Exhibit 99.1
Hercules Announces Third Quarter 2006 Financial Results
Company Reports Record Commitments and Fundings
PALO ALTO, Calif.--(BUSINESS WIRE)--Oct. 26, 2006--Hercules
Technology Growth Capital, Inc. (NASDAQ:HTGC), a leading specialty
finance company providing debt and equity growth capital to venture
capital and private equity backed technology and life science
companies, today announced its financial results for the third quarter
ended September 30, 2006.
Highlights for the Third Quarter ended September 30, 2006
included:
-- New debt commitments increased by a record $81.5 million to 10
companies for total debt commitments since inception in excess
of $428.7 million to 59 companies
-- Debt fundings totaled approximately a record $65.4 million to
14 portfolio companies
-- Revenues were approximately $7.5 million, a 106% increase
compared with $3.7 million in the third quarter of 2005
-- Net investment income before income taxes increased to $3.1
million or $0.23 per share compared with $885,000 or $0.09 per
share in Q3 2005
-- Net income was approximately $1.6 million or $0.12 per share
on 13.7 million basic shares outstanding at September 30, 2006
measured against approximately $1.6 million or $0.16 per share
on 9.8 million basic shares outstanding at September 30, 2005
-- Total debt and equity investment portfolio at value was $237.5
million to 54 portfolio companies
-- Declared a dividend a $0.30 per share, its fifth consecutive
dividend, bringing the cumulative total to $1.225 per share.
The dividend is payable on December 1, 2006 to shareholders of
record as of November 6, 2006
-- Became licensed to operate as a Small Business Investment
Company by the United States Small Business Administration
(the "SBA")
"The third quarter of 2006 was the strongest in Hercules' history
measured by both debt fundings and debt commitments," said Manuel A.
Henriquez, Chairman and CEO of Hercules. "In addition to continually
building our portfolio and strengthening our pipeline, during the
third quarter we also enhanced our management team, became licensed as
a SBIC, and renewed our $125 million credit facility with Citibank to
improve our financial strength and funding capabilities."
Henriquez continued, "In addition to our growing investment
portfolio of debt and equity, in the third quarter we acquired
warrants that would allow us to invest approximately $6.2 million in
our various venture capital backed companies. Our accumulated
unexercised warrant portfolio currently exceeds $27.0 million, which
has a fair value for accounting purposes of approximately $9.2
million. We anticipate that over time, some portion of this warrant
portfolio may become liquid, resulting in gains which would enhance
returns to shareholders. To illustrate, in the last twelve months, we
have made two such investments, resulting in realized gains of
approximately $2.7 million. However, there can be no assurance that we
will be able to realize additional gains on the warrant portfolio."
Portfolio and Investment Activity for the Third Quarter ended
September 30, 2006
The third quarter of 2006 clearly demonstrated Hercules' growing
presence and position as a publicly traded specialty finance company,
providing growth capital to venture capital backed companies. The
Company continues to capitalize on its ability to provide one-stop
financing solutions to venture-backed technology and life sciences
companies, by funding senior debt, subordinated debt and equity, at
all stages of a company's development.
During the third quarter, Hercules entered into agreements to
provide debt financing of $81.5 million to nine new portfolio
companies and one existing portfolio company. Also during the third
quarter, Hercules funded $49.6 million in debt investments to nine new
portfolio companies, and funded an additional $15.8 million to five
existing portfolio companies.
Hercules invested $2.8 million in equity investments in three
portfolio companies comprised of $1.0 million of debt conversion to an
existing portfolio company in conjunction with a new equity round of
financing, and approximately $1.8 million in two new equity
investments.
Hercules' proceeds from principal repayments were approximately
$19.4 million. These repayments comprised normal amortization of
principal of approximately $9.5 million, repayments of approximately
$1.8 million from one well-performing portfolio company who prepaid
its loan in full, $1.0 million repaid under a loan restructuring
agreement, and a $7.1 million pay down on a revolving working capital
line.
As of September 30, 2006, Hercules' unfunded debt commitments were
approximately $95.7 million to 19 portfolio companies. In addition,
the Company executed non-binding term sheets with six prospective
portfolio companies, representing approximately $58.5 million. These
proposed investments are subject to the completion of the Company's
due diligence and final approval process, as well as the negotiation
of definitive documentation with the prospective portfolio companies
which may not result in completed investments.
The fair value of Hercules' debt portfolio as of September 30,
2006 was approximately $229.2 million, representing investments in 53
portfolio companies, compared with $127.2 million as of September 30,
2005, representing investments in 24 portfolio companies. The fair
value of the Company's equity portfolio as of September 30, 2006 was
$8.3 million, representing investments in 13 portfolio companies.
