HTGC 10-Q Quarter ended June 30, 2019

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Maryland

74-3113410

(State or Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification Number)

400 Hamilton Ave., Suite 310

Palo Alto, California

(Address of Principal Executive Offices)

94301

(Zip Code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, par value $0.001 per share

HTGC

New York Stock Exchange

5.25% Notes due 2025

HCXZ

New York Stock Exchange

6.25% Notes due 2033

HCXY

New York Stock Exchange

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with a new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

☐

PART I. FINANCIAL INFORMATION

3

Item 1.

Consolidated Financial Statements

3

Consolidated Statement of Assets and Liabilities as of June 30, 2019 and December 31, 2018 (unaudited)

3

Consolidated Statement of Operations for the three and six months ended June 30, 2019 and 2018 (unaudited)

5

Consolidated Statement of Changes in Net Assets for the three and six months ended June 30, 2019 and 2018 (unaudited)

6

Consolidated Statement of Cash Flows for the six months ended June 30, 2019 and 2018 (unaudited)

8

Consolidated Schedule of Investments as of June 30, 2019 (unaudited)

10

Consolidated Schedule of Investments as of December 31, 2018 (unaudited)

21

Notes to Consolidated Financial Statements (unaudited)

37

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

74

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

94

Item 4.

Controls and Procedures

95

PART II. OTHER INFORMATION

96

Item 1.

Legal Proceedings

96

Item 1A.

Risk Factors

96

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

98

Item 3.

Defaults Upon Senior Securities

98

Item 4.

Mine Safety Disclosures

98

Item 5.

Other Information

98

Item 6.

Exhibits and Financial Statement Schedules

99

SIGNATURES

102

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

December 31, 2018

Assets

Investments:

Non-control/Non-affiliate investments (cost of $2,162,377 and $1,830,725, respectively)

$

2,174,691

$

1,801,258

Control investments (cost of $65,143 and $64,799, respectively)

55,894

57,619

Affiliate investments (cost of $88,142 and $85,000, respectively)

21,414

21,496

Total investments in securities, at value (cost of $2,315,662 and $1,980,524, respectively)

2,251,999

1,880,373

Cash and cash equivalents

13,261

34,212

Restricted cash

15,339

11,645

Interest receivable

18,206

16,959

Right of use asset ⁽¹⁾

8,493

—

Other assets

4,269

2,002

Total assets

$

2,311,567

$

1,945,191

Liabilities

Accounts payable and accrued liabilities

$

27,274

$

25,961

Operating lease liability ⁽¹⁾

8,530

—

SBA Debentures, net (principal of $149,000 and $149,000, respectively)

147,910

147,655

2022 Notes, net (principal of $150,000 and $150,000, respectively) ⁽²⁾

148,252

147,990

2024 Notes, net (principal of $0 and $83,510, respectively) ⁽²⁾

—

81,852

2025 Notes, net (principal of $75,000 and $75,000, respectively) ⁽²⁾

72,780

72,590

2033 Notes, net (principal of $40,000 and $40,000, respectively) ⁽²⁾

38,447

38,427

2027 Asset-Backed Notes, net (principal of $200,000 and $200,000, respectively) ⁽²⁾

197,171

197,265

2028 Asset-Backed Notes, net (principal of $250,000 and $0, respectively) ⁽²⁾

247,266

—

2022 Convertible Notes, net (principal of $230,000 and $230,000, respectively) ⁽²⁾

225,832

225,051

Credit Facilities

93,421

52,956

Total liabilities

$

1,206,883

$

989,747

Net assets consist of:

Common stock, par value

104

96

Capital in excess of par value

1,149,774

1,052,269

Total distributable earnings (loss) ⁽³⁾

(45,194

)

(92,859

)

Treasury Stock, at cost, no shares as of June 30, 2019 and 376,466 shares as of December 31, 2018

—

(4,062

)

Total net assets

$

1,104,684

$

955,444

Total liabilities and net assets

$

2,311,567

$

1,945,191

Shares of common stock outstanding ($0.001 par value and 200,000,000 authorized)

104,282

96,501

Net asset value per share

$

10.59

$

9.90

(1)

See “Note 2 – Summary of Significant Accounting Policies” for a description of Right of use asset and Operating lease liability.

