Hercules Capital outlines record $2.87B originations for 2025 while maintaining strong dividend coverage

Earnings Call Insights: Hercules Capital (HTGC) Q3 2025

MANAGEMENT VIEW

* CEO Scott Bluestein emphasized that Hercules "wrapped up the first 3 quarters of 2025 by delivering another strong quarter of record fundings and record operating performance while maintaining our balance sheet strength and robust liquidity, allowing us to remain focused on high-quality originations and disciplined underwriting." The company reached record originations of $2.87 billion for the first three quarters, outpacing its previous full-year record and signaling robust demand and platform momentum.
* Bluestein highlighted "record total investment income of $138.1 million and net investment income of $88.6 million or $0.49 per share during Q3," as well as a return on equity of 17.4%. He noted, "Our Q3 GAAP leverage remained at the low end of our typical historical range of 100% to 115% and below the average of our BDC peers. We ended Q3 with over $1 billion of liquidity across our platform and no material near-term debt maturities."
* The company reported that "over 50% of our gross fundings for Q3 occurred in the last month of the quarter, and that momentum continued into early Q4. Since the close of Q3 and as of October 28, 2025, our investment team has closed $554.4 million of new commitments and funded $237.4 million."
* Bluestein also stated, "With respect to our broader credit book and outlook, we generally remain pleased by what we are seeing on a portfolio level, and our portfolio monitoring still remains enhanced given the volatility in the markets broadly and the ongoing government shutdown."
* CFO Seth Meyer added, "Total investment income in Q3 was another record at $138.1 million, supported by our year-to-date debt portfolio growth. Core income, a non-GAAP measure, increased as well to another record at $127.9 million. Net investment income was $88.6 million or $0.49 per share in Q3."

OUTLOOK

* Management expects origination activity to remain strong through year-end, with already "record new commitments and record new fundings for the year."
* Bluestein confirmed, "We are maintaining our expectation that origination activity will remain strong through year-end, and we have already delivered record new commitments and record new fundings for the year."
* For Q4 2025, Bluestein stated, "we expect prepayments to be lower and in the range of $150 million to $200 million."
* Meyer provided guidance: "For the fourth quarter, we expect our core yield to remain in the range of 12% to 12.5%. For the fourth quarter, we expect SG&A expenses of $25 million to $26 million, and an RIA expense allocation of approximately $4 million."

FINANCIAL RESULTS

* Hercules reported "record total investment income of $138.1 million and net investment income of $88.6 million or $0.49 per share during Q3."
* Gross fundings for Q3 were $504.6 million, with net debt portfolio growth of $95.9 million in the quarter and $557.8 million for the first three quarters.
* The company achieved a return on equity of 17.4% in Q3 and increased its net asset value per share to $12.05, which Bluestein described as "the highest net asset value per share that we have reported since 2008."
* The Q3 GAAP leverage increased modestly to 99.5% from 97.4% in Q2.
* PIK income represented approximately 10.5% of total revenue in Q3, with the majority coming from original underwriting rather than credit-related amendments.

Q&A

* Brian McKenna, Citizens JMP Securities: Asked about the supplemental dividend outlook into next year. Bluestein answered, "A little bit premature for us to provide any specificity with respect to the supplemental distribution for next year...We are very optimistic based on the trajectory of the business and our expected operating performance near term, that we will be very comfortably able to maintain the base distribution and continue to provide a supplemental distribution."
* McKenna also inquired about credit quality. Bluestein replied, "The credit for our performance is attributable to the quality of our investment team...the team has been together for a long time...knows how to pick the right companies."
* Finian O'Shea, Wells Fargo: Questioned about expense allocation and RIA growth. Meyer clarified, "It is the base of the amount of AUM compared to the entire platform. That is part of the allocation. And then the amount of originations will create a little bit of volatility to that calculation every single quarter."
* Crispin Love, Piper Sandler: Asked about increased credit anxiety and net investment income impact from rate cuts. Bluestein said, "We have not seen any material deterioration in the credit performance of our portfolio over the last quarter." Meyer noted, "At the moment, it's pretty muted," regarding the impact of rate cuts.
* John Hecht, Jefferies: Asked about the risk of legacy software companies amid the AI revolution. Bluestein replied, "Our portfolio is turning every, generally speaking, 1.5 years...we feel pretty good about how our portfolio is positioned with respect to what we're seeing across the AI landscape."

SENTIMENT ANALYSIS

* Analysts focused on sustainability of supplemental dividends, credit quality, and market positioning, with a generally positive and interested tone, seeking more clarity on forward guidance and risk management.
* Management maintained a confident and constructive tone in both prepared remarks and Q&A, repeatedly citing discipline, consistency, and platform strength. Bluestein stated, "We are very optimistic based on the trajectory of the business."
* Compared to the previous quarter, management's confidence remained steady, and analysts continued to probe on dividend sustainability and credit quality, reflecting ongoing interest but no escalation in concern.

QUARTER-OVER-QUARTER COMPARISON

* Guidance language remained optimistic, with continued focus on disciplined underwriting and strong liquidity. The origination volume for Q3 was lower than Q2 but still set a new record for the third quarter, while Q4 is expected to see strong activity.
* The credit portfolio remains stable, with nonaccruals rising by one but subsequently resolved.
* The company continued to emphasize its ability to cover base and supplemental distributions, similar to the previous quarter.
* Analyst questions continued to focus on dividend guidance, credit quality, and competitive positioning, mirroring concerns from Q2.
* Management's sentiment and level of disclosure remained consistent, and there were no significant shifts in strategic priorities.

RISKS AND CONCERNS

* Bluestein cautioned about "pockets of frothiness across certain parts of the venture and growth stage lending markets" and observed that some deals "do not expect...to age well."
* The company is seeing "a lot of companies in our ecosystem, looking to access the credit markets that lack scale and what we believe to be solid equity support."
* Bluestein noted ongoing market volatility and a government shutdown, stating, "our portfolio monitoring still remains enhanced given the volatility in the markets broadly and the ongoing government shutdown."
* Meyer indicated that interest expense is expected to increase in Q4 due to year-to-date portfolio growth.

FINAL TAKEAWAY

Hercules Capital highlighted a record-setting year-to-date performance in originations, fundings, and investment income, while maintaining robust dividend coverage and liquidity. The management team reinforced their disciplined approach and confidence in sustaining both base and supplemental shareholder distributions, even as they monitor increasing market frothiness and maintain rigorous credit standards. The company remains focused on high-quality originations, strong credit quality, and prudent growth as it advances toward the close of 2025.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/htgc/earnings/transcripts]

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