.6 | $119.5 | | MUFG Bank Facility | $66.0 | $116.0 | | SMBC Facility | $115.1 | $283.8 | | Total | $2,095.2 | $1,783.3 | - The company issued **$287.5 million** in 4.750% 2028 Convertible Notes on March 10, 2025, and **$350.0 million** in 6.000% June 2030 Notes on June 16, 2025[236](index=236&type=chunk)[238](index=238&type=chunk) - The MUFG Bank Facility was amended on June 10, 2025, increasing commitments from **$400.0 million** to **$440.0 million** and extending the maturity to June 10, 2029. The SMBC Facility was amended on November 26, 2024, converting **$25.0 million** into a term loan and extending maturity to November 26, 2029[245](index=245&type=chunk)[247](index=247&type=chunk)[249](index=249&type=chunk) Debt Interest Expense and Cost | Metric (in millions, except percentages) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Total interest expense and fees | $47.8 | $41.5 | | Weighted average interest cost | 4.3% | 4.3% | | Weighted average cost of debt | 4.9% | 5.0% | | Weighted average debt outstanding | $1,931.7 | $1,676.0 | [6. Income Taxes](index=63&type=section&id=6.%20Income%20Taxes) This section outlines the company's RIC election, requiring distribution of at least 90% of taxable income, and provides taxable income and unrealized gains/losses - The Company has elected to be treated as a Regulated Investment Company (RIC) under the Code, requiring it to distribute at least **90%** of its investment company taxable income to stockholders to avoid U.S. federal income tax[154](index=154&type=chunk) Taxable Income and Realized Gains (Losses) | Metric (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :----------------------------- | :----------------------------- | | Taxable income | $144.7 | $154.2 | | Taxable income per share | $0.84 | $0.97 | | Taxable net realized gains (losses) | $(35.7) | $9.4 | Unrealized Appreciation (Depreciation) for Tax Purposes | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Aggregate gross unrealized appreciation | $112.0 | $108.4 | | Aggregate gross unrealized depreciation | $128.0 | $156.5 | | Net unrealized appreciation (depreciation) over cost for U.S. federal income tax purposes | $(16.0) | $(48.1) | [7. Stockholders' Equity and Distributions](index=64&type=section&id=7.%20Stockholders'%20Equity%20and%20Distributions) This section details changes in stockholders' equity, including common stock issuance through offerings, and outlines the company's quarterly distribution policy - As of June 30, 2025, there were **181.7 million** shares of common stock outstanding, an increase from **170.6 million** shares as of December 31, 2024[256](index=256&type=chunk) Common Stock Issuance | Metric (in millions, except per share data) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Number of Shares Issued | 10.4 | 3.7 | | Net Proceeds | $188.9 | $66.4 | | Average Price/Share | $18.24 | $17.83 | Cash Distributions Declared | Distribution Type | Declared Date | Per Share Amount | Total Amount (in millions) | | :---------------- | :------------ | :--------------- | :-------------------------- | | Base (Feb 2025) | Feb 6, 2025 | $0.40 | $69.3 | | Supplemental (Feb 2025) | Feb 6, 2025 | $0.07 | $12.1 | | Base (Apr 2025) | Apr 23, 2025 | $0.40 | $70.7 | | Supplemental (Apr 2025) | Apr 23, 2025 | $0.07 | $12.4 | | Total (6 months ended June 30, 2025) | | $0.94 | $164.5 | - As of June 30, 2025, the Company estimates **$0.74 per share** of undistributed taxable earnings 'spillover' to be carried forward for future distributions[258](index=258&type=chunk) [8. Equity Incentive Plans](index=65&type=section&id=8.%20Equity%20Incentive%20Plans) This section describes the company's equity incentive plans for employees and directors, detailing compensation expense and unrecognized costs for various awards - The Company grants equity-based awards under the 2018 Equity Incentive Plan and 2018 Non-Employee Director Plan to attract and retain talent, with a maximum of **9,261,229** and **300,000** shares authorized for issuance, respectively[260](index=260&type=chunk) Stock-Based Compensation Expense | Metric (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Stock-based compensation expense | $7.3 | $6.5 | | Unrecognized compensation costs | $26.5 | $23.2 | Restricted Stock Activity | Restricted Stock Activity (in shares) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------ | :----------------------------- | :----------------------------- | | Unvested Shares Beginning of Period | 2,060,432 | 1,880,409 | | Granted | 795,401 | 830,276 | | Vested | (543,873) | (558,008) | | Forfeited | (43,853) | (23,990) | | Unvested Shares End of Period | 2,268,107 | 2,128,687 | - All Liability Awards, which are subject to both service and performance conditions and settled in cash or fixed dollar value of shares, have vested and been settled as of June 30, 2025, with no compensation expense recognized in the period[266](index=266&type=chunk)[268](index=268&type=chunk) [9. Earnings Per Share](index=67&type=section&id=9.%20Earnings%20Per%20Share) This section provides basic and diluted earnings per share (EPS) calculations, showing the impact of operations, distributions, and convertible notes on shares outstanding | Metric (in thousands, except per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net increase (decrease) in net assets resulting from operations | $78,887 | $41,852 | $129,224 | $132,816 | | Basic weighted average common shares outstanding | 176,809 | 160,748 | 173,231 | 159,096 | | Weighted average common shares outstanding assuming dilution | 190,777 | 161,309 | 182,159 | 159,614 | | Basic EPS (Change in net assets from operations) | $0.44 | $0.26 | $0.74 | $0.83 | | Diluted EPS (Change in net assets from operations) | $0.43 | $0.25 | $0.73 | $0.82 | - The calculation of diluted EPS for the three and six months ended June 30, 2025, includes the income impact and incremental shares from the assumed conversion of the 2028 Convertible Notes, which were not anti-dilutive[270](index=270&type=chunk)[271](index=271&type=chunk) [10. Financial Highlights](index=68&type=section&id=10.%20Financial%20Highlights) This section presents key financial highlights for the six months ended June 30, 2025 and 2024, offering a concise overview of the company's performance and position | Metric (except per share data and ratios) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------------- | :----------------------------- | :----------------------------- | | Net asset value at beginning of period | $11.66 | $11.43 | | Net investment income per share | $0.96 | $1.02 | | Net realized gain (loss) per share | $(0.34) | $0.01 | | Net unrealized appreciation (depreciation) per share | $0.13 | $(0.20) | | Total from investment operations per share | $0.75 | $0.83 | | Net asset value at end of period | $11.84 | $11.43 | | Per share market value at end of period | $18.28 | $20.45 | | Total return | (4.38%) | 28.84% | | Ratio of total expense to average net assets | 8.87% | 9.21% | | Ratio of net investment income before investment gains and losses to average net assets | 16.24% | 17.49% | | Portfolio turnover rate | 12.48% | 13.73% | [11. Commitments and Contingencies](index=68&type=section&id=11.%20Commitments%20and%20Contingencies) This section details the company's unfunded contractual commitments to portfolio companies and outlines contractual obligations for debt and lease payments - As of June 30, 2025, the Company had approximately **$471.5 million** in available unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company and unencumbered by future or unachieved milestones[277](index=277&type=chunk)[280](index=280&type=chunk) Contractual Obligations | Contractual Obligations (in millions) | Total (June 30, 2025) | Less than 1 year | 1 - 3 years | 3 - 5 years | After 5 years | | :------------------------------------- | :-------------------- | :--------------- | :---------- | :---------- | :------------ | | Debt | $2,095.2 | $100.0 | $675.0 | $818.6 | $501.6 | | Lease and License Obligations | $22.0 | $3.3 | $6.1 | $5.6 | $7.1 | | Total | $2,117.3 | $103.3 | $681.1 | $824.3 | $508.7 | Unfunded Commitments | Unfunded Commitments (in millions) | June 30, 2025 | December 31, 2024 | | :---------------------------------- | :------------ | :---------------- | | Total Unfunded Debt Commitments | $467.7 | $444.7 | | Total Unfunded Commitments in Investment Funds & Vehicles | $3.8 | $3.8 | | Total Unfunded Commitments | $471.5 | $448.5 | [12. Related Party Transactions](index=72&type=section&id=12.