(2)

The Company’s SBA debentures, 2022 Notes, 2024 Notes, 2025 Notes, 2033 Notes, 2027 Asset-Backed Notes, 2028 Asset-Backed Notes, and 2022 Convertible Notes, as each term is defined herein, are presented net of the associated debt issuance costs for each instrument. See “Note 4 – Borrowings”.

(3)

Certain prior year numbers have been adjusted to conform with the SEC final rules on disclosure updates and simplification effective November 5, 2018. See Note 2.

(Dollars in thousands)

June 30, 2019

December 31, 2018

Assets

Restricted Cash

$

15,339

$

11,645

2027 Asset-Backed Notes, investments in securities, at value (cost of $298,584 and $279,373, respectively)

293,149

277,781

2028 Asset-Backed Notes, investments in securities, at value (cost of $363,734 and $0, respectively)

365,745

—

Total assets

$

674,233

$

289,426

Liabilities

2027 Asset-Backed Notes, net (principal of $200,000 and $200,000, respectively) ⁽¹⁾

$

197,171

$

197,265

2028 Asset-Backed Notes, net (principal of $250,000 and $0, respectively) ⁽¹⁾

247,266

—

Total liabilities

$

444,437

$

197,265

(1)

The Company’s 2027 Asset-Backed Notes and the 2028 Asset-Backed Notes are presented net of the associated debt issuance costs. See “Note 4 – Borrowings”.

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

2019

2018

Investment income:

Interest income

Non-control/Non-affiliate investments

$

59,932

$

44,535

$

113,872

$

86,369

Control investments

1,040

841

2,064

1,427

Affiliate investments

738

500

1,247

1,061

Total interest income

61,710

45,876

117,183

88,857

Fee income

Commitment, facility and loan fee income

Non-control/Non-affiliate investments

5,028

1,930

7,478

4,370

Control investments

4

—

8

—

Affiliate investments

72

84

160

192

Total commitment, facility and loan fee income

5,104

2,014

7,646

4,562

One-time fee income

Non-control/Non-affiliate investments

2,450

1,672

3,230

4,843

Total one-time fee income

2,450

1,672

3,230

4,843

Total fee income

7,554

3,686

10,876

9,405

Total investment income

69,264

49,562

128,059

98,262

Operating expenses:

Interest

13,515

9,878

26,070

19,264

Loan fees

1,646

3,362

4,655

4,537

General and administrative

Legal expenses

1,963

637

2,626

1,212

Other expenses

3,832

3,037

7,322

6,471

Total general and administrative

5,795

3,674

9,948

7,683

Employee compensation

Compensation and benefits

9,190

7,017

15,813

12,775

Stock-based compensation

3,851

2,857

7,273

5,166

Total employee compensation

13,041

9,874

23,086

17,941

Total operating expenses

33,997

26,788

63,759

49,425

Net investment income

35,267

22,774

64,300

48,837

Net realized gain (loss) on investments

Non-control/Non-affiliate investments

4,271

(3,953

)

8,826

(7,465

)

Control investments

—

(2,900

)

—

(4,308

)

Affiliate investments

—

(2,058

)

—

(2,058

)

Total net realized gain (loss) on investments

4,271

(8,911

)

8,826

(13,831

)

Net change in unrealized appreciation (depreciation) on investments

Non-control/Non-affiliate investments

9,794

32,700

41,884

18,360

Control investments

808

3,957

(2,068

)

3,337

Affiliate investments

(2,009

)

1,540

(3,226

)

1,303

Total net unrealized appreciation (depreciation) on investments

8,593

38,197

36,590

23,000

Total net realized and unrealized gain (loss)

12,864

29,286

45,416

9,169

Net increase (decrease) in net assets resulting from operations

$

48,131

$

52,060

$

109,716

$

58,006

Net investment income before investment gains and losses per common share:

Basic

$

0.36

$

0.26

$

0.66

$

0.57

Change in net assets resulting from operations per common share:

Basic

$

0.49

$

0.59

$

1.13

$

0.67

Diluted

$

0.49

$

0.59

$

1.12

$

0.67

Weighted average shares outstanding

Basic

98,223

87,125

97,226

85,868

Diluted

98,737

87,199

97,630

85,939

Distributions paid per common share:

