Hercules Capital’s third quarter was shaped by robust originations and disciplined credit underwriting, which management identified as key drivers of performance. CEO Scott Bluestein highlighted record fundings and a continued focus on high-quality, first lien loans, noting, “Our platform momentum continued in Q3 with originations of over $846 million...putting us on pace to exceed our previous full year record.” Management kept a conservative approach, emphasizing risk controls and maintaining strong liquidity despite some early loan repayments and a slightly lower operating margin.

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While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.

Our Top 5 Analyst Questions From Hercules Capital’s Q3 Earnings Call

• Brian McKenna (Citizens): Asked about the sustainability and calculation of supplemental dividends for next year. CEO Scott Bluestein confirmed the payout ratio approach but said specifics will be determined at year-end.
• Brian McKenna (Citizens): Inquired about the drivers behind strong credit quality. Bluestein attributed this to the experience and consistency of the investment team.
• Finian O'Shea (Wells Fargo Securities): Queried the expense allocation for the adviser segment. CFO Seth Meyer explained the allocation is linked to origination volumes and AUM growth, with no fundamental change in methodology.
• Crispin Love (Piper Sandler): Sought views on credit risk in the broader private credit and BDC markets. Bluestein said Hercules’s conservative and consistent underwriting has kept portfolio credit quality strong.
• Douglas Harter (UBS): Asked about the “frothiness” in deal structures and Hercules’s response. Bluestein emphasized the firm’s refusal to pursue deals that do not meet prudent structural standards.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will monitor (1) whether Hercules can sustain its origination pace and maintain high first lien exposure, (2) the impact of further interest rate changes on net investment income as more loans reach their rate floors, and (3) ongoing credit quality in the portfolio relative to industry peers. Progress on supplemental distributions and disciplined underwriting will also serve as key signposts for execution.

Hercules Capital currently trades at $18.19, up from $17.60 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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