Horizon Technology Finance Corporation (NASDAQ:HRZN) Q1 2023 Earnings Call Transcript

Horizon Technology Finance Corporation (NASDAQ:HRZN) Q1 2023 Earnings Call Transcript May 3, 2023

Operator: Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Horizon Technology Finance Corporation First Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to your host, Megan Bacon, Director of Investor Relations and Marketing. Thank you. You may begin.

Megan Bacon: Thank you, and welcome to Horizon Technology Finance Corporation first quarter 2023 conference call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer; Jerry Michaud, President; and Dan Trolio, Chief Financial Officer. I would like to point out that the Q1 earnings press release and Form 10-Q are available on the company’s website at horizontechfinance.com. Before we begin our formal remarks, I need to remind everyone that during this conference call, the company will make certain forward-looking statements, including statements with regard to the future performance of the company. Words such as believes, expects, anticipates, intends or similar expressions are used to identify forward-looking statements.

These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ on a material basis from those projected in these forward-looking statements and some of these factors are detailed in the risk factor discussion in the company’s filings with the Securities and Exchange Commission, including the company’s Form 10-K for the year ended December 31, 2022. The company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to Rob Pomeroy.

Rob Pomeroy: Welcome, everyone, and thank you for your interest in Horizon. As we always do on our quarterly calls, I will update you on our performance and our current overall operating environment. Jerry will then discuss our business development efforts, our portfolio events and our markets, and Dan will detail our operating performance and financial condition. We will then take some questions. With the increasingly challenging macroeconomic environment and fallout from the collapse of Silicon Valley Bank and Signature Bank in the first quarter, Horizon and our adviser, Horizon Technology Finance Management, took a measured approach to originations and redoubled efforts to focus on the credit quality of our portfolio companies.

There is no question that the venture capital ecosystem has changed and will continue to evolve. While this creates challenges, this also creates opportunities in both the near and long-term for those that can successfully navigate through the challenges. With our experienced team, disciplined investment approach and strong balance sheet, we believe we are positioned to emerge from these challenges as a stronger company. Jerry will provide some additional commentary on the fallout from the state of the macro economy and the banking crisis a little later in our presentation. Turning to our specific results for the quarter. We generated net investment income of $0.46 per share, well in excess of our distribution level due largely to higher interest rates on our floating rate investment portfolio and the growth in our portfolio.

Based on our outlook and our undistributed spillover income of $0.81 per share as of March 31, we declared monthly distributions of $0.11 per share through September 2023. We achieved a portfolio yield on our debt investments for the quarter of 16.3%, once again at or near the top of the BDC industry. We raised approximately $7 million of equity from our at-the-market program at a premium to NAV. While we have adequate liquidity and capacity to fund our current backlog, we will opportunistically and strategically seek new debt and equity capital as our portfolio and backlog grow. Our portfolio at quarter end stood at $715 million, a slight reduction from year-end 2022, but an increase of 39% from last year’s first quarter. As I noted, we took a measured approach in the quarter toward originations and expect to continue to do so in the near-term.

We finished the quarter with a committed and approved backlog of $187 million, providing us with a solid base of opportunities to thoughtfully grow our portfolio. As a reminder, most of our funding commitments are subject to our portfolio companies, meeting certain key milestones, and we ended the quarter with a net asset value of $11.34 per share. We did see some impact to our credit portfolio at the end of the quarter and remain in constant contact with all of our portfolio companies to help assist them in a difficult capital raising environment. Jerry will provide more color on these efforts later. Given the current industry and overall macro environment, we will continue to closely manage our portfolio and remain more selective in originating new investments.

Despite the challenges ahead, we continue to believe our portfolio and backlog is positioned to generate strong NII in 2023, which may exceed our distributions. In summary, while we continue to expect a challenging environment for the foreseeable future, we firmly believe we have the right team in place to navigate through that current economic cycle. We have the talent and expertise to execute our investment strategy to maintain a sharp focus on credit quality and to seek to carefully grow the portfolio with high-quality investments. Before I turn it over to Jerry, a word on Horizon’s Annual Meeting of Stockholders coming up on May 25. Last quarter, Horizon announced that HTFM, Horizon’s investment adviser had entered into a definitive agreement to be acquired by an affiliate of Monroe Capital LLC.