Basic

$

0.33

$

0.31

$

0.64

$

0.62

Capital in

Distributable

Common Stock

excess

Earnings

Treasury

Net

For the Three Months Ended June 30, 2019

Shares

Par Value

of par value

(loss) ⁽²⁾

Stock

Assets

Balance at March 31, 2019

96,543

$

96

$

1,051,427

$

(61,174

)

$

—

$

990,349

Net increase (decrease) in net assets resulting from operations

—

—

—

48,131

—

48,131

Public offering, net of offering expenses

7,700

8

95,436

—

—

95,444

Issuance of common stock due to stock option exercises

1

—

7

—

—

7

Retired shares from net issuance

(1

)

—

(7

)

—

—

(7

)

Issuance of common stock under restricted stock plan

10

—

—

—

—

—

Retirement of common stock under repurchase plan

—

—

—

—

—

—

Retired shares for restricted stock vesting

(13

)

—

(196

)

—

—

(196

)

Distributions reinvested in common stock

42

—

557

—

—

557

Distributions

—

—

—

(32,151

)

—

(32,151

)

Stock-based compensation ⁽¹⁾

—

—

2,550

—

—

2,550

Balance at June 30, 2019

104,282

$

104

$

1,149,774

$

(45,194

)

$

—

$

1,104,684

For the Six Months Ended June 30, 2019

Balance at December 31, 2018

96,501

$

96

$

1,052,269

$

(92,859

)

$

(4,062

)

$

955,444

Net increase (decrease) in net assets resulting from operations

—

—

—

109,716

—

109,716

Public offering, net of offering expenses

7,700

8

95,415

—

—

95,423

Issuance of common stock due to stock option exercises

14

—

161

—

—

161

Retired shares from net issuance

(12

)

—

(166

)

—

—

(166

)

Issuance of common stock under restricted stock plan

58

—

—

—

—

—

Retirement of common stock under repurchase plan

—

—

(4,062

)

—

4,062

—

Retired shares for restricted stock vesting

(68

)

—

(887

)

—

—

(887

)

Distributions reinvested in common stock

89

—

1,189

—

—

1,189

Distributions

—

—

—

(62,051

)

—

(62,051

)

Stock-based compensation ⁽¹⁾

—

—

5,855

—

—

5,855

Balance at June 30, 2019

104,282

$

104

$

1,149,774

$

(45,194

)

$

—

$

1,104,684

(1)

Stock-based compensation includes $24 and $31 of restricted stock and option expense related to director compensation for the three and six months ended June 30, 2019, respectively.

(2)

Certain prior year numbers have been adjusted to conform with the SEC final rules on disclosure updates and simplification effective November 5, 2018. See Note 2.

Capital in

Distributable

Common Stock

excess

Earnings

Net

For the Three Months Ended June 30, 2018

Shares

Par Value

of par value

(loss) ⁽²⁾

Assets

Balance at March 31, 2018

85,239

$

85

$

916,738

$

(88,092

)

$

828,731

Net increase (decrease) in net assets resulting from operations

—

—

—

52,060

52,060

Public offering, net of offering expenses

9,008

9

106,665

—

106,674

Issuance of common stock due to stock option exercises

—

—

1

—

1

Retired shares from net issuance

—

—

(1

)

—

(1

)

Issuance of common stock under restricted stock plan

—

—

—

—

—

Retired shares for restricted stock vesting

(21

)

—

(242

)

—

(242

)

Distributions reinvested in common stock

34

—

428

—

428

Distributions

—

—

—

(26,678

)

(26,678

)

Stock-based compensation ⁽¹⁾

—

—

2,724

—

2,724

Balance at June 30, 2018

94,260

$

94

$

1,026,313

$

(62,710

)

$

963,697

For the Six Months Ended June 30, 2018

Balance at December 31, 2017

84,424

$

85

$

908,501

$

(67,619

)

$

840,967

Net increase (decrease) in net assets resulting from operations

—

—

—

58,006

58,006

Public offering, net of offering expenses

9,486

9

112,617

—

112,626

Issuance of common stock due to stock option exercises

38

—

433

—

433

Retired shares from net issuance

(36

)

