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    HTGC
    Earnings call· Jun 2026(Q2 FY26)

    Hercules Capital Q2 FY26 earnings call HTGC

    Jul 30, 2026 Source

    Executive summary

    Hercules Capital Q2 FY26 — Record Operating Performance and Robust Originations

    Hercules Capital delivered record operating performance in Q2 FY26, driven by robust originations and fundings, and strong net investment income coverage of its dividend. The company's diversified portfolio and growing private credit funds business contributed to managing $6.1 billion in assets. While credit quality remained stable overall, with a slight increase in lower-rated credits, the firm maintains a disciplined underwriting approach and strong liquidity to capitalize on market opportunities.

    Highlights

    5

    • Record originations of $2.74 billion for H1 2026, an increase of 35.6% year-over-year.

    • Record fundings of $1.35 billion for H1 2026, an increase of 8.5% year-over-year.

    • Net investment income covered the base shareholder distribution by 125% and the full distribution by 106%.

    • Managed assets grew to approximately $6.1 billion, an increase of 14.4% from a year ago.

    • Portfolio companies raised a record $5.7 billion in new capital in Q2, totaling $9.3 billion YTD.

    Concerns

    4

    • Weighted average internal credit rating slightly increased to 2.17 from 2.11 in Q1.

    • Grade 4 credits increased to 1.8% from 0.8% in Q1.

    • The number of companies with loans on nonaccrual increased by 1 to 2 loans.

    • M&A valuations and process timing are less certain in certain parts of the market.

    Guidance & targets

    8
    CategoryTargetConfidence
    Prepayment activity
    $200 million to $300 million
    medium materiality
    Medium
    Core yield
    11.8% and 12%
    high materiality
    High
    Gross SG&A expenses
    $25 million to $26 million
    medium materiality
    High
    RIA expense allocation
    approximately $4.7 million
    low materiality
    High
    Quarterly dividend from RIA
    approximately $2 million to $2.5 million
    low materiality
    High
    Originations
    seasonally lower
    medium materiality
    High
    M&A exit activity
    continue at these levels
    medium materiality
    Medium
    Interest expense
    broadly stable or up slightly
    medium materiality
    High

    Operational metrics

    91
    Total Assets Under Management
    $6.1 billionincrease of 14.4% from a year ago
    Q2 FY26

    Managed by the combined public BDC and private credit funds business.

    Originations
    $2.74 billionincrease of 35.6% year-over-year
    H1 FY26

    Record originations for the first half of the year.

    Fundings
    $1.35 billionincrease of 8.5% year-over-year
    H1 FY26

    Record fundings for the first half of the year.

    New Debt and Equity Commitments
    over $927 million
    Q2 FY26

    Focus on disciplined capital deployment and diversification.

    Gross Fundings
    over $647 million
    Q2 FY26

    Fundings weighted towards tech portfolio.

    Commitments by Sector
    approximately 59%
    Q2 FY26

    Of total Q2 commitments.

    Commitments by Sector
    approximately 41%
    Q2 FY26

    Of total Q2 commitments.

    Fundings by Sector
    approximately 45%
    Q2 FY26

    Of total Q2 fundings.

    Fundings by Sector
    approximately 55%
    Q2 FY26

    Of total Q2 fundings.

    Available Unfunded Commitments
    $408.2 millionincreased slightly to $408.2 million from $397.4 million in Q1
    Q2 FY26

    Maintaining a defensive positioning.

    Early Loan Repayments
    $572.1 million
    Q2 FY26

    Exceeded upper range of guidance; 60% from M&A or balance sheet cash.

    New Commitments (post-quarter)
    $149.3 million
    As of July 27, 2026

    Closed since Q2 end.

    Fundings (post-quarter)
    $112.5 million
    As of July 27, 2026

    Funded since Q2 end.

    Pending Commitments
    $70 million
    As of July 27, 2026

    In signed nonbinding term sheets.

    Asset Allocation
    approximately 50%
    Q2 FY26

    Of total assets.

    Asset Allocation
    approximately 50%
    Q2 FY26

    Of total assets.

    First Lien Exposure
    approximately 87%
    Q2 FY26

    Higher-than-normal exposure.

    Number of Debt Investments
    136
    Q2 FY26

    Diversification across companies.

    Debt Investments Fair Value
    $4.4 billion
    Q2 FY26

    Combined fair value in the BDC.

    Warrant and Equity Investments
    approximately 4.5%
    Q2 FY26

    Combined as a percentage of total investment portfolio.