There were five equity investments representing a value of
approximately $3.3 million as of September 30, 2005.
The overall weighted average yield to maturity on the Company's
loan portfolio was approximately 12.75% as of September 30, 2006.
Yields to maturity are computed using interest rates at inception of
the loan, and include amortization of loan facility fees, commitment
fees and market premiums or discounts over the expected life of the
debt investments, weighted by their respective costs when averaged and
are based on the assumption that all contractual loan commitments have
been fully funded.
Operating Results for the Third Quarter ended September 30, 2006
Revenue during the third quarter was $7.5 million, a 106% increase
compared with $3.7 million in the third quarter of 2005.
Interest expense and loan fees were approximately $1.6 million
during the third quarter, representing an increase of $731,000 from
$840,000 in the comparable quarter of 2005. The increase is primarily
related to borrowings under the Citibank credit facility that were not
outstanding during the third quarter of 2005. Total debt outstanding
was $91.0 million as of September 30, 2006 compared with $25.0 million
in the comparable quarter of 2005.
Total operating expenses, excluding interest expense and loan
fees, were $2.9 million, compared with $1.9 million in the third
quarter of 2005. The increase was primarily due to additional
headcount and higher expenses related to being a public company,
including expenses related to the implementation of the requirements
under the Sarbanes-Oxley Act. In addition, the Company incurred
approximately $160,000 of expenses related to a loan work out.
Net investment income before provision for income taxes for the
third quarter was approximately $3.1 million, compared with
approximately $885,000 in the third quarter of 2005, an increase of
approximately 252%. Net investment income before provision for income
taxes on a basic per share basis during the third quarter of 2006 was
$0.23 per share, based on 13.7 million weighted average basic shares
outstanding, compared with $0.09 per share in the comparable quarter
of 2005, based on 9.8 million weighted average basic shares
outstanding.
During the third quarter of 2006, the Company recognized a
realized loss of approximately $2.5 million due to the asset
disposition of one portfolio company.
Net income during the third quarter of 2006 of $1.6 million was
unchanged when compared with the third quarter of 2005. Basic net
income was $0.12 per share, based on 13.7 million weighted average
basic shares outstanding, as compared with net income of $0.16 per
share in the comparable quarter of 2005, based on 9.8 million weighted
average basic shares outstanding.
Taxable income was approximately $1.3 million during the third
quarter reflecting the realized loss discussed above and as adjusted
for the effects of deferred revenue, timing differences for book and
tax, the current quarter tax credit and the impact of FAS 123R
expense. Basic taxable income was estimated to be $0.09 per share,
based on 13.7 million weighted average basic shares outstanding.
Liquidity and Capital Resources
At September 30, 2006, net assets were approximately $151.3
million, with a net asset value per share of $11.06.
As of September 30, 2006, Hercules had $91.0 million outstanding
under its $125.0 million Citigroup credit facility of which $34.0
million is available, subject to existing terms and advance rates.
The Company ended the third quarter with $7.1 million in cash and
cash equivalents.
On September 27, 2006, Hercules secured a license from the United
States Small Business Administration (the "SBA") to operate as a Small
Business Investment Company ("SBIC") with the opportunity to access
$124.4 million in future financing from the federal government. The
license will provide an additional source of capital as the Company
continues to fund new investments to venture capital and private
equity backed technology and life science companies. The Company is
currently submitting its first application to draw leverage under the
program, subject to review by the SBA.
Portfolio Asset Quality
We use the following investment grading system for our entire
portfolio of debt investments:
Grade 1 Loans involve the least amount of risk in our portfolio.
The borrower is performing above expectations, and the
trends and risk profile is generally favorable.
Grade 2 The borrower is performing as expected and the risk
profile is neutral to favorable. All new loans are
initially graded 2.
Grade 3 The borrower may be performing below expectations, and the
loan's risk has increased materially since origination.
We increase procedures to monitor a borrower that may have
limited amounts of cash remaining on the balance sheet, is
approaching its next equity capital raise within the next
three to six months, or if the estimated fair value of the
enterprise may be lower than when the loan was originated.
We will generally lower the loan grade to a level 3 even
if the company is performing in accordance to plan as it
approaches the need to raise additional cash to fund its
operations. Once the borrower closes its new equity
capital raise, we may increase the loan grade back to
grade 2.
Grade 4 The borrower is performing materially below expectations,
and the loan risk has substantially increased since
origination. Loans graded 4 may experience some partial
loss or full return of principal but are expected to
realize some loss of interest which is not anticipated to
be repaid in full, which, to the extent not already
reflected, may require the fair value of the loan to be
reduced to the amount we anticipate will be recovered.
