Horizon Technology Finance Corp (HRZN) 2015 Q2 法說會逐字稿

Good morning and welcome to Horizon Technology Finance's second-quarter 2015 conference call. Today's call is being recorded. (Operator Instructions)

I will now like to turn the call over to Megan Bacon of Horizon for introductions and the reading of the safe harbor statement. Please go ahead.

Thank you and welcome to the Horizon Technology Finance second-quarter 2015 conference call. Representing the Company today are Rob Pomeroy, Chairman and Chief Executive Officer; Jerry Michaud, President; and Chris Mathieu, Chief Finance Officer.

Before we begin, I would like to point out that the Q2 press release is available on the Company's website at www.horizontechnologyfinancecorp.com. Now I will read the following safe harbor statement.

During this conference call, Horizon Technology Finance will make certain forward-looking statements, including statements with regard to the future performance of the Company. Words such as believe, 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, 2014. 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.

Thank you, Megan. Good morning and thank you all for joining us. During the second quarter of 2015, we successfully executed on our strategy to use our improved liquidity to grow our investment portfolio. We took advantage of favorable demand levels for our venture debt to capitalize on our pipeline of opportunities. We deployed our capital prudently in a competitive venture lending environment, originating 13 high-quality loans with attractive onboarding yields. We also increased our leverage towards our target ratio.

We earned net investment income of $2.9 million or $0.25 per share for the second quarter. Our operating results did not reflect the full impact of our portfolio growth in the quarter, as many of our new loans funded late in the second quarter, a pattern we expect will continue. Our operating results were also impacted by our higher average share count from the equity offering we completed in the first quarter and a lower level of prepayments than normal.

During the quarter, we funded new loans totaling $48 million, growing our portfolio by $36 million. We experienced liquidity events from 2 portfolio companies in the second quarter as compared to 6 liquidity events during the second quarter of last year. Liquidity events produce accelerated income and return capital for redeployment into new investments, while we often retain warrants in the portfolio companies.

As a reminder, the number, dollar amount, and timing of prepayments in any quarter are not predictable, but are an important aspect of the venture lending business.

We earned a portfolio yield of 13.1% for the quarter and 14% for the first half of the year. We ended the second quarter with a portfolio of loans to 55 companies, with an aggregate fair value of $232 million. We also added to our portfolio of warrants during the quarter.

At June 30, we hold warrants and equity in 88 companies. We hold warrants in 14 companies that are already public or in registration, along with warrants and success fee agreements in private later-stage revenue companies we believe are ripe for M&A exits. We believe that future realizations of these warrant and success fee agreements will produce upside to our shareholders.

With regards to credit quality, at the end of the second quarter, our debt investments had a weighted average credit rating of 3.0 compared to a credit rating of 3.1 at the end of the first quarter of 2015. At quarter end, 87% of our loan portfolio was performing at or a better than expected at the time of underwriting.

We placed our $6.7 million debt investment in Radiance on nonaccrual status in the second quarter. Subsequently, on July 24, we exited our debt investment and received net proceeds of $4.9 million from the sale of substantially all of Radiance's assets, which amount was equal to the fair value of this debt investment as of June 30. And therefore, we expect no further impact to net asset value in future periods.

While the loss from this debt investment was disappointing, we were able to exit this investment with minimal additional operating expense. As of June 30, we added a total of two loans rated 1, which had an aggregate cost of $8.2 million and fair value of $6.4 million, including the Radiance loan.

In the second quarter, we had an increase in net assets from operations of $1.7 million or $0.15 per share. And for the first 6 months of 2015, we increased net assets from operations by $5.6 million or $0.52 per share. As of June 30, our net asset value was $13.99 per share, a decline of $0.20 compared to the end of Q1. This decrease in NAV was attributable to earning net investment income below our declared distributions and the fair value adjustment related to the Radiance debt investment.

Turning to liquidity, our debt to equity ratio at the end of the quarter was 0.58 to 1 compared with 0.45 to 1 at the end of the first quarter, as we increased the use of our revolving credit facility. We intend to leverage our portfolio to our target ratio of 0.75 to 1 in the coming quarters. We are currently projecting our investment portfolio at the end of 2015 to reach approximately $270 million.

