Group 1 - Hercules Capital (NYSE: HTGC) is currently trading at a significant premium to its book value, indicating strong market confidence in the company [1] - The anticipated cuts to the Fed funds rate are expected to increase investor focus on dividend safety, which may benefit companies with reliable income streams [1] - Pacifica Yield is focused on long-term wealth creation by targeting undervalued high-growth companies, high-dividend stocks, REITs, and green energy firms [1]

Core Insights - The article discusses the investment positions held by the analyst in various companies, indicating a long position in HTGC, ARCC, BXSL, OBDC, and FSK [1]. Group 1 - The analyst has a beneficial long position in the shares of HTGC, ARCC, BXSL, OBDC, and FSK [1]. - The article expresses the analyst's personal opinions and does not involve compensation from the companies mentioned [1].

Core Viewpoint - Hercules Capital, Inc. (HTGC) has received an affirmation of its investment grade credit and corporate ratings of BBB+ with a stable outlook from Kroll Bond Rating Agency, Inc. (KBRA) [1][10] Group 1: Rating Affirmation Rationale - The stable outlook reflects Hercules Capital's diverse investment portfolio, focusing on senior secured first lien venture debt investments in technology and life sciences sectors [2] - Strong operating performance and appropriate leverage metrics contribute to the company's credit quality [2] - Robust risk management and an experienced investment team in the venture capital space further support the ratings [2] Group 2: Financial Performance and Market Position - Hercules Capital has demonstrated proven access to capital markets and a diverse funding mix, which enhances protection for noteholders [3] - The company's shares have increased by 4.9% over the past year, contrasting with a 0.8% decline in the industry [6] - HTGC currently holds a Zacks Rank of 3 (Hold) [7] Group 3: Peer Comparison - Main Street Capital Corp. (MAIN) and Bain Capital Specialty Finance, Inc. (BCSF) are notable peers, with MAIN's shares gaining 4.8% over the past six months and a Zacks Rank of 2 (Buy) [8] - BCSF's earnings estimate has been revised upward by 3.4%, but its shares have declined by 17.3% over the past six months, currently holding a Zacks Rank of 1 (Strong Buy) [9]

Group 1 - The article highlights Hercules as a notable investment opportunity within a portfolio that has an aggregate yield of 9.9% [1] - It raises concerns about opportunity cost for income-focused investors, who may be overly concentrated in lower-growth sectors or distressed companies for higher yields [1] - The author manages long-term growth and dynamic high-income strategies through an independent investment management company [2] Group 2 - The article expresses a beneficial long position in HTGC shares, indicating a personal investment interest [3] - It clarifies that the opinions expressed are personal and not influenced by compensation or business relationships with mentioned companies [3]

Industry Overview - The Zacks SBIC & Commercial Finance industry provides financing to small and mid-sized privately held firms, often underserved by traditional banks, focusing on customized financing solutions such as senior debt and equity capital [3] - The industry is currently facing challenges due to persistent high interest rates and tariff impacts, which are expected to reduce financing demand and slow investment income growth [1][5] Current Economic Environment - The Federal Reserve has maintained interest rates at 4.25–4.5%, with a cautious approach to potential rate cuts due to economic uncertainties [4] - Elevated rates and tariff effects are likely to dampen demand for financing solutions, limiting transaction activity and growth in total investment income [5] Asset Quality Concerns - Following the COVID-19 pandemic, asset quality concerns arose as borrowers struggled to repay debts, although government stimulus and economic recovery helped mitigate delinquency rates [6] - Prolonged high interest rates may lead to further asset quality deterioration as portfolio companies face challenges in servicing their debt [7] Regulatory Changes - The 2018 SBCAA relaxed leverage limits for SBIC companies, allowing a debt-to-equity ratio increase from 1:1 to 2:1, providing funding flexibility and growth opportunities [8] Industry Performance Metrics - The Zacks SBIC & Commercial Finance industry ranks 144 out of over 250 Zacks industries, indicating underperformance in the near term [9][10] - The industry's earnings estimates for 2025 have been revised down by 10% over the past year, reflecting a declining confidence in growth potential [11] Stock Market Performance - Over the past year, the industry has gained only 3.9%, significantly underperforming the S&P 500 composite and the Zacks Finance sector, which increased by 20.8% and 21.8%, respectively [13] Valuation Analysis - The industry has a trailing 12-month price-to-tangible book (P/TB) ratio of 0.94X, significantly lower than the S&P 500's 12.86X, indicating a substantial discount compared to the broader market [16][18] Key Companies to Watch - **Ares Capital Corporation (ARCC)**: A specialty finance firm focusing on U.S. middle-market companies, with a market cap of $15.8 billion and a debt of $14.1 billion as of June 30, 2025 [22][21] - **Main Street Capital Corporation (MAIN)**: A private equity firm with a market cap of $5.7 billion, specializing in lower-middle-market companies, holding total investments valued at $5.1 billion [25][27] - **Hercules Capital, Inc. (HTGC)**: A specialty finance company providing venture capital, with a market cap of $3.4 billion and a total investment portfolio valued at $4.2 billion as of June 30, 2025 [31][32]