We continue to work on closing the transaction, including seeking approval of a new investment management agreement at the annual meeting. As we have previously said, we believe that the transaction will allow us to benefit from the ability to capture a broader range of investment opportunities designed to enhance shareholder value in both the near and long-term as a result of access to Monroe Capital’s fundraising capabilities and overall investment platform. With that, I will now turn the call over to Jerry and Dan to give you more details and color on our performance. Jerry?

Jerry Michaud: Thanks, Rob, and good morning to everyone. In Q1, we saw a slight reduction in our portfolio size from year-end to $750 million as of March 31. In the first quarter, we funded eight transactions totaling $40 million, including a $20 million debt investment to a new tech portfolio company focused on education. We expect to remain selective in originating debt investments and have tightened our underwriting profile, given the increased uncertainty related to the venture capital ecosystem. Our onboarding yield of 14.3% during the quarter was above our Q4’s yield and continues to reflect our disciplined in structuring and pricing transactions, which will produce strong net investment income. We experienced four loan prepayments and one partial pay down during the quarter, totaling $32 million.

We expect prepayments to be lower in the second quarter of 2023, compared to our historic levels given the current volatility in the muted IPO and M&A markets. Our debt portfolio yield of 16.3% for the quarter is a further testament to the value of our floating interest rate structures in a rising rate environment, helping us generate one of the highest portfolio yields in the BDC industry. As of March 31, we held warrant and equity positions in 99 portfolio companies with a fair value of $30 million. As we’ve consistently noted, structuring investments with warrants and equity rights is a key aspect of our venture debt strategy and our potential generator of additional value. In the first quarter, we closed $52 million in new loan commitments and approvals maintaining our selective approach to new opportunities and ended the quarter with a committed and approved backlog of $187 million compared to $220 million at the end of the fourth quarter.

We believe our committed backlog with most of our funding commitments subject to our portfolio companies meeting certain key milestones positions us to prudently grow our portfolio. Unlike in previous quarters, we have portfolio credit issues were primarily due to portfolio company-specific events. Our first quarter’s portfolio quality was primarily impacted by macroeconomic issues that directly affected the venture capital and venture lending market as a whole, which made fundraising and exits more difficult for venture capital-backed technology and life science companies. In the first quarter, we saw a significant reduction in venture capital investment, a closed IPO market and anemic M&A market, a disappearing spec market, the ongoing potential for a recession in 2023.

And finally, the banking crisis, which started with the collapse of Silicon Valley Bank, all of this contributed to a greater difficulty for venture-backed companies to raise debt or equity capital. On a positive note, we believe our portfolio companies and their investors understand the challenges of the current economic environment and as a result, has significantly cut costs to preserve and extend their liquidity while seeking additional capital sooner. In addition, we are seeing portfolio companies employ more creative fundraising strategies. For example, one of our public biotech companies completed a public to private transaction, which was funded by its lead investor and large shareholder. Another one of our public biotech companies also announced its consideration of a public to private transaction funded by its lead investor and large shareholder.

A number of our portfolio companies have in fact raised equity or convertible debt as they continue to look at strategic options over the balance of 2023. All of that said, the fundraising environment for the venture backed technology companies is as challenging as it has been in the past 20 years. Our expectation is that the difficult fundraising environment for VC backed technology and life science companies will persist for the remainder of 2023. We are working very closely with our portfolio companies in collaboration with their investors and other stakeholders to provide support, which we believe will help them survive this economic cycle. We believe we have appropriately reflected the recent increased level of uncertainty and the ability of venture backed technology companies to raise capital and the current macroeconomic environment and our credit ratings.

As of March 31, 86% of our debt portfolio consisted of three and four rated debt investments. The number of two rated debt investments increased to seven, and we had three one rated debt investments at the end of Q1, which was unchanged from the last quarter. Our one rated credits represent less than 1% of our total debt portfolio. Turning now to the venture capital environment. According to PitchBook, approximately $37 billion was invested in VC backed companies in the first quarter of 2023 compared to $82 billion in the first quarter of 2022. Seems clear that we are headed back toward pre-pandemic VC activity levels, and while there will continue to be investment opportunities as the competitive landscape shifts, we expect the investing environment to remain volatile.

In the near-term, we expect there will be opportunities for venture lenders to refinance bank debt and a higher venture lending talent. Longer-term, we believe venture lenders, especially public BDCs are best positioned to fill the void of the banks. Thus, we expect loan demand and pricing to increase for venture lenders as cheaper bank debt will be significantly less available. In terms of VC fundraising, $12 billion was raised for the second consecutive quarter, which pretends considerably lower VC fundraising for 2023 than in the prior year. While VC dry powder appears high, it is expected to decline in the coming quarters as VCs provide ongoing support for portfolio companies until improved exit markets emerge. Again, as would be expected, VC backed exit activity remained modest, given the current environment and the closed IPO window.