As of June 30, we had $14 million of availability under our revolving credit facility, which we have the ability to increase. We are working to expand that facility in the near term as we look to grow our leverage capacity and liquidity to fund our pipeline of loan opportunities. We continue to target achieving net investment income that covers our distributions by the end of this year.

Taking into account our second-quarter performance and future outlook, we declared monthly distributions totaling $0.345 per share, payable during the fourth quarter of 2015. This represents an annualized yield of 9.9% based upon our NAV as of June 30 and over 13% based on our recent stock price.

Since our IPO, we have declared cumulative distributions of $64 million or $7.34 per share. As of June 30, we have undistributed or spillover income of $0.22 per share. Our strategy remains to earn net investment income that covers our monthly distributions over time.

With regards to the advisability of a share repurchase plan, our Board of Directors and management have considered such a plan and whether it is in the long-term best interest of our shareholders. Following the successful raise of additional equity capital in March, we initiated a growth strategy to deploy that capital by working toward our target leverage ratio. We made good progress on that strategy during the second quarter and believe that conditions in the venture lending space continue to provide opportunities for us to grow our portfolio with good onboarding yields during the second half of 2015.

There are specific characteristics that differentiate Horizon's strategy from other BDCs, which include a lower overhang of excess capital on our balance sheet, and that our portfolio yields are among the highest in the BDC industry. We also have a rapidly churning portfolio, which allows our equity and debt capital to be invested, returned through amortization and prepayments, and then redeployed in additional investments.

Each new reinvestment adds to our portfolio of warrants and success fees, increasing the potential for further upside to investors. The use of capital to repurchase shares would permanently reduce our ability to deploy, leverage, and churn that capital.

Having made progress on our growth strategy, we have concluded that retaining our existing equity capital and the ability to leverage and continually reinvest that capital will build net investment income and long-term shareholder value. Accordingly, our Board has decided that a share repurchase plan is not in the best interest of shareholders at this time.

Turning to the global financial markets, there are many macroeconomic factors that can potentially have an impact on BDCs, including changes in interest rates. As it relates to Horizon's interest rate risk, as we have previously noted, we have shifted our portfolio almost entirely to floating rates, with floating rate loans comprising 81% of the outstanding principal of the loan portfolio as of June 30 and the remaining portfolio at fixed rates is effectively match funded through our fixed rate asset-backed securitization.

We expect that our debt investments in the future will primarily have floating interest rates. These actions will minimize negative impacts from rising interest rates.

Another macros issue impacting BDCs is concerns over energy prices and energy-related investments. Horizon has no direct exposure to industries or companies that are directly impacted by changes in the cost of oil and gas. Additional risks impacting the financial markets include economic and political issues in foreign countries. As a reminder, Horizon makes loans to US borrowers and is not directly exposed to foreign markets.

Currently, we are focused on executing on our strategy of deploying a new capital raise in Q1 and working toward our target leverage. Our revolving credit facility is an efficient and well-priced source of liquidity for us. We believe that Horizon remains positioned to grow loan originations and increase net investment income to drive long-term shareholder value. Going forward, we have the balance sheet strength, capital resources, and pipeline of opportunities to expand our portfolio in a disciplined manner.

In a moment, Chris will detail the financial results for the second quarter. But first, Jerry will provide an overview of our target industries and the venture lending market. Jerry?

Thank you, Rob, and good morning, everyone. Horizon benefited from a healthy pipeline of directly originated transactions as it ended the second quarter, which when combined with ample liquidity from its March equity offering provided strong portfolio growth.

In Q2, Horizon funded $48 million to 13 companies, 9 of which were new portfolio companies. These results compare favorably to $25.5 million in new fundings to 7 companies in Q2 2014.

Horizon continued to obtain attractive onboarding yields of 12.4% in Q2 2015 as a result of its continued and disciplined investment strategy and the change in competitive environment for venture lending. Loans funded in Q2 were senior term loans: five of the transactions were senior term loan secured by a first lien, and eight transactions were senior term loans secured by a first lien behind a bank revolver. These transactions were diversified among the technology, life science, and healthcare information and service industries.

Our committed approved and awarded backlog grew during the quarter to approximately $56 million at June 30. Subsequent to the end of the second quarter, we have been awarded new transactions totaling approximately $8 million.

