Hercules Capital (HTGC) Q3 Earnings In Line, Revenues Up Y/Y

Hercules Capital, Inc.’s (NYSE:HTGC) third-quarter 2018 net investment income of 31 cents per share was in line with the Zacks Consensus Estimate. The figure was 6.9% above the year-ago quarter figure.

Results reflected higher revenues, growth in investment portfolio and a rise in net asset value. However, increase in operating expenses was an undermining factor.

Distributional Net Operating Income came in at $32.6 million or 34 cents per share, up from $25.8 million or 31 cents per share in the prior-year quarter.

Total Investment Income Improves, Expenses Rise

Total investment income was $52.6 million, up 14.7% from the year-ago period. The increase was mainly driven by higher average debt investment balance and an overall rise in the core yield. However, the figure missed the Zacks Consensus Estimate of $54.3 million.

Total operating expenses rose 6.4% year over year to $23.3 million. The increase was largelydue to higher interest expenses, loan fees and total employee compensation costs.

Total Portfolio Value & New Commitments

The fair value of Hercules Capital’s total investment portfolio was $1.76 billion as of Sep 30, 2018.

In the reported quarter, the company provided $235.1 million in new debt and equity-financing commitments to eight new companies and 11 existing portfolio companies.

Strong Balance Sheet

As of Sep 30, 2018, Hercules Capital’s net asset value was $10.38 per share compared with $10.22 as of Jun 30, 2018. The rise was mainly driven by a change in unrealized depreciation and realized losses and unrealized gains, and accretive proceeds from ATM activity during the quarter.

The company had $137.3 million in liquidity, including $43.2 million in unrestricted cash and cash equivalents and $94.1 million in credit facilities as of Sep 30, 2018.

At the end of the third quarter, the weighted average cost of debt comprising interest and fees was 5.6%, stable year over year.

Capital Deployment Actions

Concurrent with earnings release, Hercules Capital announced third-quarter regular and supplemental cash distribution of 31 cents and 2 cents per share, respectively. Both of these will be paid on Nov 19, 2018, to shareholders on record as of Nov 12, 2018.

Our Take

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. However, elevated expense levels, owing to its efforts to enhance originations, are expected to hurt the bottom line to some extent.

Currently, Hercules Capital carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance and Earnings Release Dates for Other Finance Stocks

Ares Capital Corporation’s (NASDAQ:ARCC) third-quarter 2018 core earnings of 45 cents per share surpassed the Zacks Consensus Estimate of 40 cents. Results reflected improved total investment income and healthy portfolio activity. However, an increase in expenses was the undermining factor.

Garrison Capital Inc. (NASDAQ:GARS) and FS Investment Corporation (NYSE:FSIC) are slated to announce results on Nov 6 and Nov 7, respectively.

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