%20Related%20Party%20Transactions) This section details transactions with the Adviser Subsidiary, covering dividend income, allocated expenses, and co-investment activities with Adviser Funds - The Adviser Subsidiary, a wholly-owned registered investment adviser, generated **$2.1 million** in dividend income for the three months ended June 30, 2025, and **$4.0 million** for the six months ended June 30, 2025[289](index=289&type=chunk)[361](index=361&type=chunk) - Expenses allocated to the Adviser Subsidiary under a shared services agreement were **$3.4 million** for the three months ended June 30, 2025, and **$6.7 million** for the six months ended June 30, 2025, reflecting an increase due to higher time spent by senior management and increased allocation[290](index=290&type=chunk)[349](index=349&type=chunk) Investment Activity with Adviser Funds | Investment Activity (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Investment commitments assigned to or directly committed by the Adviser Funds | $437.6 | $337.4 | | Investment fundings assigned to, directly originated or funded by the Adviser Funds | $275.8 | $230.1 | [13. Subsequent Events](index=73&type=section&id=13.%20Subsequent%20Events) This section reports subsequent events, specifically the declaration of a cash distribution and a supplemental cash distribution by the Board in July 2025 - On July 24, 2025, the Board declared a cash distribution of **$0.40 per share** and a supplemental cash distribution of **$0.07 per share**, both payable on August 19, 2025, to stockholders of record as of August 12, 2025[292](index=292&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=72&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operating results, including business overview, portfolio activity, income analysis, liquidity, and critical accounting policies - Hercules Capital is a leading specialty finance company focused on providing financing solutions to high-growth, venture capital-backed and institutional-backed companies in technology and life sciences industries, aiming to maximize portfolio total return through debt, warrant, and equity investments[298](index=298&type=chunk) Total Investment Portfolio | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Debt | $3,978.7 | $3,494.6 | | Equity | $155.8 | $128.7 | | Warrants | $35.5 | $30.5 | | Investment Funds & Vehicles | $6.5 | $6.2 | | Total Investment Portfolio | $4,176.5 | $3,660.0 | Investment Commitments and Fundings | Metric (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :----------------------------- | :----------------------------- | | Net Total Investment Commitments | $1,582.2 | $1,305.1 | | Net Total Debt Fundings | $966.7 | $829.8 | | Total Unfunded Contractual Commitment | $471.5 | $479.5 | - The company's debt investment portfolio is **97.8%** floating rate with interest rate floors, primarily linked to Prime (**81.1%**) or SOFR/SONIA/BSBY (**16.7%**), providing insulation against declining interest rates[314](index=314&type=chunk) Consolidated Statements of Operations Summary | Metric (in millions, except per share data) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------- | :----------------------------- | :----------------------------- | | Total investment income | $257.0 | $246.6 | | Total expenses | $90.8 | $85.0 | | Net investment income | $166.2 | $161.5 | | Net realized gain (loss) | $(59.2) | $2.4 | | Net change in unrealized appreciation (depreciation) | $22.2 | $(31.1) | | Net increase (decrease) in net assets resulting from operations | $129.2 | $132.8 | - The weighted average investment grading of the debt portfolio on a cost basis remained at **2.26** as of June 30, 2025, and December 31, 2024, with **62.9%** of the portfolio graded 1 or 2[333](index=333&type=chunk) Performing and Non-Accrual Investments | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Performing | $4,183 | $3,648 | | Non-accrual | $10 | $61 | | Percentage of Total Portfolio at Amortized Cost (Non-accrual) | **0.2%** | **1.7%** | - As of June 30, 2025, the company had **$785.6 million** in available liquidity, including **$52.2 million** in cash and equivalents, and **$729.4 million** in available borrowing capacity under its credit