Total exit value for the quarter was just $6 billion, while the IPO backlog continues to build, given the uncertainty environment we would expect VC backed exit activity to remain muted for the foreseeable future. In terms of market conditions for new venture loan investment, there is no question that the failures of SVB, Signature Bank and now First Republic Bank will continue to have a significant impact on the venture debt market in the near-term. Opportunities are abundant to replace senior bank debt with senior secured venture debt and at attractive pricing. However, again, with a higher bar due to my previously mentioned macroeconomic wins, Horizon will take a pragmatic and cautious approach to new investment opportunities through at least the second and third quarters of 2023.

The ever changing venture debt environment provides Horizon with lots of potential opportunities for our advisor to grow our portfolio through new high quality venture debt loans, especially when the overall venture environment improves. For now, the focus is squarely on taking a cautious approach to the current market, maintaining the quality of our balance sheet and prudently managing our committed backlog and pipeline. Our committed and approved and awarded backlog as of today stands at $267 million, while our advisor’s pipeline of new opportunities today is $1 billion. Looking ahead, we are focused on credit quality to ensure optimal outcomes for our portfolio. As the market volatility begins to subside, we believe there will be attractive quality of companies still looking for venture debt solutions.

This will enable us to selectively grow our portfolio, our committed backlog, and our advisor’s pipeline at the appropriate time. In the meantime, based on the size of our portfolio and that 96% of our portfolio is priced at floating rates in a rising rate environment, we believe we remain well positioned to generate solid NII for our shareholders and to continue delivering additional long-term shareholder value. With that, I’ll now turn the call over to Dan.

Dan Trolio: Thanks, Jerry, and good morning, everyone. During the first quarter, the yield generated from our debt investments once again produced NII that more than covered our distributions, while maintaining a strong balance sheet and utilizing our ATM program successfully and accretively raise an additional $7 million of capital demonstrating our continued ability to opportunistically access the equity markets. We believe our focused balance sheet management keeps us well positioned to thoughtfully grow the loan portfolio and create additional shareholder value in the current environment and beyond. As of March 31, we had $112 million in available liquidity consisting of $43 million in cash and $69 million in funds available to be drawn under our existing credit facilities.

We currently have $15 million outstanding under our $125 million Keybanc credit facility and $177 million outstanding under our $200 million New York Life credit facility, leaving us with ample capacity to grow the portfolio. Our debt’s equity ratio stood at 1.38:1 as of March 31. Netting out cash on our balance sheet, our leverage was 1.24:1, which was slightly above our target leverage at 1.2:1. Based on our cash position and our borrowing capacity on our credit facilities, our potential new investment capacity at March 31 was $177 million. For the first quarter, we earned total investment income of $28 million, an increase of 97% compared to the prior year period. Interest income on investments increased primarily as a result of the higher average size of our debt investment portfolio for the quarter and increases in the variable interest rate on our debt investments.

Our debt investment portfolio on a net cost basis stood at $704 million as of March 31, a slight increase from December 31, 2022. For the first quarter of 2023, we achieved onboarding yields of 14.3% compared to 13.3% achieved in the fourth quarter. Our loan portfolio yield was 16.3% for the first quarter compared to 12.4% for last year’s first quarter. Total expenses for the quarter were $14.8 million compared to $8.4 million in the first quarter of 2022. Our interest expense increased to $7.1 million from $3.4 million in last year’s first quarter due to an increase in the average borrowings and higher interest rates on our borrowings. Our base management fee was $3.2 million, up from $2.2 million in last year’s first quarter due to an increase in the average size of our portfolio.

Our performance base incentive fee was $3 million, up from $1.4 million in last year’s first quarter. Net investment income for the first quarter of 2023 was a record $0.46 per share compared to $0.40 per share in the fourth quarter of 2022 and $0.26 per share for the first quarter of 2022. The company’s undistributed spillover income as of March 31 was $0.81 per share. We anticipate that our larger portfolio, the increase in our portfolio’s interest rates along with our predictive pricing strategy, will enable us to continue generating NII that covers our distributions. As we have said previously, we’ll experience prepayments throughout the year. However, in today’s environment, we expect prepayments to be below our historical levels.

