An archived webcast replay will be available on the Investor Relations webpage for at least thirty days following the conference call. During this call, we may make forward-looking statements based on our own assumptions and current expectations. These forward-looking statements are not guarantees of future performance and should not be relied upon in making any investment decision. Actual financial results may differ from the forward-looking statements made during this call for a number of reasons, including but not limited to the risks identified in our annual report on Form 10-K and other filings that are publicly available on the SEC's website. Any forward-looking statements made during this call are made only as of today's date, and Hercules Capital, Inc. assumes no obligation to update any such statements in the future. And with that, I'll turn the call over to Scott.

Thank you, Michael. Thank you all for joining the Hercules Capital, Inc. Q4 and full year 2024 earnings call. 2024 was another year of record operating performance and solid controlled growth for Hercules Capital, Inc. We were able to set several new financial and performance records and demonstrate strong platform growth while managing the business and balance sheet conservatively. Our performance in 2024 was highlighted by a record total investment income, record net investment income, and record total gross fundings, all of which put us in position to once again declare a new supplemental distribution program for our shareholders. Driven by the growth of both the BDC and our private credit funds business, Hercules Capital, Inc. is now managing an increase of more than 14% from where we were at year-end 2023. Hercules Capital, Inc. achieved a significant milestone in 2024 as we celebrated twenty years of investment activity, with our investment platform reaching and surpassing the $20 billion mark in cumulative debt commitments since inception. This achievement underscores our commitment to serving the capital needs of the venture and growth stage ecosystems. Our success since inception has been made possible by the tremendous work and dedication of our talented employees and the trust that our borrowers and their investors have placed with us. Our unwavering commitment to venture and growth stage companies and our continuous focus on always doing what we believe is in the best interest of our shareholders and stakeholders has served us incredibly well for the last twenty years and will help guide us going forward. Let me recap some of the highlights and achievements for 2024. Record full year 2024 total gross fundings of $1.81 billion, an increase of 13% year over year. Record full year 2024 total investment income of $493.6 million, an increase of 717.1% year over year. Record full year 2024 net investment income of $325.8 million, an increase of 7.2% year over year. Annual ROAE of 17.2% and ROAA of 7.3%. Strong net debt portfolio growth of $457 million, which excludes the portfolio growth of our private funds business. Total platform AUM of approximately $4.8 billion, an increase of more than 14% year over year. Consistent and growing quarterly dividends from our RIA, which generated $6.8 million in dividend income for the company in 2024. Received SBA approval for our fourth SBIC license, and we now manage two active SBA funds. Reaffirmed investment-grade ratings from our four ratings agencies: Fitch, KBRA, Moody's, and Morningstar DBRS. And five consecutive years of delivering supplemental distributions to our shareholders. As we enter 2025, we continue to expect higher than normal market and macro volatility given the change in administration and the ongoing changes taking place in the global geopolitical environment. At the same time, we anticipate a more favorable new business landscape, particularly for certain growth stage companies and sectors. Our expectation is that we will see more M&A, more capital markets activity, and more support for technology-oriented businesses in 2025. And we are already seeing this come to fruition in Q1. We intend to continue to manage our business and balance sheet defensively while maintaining maximum flexibility to take advantage of market opportunities. This includes continuing to enhance our liquidity position, further tightening our credit screens for new underwritings, and maintaining our higher than normal first lien exposure, which was at 91% in Q4 compared to 89.5% in Q3. With GAAP leverage under 90%, over $1.1 billion of liquidity across the platform, and no material near-term debt maturities, we believe that we are incredibly well-positioned to benefit from a more favorable originations market in 2025, and that this will be a key differentiator of our business this year. Q4 is seasonally one of the stronger quarters in terms of equity capital investments and overall market activity across the venture and growth stage ecosystem, and this year was no different. The venture and growth stage markets finished strong with respect to venture capital investment activity and venture capital M&A exit activity. This strength was reflected in our total debt and equity commitments as well as our fundings in the fourth quarter.

Let me now recap some of the key highlights of our performance for Q4.