Meanwhile, our pipeline of new opportunities continues to grow and exceeded $220 million at June 30, 2015, which is its highest level in the last 4 quarters. With adequate liquidity and available capital resources, we can remain selective in originating high quality, high yielding venture loans.

At the end of the second quarter, we held warrant and equity positions in 88 portfolio companies. During the second quarter, one of our life science portfolio companies, Nivalis Therapeutics, completed its initial public offering.

With the Nivalis IPO, Horizon now has 13 publicly traded portfolio companies. Of these, 11 are life-science companies, which have the potential for significant increases in market value if and when they meet clinical and regulatory milestones.

As an example of significant increases in market value, on July 23, Innotech, one of our publicly traded drug development companies, announced positive Phase 2 clinical results of its lead drug compound, which resulted in its share price increasing over 200%. While Innotech's results represent a favorable event in our portfolio, we remain patient and cautious as we look for long-term growth in the value of our existing Company portfolio and seek to add more companies to our public portfolio by investing and reinvesting our capital and life science companies.

Meanwhile, according to the National Venture Capital Association, or NVCA, the second quarter was the slowest quarter by the overall number of M&A deals. In addition, while there have been a few unicorns over the last few quarters, values for venture-backed technology companies have been mostly disappointing. We see this trend in our own portfolio as a number of our technology portfolio companies, which have demonstrated real growth over a period of years, have not been able to attract high valuations from potential buyers.

Notwithstanding this, we expect to see a more favorable market emerge over the next four quarters as buyers look for opportunities to grow and increased competition for actions results in higher values for sellers. Our view is consistent with that of UBS, which recently indicated a combination of strong liquidity positions for buyers and a need for innovative new products will lead to increased M&A activity in the technology and healthcare industries.

Turning to activity in our core industries in the second quarter, in the life science industry, we have seen plenty of activity on the VC side, with investments primarily focused on the biotech market. Overall investments in the life science industry were $3.1 billion, up 41% from Q1, though the number of companies receiving VC investment was flat. We are seeing numerous opportunities for companies to augment their equity capital with venture debt and expect this trend to continue over the second half of 2015.

The number of IPOs for f life science companies rebounded after a fairly soft first quarter, representing 70% of total IPOs in the second quarter. According to the NVCA, there were 19 VC-backed life science IPOs in the second quarter.

Most of these companies have performed well since their IPOs, trading at higher prices relative to their offering price. We continue to monitor our public life science portfolio for milestone events that have the potential to drive valuations higher and provide shareholders with upside value from our warranty and equity investments.

Turning to the technology industry, we are seeing opportunities across all sectors and we remain highly competitive in this market. The software industry continued to receive the highest level of VC funding among all technology sectors, generating an increase in investments of 30% over the first quarter to $7.3 billion according to the NVCA.

In the healthcare information and service industry, we continue to see a strong pipeline of quality opportunities, as venture capital investors continue to increase investment in this industry. Innovative healthcare technology companies and service providers are becoming the catalyst for improving healthcare service while driving down healthcare costs, which will be fundamental to changing how healthcare is delivered in the US going forward, irrespective of potential long-term changes as to how healthcare is paid for.

Finally, VC investment in cleantech continues to lag significantly compared to the other industries. We will remain opportunistic in pursuing quality deals; however, our cautionary approach in the cleantech industry remains intact.

Turning to the overall competitive landscape, we believe that competition in the venture debt market is evolving. The ongoing acquisition of tech banks, combined with a significant interest in portfolio challenges resulting from aggressive bank lending over the last two years, is now having a material impact on tech banks' desire and ability to continue to compete for venture loan opportunities.

The domino effect is investors in venture-backed technology companies are now realizing that what appeared to be cheap bank debt is now becoming far more costly when their portfolio companies look to refinance their debt. We believe this will lead to a pendulum swing back toward non-bank venture lenders, who appropriately price and structure the risk of a venture loan and have the knowledge and infrastructure to work with these rapidly growing companies and their investors over the long term.

Looking at the broader venture lending market competition, one of the more aggressive PE-backed life science lenders over the last two years was unsuccessful in attracting a buyer for the lender earlier in the year. As a result, we have seen less competition for life science transactions in the marketplace.