Summarize our portfolio activities for the first quarter. New originations totaled $40 million, which were offset by $7 million in scheduled principal payments, and $33 million in principal prepayments and partial pay downs. We ended the quarter with a total investment portfolio of $715 million. Given the macro environment, we expect to remain selective in the near-term with respect to origination. As of March 31, the portfolio consisted of debt investments in 57 companies with an average fair value of $685 million and a portfolio of warrant equity and other investments in 101 companies with an average fair value of $30 million. Based upon our outlook for 2023, our Board declared monthly distributions of $0.11 per share for July, August and September 2023.

We remain committed to providing our shareholders with distributions that are covered by our net investment income over time. Our NAV as of March 31 was $11.34 per share compared to $11.47 as of December 31, 2022, and $11.68 as of March 31, 2022. The $0.13 reduction in NAV on a quarterly basis was primarily due to our paid distributions and adjustments of fair value, partially offset by net investment income. As we’ve consistently noted, 100% of our outstanding principle balances of our debt investments, their interests at floating rates with coupons that are structured to increase as interest rates rise with interest rate floors. As of March 31, 96% of our debt portfolio will benefit from additional increases in their applicable base rate.

This concludes our opening remarks. We’ll be happy to take questions you may have at this time.

Q&A Session

Operator: Thank you. Our first question is from Christopher Nolan with Ladenburg Thalmann.

Christopher Nolan: Hi. Thanks for taking my question. I guess, my real question is how’s the portfolio holding up given following the implosion of Silicon Valley Bank and Signature Bank? Are you seeing change in terms of cash burns and headcount levels and things like that?

Jerry Michaud: Yes. Hi, Chris, this is Jerry. Yes, that is definitely true. I actually, I think some of that was going on before the bank crisis. We are seeing across the board lower liquidity levels at all level of the VC ecosystem, meaning that portfolio companies have less liquidity to work with. Venture capital firms have either less liquidity in their funds, or they’re highly restricted to certain investments that they can make and they’re obviously having to support their portfolio companies longer given exit markets are as muted as they’ve been. So that’s the environment in which we are all living in today, and I think that will continue for some period of time. On a little bit more positive note on that. We’ve also seen at least in our portfolio, our portfolio companies have gotten quite religious about their cash burn, about operating significantly more efficiently as well as being more creative actually in ways to raise liquidity to continue to support their operations and try to continue to create value in a very difficult, I should say, more – not so much difficult, but volatile market.

So we expect that to continue. We are working very closely with our portfolio companies, along with their investors who are also, I would say very engaged in wanting to see these companies continue their operating performance. Another bit of positive news, I’m not ready to say it’s a trend yet, but we are beginning to see strategics starting to engage more consistently and starting to look at some of these opportunities, certainly on the life science side and the public biotech sector where valuations have gotten so low that they’re – it’s difficult for those companies to raise money on one hand. On the other hand, their valuations are getting very attractive. So they’re attracting both strategic pharmaceutical type companies as well as knowledgeable biotech investors.

So I’m not ready to say that’s a trend, but we’ve had a couple of transactions in our portfolio that have gone from being public to private because the investors just felt that the valuations were so attractive that they took them private and put in substantial amount of money to continue on with clinical development. So all of that is happening in the marketplace, but it’s a very different market than we were in a year ago. And that has created a lot of volatility. Companies are raising money, they’re raising less money, so their runway extension isn’t as long, and so the velocity at which they have to raise money has increased. And so there’s a lot of focus on that and that’s where we’re going to be for a while. But I have to say that compared to, say 2008, I have to say that the engagement of the whole venture ecosystem and seeing these portfolio companies through this kind of really very difficult and uncertain market, we’ve never had something like what’s happened to the banks as you point out.

And that’s the other thing, there is less bank debt kind of revolving credit available in the marketplace today. We don’t know how these other banks that have taken over these companies or have announced they’re going to make some sort of splash and we don’t know how they’re actually – what their products are going to look like and things like that. So there’s uncertainty there. And so, it’s going to be a volatile market for 2023. I would just final comment on that is, we are well staffed with a lot of experienced people who have been through numerous credit cycles. And so, they’re doing a great job working with our portfolio companies and their other stakeholders, investors and such, and trying to help these companies move forward.

Christopher Nolan: As a follow up, given everything you said about the environment and given the pending acquisition of the manager by Monroe Capital, should we expect Horizon to start doing more off balance sheet type of vehicles?