In Q4, we originated total gross debt and equity commitments of over $619 million and gross fundings of over $468 million. For the year, we committed nearly $2.7 billion of capital and delivered record funding performance of approximately $1.81 billion. As a result, we generated total investment income of $121.8 million and net investment income of $81.1 million, or $0.49 per share. We were able to achieve 123% coverage of our quarterly base distribution of $0.40 per share, despite ending the quarter with very conservative GAAP leverage of 89.6%. We expect to slowly bring leverage up throughout 2025, which we believe will help partially offset further potential declines in base rates and some of the spread compression that we have seen over the last several quarters on new originations. Having an abundance of available liquidity to drive net debt portfolio growth near term while utilizing lower than normal leverage provides us with a distinct competitive advantage in this regard. This is our seventh consecutive quarter of over $100 million of quarterly core income, excluding the benefit of prepayment fees or fee accelerations from early repayments. This puts us in a very solid position to be able to continue to comfortably cover our quarterly base distribution in the current rate environment. We generated a return on equity in Q4 of 17%, and our portfolio generated a GAAP effective yield of 13.7% in Q4 and a core yield of 12.9%. Core yields declined from 13.3% in Q3, largely coming from declining base rates and some spread compression on new originations. As of the end of the year, approximately 50% of our portfolio has already reached the contractual floor on rates. Our balance sheet with conservative leverage and low cost of leverage remains very well-positioned to support our continued growth objectives and provides us with the ability to continue to focus on quality originations instead of chasing higher-yielding assets, which we believe have more risk. The focus of our origination efforts in Q4 was on maintaining a disciplined approach to capital deployment with an emphasis on diversification. Our Q4 originations activity was driven by both our technology and life sciences teams. In Q4, approximately 67% of our fundings were to technology companies, while approximately 42% of our new commitments were to life sciences companies. We funded debt capital to thirty different companies in Q4, of which nine were new borrower relationships. For the year, we funded capital to seventy-two different companies, of which thirty-two were new borrower relationships. This is reflective of our balanced approach during the quarter to focus on select high-quality new originations and prioritize capital deployment within the portfolio where we know the credit quality and performance history of the underlying borrowers. We also increased our capital commitment to several portfolio companies during the quarter, which speaks to our unique ability to scale alongside our borrowers as they grow their businesses. Our available unfunded commitments decreased to approximately $448.5 million from $489 million in Q3. The momentum that we saw on originations in Q4 has continued and accelerated in Q1. Since the close of Q4, and as of February 10, 2025, our deal teams have closed $250.2 million of new commitments and funded $201.3 million. We have pending commitments of an additional $578.5 million in signed nonbinding term sheets, and we expect this number to continue to grow as we progress in Q1. Given the market backdrop throughout much of 2024, we are pleased with the exit activity that we saw in our portfolio during the year. In Q4, we had four M&A events in our portfolio, which included one life sciences portfolio company and three technology portfolio companies announcing acquisitions. For the year, we had thirteen portfolio companies announce or complete an M&A event, so our exit activity remained healthy in 2024. Post year-end, we had one portfolio company confidentially file for an IPO. Early loan repayments decreased slightly in Q4 to approximately $225 million, which was within our guidance of $150 million to $250 million. Approximately 40% of our Q4 prepayments were attributable to M&A events or equity capital events, which we view as a positive signal overall. For Q1 2025, we expect prepayments to be in the range of $100 million to $200 million, although this could change as we progress in the quarter. Credit quality of the debt investment portfolio remains stable quarter over quarter. Our weighted average internal credit rating of 2.26 increased slightly from the 2.24 rating in Q3 and remains at the lower end of our normal historical range. Our grade one and two credits increased slightly to 65.9% compared to 65.2% in Q3. Grade three credits decreased modestly to 29% in Q4 versus 31.9% in Q3. Our rated four credits increased to 4.6% from 2.3% in Q3, and our rated five credits decreased