Moving forward, our marketing outlook for the second half of 2015 is favorable, despite persistent competitive pressures. With the competitive landscape shifting away from venture banks toward non-bank venture lenders, we expect to be opportunistic in building more upside to our portfolio through higher warrant coverage and/or success fees going forward.

With that update, I will now turn the call over to Chris.

Thanks, Jerry, and good morning, everyone. Our consolidated financial results for the second quarter have been presented in our earnings release and our Form 10-Q, both distributed after the market closed yesterday.

For the 3 months ended June 30, total investment income was $6.9 million compared to $8.7 million for the second quarter of 2014. This change was primarily due to lower interest in commodity investments resulting from the decrease in average investments as well as a decrease in the accelerated accretion of fees from lower prepayments. Total investment income for the quarter included $6.6 million from interest income on investments and $300,000 of fee income.

New loans funded in the second quarter had an average onboarding yield of 12.4% compared to 12.6% in the second quarter of 2014 and 11.8% in the first quarter of 2015. We continue to focus our loan originations on floating interest rate debt investments. As of June 30, 81% of our outstanding principal amount of our loan portfolio bore interest at floating rates.

And further, substantially all of our older fixed-rate loans are match funded in our securitization, which has a fixed 3% annual borrowing rate, reducing the risk related to the spread compression on this portion of our portfolio. We believe we are now largely protected from a rising rate environment in the broader markets.

For the second quarter, our portfolio yield was 13.1% compared to 15% for the first quarter of 2015. The primary changes quarter to quarter to portfolio yields are driven by the timing of new loan originations and the timing and extent of loan prepayments, including prepayment fees and acceleration of previously unamortized transaction fees.

The Company's net expense has decreased by $2.9 million to $4 million for the second quarter as compared to $6.8 million for the second quarter of 2014. Interest expense decreased $2.5 million or 66% year over year to $1.3 million. Interest expense declined primarily due to a decrease in the average cost of borrowings in 2015 and one-time charges incurred in the second quarter of 2014 related to the termination of our term loan facility.

Base management fee expense decreased by $100,000 or 5% to $1.1 million for the second quarter compared to the second quarter of 2014. Base management and fee expense declined primarily due to a decrease in the average gross assets of about 2.7%.

Professional fees decreased to $300,000 for the second quarter of 2015, which is in line with our normal level of operations. We earned net investment income of $0.25 per share for the 3 months ended June 30 as compared to $0.19 per share for the second quarter of 2014.

As of June 30, we elected to carry forward taxable income in excess of current distributions or spillover income of $0.22 per share. Our investment portfolio grew to $240 million at the end of second quarter, an increase of $36 million from the first quarter, reflecting higher demand for our growth capital, resulting in greater fundings of new loans, combined with lower prepayment activity. New originations in the quarter of $48 million in loans to 13 portfolio companies were offset by $5.4 million in scheduled principal payments and $5.4 million in principal prepayments.

Subject to the level of actual loan originations and prepayments, combined with the impact of expected scheduled principal payments of approximately $6 million, we expect the net portfolio for the third quarter to increase in the range of $5 million to $10 million. In terms of liquidity, Horizon ended the second quarter with approximately $26 million in available liquidity, including cash and funds available under our credit facility, a decrease from available liquidity of over $70 million at the end of the first quarter as we use this liquidity to originate new debt investments.

As of June 30, we had $36 million outstanding under our revolving credit facility, which has a current commitment of $50 million, and contains an accordion feature allowing for an increase up to an aggregate commitment of $150 million. We are working closely with KeyBank and are in discussions with other lenders to increase the level of commitments under the facility's accordion feature. We are optimistic on our progress; however, there can be no assurance that additional lenders will join the facility.

We also had $24.6 million outstanding under our investment-grade securitization and $33 million outstanding on our publicly traded baby bonds. We continue to see demand for all of these loan products in the market and will add to our current commitment levels when warranted.

We intend to increase our debt levels and grow our leverage ratio towards our target of 0.75 to 1 as we continue to increase the utilization of our revolving credit facility as a source of capital to grow our investment portfolio.

Before we open the floor to questions, I'd like to note that we plan to hold our next conference call to report third-quarter results during the week of November 2.

This concludes our opening remarks and we'll be happy to take questions that you may have at this time.

(Operator Instructions) Robert Dodd, Raymond James.

