Hercules Capital's (HTGC) Q3 Earnings In Line, Costs Down
Zacks Investment Research | Nov 03, 2016 09:27PM ET
Hercules Capital, Inc.’s (NYSE:HTGC) third-quarter 2016 net investment income of 32 cents per share was in line with the Zacks Consensus Estimate. However, the figure reflected a decline of 3% from the year-ago quarter.
The company’s lower operating expenses, sound liquidity position and growth in investment portfolio remained impressive. However, results were affected by a decrease in total investment income. Further, the company witnessed a decline in net asset value.
Distributional Net Operating Income for the quarter came in at $25.2 million or 34 cents per share, down from $25.8 million or 36 cents per share in the prior-year quarter.
Total Investment Income & Expenses Decline
Total investment income in the reported quarter was $45.1 million, down 4.3% year over year. The fall was due to a decline in unscheduled early debt repayment fees and accelerations. However, the figure outpaced the Zacks Consensus Estimate of $44.2 million.
Interest expense and finance fees were $10.1 million, up 14.2% from the prior-year quarter.
Total operating expenses (excluding interest expense and loan fees) decreased 23.7% year over year to $11.2 million. The fall was largely led by lower total employee compensation costs.
Total Portfolio Value & New Commitments
The fair value of Hercules Capital’s total investment portfolio was $1.3 billion as of Sep 30, 2016. In the reported quarter, the company provided approximately $178 million in new debt and equity-financing commitments to new and existing portfolio companies.
Balance Sheet
As of Sep 30, 2016, Hercules Capital’s net asset value was $9.86 per share compared with $9.94 as of Dec 31, 2015. The company had $264 million in liquidity, including $69 million in cash and cash equivalents and $195 million in credit facilities as of Sep 30, 2016.
As of Sep 30, 2016, the weighted average cost of debt, comprising interest and fees was 6%, versus 5.6% as of Sep 30, 2015.
Our Viewpoint
Hercules Capital’s loan origination activity continues to be on track and it strategically deploys its capital while maintaining a balanced and diversified approach across various industries and sectors. Further, the company is expected to witness growing demand for customized financing in the coming quarters based on the market optimism for public equities and an improving economic environment.
However, owing to the low rate environment, the company’s funding costs may increase.
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