Grade 4 investments are closely being monitored.
Grade 5 The borrower is in workout, materially performing below
expectations and significant risk of principal loss is
probable. Loans graded 5 will experience some partial
principal loss or full loss of remaining principal
outstanding is expected. Grade 5 loans will require the
fair value of the loans be reduced to the amount we
anticipate, if any, will be recovered.
At September 30, 2006, grading of the debt portfolio, excluding
warrants and equity investments, was as follows:
Grade 1 Investments totaled approximately $10.5 million or 4.8% of
the total portfolio
Grade 2 Investments totaled approximately $174.4 million or 79.3%
of the total portfolio
Grade 3 Investments totaled approximately $24.6 million or 11.1%
of the total portfolio
Grade 4 Investments totaled approximately $10.5 million or 4.8% of
the total portfolio
Grade 5 Investments totaled approximately $0.0 million or 0.0% of
the total portfolio
At September 30, 2006, the weighted average loan grade of
Hercules' loan portfolio based on Management's assessment was 2.17 on
a scale of 1 to 5, with 1 being the highest quality, compared with
2.21 as of June 30, 2006. Hercules policy is to adjust the grading on
its portfolio companies as they approach the point in time when they
will require additional equity capital. Various companies in the
portfolio will require additional funding in the near term and have
therefore been downgraded until the funding is complete.
Hercules' portfolio diversification at fair value as of September
30, 2006 within the technology and life sciences industries was
approximately as follows:
-- 35% in biopharmaceutical companies
-- 17% in software companies
-- 10% in consumer and business product companies
-- 10% in electronics and computer hardware
-- 9% in medical device and equipment companies
-- 8% in communications and networking companies
-- 6% in Internet companies
-- 4% in semiconductor companies
-- 1% in energy companies
Subsequent Events
The Board of Directors declared a third quarter dividend of $0.30
per share. The dividend will be payable on December 1, 2006 to
shareholders of record as of November 6, 2006. The ex-dividend date is
November 2, 2006. This was the Company's fifth consecutive dividend
declaration since its initial public offering, and brings the total
cumulative dividend declared to date to $1.225 per share.
Additionally, on October 20, 2006, Hercules completed the sale of
2.5 million shares of the Company's common stock resulting in gross
proceeds of approximately $32.5 million and estimated net proceeds of
approximately $31.0 million after underwriter's discount and expenses.
The Company plans to use the proceeds of the offering to invest in
debt and equity securities, reduce its borrowings and for other
general corporate purposes.
Conference Call
Hercules will host its third quarter 2006 results conference call
today, October 26, 2006 at 2:00 PM PDT / 5:00 PM EDT.
To listen to the call, please dial (888) 694-4702 or (973)
582-2741 approximately 10 minutes prior to the start of the call. The
passcode for the call is 8012973. A taped replay will be made
available approximately two hours after the conclusion of the call and
will remain available for one week. To access the replay, please dial
(877) 519-4471 or (973) 341-3080 and enter passcode 8012973.
The Hercules financial results conference call will be available
via a live webcast on the investor relations section of the Hercules
website at http://www.HerculesTech.com. Access the web site 15 minutes
prior to the start of the call to download and install any necessary
audio software. An archived webcast replay will be available on the
website for 12 months.
About Hercules Technology Growth Capital, Inc.:
Founded in December 2003, Hercules Technology Growth Capital, Inc.
is a NASDAQ traded specialty finance company providing debt and equity
growth capital to technology-related companies at all stages of
development. The Company primarily finances privately-held companies
backed by leading venture capital and private equity firms and also
may finance certain publicly-traded companies. Hercules' strategy is
to evaluate and invest in a broad range of ventures active in
technology and life science industries and to offer a full suite of
growth capital products up and down the capital structure to
prospective clients ranging from early-stage growth to expansion stage
companies. The Company's investments are originated through its
principal office located in Silicon Valley, as well as additional
offices in the Boston, Boulder and Chicago areas. Providing capital to
publicly-traded or privately-held companies backed by leading venture
capital and private equity firms involves a high degree of credit risk
and may result in potential losses of capital.
For more information, please visit www.HerculesTech.com, or
www.HTGC.com. Companies interested in learning more about financing
opportunities should contact info@HTGC.com, or call (650) 289-3060.
