Hercules Technology Growth Capital, Inc. HTGC reported second-quarter 2015 net investment income of 23 cents per share, which beat the Zacks Consensus Estimate of 21 cents. However, it compared unfavorably with the year-ago figure of 30 cents per share.
Results benefited from higher total investment income. Further, a solid liquidity position and growth in the investment portfolio remained impressive. However, elevated costs continued to be a headwind.
Distributional Net Operating Income (“DNOI”) for the quarter came in at $19.0 million or 27 cents per share, down from $21.0 million or 34 cents per share in the prior-year quarter.
Performance in Detail
Hercules Technology’s total investment income in the reported quarter was $38.1 million, rising 12% from the prior-year quarter. The increase was mainly driven by growth in the loan portfolio. Further, the figure surpassed the Zacks Consensus Estimate of $35.7million.
Interest expense and loan fees were $9.2 million, up 20% from the year-ago quarter. The rise was mainly led by the addition of 2024 Notes and Asset-Backed Notes along with a one-time non-cash expense attributable to the acceleration of unamortized debt issuance costs.
Total operating expenses (excluding interest expense and loan fees) escalated 56% year over year to $12.2 million. The rise was triggered by an increase in general and administrative costs as well as compensation and benefits expenses, partly offset by a reduction in stock-based compensation costs.
As of Jun 30, 2015, the weighted average cost of debt comprising interest, fees and loss of debt extinguishment, was 6.1% versus 6.3% as of Jun 30, 2014.
Net investment income (before investment gains and losses) for the quarter came in at $16.8 million, down 10% year over year.
Business Highlights
The fair value of Hercules Technology’s total investment portfolio was $1.24 billion as of Jun 30, 2015, up 7% from the Mar 31, 2015 level. In the quarter, the company provided approximately $243.7 million and $164.0 million in debt and equity-financing commitments and investments, respectively, to new and existing portfolio companies.
As of Jun 30, 2015, Hercules Technology’s net asset value was $10.26 per share, compared with $10.42 as of Jun 30, 2014. The company had $216.4 million in liquidity, including $116.0 million in cash and $100.4 million in credit facilities as of Jun 30, 2015.
Our Viewpoint
We foresee further potential for top-line growth, based on Hercules Technology’s meaningful investments in booming sectors such as technology. Moreover, an increased amount of capital-deployment activities on the company’s part are expected to boost investors’ confidence.
Nevertheless, an uncertain economic environment might increase cost of funding and limit the company’s growth going forward.
Currently, Hercules Technology carries a Zacks Rank #2 (Buy).
About Other Mortgage Investment Firms
Ares Capital Corporation’s ARCC second-quarter 2015 core earnings of 37 cents per share came in line with the Zacks Consensus Estimate. Additionally, earnings improved 8.8% year over year. Results reflected rise in investment income, which was offset by higher expenses. Further, reduction in new investment commitments was on the downside.
American Capital, Ltd. ACAS reported second-quarter 2015 net operating income per share of 24 cents, beating the Zacks Consensus Estimate by a penny. Moreover, results compared favorably with the prior-year quarter earnings of 9 cents. Better-than-expected results were driven by higher revenues.
Fifth Street Senior Floating Rate Corp. FSFR is scheduled to report results on Aug 10.
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