    Floating Rate Investments with Floor
    98%
    Q2 FY26

    Of debt investments.

    Prime-Based Loans at Contractual Rate Floor
    75%
    Q2 FY26

    As of end of Q2.

    Average Loan Duration
    approximately 21 months
    Q2 FY26

    Across debt portfolio.

    PIK as % of Total Revenue
    8.3%falling to approximately 8.3% from 9.1% in Q1
    Q2 FY26

    PIK continued to decline.

    PIK by Design
    approximately 87%
    Q2 FY26

    PIK that was part of original underwriting.

    PIK Income from Higher Rated Loans
    More than 93%
    Q2 FY26

    From loans rated 1, 2, or 3.

    Cash Payments on Accrued PIK
    approximately $12 million
    Q2 FY26

    Collected during Q2.

    Cash Payments on Accrued PIK (post-quarter)
    $12.6 million
    As of July 27, 2026

    Collected subsequent to quarter end.

    Cash Payments on Accrued PIK (YTD)
    $39.9 million
    YTD July 27, 2026

    Collected year-to-date.

    Weighted Average Internal Credit Rating
    2.17slightly increased compared to the 2.11 rating in Q1
    Q2 FY26

    Remains well within normal historical range.

    Grade 1 and 2 Credits
    65.4%decreased to 65.4% compared to 70.5% in Q1
    Q2 FY26

    As percentage of portfolio.

    Grade 3 Credits
    32.7%increased to 32.7% in Q2 versus 28.6% in Q1
    Q2 FY26

    As percentage of portfolio.

    Grade 4 Credits
    1.8%increased to 1.8% from 0.8% in Q1
    Q2 FY26

    As percentage of portfolio.

    Grade 5 Credits
    0.1%at 0.1% for both quarters
    Q2 FY26

    As percentage of portfolio.

    Rated 4 and 5 Credits
    less than 2%
    Q2 FY26

    Of portfolio fair value.

    Loans on Nonaccrual (count)
    2increased by 1
    Q2 FY26

    One new nonaccrual loan in Q2.

    Loans on Nonaccrual (cost)
    approximately $16 million
    Q2 FY26

    Investment cost.

    Loans on Nonaccrual (fair value)
    $5.5 million
    Q2 FY26

    Fair value.

    Loans on Nonaccrual as % of Portfolio
    0.3%
    Q2 FY26

    As percentage of total investment portfolio at cost.

    Loans on Nonaccrual as % of Portfolio
    0.1%
    Q2 FY26

    As percentage of total investment portfolio at value.

    M&A Events
    12
    YTD July 27, 2026

    Year-to-date.

    IPOs
    2
    YTD July 27, 2026

    Year-to-date.

    M&A Events (post-quarter)
    3
    As of July 27, 2026

    Closed after quarter end.

    Venture Capital Investment Activity
    $143.9 billion
    Q2 FY26

    According to PitchBook-NVCA.

    Venture Capital Investment Activity
    $412.7 billionexceeding the entire 2025 full year figure by nearly 30%
    H1 FY26

    Reached unprecedented levels.

    AI Share of VC Deal Value
    nearly 86%
    H1 FY26

    AI defines the venture landscape.

    Fundraising
    $72.4 billionnearly matching total 2025 levels at $74.9 billion
    H1 FY26

    Capital heavily concentrated among a few established managers.

    M&A Exit Activity
    $375.4 billioncompared to $140.8 billion for all of 2025
    H1 FY26

    Remains strong.

    Portfolio Companies Raising Capital (count)
    29
    Q2 FY26

    Reached an all-time high.

    Portfolio Companies Raising Capital (amount)
    approximately $5.7 billion
    Q2 FY26

    In new capital.

    Portfolio Companies Raising Capital (amount)
    $9.3 billionsurpassing all of 2025 by a wide margin
    YTD Q2 FY26

    Total new capital raised.

    Portfolio Companies Raising Capital (post-quarter)
    in excess of $550 million
    As of July 27, 2026

    Raised by 11 portfolio companies.

    NII Coverage of Base Distribution
    125%
    Q2 FY26

    Comfortably covered.

    NII Coverage of Full Distribution
    106%
    Q2 FY26

    Including $0.07 supplemental distribution.

    Consecutive Supplemental Distributions
    24th
    Q2 FY26

    Consecutive quarter.

    Full-time Employees
    approximately 120
    Q2 FY26

    Total employees.