Forward-Looking Statements:
The statements contained in this release that are not purely
historical are forward-looking statements. These forward-looking
statements are not guarantees of future performance and are subject to
uncertainties and other factors that could cause actual results to
differ materially from those expressed in the forward-looking
statements including, without limitation, the risks, uncertainties and
other factors we identify from time to time in our filings with the
Securities and Exchange Commission. Although we believe that the
assumptions on which these forward-looking statements are reasonable,
any of those assumptions could prove to be inaccurate and, as a
result, the forward-looking statements based on those assumptions also
could be incorrect. You should not place undue reliance on these
forward-looking statements. The forward-looking statements contained
in this release are made as of the date hereof, and Hercules assumes
no obligation to update the forward-looking statements for subsequent
events.
HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(unaudited)
September 30, December 31,
2006 2005
Assets (unaudited)
------------- -------------
Investments, at value
Non-affiliate investments (cost of
$230,371,469 and $176,004,865,
respectively) $234,259,608 $176,673,226
Affiliate investments (cost of $3,218,204
and $0, respectively) 3,214,704 -
------------- -------------
Total investments (cost of $233,589,673
and $176,004,865, respectively) 237,474,312 176,673,226
Deferred loan origination revenue (3,567,304) (2,729,982)
Cash and cash equivalents 7,127,982 15,362,447
Interest receivable 2,216,976 1,479,375
Prepaid expenses 762,740 1,310,594
Deferred Tax Asset - 1,454,000
Property and equipment, net 360,050 77,673
Other assets 1,280,182 20,546
------------- -------------
Total assets 245,654,938 193,647,879
Liabilities
Accounts payable 377,962 150,081
Income tax payable - 1,709,000
Accrued liabilities 2,982,156 1,436,468
Short-term loan payable 91,000,000 76,000,000
------------- -------------
Total liabilities 94,360,118 79,295,549
------------- -------------
Net assets $151,294,820 $114,352,330
============= =============
Net assets consist of:
Par value $13,676 $9,802
Paid-in capital in excess of par value 154,124,549 114,524,833
Distributable earnings (accumulated
deficit) (2,843,405) (182,305)
------------- -------------
Total net assets $151,294,820 $114,352,330
============= =============
Shares of common stock outstanding ($0.001
par value, 30,000,000 authorized) 13,676,318 9,801,965
============= =============
Net asset value per share $11.06 $11.67
============= =============
HERCULES TECHNOLOGY GROWTH CAPITAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------
2006 2005 2006 2005
----------- ----------- ------------ -----------
Investment income:
Interest
Non-affiliate
investments (less
than 5% owned) $6,611,239 $3,419,119 $18,421,609 $5,815,004
Affiliate
investments (5%
to 25% owned) 86,052 - 86,052 -
----------- ----------- ------------ -----------
Total interest
income 6,697,291 3,419,119 18,507,661 5,815,004
Fees 846,741 240,879 2,311,415 511,791
----------- ----------- ------------ -----------
Total investment
income 7,544,032 3,659,998 20,819,076 6,326,795
Operating expenses:
Interest 1,420,140 585,773 4,455,015 1,030,217
Loan fees 149,677 253,333 687,158 686,666
Compensation and
benefits 1,244,993 987,096 3,577,312 2,351,924
General and
administrative 1,435,767 833,962 4,201,730 1,479,381
Stock-based
compensation 175,600 115,000 428,600 195,000
----------- ----------- ------------ -----------
Total operating
expenses 4,426,177 2,775,164 13,349,815 5,743,188
Net investment income
(loss) before
provision for income
tax and investment
gains and losses 3,117,855 884,834 7,469,261 583,607
Income tax (benefit)
expense (344,389) - 644,348 -
----------- ----------- ------------ -----------
Net investment income
(loss) 3,462,244 884,834 6,824,913 583,607
Net realized and
unrealized gain
(loss) (1,889,605) 677,090 619,091 1,720,482
----------- ----------- ------------ -----------
Net increase in net
assets resulting from
operations $1,572,639 $1,561,924 $7,444,004 $2,304,089
=========== =========== ============ ===========
Net investment income
(loss) before
provision for income
tax and investment
gains and losses:
Basic $0.23 $0.09 $0.61 $0.10
=========== =========== ============ ===========
Diluted $0.23 $0.09 $0.61 $0.10
=========== =========== ============ ===========
Change in net assets
per common share:
Basic $0.12 $0.16 $0.61 $0.39
=========== =========== ============ ===========
Diluted $0.11 $0.16 $0.61 $0.38
=========== =========== ============ ===========
Weighted average
shares outstanding
Basic 13,660,604 9,802,000 12,157,953 5,975,000
=========== =========== ============ ===========
Diluted 13,779,192 9,917,000 12,276,541 6,084,000
=========== =========== ============ ===========
CONTACT: Hercules Technology Growth Capital, Inc.
Main, 650-289-3060
info@herculestech.com
David Lund, 650-289-3077
dlund@herculestech.com