Hercules Capital, Inc. Q3 FY2025 earnings call

• Hercules had strong Q3 performance with record fundings, investment income, and originations.
• Maintained balance sheet strength with high first lien exposure above 90%, GAAP leverage at 99.5% in Q3.
• Originations balanced between life sciences (54% of commitments, 50% of fundings) and tech (46% of commitments, 50% of fundings), added 7 new borrowers in Q3.
• Exit activity in portfolio with 4 M&A events and 1 IPO year-to-date.
• PIK income in Q3 was approximately 10.5% of total revenue, 85% from original underwriting, nearly 90% from loans rated 1, 2, or 3.

In Q3 2025, Hercules Capital originated total gross debt and equity commitments of $846.2 million and record gross fundings of $504.6 million. For the first 3 quarters of 2025, record originations were $2.87 billion, with net debt portfolio growth of over $557.8 million. Total investment income in Q3 was a record $138.1 million, net investment income was $88.6 million or $0.49 per share. Period ending assets under management were approximately $5.5 billion, an increase of 20.7% year-over-year. NAV per share in Q3 was $12.05, an increase of 1.8% from Q2 2025.

• Expect origination activity to remain strong through year-end.
• Q4 expected prepayments in $150 million to $200 million range.
• Core yield for Q4 expected 12% to 12.5%.
• SG&A expenses for Q4 expected $25 million to $26 million, RIA dividend approximately $2 million to $2.5 million per quarter.

• Pockets of frothiness in venture and growth stage lending markets with deals lacking strong structure and outside prudent underwriting metrics.
• Market volatility and ongoing government shutdown affecting portfolio monitoring.

Q: Brian McKenna asked about the supplemental dividend and credit quality.

A: Scott Bluestein said it's premature to specify supplemental distribution for next year but math is accurate, and credit quality is due to experienced investment team.

Q: Finian O'Shea inquired about adviser expense allocation.

A: Seth Meyer stated expense allocation drifts with AUM and originations.

Q: Crispin Love asked about credit quality and rate cuts impact.

A: Scott Bluestein mentioned consistent conservative underwriting, Seth Meyer noted ~60% of prime-based loans at contractual floor affecting NII.

Q: Douglas Harter asked about frothiness in deals.

A: Scott Bluestein said issues with deal structure and funding amounts.

Q: John Hecht asked about AI impact and market share.

A: Scott Bluestein talked about short portfolio duration and taking market share.

Q: Christopher Nolan asked about blockchain use.

A: Scott Bluestein said not using blockchain for tracking investments.

Q: Paul Johnson asked about unrealized gains.

A: Scott Bluestein broke down unrealized gains in debt portfolio.

Q: Paul Johnson asked about PIK in venture loans.

A: Scott Bluestein explained PIK usage in underwriting, typically small part of interest.