facilities[368](index=368&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=89&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses the company's exposure to interest rate risk from floating-rate debt investments and borrowings, quantifying the impact of hypothetical rate changes - The company is subject to interest rate risk, as approximately **97.8%** of its loan portfolio had floating rates with a floor as of June 30, 2025, primarily indexed to Prime, SOFR, or SONIA[387](index=387&type=chunk) Hypothetical Interest Rate Sensitivity | Basis Point Change | Interest Income (in millions) | Interest Expense (in millions) | Net Income (in millions) | EPS | | :----------------- | :----------------------------- | :------------------------------ | :------------------------ | :-- | | (200) | $(32.0) | $(7.2) | $(24.8) | $(0.14) | | (100) | $(19.9) | $(3.6) | $(16.3) | $(0.09) | | 50 | $13.0 | $1.8 | $11.1 | $0.06 | | 75 | $20.3 | $2.7 | $17.6 | $0.10 | - The company may use hedging instruments like futures, options, and forward contracts to mitigate interest rate and foreign currency fluctuations, as demonstrated by a foreign currency forward contract for the British Pound during the six months ended June 30, 2025[388](index=388&type=chunk) [Item 4. Controls and Procedures](index=90&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures as of June 30, 2025, with no material changes in internal control over financial reporting - The company's chief executive and chief financial officers concluded that disclosure controls and procedures were effective as of June 30, 2025, ensuring timely and accurate reporting of information[392](index=392&type=chunk) - There have been no material changes in internal control over financial reporting during the most recently completed fiscal quarter[393](index=393&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=91&type=section&id=Item%201.%20Legal%20Proceedings) The company does not expect any current legal proceedings to materially affect its financial condition or results of operations - The company does not expect any current legal proceedings to materially affect its financial condition or results of operations, though outcomes cannot be predicted with certainty[396](index=396&type=chunk) [Item 1A. Risk Factors](index=91&type=section&id=Item%201A.%20Risk%20Factors) A key risk is the potential negative impact on financial results if a significant portfolio investment fails to perform as expected, given substantial individual or aggregate amounts - A significant portfolio investment failing to perform as expected could negatively affect financial results due to the substantial size of individual or aggregate investments[398](index=398&type=chunk)[399](index=399&type=chunk) Top Portfolio Companies by Percentage of Net Assets | Portfolio Company | Fair Value (in millions) | Percentage of Net Assets | | :---------------------- | :------------------------ | :----------------------- | | Marathon Health, LLC | $180.1 | 8.4% | | Phathom Pharmaceuticals, Inc. | $176.5 | 8.2% | | ChenMed, LLC | $132.4 | 6.2% | | Shield AI, Inc. | $118.3 | 5.5% | | Tipalti Solutions Ltd. | $117.3 | 5.5% | | SeatGeek, Inc. | $108.8 | 5.1% | [Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities](index=92&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities,%20Use%20of%20Proceeds,%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section reports on unregistered sales of equity securities, specifically shares issued under the dividend reinvestment plan, and confirms no common stock repurchases - During the six months ended June 30, 2025, the company issued **264,860 shares** of common stock, valued at approximately **$5.0 million**, to stockholders through its dividend reinvestment plan, which were unregistered sales[401](index=401&type=chunk) - There were no common stock repurchases during the six months ended June 30, 2025, and 2024[376](index=376&type=chunk) [Item 3. Defaults Upon Senior Securities](index=92&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section states that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities during the reporting period[402](index=402&type=chunk) [Item 4. Mine Safety Disclosures](index=92&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section indicates that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[402](index=402&type=chunk) [Item 5. Other Information](index=92&type=section&id=Item%205.