Hercules Capital(US:HTGC)2023-05-05 00:54Financial Data and Key Metrics Changes - Hercules Capital reported record total investment income of $105.1 million and record net investment income of $65.5 million, or $0.48 per share, providing 123% coverage of the base distribution of $0.39 per share [13][43] - The company's net realized gains were $8 million, with a strong liquidity position of over $553 million, totaling approximately $1 billion when including private funds [17][46] - The NAV per share increased by 2.8% quarter-over-quarter to $10.82 per share [44] Business Line Data and Key Metrics Changes - In Q1, Hercules achieved gross fundings of over $476 million, leading to a net debt investment portfolio growth of over $153 million, marking the fifth consecutive quarter of exceeding $100 million in growth [8][12] - The company funded debt capital to 31 different companies, with nine being new borrower relationships, indicating a balanced approach between new and existing borrowers [30][113] Market Data and Key Metrics Changes - The venture capital ecosystem experienced a significant funding gap, with late-stage capital demand to supply ratio reaching a decade high of 3.2x in Q1 2023 [86] - Despite the overall decline in venture funding activity, the company noted that the capital available for late-stage companies remains substantial, with $37 billion in venture funding in Q1 [88] Company Strategy and Development Direction - Hercules Capital aims to leverage the opportunities created by the exit of SVB from the market, positioning itself to fill the void left by competitors [51][79] - The company has established a new private credit fund vehicle to enhance liquidity and capitalize on market dislocation [29][89] - The strategic focus remains on maintaining a strong balance sheet, selective underwriting, and investing in team and systems [40][93] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate the current market volatility and capitalize on emerging opportunities [28][117] - The company anticipates continued strong M&A activity across its portfolio, validating its selective underwriting approach [33][67] - Management expects prepayment activity to increase in Q2, driven by M&A, with guidance set between $225 million and $320 million [12][75] Other Important Information - The weighted average internal credit rating of the debt investment portfolio was 2.26, indicating stable credit quality [14] - Approximately 82% of the debt investment portfolio is in senior secured first lien positions, reflecting a conservative risk profile [37] Q&A Session Summary Question: Impact of SVB's situation on the ecosystem - Management clarified that the SVB situation does not reflect the health of the venture ecosystem and presents a significant opportunity for Hercules [50][51] Question: Current market conditions and deal quality - Management noted that while many deals are being evaluated, the focus remains on maintaining high credit quality and avoiding marginal deals [56][83] Question: Recovery expectations for portfolio companies - Management expressed confidence in the recovery of portfolio companies, emphasizing strong cash positions and ongoing support [58][102] Question: Trends in capital availability for late-stage companies - Management indicated that significant capital remains available for late-stage companies, with expectations of a gradual return to normalcy in valuations [60][87] Question: Opportunities from the recent market turmoil - Management highlighted the potential for increased market share and stronger incumbency positions due to the exit of SVB and other competitors [91][112]