to 0.5% in Q4. The number of loans and companies on nonaccrual decreased by one. We had one debt investment on nonaccrual with an investment cost and fair value of approximately $61.3 million and $18.2 million, respectively, or 1.7% and 0.5% as a percentage of our total investment portfolio at cost and fair value, respectively. With respect to our broader credit book and outlook, we generally remain pleased by what we are seeing on a portfolio level, and our portfolio monitoring remains enhanced. We have noted a noticeable shift in how certain venture capital investors are approaching the current market for new investments, with much more of a focus and emphasis on valuation and less of an emphasis on capital deployment broadly. This is something that we are watching closely, as companies that raised equity capital over the last twenty-four to thirty-six months at arguably inflated valuations may struggle to raise new money from new investors in the current market. This will likely test current syndicates in terms of their ability and willingness to continue to support their own existing portfolio companies. During Q4 2024, Hercules had net realized losses of $33.5 million, comprised of gross realized gains of $21.9 million primarily due to the gain on equity investments, offset by $55.4 million of losses. The losses were due to $53.9 million from the write-off of two debt investments, $1.3 million from losses on equity and warrant investments, and $0.2 million from realized losses on debt extinguishment. $41.9 million out of the $53.9 million was already recognized as an unrealized loss in 2023 and therefore did not have any impact on net asset value. Our net asset value per share in Q4 was $11.66, an increase of 2.3% from Q3 2024. We ended Q4 with strong liquidity of $658.8 million in the BDC and over $1.1 billion of liquidity across the platform. Our balance sheet with healthy liquidity, a low cost of debt relative to our peers, and four investment-grade credit ratings continues to position us well and afford us the ability to compete aggressively on quality transactions. As discussed earlier, we saw a significant improvement in the venture capital ecosystem during Q4. Venture capital investment activity of $209 billion for 2024 increased 29% from 2023, according to data gathered by PitchBook NVCA. In Q4, venture capital investment activity was $74.6 billion, rebounding from the lower levels that we saw in Q3 and discussed on last quarter's call. Fundraising activity finished 2024 at $76.1 billion. M&A exit activity for US venture capital-backed companies finished at $82.6 billion, an increase of 27% from 2023. IPO activity remained muted, with fewer companies going public but raising more dollars. We believe that the ecosystem will remain healthy and that the recent numbers reflect a continued reversion back to the historical pre-COVID norm. Consistent with the aggregate data for the ecosystem during Q4, capital raising across our portfolio increased from Q3, with eighteen companies raising approximately $961 million in new capital from $704 million raised in the prior quarter. For the year, we had sixty-six portfolio companies raise over $6 billion of new capital, which was higher than the amount of equity capital and the number of portfolio companies raising new capital in 2023. Quarter to date in Q1, our portfolio companies have already raised over $1.2 billion of new capital, which speaks to some of the overall market momentum that we are seeing. Given our strong operating performance in 2024, we exited Q4 with undistributed earnings spillover increasing to over $163 million, or $0.96 per ending shares outstanding. For Q4, we are maintaining our quarterly base distribution of $0.40, and we declared a new supplemental distribution of $0.28 for 2025, which will be distributed equally over the next four quarters, or $0.07 per share per quarter for a total of $0.47 of shareholder distributions each quarter. This is our fifth consecutive year of being able to provide our shareholders with a supplemental distribution on top of our regular quarterly base distribution. In closing, our scale institutionalized lending platform and our ability to capitalize on a rapidly changing competitive and macro environment continues to drive our business forward and our operating performance to record levels. In Q4, Hercules delivered its seventh consecutive quarter of over $100 million of quarterly core income, which again excludes the benefit of prepayment fees or fee accelerations from early prepayments. Our continued success is attributable to the tremendous dedication, efforts, and capabilities of our one hundred plus employees and the trust that our venture capital and private equity partners place with us every day. We are thankful to the many companies, management teams, and investors that continue to make Hercules their partner of choice. I will now turn the call over to Seth.

