Summary of Hercules Capital Q2 2026 Earnings Call

1Key Financial Results and Metrics

Total Investment Income: $149.1 million, up 5.4% quarter-over-quarter and 8.5% year-over-year.

Net Investment Income (NII): $92.9 million ($0.50 per share), a 5.5% increase quarter-over-quarter and 4.7% year-over-year, covering base distribution by 125%.

Record Originations: $2.74 billion for the first half of 2026, a 35.6% increase year-over-year.

Gross Fundings: $1.35 billion, up 8.5% year-over-year.

Net Asset Value (NAV): Increased by $0.25 to $12.15 per share, reflecting a 2.1% quarter-over-quarter increase.

Weighted Average Internal Credit Rating: Slight increase to 2.17 from 2.11 in Q1.

Prepayment Activity: $572.1 million, with expectations for Q3 to normalize between $200 million and $300 million.

2Strategic Updates and Business Highlights

Continued focus on disciplined underwriting, maintaining a strong balance sheet, and proactive credit management.

Portfolio remains diversified with approximately 50% in life sciences and 50% in technology, with no single sub-sector exceeding 25%.

Strong liquidity position with $652.9 million available in the BDC and over $1 billion across the Hercules platform.

Hercules Adviser, managing nearly $2 billion in private funds, contributed $7 million to NII in Q2.

Investment in technology and AI governance to enhance operational efficiency and maintain data security.

3Forward Guidance and Outlook

Anticipated core yields for Q3 expected to be in the range of 11.8%-12%.

Q3 originations expected to be seasonally lower, consistent with historical trends, but still robust.

Strong pipeline with $149.3 million in new commitments and $112.5 million funded as of July 27, 2026.

Continued confidence in M&A activity and capital raising within the portfolio, with expectations for sustained investment opportunities.

4Bad News, Challenges, or Points of Concern

Increase in Grade 3 credits to 32.7% from 28.6% in Q1, indicating some deterioration in credit quality.

Competition from banks and non-bank lenders has intensified, with aggressive deal structures noted, which may pressure margins.

Concerns about the sustainability of high capital raising levels in the venture space as market conditions evolve.

Potential for increased volatility in M&A valuations and timing, which could impact exit activity.

5Notable Q&A Insights

Management acknowledged a seasonal slowdown in Q3 but expressed confidence in robust origination activity.

Prepayments were largely driven by M&A and equity capital raises, indicating strong borrower liquidity.

The competitive landscape is shifting, with banks being aggressive in lending, but management remains focused on quality underwriting.

The company is cautious about AI deployment, ensuring proprietary data remains secure while leveraging technology for operational efficiency. Overall, Hercules Capital reported a strong Q2 2026, marked by record financial metrics and a solid outlook, despite facing increased competition and some credit quality concerns.