    Investment Team Employees
    nearly 60
    Q2 FY26

    Dedicated employees.

    Average Industry Experience (Senior Investment Team)
    over 18 years
    Q2 FY26

    Across senior level.

    Capital Committed Since Inception
    more than $28 billion
    Since inception

    To over 700 different companies.

    M&A and IPO Events Since Inception
    over 290
    Since inception

    Across portfolio.

    Operating Cost Ratio
    approximately 2%
    Q2 FY26

    Compares favorably to externally managed BDC peer group.

    OpEx Cost Ratio Reduction
    more than a 70 basis point
    Since Q1 2021

    Driven by leveraging existing central teams and platform efficiencies.

    Platform AUM Growth
    134%18% annualized over the roughly 5-year period
    Since Q1 2021

    Over the same period as OpEx reduction.

    Hercules Adviser Managed Capital
    nearly $2 billion
    Q2 FY26

    In committed debt and equity capital.

    Cumulative Cash Flows from RIA to BDC
    over $78.6 million
    Cumulative

    In form of expense sharing reimbursement and dividends.

    Direct Benefit from RIA to BDC
    over $23.4 million
    FY25

    Provided in 2025 alone.

    Direct Benefit from RIA to BDC
    $13.7 million
    H1 FY26

    Provided through the first half of 2026.

    NII Contribution from RIA to BDC
    $7 million26% increase from a year ago
    Q2 FY26

    Combined with expense reimbursement.

    Total Investment Income
    $149.1 millionincrease of 5.4% quarter-over-quarter and 8.5% year-over-year
    Q2 FY26

    Record total investment income.

    Core Investment Income (non-GAAP)
    $134.4 milliongenerally consistent with a record $134.9 million in Q1, but up 7.8% on a year-over-year basis
    Q2 FY26

    Excludes benefit of accelerated prepayment revenue.

    Net Investment Income
    $92.9 millionincrease of 5.5% quarter-over-quarter and 4.7% year-over-year
    Q2 FY26

    Record net investment income.

    Effective Yield
    13.4%compared to 12.8% in the prior quarter
    Q2 FY26

    Increase driven by elevated prepayment-related revenue.

    Core Yield
    12%compared to 12.2% in the prior quarter
    Q2 FY26

    In line with expectations, anticipated to normalize.

    Gross Operating Expenses
    $61.1 millioncompared to $58.1 million in the prior quarter
    Q2 FY26

    Driven by increased variable compensation and higher excise tax reserves.

    Net Operating Expenses
    $56.2 million
    Q2 FY26

    Net of cost recharges to the RIA.

    Interest Expense and Fees
    $31.1 millionrelatively stable at $31.1 million compared to $30.8 million in Q1
    Q2 FY26

    Relatively stable.

    Weighted Average Cost of Debt
    5.2%
    Q2 FY26

    Increased modestly on growth of investment portfolio.

    SG&A Expenses
    $30 million
    Q2 FY26

    Aligned with continued business growth, predominantly variable originator compensation and excise tax.

    Net SG&A Expenses
    $25.1 million
    Q2 FY26

    Net of costs recharged to the RIA.

    Return on Average Equity (ROAE)
    16.8%compared to 16.9% in Q1
    Q2 FY26

    NII over average assets or average equity.

    Return on Average Assets (ROAA)
    8.3%increased to 8.3% compared to 8.1% in Q1
    Q2 FY26

    NII over average total assets.

    NAV per Share
    $12.15increased by $0.25 to $12.15 per share or up 2.1% quarter-over-quarter
    Q2 FY26

    On net realized and unrealized appreciation of investments.

    Net Unrealized Appreciation
    $29.6 million
    Q2 FY26

    Driven by appreciation in various categories, partially offset by reversals.

    Net Realized Gains
    $7.7 million
    Q2 FY26

    Comprised of gross realized gains on equity investments, partially offset by losses.

    GAAP Leverage
    103.9%decreased to 103.9%... compared to 115.4% in the prior quarter
    Q2 FY26

    Decreased.

    Regulatory Leverage
    88.5%decreased to... 88.5%, respectively, compared to... 99.7% in the prior quarter
    Q2 FY26

    Decreased.

    Net GAAP Leverage
    101.8%
    Q2 FY26

    Netting out leverage with cash on balance sheet.

    Net Regulatory Leverage
    86.4%
    Q2 FY26

    Netting out leverage with cash on balance sheet.