Thank you, Scott, and good afternoon, ladies and gentlemen. As Scott mentioned, the fourth quarter capped off our twenty-year anniversary with a number of records for Hercules Capital, Inc. In addition to record funding activity in 2024, Hercules broke quarterly and annual records in many dimensions, including total investment income and net investment income, all while managing the balance sheet conservatively with low leverage and strong liquidity. 2024 was another year of validating the benefits of operating at scale by growing our platform AUM by approximately 14% to approximately $4.8 billion, while our non-interest operating expenses grew less than 5% year over year. Our return on average equity ended the year at 17%, and our Q4 net investment income provided a 123% coverage of our base dividend despite the 100 basis points of prime rate reduction in the second half of 2024, putting us in a very strong position heading into 2025. During 2024, our weighted average cost of debt was approximately 5%, and the leverage remained conservatively low, putting us in a position to be able to take advantage of what we expect to be a more favorable new business environment in 2025. During the year, we added a new SBIC license, providing us with $175 million of favorably priced debt. In addition, we upsized and renewed our $300 million credit facility led by SMBC, and subsequent to year-end, we extended our $175 million letter of credit facility with SMBC by two years, now available until February 2028, to cover a good portion of our available unfunded commitment in a more cost-effective manner. In 2024, we continued to supplement liquidity by raising net of fees approximately $218 million throughout the year via our ATM program. We ended the year with approximately $660 million in available liquidity in the BDC. Inclusive of the RIA managed private funds, available liquidity was over $1.1 billion for the entire platform. With all this in mind, let's review income statement performance and highlights, NAV, unrealized and realized activity, leverage and liquidity, and finally, the financial outlook. Turning first to the income statement performance and highlights. Total investment income in Q4 was $121.8 million, driven primarily by our growth throughout the year in the debt portfolio. Core investment income, a non-GAAP measure, was a solid $114.5 million. Core investment income excludes the benefit of income recognized as a result of loan prepayment. Investment income decreased to $81.1 million or $0.49 per share in Q4. Our effective and core yields decreased modestly in the fourth quarter to 13.7% and 12.9%, respectively, compared to 14.4% and 13.3% in the prior quarter. The decline in the core yield during the quarter was largely driven by the Fed rate reduction of approximately 100 basis points in the last four months and our focus on first lien securities. As of year-end, approximately 50% of our loans are at the contractual floor after the recent rate reductions, and thus, the impact of any future rate reductions will be muted. Fourth-quarter gross operating expenses were $43.5 million compared to $44.3 million in the prior quarter. Net of costs recharged to the RIA, interest expense and fees decreased to $22.1 million from $22.4 million in the prior quarter due to lower utilization of the credit facilities as a result of the ATM and due to use of the SBIC facility. We have drawn down $104 million out of the $175 million available from the new SBIC facility in the fourth quarter. SG&A decreased to $21.4 million, just below my guidance. Net of cost recharged to the RIA, the SG&A expenses were $18.6 million. Our weighted average cost of debt decreased slightly to 5% quarter over quarter. ROAE or NII over average equity decreased to 17% for the fourth quarter, and our ROAA or NII over average total assets decreased to 8.9%. Switching to NAV and unrealized and realized activity. During the quarter, our NAV per share increased by $0.26 to $11.66 per share. This represents an NAV per share increase of 2.3% quarter over quarter. The main driver was accretion due to the use of the ATM. Our $13.8 million of net unrealized appreciation, net of the impact of foreign currency movements, was primarily attributable to $10.7 million of net unrealized depreciation on the debt investments and other investment-related payables, $2.6 million of net unrealized depreciation attributable to valuation movements on publicly traded equity and warrant investments, $2.2 million of net unrealized depreciation attributable to valuation movements in the privately held equity warrant and investment funds, $0.6 million of net unrealized depreciation attributable to net foreign exchange movements. In addition, Hercules recorded $25.5 million appreciation attributable to reversal of previous quarters' depreciation upon a realization event. Moving to leverage and liquidity, our GAAP and regulatory leverage decreased to 89.6% and 75.6%, respectively, compared to the prior quarter due to the utilization of the ATM in the quarter. Netting out leverage with cash on the balance sheet, our net GAAP and regulatory leverage was 83.9% and 69.9%, respectively. We ended the quarter with nearly $660 million of available liquidity. As a reminder, this excludes the capital raised by the funds managed by our wholly-owned RIA subsidiary. Inclusive of these amounts, the Hercules platform had more than $1.1 billion of available liquidity. The strong liquidity positions us well to support our existing portfolio companies and source new opportunities. Finally, on the outlook points, for the first quarter, we expect our core yield to be between 12.25% and 12.75%, excluding any future benchmark interest changes. And I would note that there are two fewer days in Q1 2025 compared to Q4 2024, which will reduce the interest revenue accordingly. As a reminder, more than 97% of our debt portfolio is floating with a floor, and presently approximately 50% of our prime-based portfolio is at its contractual floor. Although very difficult to predict, as communicated by Scott, we expect $100 million to $200 million in prepayment activity in the first quarter. We expect our first-quarter interest expense to remain flat compared to the prior quarter. For the first quarter, we expect gross SG&A expenses of approximately $23.5 to $24.5 million and an RIA expense allocation of approximately $2.8 million. As a reminder, the first quarter always has higher payroll taxes and benefit expenses. Finally, we expect a quarterly dividend from the RIA of approximately $1.8 to $2 million. This will reoccur quarterly throughout the year, which is another increase to my prior guidance. In closing, our balance sheet remains strong to support our existing portfolio as well as to be used opportunistically to invest in the best opportunities. I will now turn the call over to the operator to begin the Q&A portion of our call. Carmen, over to you.