Dan Trolio: Hi, Chris. Yes, this is Dan. In the past you can see we’ve had off sheet, balance sheet vehicles that we used to co-invest with the public company. It has been a strategy we’ve looked at before and one we’re going to continue to look at. And as Rob mentioned, it is part of one of the value drivers of the transaction for the advisor and for the shareholders at Horizon to allow additional vehicles and allow us to co-invest with Horizon. So it is a strategic initiative of ours. And so we’ll continue to do that going forward.

Christopher Nolan: That’s it for me. Thank you.

Operator: Our next question is from Bryce Rowe with B. Riley.

Bryce Rowe: Thanks. Good morning. Wanted to maybe follow-up on Chris’ line of questioning there. You guys talked about the change in the internal risk rating, certainly understandable to see some credits move into the to the two category or seven credits move into or five credits move into the two category quarter-over-quarter. Can you maybe just help us think about perhaps why those moved in and then help us try to understand, what’s happening within the 3s and 4s to keep them there so to speak? Thanks.

Jerry Michaud: Yes. Hi, this is Jerry. So, given the volatility of fundraising and the ways in which companies today have to – want to manage their liquidity, but also try to use as much value as they have in the company to raise capital from different sources. We’re taking a much more conservative approach to company’s ability to do that given the uncertainty. So it’s – so they’re – as an example, some of those companies that are in our – we’ve moved through a two rated bucket, actually have term sheets. But will they get to a close? It’s not as certain as it would’ve been a year ago. And so – and they will need that liquidity. So that has as we have looked at across our portfolio and looked across how companies are raising money and where the real risks are associated with that.

Any company that we felt there was greater uncertainty, whether it was them having to raise money or them in the process of raising money and getting to a close, we moved those companies into the two rated bucket. And I suspect what we’re going to see during the course of this year is we’re going to see companies moving in and out of the two and three rated bucket because they’re starting with lower liquidity across the board, the whole industry. And as they get to a point where there’s going to be an inflection point relative to raising capital, we may move them into the two rated category, but we also – they may get that deal done and then we move them back into a three. So, we’ll probably see more of that kind of activity during the course of the year.

Bryce Rowe: Okay.

Jerry Michaud: I’m sorry. You had also – you also asked – so as it relates to three and four rated credits, there are deals getting done in the marketplace especially on the strategic side, we are seeing a lot of liquidity coming into companies that have really strong IP positions in certain industries. And that would include sustainability, it would include technology and we’re starting to see more on the life science side too. So there is interest. And one thing that might spark actually an IPO market opening is if there is more knowledge based financing getting done, meaning strategics coming in, meaning private venture capital firms that have a great deal of life science experience coming in and start investing be given the low valuations on these kinds of companies, I’m not going to say that’s a trend yet.

I don’t see that. But we are seeing some transactions get done. And so companies with really strong IP positions are actually able to continue to raise money either through new venture capital investment or through strategic transactions.

Bryce Rowe: Great. Jerry, that’s a good color. Appreciate the time this morning.

Jerry Michaud: Yes, Bryce.

Operator: Our next question is from Ryan Lynch with KBW.

Ryan Lynch: Hey, good morning. I wanted to first start on portfolio company-specific question and the valuation process behind it. You mentioned in your press release, IMV looks like it’s filing for bankruptcy in Canada or bankruptcy protection in Canada. From an outsider looking in, when I look at their most recent financials, it looks like they have around, this was as of December 31, $21 million of cash on the balance sheet and $27 million of debt. I would assume over the last four months of that cash balance is now somewhat less than that $21 million of cash. So I was just curious given it’s much higher debt balance versus cash balance and the announcement of them filing for bankruptcy protection, your market is pretty close to par. So I would just love to hear kind of what was the thought behind that valuation process and how you guys arrived at your final number?

Jerry Michaud: Sure. Let me just talk a little bit about the company and maybe I’ll let Dan get into the valuation a little bit. But Ryan, I appreciate the question. So just to bring everybody up to speed, IMV is publicly traded biotechnology company that traded on NASDAQ. They’re located in Canada. They filed for what is essentially a kind of a Chapter 11 bankruptcy in the U.S., it’s called Company’s Creditors Arrangement Act, AACC – CCAA. And that gives them some protections relative to their ongoing operations. They did not inform us ahead of the filing. We have been in, obviously, discussions with them. They are – they have announced and even in their filing that they are looking at strategic alternatives, and they were doing that well before their filings.

