Hercules Tech Beats on Q1 Earnings - Analyst Blog

Hercules Technology Growth Capital, Inc. HTGC continued its earnings streak in first-quarter 2014, aided by growth in total investment income. The company reported distributable net operating income (DNOI) of 33 cents per share, which outpaced the Zacks Consensus Estimate of 28 cents. This also compared favorably with the year-ago DNOI of 30 cents.

Following the earnings release on Thursday after the closing bell, shares of Hercules Technology gained more than 3% in the post-trading session, reflecting a bullish investor response. The movement of the stock price during the full trading session will give a better idea about whether the company has been able to meet expectations.

Results benefited from improvement in interest and fee income, partially offset by higher expenses. Moreover, Hercules Technology continued with its efficient capital deployment activities on the back of a solid liquidity position.

DNOI grew 22.8% year over year to $19.9 million.

Performance in Detail

Hercules Technology's total investment income was $35.8 million, up 15.5% from the prior-year quarter. The rise was driven by increase in both total interest income and total fees. Moreover, the figure surpassed the Zacks Consensus Estimate of $34.0 million.

Total operating expenses were $17.5 million, up 9.7% from the prior-year quarter figure. The rise was due to an increase in all the components, partly offset by a decline in interest expense.

As of Mar 31, 2014, the weighted average cost of debt comprising interest and fees, was 6.9% versus 5.9% as of Mar 31, 2013.

Net investment income (before investment gains and losses) for the quarter came in at $18.3 million, up 21.8% year over year.

Business Highlights

The fair value of Hercules Technology's total investment portfolio was $890.7 million as of Mar 31, 2014, down 2.2% from Dec 31, 2013. In the quarter, the company provided approximately $155.7 million in debt and equity financing commitment to new and existing portfolio companies.

As of Mar 31, 2014, Hercules Technology's net asset value was $10.58 per share, compared with $10.00 as of Mar 31, 2013.

Our Viewpoint

As Hercules Technology continues to make meaningful investments in booming sectors such as technology, we believe that there is ample of scope for further top-line growth. Moreover, the company's portfolio expansion and solid initial public offering pipeline will expectedly boost profitability. Nevertheless, the uncertain economic environment might increase cost of funding and limit the company's growth going forward.

Currently, Hercules Technology carries a Zacks Rank #4 (Sell).

Among other financial organizations, Ares Capital Corporation ARCC and American Capital, Ltd. ACAS are slated to report on May 6 and May 7, respectively, while PennantPark Investment Corporation PNNT is expected to release second-quarter fiscal 2014 earnings results on May 7.