Thank you so much, Seth. And as a reminder, to ask a question, simply press star one one on your telephone and wait for your name to be announced. To remove yourself, simply press star one one again. Our first question is from the line of Brian McKenna with Citizens JMP. Please proceed.

Thanks. Good evening, everyone. It was great to see another record year of origination activity. You know, two years in a row now, you've set records on this front. I know it's a little early here, but you know, based on the pipeline today and everything you could see across the business, you know, could 2025 end up being another record year? And I guess what I'm getting at, is it reasonable to expect another year of double-digit growth, you know, within the investment portfolio?

Sure. Thanks, Brian. I think the short answer is if credit quality is there, we're certainly hopeful that this will be another record year for us. I think we've proven over the years that we're not going to chase the market and just book deals for the sake of showing growth. Right now, we're off to a great start. I provided some color in terms of our closed commitments quarter to date, which are $250 million and an additional $578 million of signed pending commitments. That puts us arguably off to the best start we've had in the last five years in terms of early Q1 activity. We're very optimistic about the new business environment for 2025. And if the credit quality is there to support it, our balance sheet is incredibly well-positioned to allow us to take advantage of it, and the result of that could be yet another record year for us on the new business front.

Okay. Great. That's helpful. And then on the RIA, you know, I believe you're going to be in the market fundraising to your next fund this year. Can you talk about the potential size of this, how quick you think you can raise this capital, and ultimately, you know, how long it takes to get that capital invested? And then just as this AUM, you know, begins to, you know, earn fees, etcetera, you know, how should we think about the earnings attribution to HTGC, you know, from the RIA in 2025 and really longer term as well?

Yeah. Thanks, Brian. The private credit fund business continues to be a really exciting and growing part of the overall Hercules platform. We have publicly disclosed that we currently are managing three distinct institutional private credit funds. We don't have any disclosure to make on this call in terms of the next fund, but as we've sort of consistently said, we would expect to be in the market at some point over the next year or so trying to raise an additional fund given how well those first three funds have performed and how aggressively we've been able to deploy capital. We'll obviously make some public disclosure when it's appropriate to do so in terms of how that's going. I think pretty consistent in terms of how we've approached the market historically, our goal is never to raise as much money as we can and invest it as quickly as possible. Our goal has always been, whether it's in the BDC or in the private fund business, to raise enough capital that allows us to appropriately go after quality credits in the market without being forced into a position where we have to deploy capital just for the sake of overall capital. So we're going to continue to manage both the BDC and the private fund business with more of a controlled managed growth mentality, but I would expect for our investors, shareholders, and stakeholders to see growth in both the BDC and continued growth in the private fund business in 2025. With respect to the earnings power generated from the private funds business, I'll have Seth address that.

Yeah. Just in my guidance, we continue to update the dividend expectations coming out of the RIA, and that's reflective of that earnings growth that's occurring off the funds. I wouldn't expect it to be beyond what I guided as a quarterly distribution for the current year. And the timing of when we launch the next fund and close it would certainly change that, but I wouldn't foresee that impacting 2025.

Thank you. One moment for our next question, please. It comes from the line of Crispin Love with Piper Sandler. Please proceed.

Thank you. Good afternoon. On credit quality, just one non-accrual now, but you had $54 million in realized losses from a couple of debt investments and a pickup in the grade four bucket. So can you detail what drove both of those, which companies, and your views on credit going forward? And also, how much of the $54 million was in unrealized previously?

So as Scott guided, the amount that was in the $54 million was approximately $43 million of that, and that was related to the convoy realization event. Scott, do you want to cover the other dimensions of that?

Yeah. Sure. Crispin, there were the $53.9 million, about $42 million of that was already in unrealized, so very little impact in terms of net asset value. The single largest driver of the realized loss was just a crystallization in the completion of our convoy workouts. That was an investment that went on non-accrual in 2023. We began our workout efforts in the second half of 2023. The workout efforts culminated in Q4 this year, so we just crystallized that unrealized into a realized position. The only other realized loss of substance was one debt investment to a public biotech company that ended up filing bankruptcy. We worked together with the investors. That company was liquidated. We had a pretty substantial recovery on the debt position, but there was a small realized loss on that investment as well. So those were the two biggest drivers in terms of the realized loss activity. And again, $41.9 million out of the $53.9 million had already been recognized as an unrealized loss in 2023. In terms of overall credit as it relates to grade four, you are correct. There was a small movement in the rated four bucket. In Q3, 2.3% of the portfolio was in grade four credits. In Q4, $159.4 million, so about 4.6%. Still below our norm. We generally want to see grade fours at 5% or below. So at 4.6%, we're certainly closer to the high end of that, but still below the average that we've typically seen. And the biggest change in that was three credits that were having trouble fundraising. We proactively moved those credits down from grade three to grade four in the quarter. Our teams are actively working with each of those three credits, and we would expect to have a more substantive update over the next ninety days that we can speak to on our Q1 call. Outside of that, when you look at the portfolio as a whole, pretty pleased by what we're seeing. Weighted average credit rating of 2.26, so no real change from the 2.24 that we saw in Q3. The one caveat that I would make is the comment that I made in my prepared remarks is that we have seen certain syndicates essentially struggling with raising new capital with high valuations. And so companies that raised money in 2022 and 2023 at relatively high valuations, they're approaching the market right now for new investors to come in, they're getting substantial pushback, and we've seen that from not just our portfolio, but really across the ecosystem. That's something that we're watching pretty closely. We want to see how that plays out. But nothing material that we see right now in our portfolio outside of what I just said.

