Hercules Capital(HTGC) - 2024 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Hercules Capital, Inc. achieved record total investment income of $493.6 million, an increase of 717.1$325.8 million, up 7.2% year over year [7] - Annual return on average equity (ROAE) was 17.2% and return on average assets (ROAA) was 7.3% [8] - Total gross fundings for 2024 were $1.81 billion, a 13$619 million in Q4 [15] - For the year, Hercules committed nearly $2.7 billion of capital and delivered record funding performance of approximately$1.81 billion [15] - Approximately 67% of Q4 fundings were to technology companies, while 42% of new commitments were to life sciences companies [19] Market Data and Key Metrics Changes - Venture capital investment activity for 2024 was $209 billion, a 29$82.6 billion, up 27% from 2023 [31] - Fundraising activity finished 2024 at 76.1 billion, indicating a healthy market environment [31] Company Strategy and Development Direction - Hercules Capital plans to manage its business and balance sheet defensively while maintaining flexibility to capitalize on market opportunities [11] - The company aims to enhance liquidity and tighten credit screens for new underwritings [12] - The focus is on maintaining a disciplined approach to capital deployment with an emphasis on diversification [21] Management's Comments on Operating Environment and Future Outlook - Management expects higher market and macro volatility in 2025 but anticipates a favorable new business landscape for growth stage companies [10] - The company is optimistic about increased M&A and capital markets activity in 2025 [11] - Management noted a shift in venture capital investors focusing more on valuation, which may impact companies that raised capital at inflated valuations [27] Other Important Information - Hercules Capital's net asset value per share increased to 11.66, a 2.3% rise from Q3 2024 [29] - The company ended Q4 with strong liquidity of $658.8 million in the BDC and over$1.1 billion across the platform [29] - The company declared a new supplemental distribution of $0.28 for 2025, maintaining its quarterly base distribution of$0.40 [33] Q&A Session Summary Question: Could 2025 end up being another record year for origination activity? - Management expressed optimism about 2025 being another record year if credit quality supports it, with a strong start in Q1 [53][54] Question: Can you discuss the potential size and timing of the next fund for the RIA? - Management indicated that they expect to be in the market for a new fund within the next year, focusing on quality credits rather than rapid capital deployment [58][59] Question: What drove the realized losses in the portfolio? - The largest realized loss was due to a crystallization from a workout event, with a significant portion already recognized as an unrealized loss [66][68] Question: What are the key drivers of funding activity in Q4? - Management attributed the increase in funding activity to the resolution of election uncertainty and a favorable rate environment [76][77] Question: What is the outlook for core yields? - Management provided guidance for core yields in Q1 to be between 12.25% and 12.75%, with current origination yields in the 11.5% to 13% range [81][86] Question: How does the company plan to manage leverage? - Management plans to increase leverage to offset yield compression while maintaining a conservative approach [100][101] Question: What sectors is the company focusing on in light of the new administration? - Management is bullish on sectors with less regulation and expects increased M&A and capital markets activity [105][106]