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Hercules Capital, Inc.’s (HTGC - Free Report) second-quarter 2017 net investment income of 31 cents per share was in line with the Zacks Consensus Estimate. However, the figure reflected a fall of 3.1% from the year-ago quarter.

Results were adversely impacted by a rise in operating expenses. Further, a fall in net asset value was on the downside. However, an increase in revenues and growth in investment portfolio was impressive.

Distributional Net Operating Income for the quarter came in at $27.2 million or 33 cents per share compared with $25 million or 34 cents per share in the prior-year quarter.    

Total Investment Income Improves, Expenses Rise

Total investment income in the reported quarter was $48.5 million, up 11.3% year over year. The increase is mainly driven by debt investment portfolio growth and a greater weighted average principal outstanding of the company's debt investment portfolio and a higher level of unscheduled early repayments. Also, the figure beat the Zacks Consensus Estimate of $48.2 million.

Total operating expenses rose 14.8% year over year to $23.2 million. The rise was largely led by an increase in interest and loan fees.

Total Portfolio Value & New Commitments

The fair value of Hercules Capital’s total investment portfolio was $1.40 billion as of Jun 30, 2017. In the reported quarter, the company provided approximately $206 million in new debt and equity-financing commitments to new and existing portfolio companies.

Balance Sheet

As of Jun 30, 2017, Hercules Capital’s net asset value was $9.87 per share compared with $9.90 as of Dec 31, 2016. The company had $355.4 million in liquidity, including $160.4 million in unrestricted cash and cash equivalents and $195 million in credit facilities as of Jun 30, 2017.

At the end of the second quarter, the weighted average cost of debt comprising interest and fees was 5.5%, down from 5.8% in the prior-year quarter. The fall was mainly due to the one-time, non-cash acceleration of unamortized fees due to the redemption of 2019 Notes and the new issuance and addition of convertible notes. Adjusted weighted average cost of borrowings was 4.76%.

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. Also, threat of concentration risks and stricter regulations continue to be the concerns.

Hercules Capital, Inc. Price, Consensus and EPS Surprise

 

Hercules Capital, Inc. Price, Consensus and EPS Surprise | Hercules Capital, Inc. Quote

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.

Some stocks in the same industry including PennantPark Investment Corporation (PNNT - Free Report) , Garrison Capital Inc. (GARS - Free Report) and FS Investment Corporation (FSIC - Free Report) are scheduled to announce results on Aug 7, Aug 8 and Aug 9, respectively.

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