Great, Scott. Thank you for that. All very helpful. In recent quarters, you've talked about healthier companies waiting for rates to come down to add debt capital, and you've definitely had a significant pickup in fundings in the fourth quarter. Do you think that was driven by companies waiting post-election efforts slowdown leading into the election? Or are there any other callouts in key drivers of the activities in the fourth quarter, and was that activity back-end loaded?

Yeah. I think the two biggest drivers were just the election and Fed rate uncertainty that we saw in the Q3, Q4 time period. When we did our Q3 call, we spoke about just overall caution across the ecosystem. We saw that in our Q3 funding numbers, but we did guide to an expected uplift post-Fed action and post-election outcome, and that's exactly what we saw. I think once the uncertainty of the election was lifted, once it became clear what the Fed was going to do in both September and again in December, we've just seen a lot of momentum on the new business side, and we really don't expect that to slow down. I think the other thing that's been a tailwind is the fact that, you know, base rates are now down roughly a hundred basis points over the last two quarters. And so I think a lot of companies are looking to take advantage of that. You're also seeing, I think, companies now sort of come to the recognition that we're likely to stay in the current rate environment for the foreseeable future, and the notion that there will be numerous additional cuts in 2025 is becoming increasingly less likely. So I think companies are just looking at it and saying if we're going to do something, let's do it now. Let's not continue to wait for rates to come down because they frankly may not come down much further.

Great. Thank you. Makes sense. I appreciate you taking my questions.

Thank you. Our next question comes from the line of Finian O'Shea with Wells Fargo Securities. Please proceed.

Hey, everyone. Good afternoon. I wanted to move over to the core yields, about twelve and a half guidance. First, can you remind us that's a global portfolio number? And if so, what's the sort of new money core yields you're deploying at today? And then what does that imply that they will be at the end of the year with your deployment assumptions? Thank you.

Thanks, Fin. So, yeah, the guidance was 12.25% to 12.75% for Q1. That is a global number. That would be our average core yield over the entire portfolio. And, Scott, you want to take the second part?

Yeah. Sure. So, you know, Fin, if you look at Q3, 13.3% core yield across the totality of the portfolio. In Q4, 12.9%. The Fed rate cut in Q3 was at the very end of the quarter, so virtually no impact in Q3. The entire impact hit in Q4, which drove that 13.3% to 12.9%. We saw roughly the same thing happen in Q4 where the Fed rate action was towards the back end of the quarter, so very little impact on core yield in Q4. We expect that to flow through to Q1, which is why Seth gave the guidance that we currently gave. Right now, we're originating consistently in that 11.5% to 13% range. So right within our core yield target, our modeling for this year shows that we will be able to deploy up to our stated objectives by holding our core yield guidance in the range that Seth provided. So I think overall, we feel very confident that our core yields are going to stabilize in that 12% range, and based on everything that we're seeing right now in terms of capital deployment, we think that we can both hit our funding objectives and maintain that core yield target of being in the 12% range.

Okay. That's helpful. And sort of related but longer question, there's been a lower grind of the end of term fee embedded in the portfolio as it's grown. Obviously, the market has been, you know, all over the place in recent years as you know better than I. But seeing if this is a secular change in the nature of what you do, is it going up market, or are fees coming out of these structures, or should we anticipate a comeback in more meaningful end of term fees in your origination?

Sure. I think it's really a combination, Fin, of three things. Number one, we've been fairly conservative in our minds in originations over the last two or so years. We've gone significantly up in terms of first lien exposure. Our first lien exposure, if you look at it two years ago, was in the mid-seventies. Today, it's at 91%. We've gone upstream in terms of scale and sophistication, and overall maturity of the companies that we are lending to. Those two things generally come with slightly lower economics, and that's a trade that we've been willing to make because we think that's in the best interest of our shareholders and stakeholders long term. So that's number one. Number two, there is a tremendous amount of liquidity in the ecosystem, and a lot of larger asset managers are looking to deploy capital in every vertical. And so we have, over the last handful of years, seen large asset managers try to do deals in the growth stage part of the market that are just not typically structured or priced for how the market has historically worked. So those are lower economics, lower fees, so far or historically LIBOR-based rates versus prime rates. So we've obviously reacted to that to make sure that we defend market share. We don't think that's sustainable. We don't think that's long-lasting, and that will just take some time to work its way through the system. We are very confident that we're going to be able to maintain our core yield target for the year. And I think at the end of the day, when you look at how we manage the business, where we manage it to core yield, but we're actually solving for that effective yield, which includes the benefit of the acceleration and the prepays, we are consistently generating somewhere between a 13% and a 15% effective yield on this portfolio, including 13.7% in Q4, despite the fact that base rates have come down by a hundred basis points.