Core Insights - Mr. Mavroudis is a professional portfolio manager with a focus on risk management and in-depth financial market analysis [1] - He has successfully navigated major crises, including the COVID-19 pandemic and the PSI [1] - Mr. Mavroudis is the CEO of FAST FINANCE Investment Services, a registered Greek company [1] Company Profile - FAST FINANCE Investment Services is registered with the Hellenic Capital Market Commission [1] - The company specializes in managing institutional and private portfolios globally across various financial instruments [1] Professional Background - Mr. Mavroudis holds multiple degrees, including an MSc in Financial and Banking Management, an LLM in Law, and a BSc in Economics, graduating as valedictorian [1] - He is certified in various financial disciplines, including portfolio management and derivatives [1] - He has published three books on investments and contributes articles to reputable financial media [1] Engagement and Community - By writing on Seeking Alpha, the company aims to engage with a community of investors and market enthusiasts [1] - The goal is to foster mutual growth and knowledge sharing within the investment community [1]

Core Insights - Hercules Capital Inc. (HTGC) shares increased by 1.3% in after-market hours following better-than-expected quarterly results, with net investment income of 50 cents per share exceeding the Zacks Consensus Estimate of 47 cents, although it represented a 2% decline from the previous year [1][8] Financial Performance - Net investment income for the second quarter of 2025 was $88.7 million, reflecting a year-over-year increase of 7.7% [2] - Total investment income reached $137.5 million, a 10% increase from the same quarter last year, driven by a larger weighted average debt investment portfolio, and surpassed the Zacks Consensus Estimate of $126.2 million [3][8] - Total gross operating expenses rose by 14.7% year over year to $52.2 million, attributed to increases in nearly all cost components except tax expenses [3] Portfolio and Commitments - The fair value of Hercules Capital's total investment portfolio was $4.18 billion as of June 30, 2025, with early loan repayments amounting to $267.4 million in the second quarter [4] - The company reported $1 billion in gross new debt and equity commitments and $709.1 million in gross new funding during the second quarter [4][8] Balance Sheet Position - As of June 30, 2025, Hercules Capital's net asset value was $11.84 per share, a slight increase from $11.66 as of December 31, 2024 [5] - The company had $785.6 million in liquidity, which included $52.2 million in unrestricted cash and cash equivalents, along with $733.4 million in credit facilities [5] - The weighted average cost of debt remained stable at 5% compared to the prior-year quarter [5] Strategic Outlook - The lack of global diversification may limit Hercules Capital's growth prospects, while efforts to enhance originations could keep expenses elevated [6] - However, the rising demand for customized financing is expected to support total investment income [6]

Earnings Performance - Hercules Capital reported quarterly earnings of $0.5 per share, exceeding the Zacks Consensus Estimate of $0.47 per share, but down from $0.51 per share a year ago, representing an earnings surprise of +6.38% [1] - The company posted revenues of $137.46 million for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 8.94%, compared to year-ago revenues of $125.01 million [2] Market Performance - Hercules Capital shares have declined approximately 5.9% since the beginning of the year, while the S&P 500 has gained 8.2% [3] - The current Zacks Rank for Hercules Capital is 4 (Sell), indicating expected underperformance in the near future [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $0.48 on revenues of $131.21 million, and for the current fiscal year, it is $1.91 on revenues of $509.49 million [7] - The Financial - SBIC & Commercial Industry, to which Hercules Capital belongs, is currently ranked in the bottom 39% of over 250 Zacks industries, suggesting potential challenges ahead [8]