—

(447

)

—

(447

)

Issuance of common stock under restricted stock plan

336

—

—

—

—

Retired shares for restricted stock vesting

(57

)

—

(688

)

—

(688

)

Distributions reinvested in common stock

69

—

854

—

854

Distributions

—

—

—

(53,097

)

(53,097

)

Stock-based compensation ⁽¹⁾

—

—

5,043

—

5,043

Balance at June 30, 2018

94,260

$

94

$

1,026,313

$

(62,710

)

$

963,697

(1)

Stock-based compensation includes $10 and $20 of restricted stock and option expense related to director compensation for the three and six months ended June 30, 2018, respectively.

(2)

Certain prior year numbers have been adjusted to conform with the SEC final rules on disclosure updates and simplification effective November 5, 2018. See Note 2.

For the Six Months Ended June 30,

2019

2018

Cash flows from operating activities:

Net increase (decrease) in net assets resulting from operations

$

109,716

$

58,006

Adjustments to reconcile net increase in net assets resulting from

operations to net cash provided by (used in) operating activities:

Purchase of investments

(607,847

)

(563,744

)

Principal and fee payments received on investments

267,654

414,347

Proceeds from the sale of investments

21,264

9,768

Net unrealized depreciation (appreciation) on investments

(36,590

)

(23,000

)

Net realized loss (gain) on investments

(8,826

)

13,831

Accretion of paid-in-kind principal

(4,310

)

(4,696

)

Accretion of loan discounts

(1,510

)

(1,562

)

Accretion of loan discount on convertible notes

336

336

Accretion of loan exit fees

(11,253

)

(8,923

)

Change in deferred loan origination revenue

10,787

3,415

Unearned fees related to unfunded commitments

1,898

1,616

Amortization of debt fees and issuance costs

3,956

3,999

Depreciation

101

94

Stock-based compensation and amortization of restricted stock grants ⁽¹⁾

5,855

5,043

Change in operating assets and liabilities:

Interest and fees receivable

(1,247

)

(2,146

)

Prepaid expenses and other assets

(11,453

)

518

Accounts payable

(191

)

244

Accrued liabilities

10,136

(1,016

)

Net cash provided by (used in) operating activities

(251,524

)

(93,870

)

Cash flows from investing activities:

Purchases of capital equipment

(241

)

(116

)

Net cash provided by (used in) investing activities

(241

)

(116

)

Cash flows from financing activities:

Issuance of common stock, net

95,379

112,626

Retirement of employee shares

(850

)

(701

)

Distributions paid

(60,862

)

(52,243

)

Issuance of 2028 Asset-Backed Notes

250,000

—

Repayments of 2024 Notes

(83,510

)

(100,000

)

Repayments of 2021 Asset-Backed Notes

—

(18,065

)

Borrowings of credit facilities

405,192

150,700

Repayments of credit facilities

(364,727

)

(92,377

)

Cash paid for debt issuance costs

(3,117

)

(519

)

Fees paid for credit facilities and debentures

(2,997

)

(83

)

Net cash provided by (used in) financing activities

234,508

74,338

Net increase (decrease) in cash, cash equivalents and restricted cash

(17,257

)

(19,648

)

Cash, cash equivalents and restricted cash at beginning of period

45,857

94,995

Cash, cash equivalents and restricted cash at end of period

$

28,600

$

75,347

Supplemental non-cash investing and financing activities:

Distributions reinvested

1,189

854

(1)

Stock-based compensation includes $31 and $20 of restricted stock and option expense related to director compensation for the six months ended June 30, 2019 and 2018, respectively.

For the Six Months Ended June 30,

(Dollars in thousands)

2019

2018

Cash and cash equivalents

$

13,261

$

59,461

Restricted cash

15,339

15,886

Total cash, cash equivalents and restricted cash presented in the Consolidated Statements of Cash Flows

$

28,600

$

75,347

Portfolio Company

Sub-Industry

Type of

Investment ⁽¹⁾

Maturity Date

Interest Rate and Floor ⁽²⁾

Principal

Amount

Cost ⁽³⁾

Value ⁽⁴⁾

Debt Investments

Biotechnology Tools