Very helpful. Thanks. And if I can do a bonus for you or perhaps Seth, there's a lot of unsecured in your debt stack that's going to start to roll. I think it already has. I think you paid one post-quarter, you mentioned, in the release. Should we expect this level of unsecured in the debt mix, or any color you'd provide us on how this might shape up? Well, hard to predict if there's any sort of directions you are leaning. Thank you.

Yeah. That's a good question, Fin. Thanks. Yeah. So we did pay off $50 million of a private placement unsecured on February 5th. In June, we have $120 million that matures. That's all for 2025. You're correct that over the next three years, we do have some others maturing more significant in 2026 and 2027. As far as the mix between secured and unsecured, it will stay more heavily weighted to the unsecured side. But we've always said that we would be opportunistic in the secured side should rates favor such a decision. We just will not go heavy in that market as we're no longer required to do that, meaning the industry itself as well as the size and the scale of the balance sheet of Hercules Capital, Inc. itself doesn't warrant necessitating dipping into that market too heavily. So the vast majority will be unsecured.

Thank you. Our next question comes from the line of John Hecht with Jefferies. Please proceed.

Afternoon, guys. Thanks very much for taking my questions. First one is, you know, I know from your you guys run a conservative balance sheet and so forth. But your leverage ratio now, you know, it's kind of I think it's below the midpoint of the target. I guess, what's your desire to increase leverage, especially, you know, that would be an offset to the decline in rates recently?

Yeah. I think, John, that's one of the distinct advantages that we have heading into 2025. You're seeing across the BDC space, across the private credit space, some yield compression, both with respect to base rates coming down and with respect to new onboarding yields on originations. Being under-levered with a lot of liquidity puts us in a distinct competitive advantage to be able to offset some of that by being a little bit more aggressive on leverage. And that's exactly what we intend to do. You are correct that right now when you look at our GAAP leverage at 89.6%, you look at our regulatory leverage of 75.6%. That is well below our historical norms and, frankly, below our targets. We've intentionally been conservative in terms of leverage because we think that by utilizing leverage more aggressively this year, we're going to be able to deploy capital aggressively, continue to take market share, and offset a good portion of that overall yield compression that we're seeing across the ecosystem.

Okay. And then a nonrelated follow-up is that obviously, people are thinking about the changes in administration, what that might mean to industry. Any thoughts on your side on what the kind of hot sub-sectors that you will maybe, you know, modify your approach to this year, whether it's, you know, increase or decrease allocation, just anything on that front of where you're focused from a technological perspective?

You know, John, great question. And our investment teams, both on the tech side and the life science side, have spent a lot of time thinking about that question. And, you know, frankly and to be honest, we have started some rotation into some sectors more aggressively and out of some sectors more aggressively. And, you know, certainly not going to telegraph to the market where we're being aggressive and where we're being more conservative, but we have absolutely started to react to what we expect the new administration to do in terms of both policy and rhetoric. I would say that overall, we are pretty bullish in terms of the general backdrop for 2025, particularly with respect to new originations. Arguably, we're looking at an environment that we think is going to be characterized by less regulation, more M&A activity, more capital markets activity, more investment in technology and technology-enabled solutions. So we think that there's a lot of positive overall momentum. The caveat is, I think a lot of this is going to come with just a lot of volatility, a lot of people waking up every morning to check their Twitter accounts to see what was said and what actually got done. So we are watching that sort of volatility very closely because that could have a real impact on credit. But with respect to the new business market, we're actually pretty bullish in terms of what this year should look like.

Thank you. One moment for our next question, please. It comes from the line of Christopher Nolan with Ladenburg Thalmann. Please proceed.

Hey, guys. Scott, on a follow-up to the last question on leverage, are you targeting leverage so your EPS is sufficient to cover the dividend plus the supplemental?

So, yeah, thanks, Chris, for the question. We're targeting leverage to make sure that we're giving a good return to our investors. At the moment, we've been keeping our powder dry in anticipation of being opportunistic. We'll continue to evaluate the market, but Scott's been very clear that we plan on driving leverage up as we see opportunities. Our leverage ceiling that we've communicated is 1.25, and we'll stay a fair distance away from that. Historically, no further north than 1.15. So we're a fair distance off of that, and we have a ways that we would go until then.