Financial Performance - Q2 2025 total gross debt and equity commitments reached $1.0 billion, a 45.7% increase year-over-year[2] - Record Q2 2025 total gross fundings of $709.1 million, reflecting a 53.7% year-over-year growth[2] - Net investment income (NII) for Q2 2025 was $88.7 million, or $0.50 per share, providing 125% coverage of the base cash distribution[1][5] - Total investment income increased to $137.5 million in Q2 2025, a 10.0% rise from $125.0 million in Q2 2024[15] - The company achieved record total gross fundings of $1.25 billion in the first half of 2025, a 17.0% increase year-over-year[6] - Total investment income for Q2 2025 was $137,459,000, an increase of 9.6% from $125,006,000 in Q2 2024[60] - Core investment income from debt portfolio for Q2 2025 was $121,433,000, up from $113,267,000 in Q2 2024, reflecting a growth of 7.5%[62] - Basic earnings per share for Q2 2025 were $0.50, slightly down from $0.51 in Q2 2024[60] - Net investment income for the first half of 2025 was $166,192,000, compared to $161,520,000 in the same period of 2024, reflecting a slight increase[60] Assets and Liabilities - Assets under management grew to over $5.3 billion, marking a 16.5% increase year-over-year[1] - The total investments at cost increased to $4,192.5 million in Q2 2025 from $3,995.0 million in Q1 2025[26] - As of June 30, 2025, Hercules reported total assets of $4,284.5 million, an increase from $3,831.6 million as of December 31, 2024[57] - Hercules' total liabilities as of June 30, 2025, were $2,133.4 million, compared to $1,842.0 million as of December 31, 2024[57] - The Company ended Q2 2025 with $785.6 million in available liquidity, including $52.2 million in unrestricted cash[27] - Hercules had over $1.0 billion of available liquidity at the end of Q2 2025[1] - The Company has $471.5 million of available unfunded commitments, representing 11.0% of total assets[33] Investment and Commitments - Hercules has pending commitments of $480.0 million in signed non-binding term sheets as of July 28, 2025[34] - The Company held equity positions in 76 portfolio companies with a fair value of $155.8 million as of June 30, 2025[42] - In May 2025, Hercules' portfolio company Capella Space Corporation was acquired by IonQ, with Hercules committing $30.0 million in venture debt financing and holding warrants for 176,200 shares as of June 30, 2025[47] - Couchbase, Inc. was acquired by Haveli Investments for approximately $1.5 billion, with Hercules having committed $70.0 million in venture debt financing and holding warrants for 105,350 shares as of June 30, 2025[47] - 23andMe, Inc. completed an asset purchase by TTAM Research Institute for $305.0 million, with Hercules committing $5.1 million in venture debt financing and holding 41,287 shares as of June 30, 2025[47] - Hercules has committed over $23 billion to more than 690 companies since its inception in December 2003[51] Financial Ratios and Metrics - Net asset value (NAV) increased to $11.84, a 2.5% rise from Q1 2025[6] - As of June 30, 2025, the Company's net assets increased to $2.2 billion, with NAV per share rising 2.5% to $11.84[38] - As of June 30, 2025, Hercules' GAAP leverage ratio was 97.4%, while the regulatory leverage ratio was 81.1%[31] - The net leverage ratio as of June 30, 2025, was 95.0%, down from 97.4% on a GAAP basis, showing a reduction in leverage[64] - The regulatory leverage ratio was reported at 78.7% on a non-GAAP basis, compared to 81.1% on a GAAP basis, indicating a healthier regulatory position[65] Operational Highlights - Unscheduled early loan repayments in Q2 2025 were $267.4 million, up 102.9% from $131.8 million in Q1 2025[2][13] - Total gross operating expenses for Q2 2025 were $52,174,000, an increase from $45,500,000 in Q2 2024, representing a rise of 14.8%[60] - Total net realized loss for Q2 2025 was $(57,637,000), compared to a loss of $(5,784,000) in Q2 2024, indicating a significant decline in realized gains[60] Upcoming Events - The second quarter 2025 financial results conference call is scheduled for July 31, 2025, at 2:00 p.m. PT[50]

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)