So this is a company that we’ve been working pretty closely with. Again, they did not inform us of their filing on Monday, we found out with the rest of the world. But if you look at – if you happen to go to their website and look at their technology, they’ve actually had some very positive data on their clinical trials. And so they’re just at this inflection point where there is interest in their technology, but they believe that – and this is, again, not discussed with us, but they believe the best way to get a strategic deal probably done over time was through this process. And so that is, as we understand it, why they decided to go this route. I’ll let Dan talk a little bit about the valuation.

Dan Trolio: Yes. Not much more to add as far as the public information and I do appreciate the digging you’re doing in. As Jerry mentioned, we have been working with them over a number of quarters, and there’s a number of discussions and opportunities that they’re looking at. And just like all of our companies, we look to work with them and get to a soft landing. And so there’s a number of private discussions that are going on that the public is obviously not privy to. And those based on that information, the public information and additional conversations, we use all of that to fair value the position based on the knowledge we have at the time of our filing and basically how we get to our number.

Ryan Lynch: Okay. But it sounds like there would have to be some sort of strategic deal done in order for you to achieve the recovery where you guys have it marked. It sounds like if it’s just I don’t know, liquidated or based on the financials, it sounds like there’s going to be a much greater loss unless there’s a strategic deal done. Is that fair to assume?

Dan Trolio: Well, they announced in their filing and their public release that they are working on strategic deals.

Ryan Lynch: Okay. The other question I had was – and this is not uncommon for a lot of venture lenders. But I would just love to hear you guys have an unfunded commitment balance of about $166 million, you guys have total liquidity of $112 million. It’s not uncommon for a lot of those unfunded commitments to never be committed to over time for various reasons. But I’m just wondering, in this current environment, where capital is so scarce and so important for these venture borrowers, I’m just wondering if you expect to see a higher level of these unfunded commitments being drawn down and funded by your borrowers, number one? And then number two, out of the $166 million of unfunded commitments that you will have on – that you all have today. What number of those are subject to whether it’s like a milestone or your approval? And what are sort of like maybe unencumbered commitments where guys borrowers can draw down at their will.

Jerry Michaud: Yes. Good question, something we’re obviously paying pretty close attention to. The bottom line is a very small portion of our committed backlog is on some kind of open draw almost – I think it’s over 90% is requires certain milestones to be met. And many of those milestones, Brian, are actually pretty far out. So it might be, as an example, meeting 2024 revenue number, at the end of 2024. And there are a number of tranches that could be available based on continually meeting milestones. So again, it’s pretty much driven by that. And we’ve seen companies meet milestones and some of the fundings we did in the last quarter. In fact, were companies that actually met significant milestones and we’re happy to fund those transactions.

We did have some expired draws where they had to meet a milestone by a certain date, and they didn’t meet those. And so the funding – the milestones expired. And so it’s – that’s kind of how the backlog sits right now. And we – you’ll have to see how those milestones do or do not get that and how much of – but a number of them are, in fact, with certainly three and four rated credits in our portfolio that are doing reasonably well. And so our hope is that they meet those milestones because those are value drivers.

Ryan Lynch: Okay. That’s helpful. And then I just had one more. You guys are slightly above the upper end of your leverage target range. I know you said you’re going to be pretty cautious and selective in the new deals that you guys are funding today, just given the uncertain environment. Obviously, the deals that you’re doing today, I think, are probably going to be extremely high quality, very good risk-adjusted return deals. So I’m just wondering though, slightly above your target leverage range, where do you guys foresee you operating at kind of if you look to the back half of 2023. Do you guys intend to kind of still be up at the upper end of the leverage range? Or are you actually looking to bring leverage down to more of the middle or lower end? What are you thinking there?

Dan Trolio: Yes, Ryan, I think it’s fair to say that we will probably be around this range for the remainder of 2023. We’re comfortable at this range. There’s plenty of regulatory cushion between net 1.24 to the 2:1 regulatory cap.

Ryan Lynch: Okay. All right, I appreciate the time today.

Dan Trolio: Thank you.

Operator: Thank you. There are no further questions. I will now turn the call back to Robert Pomeroy, Chairman and CEO, for closing remarks.

Rob Pomeroy: Thank you all for joining us this morning. We appreciate your continued interest and support in Horizon, and we look forward to speaking with you again soon. This will conclude our call.

Operator: This concludes today’s conference. Thank you for your participation. You may disconnect your lines at this time.