%20Other%20Information) This section reports that no directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the second quarter ended June 30, 2025 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the second quarter ended June 30, 2025[402](index=402&type=chunk) [Item 6. Exhibits and Financial Statement Schedules](index=93&type=section&id=Item%206.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, debt indentures, credit facility amendments, and certifications - The exhibits include corporate governance documents (Articles of Amendment, Bylaws), debt instruments (Ninth Supplemental Indenture, Form of 6.000% Note due 2030), and credit facility amendments (Fourth Amendment to Loan and Security Agreement with MUFG Bank)[403](index=403&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) and 18 U.S.C. Section 1350 are filed herewith[403](index=403&type=chunk) Control Investments | Control Investment (in millions) | Fair Value as of June 30, 2025 | Fair Value as of December 31, 2024 | | :-------------------------------- | :----------------------------- | :--------------------------------- | | Coronado Aesthetics, LLC | $0.3 | $0.1 | | Gibraltar Acquisition LLC | $60.3 | $59.3 | | Hercules Adviser LLC | $44.2 | $42.2 | | Tectura Corporation | $10.0 | $11.7 | | Total Control Investments | $114.9 | $113.2 | SIGNATURES [SIGNATURES](index=98&type=section&id=SIGNATURES) This section contains the official signatures of the registrant's authorized officers, certifying the filing of the report - The report is duly signed on behalf of Hercules Capital, Inc. by Scott Bluestein (President, CEO, and CIO) and Seth H. Meyer (CFO and CAO) on July 31, 2025[431](index=431&type=chunk)[432](index=432&type=chunk)

Group 1: Stock Performance - Hercules Capital (HTGC) closed at $18.59, reflecting a +1.36% change from the previous day, outperforming the S&P 500's daily gain of 0.48% [1] - Over the past month, shares of Hercules Capital increased by 3.5%, matching the Finance sector's performance but underperforming the S&P 500's gain of 5.13% [1] Group 2: Earnings Expectations - The upcoming earnings report for Hercules Capital is expected to show an EPS of $0.47, which represents a 7.84% decline compared to the same quarter last year [2] - The Zacks Consensus Estimate for revenue is projected at $126.18 million, indicating a 0.94% increase from the previous year [2] Group 3: Annual Forecast - For the entire year, the Zacks Consensus Estimates predict earnings of $1.91 per share and revenue of $509.49 million, reflecting changes of -4.5% and +3.22% respectively compared to the previous year [3] Group 4: Analyst Estimates and Rankings - Recent changes to analyst estimates for Hercules Capital are important as they reflect short-term business trends, with positive revisions indicating a favorable outlook on business health and profitability [4] - The Zacks Rank system, which ranges from 1 (Strong Buy) to 5 (Strong Sell), currently ranks Hercules Capital at 4 (Sell) [6] Group 5: Valuation Metrics - Hercules Capital is trading at a Forward P/E ratio of 9.61, which is a premium compared to the industry average Forward P/E of 8.8 [7] - The Financial - SBIC & Commercial Industry, part of the Finance sector, has a Zacks Industry Rank of 233, placing it within the bottom 6% of over 250 industries [7] Group 6: Industry Performance - The strength of individual industry groups is measured by the Zacks Industry Rank, with the top 50% rated industries outperforming the bottom half by a factor of 2 to 1 [8]