Yeah. And, Chris, I would just add on that point. When we're managing the business, our view is that the base dividend is sacrosanct. So when we're thinking about how we run the business and where we need to see NII, that $0.40 base distribution is something that we hold very near and dear to our hearts. The supplemental distribution is being paid out of that spillover, which as we noted is $163.6 million or $0.96 per share at the end of the quarter. So that just puts us in a really strong position to be able to make sure that we continue to cover comfortably that base distribution with NII irrespective of the rate environment and that we continue to do the right things to make sure we're returning as much of that spillover as we can to our shareholders, which ultimately we think is the right thing to do.

Great. Follow-up question. AFFE, given all the moving pieces going on with the new administration, are you getting any twings out there of possible reconsideration by the SEC for the AFFE rule?

So nothing directly from the SEC, but, you know, we participate in different groups in supporting them to the extent that legislation can be put forward to address that issue. At the moment, I know it feels like we're three months into the administration already, but at the moment, it has not been something that has been pushed forward yet, and we are waiting to see who would sponsor a bill this time. So, there's no progress to report at this time other than, yes, we remain interested in that topic.

Thank you. We have a question from the line of Paul Johnson with KBW. Please proceed.

Yeah. Good evening. Thank you for taking my questions. Scott, so when you reference a certain syndicate of companies that you're referring to with sensitivity to valuations here, just trace it. Maybe what exactly you're referencing here. Are we talking about certain VC investors in the markets that are becoming much more sensitive to companies that were raised at much higher valuations, or is this more like a cohort of companies that are essentially held by, you know, maybe a certain syndicate of VCs that are struggling to raise capital?

Yeah. No. I think it's a pretty broad-based comment, Paul. What we have seen over the last handful of quarters is that new investors looking at new investments are much more focused on valuation than we have seen over the last handful of years. So to the extent that you have a company that raised a large round of financing at what arguably now is an inflated valuation in 2021 or in 2022, and that company is coming to market looking for a new investor, the new investor, what we are seeing, not in every case, but certainly in some cases, is much more sensitive to that valuation discussion. And so that puts more pressure on that company's current existing syndicate to essentially fund the company on its own without new investor money coming in. And what we have started to see is that there is some stress in existing syndicates in terms of their ability and willingness to continue to fund some of those legacy companies. So it's something that we're watching closely. We've seen it take place in a small handful of situations, but it is something that we're watching, and we want to see how it plays out over the next several quarters.

Got it. Thank you. That's helpful. And then I was wondering maybe just a little bit more broadly on, you know, in terms of maybe getting an update on, you know, unfunded commitments, looks like they were pretty stable on the year. Looks like they also went down just a little bit quarter over.

Yeah. So overall, our unfunded commitments declined in the quarter. So unfunded commitments at the end of Q4, $448.5 million. That's down slightly from $489 million in Q3. That number, if you look at it over the last sort of several quarters, has been relatively consistent, although it is starting to trend down. We're not seeing any noticeable trends in terms of companies choosing to draw or not draw. The one caveat to that would be we are seeing some instances where existing portfolio companies that we had booked maybe two or three years ago that had unfunded commitments where the rates are much higher on those deals because of where the base rates were at the time, those companies are a lot less likely to draw. So we've seen a lot of companies let those unfunded commitments expire, and that's just a trend that has partly contributed to that decline in unfunded commitments over the last couple of quarters.

Got it. Thanks again. That's helpful. Last one, just on Palantir this quarter, that's obviously been a very successful investment for you guys. Looks like you fully closed that position out in the fourth quarter. I was wondering, do you have a way to quantify how much that drove any of the unrealized portion of the gains this quarter?

That was the biggest driver of the realized gains on the equity front. Roughly in the $15 million range in terms of realized gains in the quarter on that investment.

Got it. And I actually also meant to ask kind of if there was any additional appreciation during the quarter from that investment and if there is a way to that. From the 9/30 mark.

So the investment was exited in Q4, there wouldn't be anything on the balance sheet as of the end of Q4. If you look at the realized gains on the equity positions for the entire quarter, roughly $22 million, so $21.9 million, during the quarter. The biggest driver of that was Palantir. We also exited partially several other public equity positions where we had some meaningful appreciation during the quarter.

Thank you so much. And as I see no further questions in queue, I will turn the call back to Scott Bluestein for final comments.

Thank you, Carmen. Thanks to everyone for joining our call today. We look forward to reporting our progress on our Q1 2025 earnings call. Thanks, everybody.

Thank you. And with that, we conclude today's conference. You may now disconnect.