    Available Liquidity (BDC)
    $652.9 million
    Q2 FY26

    Inclusive of capital raised by funds managed by RIA.

    Available Liquidity (Platform)
    more than $1 billion
    Q2 FY26

    For the entire Hercules platform.

    Institutional Unsecured Notes Issued
    $325 million
    Post Q2 FY26

    Used to repay upcoming indebtedness, fund originations, and general corporate purposes.

    Risks & headwinds

    5
    General market volatilityOngoing

    period of general volatility

    Mitigation: Disciplined and conservative new underwriting, maintaining strong and flexible balance sheet, proactive credit management.

    M&A valuations and process timing uncertaintyover the coming quarters

    less certain

    Mitigation: Continued monitoring.

    Aggressive deal structures from other lendersRecent

    a handful of lenders, both bank and nonbank, are being very aggressive in terms of deal structures

    Mitigation: Will monitor, but decision is to stay disciplined and not chase the market.

    Capital concentration in AIH1 2026

    AI defines the venture landscape, capturing nearly 86% of all first half 2026 deal value.

    Mitigation: Intentional portfolio diversification with 50% in life sciences and 50% in technology; no single subsector more than 25%.

    Increased number of companies seeking debt capital that do not meet quality standardsCurrent

    a larger number of companies right now that are in the market that are looking to raise debt capital that we don't think meet the type of quality new underwritings that we're looking for.

    Mitigation: Laser-focused on funding only deals that meet quality requirements.

    What to watch in Q3 FY26

    5

    Prepayment activity

    Q3 FY26
    Current$572.1 million in Q2 FY26
    Target$200 million to $300 million

    Why it matters

    Prepayments significantly impact investment income and capital redeployment opportunities.

    For Q3 2026, we expect prepayments to normalize and be in the range of $200 million to $300 million, although this could change as we progress in the quarter.

    Q&A highlights

    7

    Asked about the deployment backdrop, appetite for venture debt, and expected seasonal slowdown in Q3, especially August.

    Management expects Q3 to be seasonally lower but still robust. The market is very robust with a strong pipeline, but the focus is on disciplined funding of high-quality deals.

    “We do expect Q3 as it typically is to be seasonally lower than our other quarters in terms of capital deployment. Having said that, we still expect a pretty robust Q3 in terms of new originations.”

    asked by Crispin Love · answered by Scott Bluestein

    2 min read6 chapters

    Detailed Narrative

    01

    Record Originations and Fundings

    Hercules Capital achieved record originations of $2.74 billion and fundings of $1.35 billion in the first half of 2026, representing year-over-year increases of 35.6% and 8.5%, respectively. This activity drove record total investment income and net investment income for the period, demonstrating the platform's ability to deploy capital effectively in a dynamic market.

    02

    Portfolio Diversification and Credit Stability

    The investment portfolio remains intentionally diversified, with approximately 50% in life sciences and 50% in technology, and no single subsector exceeding 25% of total investments. Credit quality was stable, with weighted average internal credit rating at 2.17, and rated 4 and 5 credits comprising less than 2% of fair value, indicating prudent risk management.

    03

    RIA Business Contribution

    The wholly-owned private credit fund business, Hercules Adviser, now manages nearly $2 billion in committed capital and provided $7 million in NII contribution to the BDC in Q2, a 26% increase YoY. This segment offers a consistent, reoccurring income stream and enhances the overall platform's capital flexibility and investment capacity.

    04

    AI Governance and Technology Investments

    Hercules has formalized an internal AI governance committee to oversee the use of AI, ensuring data protection and responsible application. Recent technology investments, including CRM and portfolio management system upgrades, aim to improve efficiency, automation, and real-time data access, supporting the scalable growth of the business.

    05

    Strong Portfolio Company Capital Raising

    Portfolio companies raised a record $5.7 billion in new capital in Q2, contributing to a year-to-date total of $9.3 billion, surpassing all of 2025. This robust capital raising activity, with a healthy mix between technology (60%) and life sciences (40%), indicates strong investor confidence in Hercules' portfolio companies despite broader market volatility🌐.

    06

    Liquidity and Capital Structure

    The company ended Q2 with $652.9 million of available liquidity in the BDC, and over $1 billion for the entire Hercules platform. Post-quarter, an additional $325 million of unsecured notes were issued, further strengthening liquidity and positioning the firm to capitalize on attractive capital deployment opportunities.

    AI-generated summary of the company’s earnings call. Not investment advice.