Core Insights - Dyne Therapeutics has secured a $275 million non-dilutive senior secured term loan facility with Hercules Capital to advance its clinical programs for myotonic dystrophy type 1 (DM1) and Duchenne muscular dystrophy (DMD) [1][2] Group 1: Financial Details - The loan facility includes an initial $100 million funded upfront, with an additional $175 million tied to clinical, regulatory, and commercial milestones [1][2] - The loan consists of five tranches, allowing Dyne to access up to $115 million based on milestone achievements, and a final tranche of up to $60 million subject to approval [2] Group 2: Strategic Implications - The financing enhances Dyne's ability to advance its DM1 and DMD programs, with potential U.S. Accelerated Approval submissions planned for 2026 [2] - The company is positioned for a potential U.S. launch in DMD in 2027, reflecting confidence in its leadership and pipeline [2][4] Group 3: Company Overview - Dyne Therapeutics focuses on delivering functional improvement for individuals with genetically driven neuromuscular diseases, developing therapeutics targeting muscle and the central nervous system [3] - The company is advancing clinical programs for DM1 and DMD, along with preclinical programs for facioscapulohumeral muscular dystrophy (FSHD) and Pompe disease [3]

Economic Outlook - There is significant uncertainty regarding the economy and interest rate direction for the year [1] - The Federal Reserve (FED) decided to keep interest rates steady in their latest meeting, which was anticipated [1] Investment Strategy - The focus is on dividend investing in quality blue-chip stocks, Business Development Companies (BDCs), and Real Estate Investment Trusts (REITs) [1] - The investment approach is characterized as buy-and-hold, prioritizing quality over quantity [1] - The goal is to help lower and middle-class workers build investment portfolios of high-quality, dividend-paying companies [1]

Company Overview - Hercules Capital, Inc. (NYSE: HTGC) is a distinctive player in the business development company (BDC) sector, focusing on investments in four key sectors: technology, software-as-a-service businesses, life sciences, and sustainable/renewable technologies [1]. Investment Philosophy - The company emphasizes dividend investing as a pathway to financial freedom, aiming to provide steady income through its investment strategies [1]. Analyst Background - The analyst has extensive experience in mergers and acquisitions (M&A) and business valuation, having evaluated numerous businesses and participated in both sell-side and buy-side transactions [1]. Sector Focus - The company's investment focus spans various sectors, including technology, real estate, software, finance, and consumer staples, which are also reflected in the analyst's personal investment portfolio [1].

Core Viewpoint - Brokerage recommendations, particularly for Hercules Capital (HTGC), suggest a favorable outlook, but reliance solely on these recommendations may not be prudent due to potential biases and misalignment with retail investors' interests [5][10][11]. Group 1: Brokerage Recommendations - Hercules Capital has an average brokerage recommendation (ABR) of 1.63, indicating a consensus between Strong Buy and Buy, with 62.5% of recommendations being Strong Buy and 12.5% being Buy [2]. - The ABR is calculated based on recommendations from eight brokerage firms, highlighting a strong positive bias in their ratings [2][6]. Group 2: Limitations of Brokerage Recommendations - Studies indicate that brokerage recommendations often fail to guide investors effectively towards stocks with high price appreciation potential [5]. - Analysts from brokerage firms tend to exhibit overly optimistic ratings due to vested interests, leading to a higher frequency of Strong Buy recommendations compared to Strong Sell [6][10]. - The ABR may not reflect the most current market conditions, as it can be outdated compared to more timely indicators like the Zacks Rank [13]. Group 3: Zacks Rank vs. ABR - The Zacks Rank, which is based on earnings estimate revisions, is a more reliable indicator of near-term stock performance compared to the ABR, which is solely based on brokerage recommendations [8][9][11]. - The Zacks Rank is updated more frequently and maintains a balance among its five ranks, providing a clearer picture of stock performance potential [12][13]. Group 4: Current Earnings Estimates for Hercules Capital - The Zacks Consensus Estimate for Hercules Capital has decreased by 0.4% over the past month to $1.91, indicating growing pessimism among analysts regarding the company's earnings prospects [14]. - This decline in earnings estimates has contributed to a Zacks Rank of 4 (Sell) for Hercules Capital, suggesting caution despite the favorable ABR [15].

Group 1 - iREIT+HOYA Capital focuses on income-producing asset classes that provide sustainable portfolio income, diversification, and inflation hedging [1] - The service offers a free two-week trial for potential investors to explore exclusive income-focused portfolios [1] Group 2 - ROI (return on investment) is a common metric for measuring investment success, calculated by appreciation in value plus income received divided by the original investment principal [2] - The article emphasizes a defensive investment strategy with a medium- to long-term horizon [2]

Group 1: Overview of Ares Capital Corporation (ARCC) - Ares Capital focuses on middle-market firms across various industries, providing debt financing ranging from $30 million to $500 million [6][9] - As of March 31, 2025, ARCC had a diversified investment portfolio of $27.1 billion across 566 portfolio companies, with significant investments in software & services (24%) and healthcare equipment & services (13%) [9][12] - In Q1 2025, ARCC reported a 4.4% year-over-year growth in total investment income, driven by increased interest income, but faced lower portfolio exits and gross commitments [7][12] Group 2: Overview of Hercules Capital, Inc. (HTGC) - Hercules Capital specializes in venture debt, targeting high-growth technology and life sciences sectors, with investments generally ranging from $15 million to $40 million [15][20] - As of March 31, 2025, HTGC had an investment portfolio of $3.9 billion, with 32% in software companies and 29% in drug discovery & development [20][23] - In Q1 2025, HTGC experienced a 2% decline in total investment income but recorded a rise in gross new debt and equity commitments [16][23] Group 3: Financial Performance and Growth Outlook - Ares Capital's total investment income has seen a CAGR of 14.4% over the last five years, with significant gross investment commitments in recent years [8][12] - Hercules Capital's total investment income has a CAGR of 12.1% over the last decade, with increasing demand for customized financing expected to drive future growth [16][17] - Analysts have revised earnings estimates downward for ARCC, indicating a 12% decline for 2025, while HTGC's earnings are expected to decline by 4% in 2025 but grow by 5.9% in 2026 [26][38] Group 4: Valuation and Comparison - Ares Capital is currently trading at a forward P/E of 10.54X, higher than its five-year median of 9.36X, while Hercules Capital trades at a forward P/E of 8.83X, lower than its five-year median of 9.39X [30][33] - Hercules Capital has a return on equity (ROE) of 16.84%, significantly higher than ARCC's 11.05% and the industry average of 11.20% [33][37] - HTGC's dividend yield of 9.23% is slightly higher than ARCC's 8.92%, although both are below the industry average of 10.27% [35][37]

Core Viewpoint - Altimmune, Inc. has secured a credit facility of up to $100 million from Hercules Capital to support the development of its novel peptide-based therapeutic, pemvidutide, aimed at treating liver and cardiometabolic diseases [1][2]. Financial Strength and Flexibility - The credit facility enhances Altimmune's balance sheet, which had $150 million in cash and cash equivalents as of March 31, 2025 [2]. - The initial tranche of $15 million will be drawn at closing, with additional funds available upon meeting specific clinical and financial milestones [3]. Development Plans for Pemvidutide - Pemvidutide is currently in a Phase 2b trial for metabolic dysfunction-associated steatohepatitis (MASH), with top-line data expected in Q2 2025 [2]. - Phase 2 trials for pemvidutide in Alcohol Use Disorder (AUD) and Alcohol Liver Disease (ALD) are anticipated to start in the second and third quarters of 2025, respectively [2]. Partnership and Future Outlook - The partnership with Hercules Capital is expected to extend Altimmune's cash runway under flexible terms, allowing for continued development of pemvidutide [3]. - Hercules Capital expresses enthusiasm in supporting Altimmune through its clinical development journey, particularly with the upcoming data release from the IMPACT trial [3]. Company Overview - Altimmune is a late clinical-stage biopharmaceutical company focused on developing peptide-based therapeutics for liver and cardiometabolic diseases, with pemvidutide as its lead program [4].

Core Insights - The article emphasizes the reputation and expertise of Brad Thomas in the REIT sector, highlighting his status as a top-ranked finance analyst on Seeking Alpha [1] Group 1 - Brad Thomas is recognized as the 1 ranked REIT analyst, indicating a strong position in the real estate investment trust market [1] - The author has garnered a significant following and trust among readers, suggesting a reliable source of information for investors [1] - Feedback from readers indicates that the insights provided by Brad Thomas are valuable for both educational purposes and practical investment strategies [1]