A couple, actually. First of all, a housekeeping one. On the scheduled debt repayments, they've been trending down the last couple quarters; barely $5 million this quarter. First half of the year, it's about 6% in the average portfolio. Prior years, they've been 8% to 10%.

Is this an indication just of the relative age of the portfolio mix and more of them are in the interest-only phase? Or is it an indicator that the market has shifted a little bit and in fact, that interest-only phase is stretching on new deals? Can you give us any more color there?

Robert, that's actually -- you've hit on two points. One is newer transactions to have a little bit longer interest-only period of 12 to 18 months. And that is largely the reason for the lower principal repayment.

Got it. And then on the buyback question, obviously it is a total return versus dividend in your kind of thing. Not really the coupon, as you said. Your new onboarding yield is about 12.4%. Your aggregate credit losses, net of warrant gains since formation, are about $4 million. So that's negative. But your fee income is -- just your disclosed fee income, let alone prepayment fees that are buried -- is more than 2X that. So obviously, your total return is greater than your onboarding yield.

But looks to me that it's close-ish to that 13% right now. So is the decision more a function of an expectation that the future total return that you can generate on deployed capital is better than modestly, maybe, better than the historic total return with the credit losses in the one offset by warrant gains and fees that you've had? Or was it just a close decision or has there been any kind of change in expectations of future total returns you can achieve on the portfolio?

I think you've actually -- again, Robert, hit on all of it. It is a close decision. We had a spirited discussion about the issue. I think -- I would point you to 88 warrant positions and 55 loans. We haven't had a big home run kind of warrant gain in a while and that is disappointing to us, but we believe that the potential remains for the warrants and success fees to produce shareholder value, as we said in my script, and as we have proven out over time in the venture lending model. So it's a combination of both of those things.

Okay. Got it. Thanks. One more, if I can. Just on the unfunded commitment issue with the SEC right now, any comments you've got on where that stands? And also secondarily, do you think that is going to influence the type of terms you or the market are offering to borrowers, at least from the BDC side going forward?

The question really is -- it relates to how the SEC views lenders as it relates to unfunded commitments. And it's this balance they have between protecting shareholders and portfolio companies and letting the operator actually lend its capital. It's really too early to tell for Horizon to claim to know what the ultimate outcome will be, but we're confident there will certainly be more dialogue on the topic over the coming months and quarters.

As it relates to who will be affected more, I think generally those who have very large, very long unfunded commitments in comparison to its overall portfolio or overall capital base are probably more impacted than those that have the opposite. Horizon tends to have shorter commitments and more manageable relative to our equity base than some others that have a larger capital base.

Greg Mason, KBW.

First: just on the credit side of the equation, it looks like number 2 rated credits doubled from 3 to 6 and it's now 11% of the portfolio. Can you just talk a little bit about the underlying credit in your portfolio and particularly related to the increase in number 2 rated credits, which are performing below expectations?

Thanks, Greg. We have normal -- we sort of view this as a high but normal level of migrations of 3 credits to 2. Remind everyone that a 2-rated credit is a company that is experiencing the need to raise capital and maybe some stress or uncertainty around that, but a loan that is still performing and that we expect not to have any projected loss. If that were the case, we would have lowered it to a 1-rated credit. So this cycles up and down. It's on the higher end right now, but our general feeling is that this is certainly very normal level for us.

Okay. And then can you just talk a little bit about the longer-term plan? Last conference call, there was a lot of expectations about the SBIC. We raised capital. And early June, the SBIC license -- you pulled your application. So just some thoughts around that. And longer term, what is the plan over the next 2 to 3 years, as I imagine that looks different without an SBIC under the umbrella versus before?

So it would be our strategy, which we stated even back when we raised the capital that we believe that that capital is accretive to the shareholders in the long term, based on our combination of onboarding and total portfolio yield over time. And we take very seriously our need to demonstrate to the market that we can cover our dividend.

And we believe that we can, based on deploying that equity, on the leverage that we have in place, and can expand into with our accordion feature on the KeyBank facility. And we're working our way to that. We made good progress in the second quarter in terms of developing or expanding the portfolio.

If we can reach our target leverage of 0.75 with our yields and our costs and a tolerable level of -- or a good level of credit experience and gains and additional income, we will cover our dividend and prove to the market that we can do that long term. And so we would hope then that we could continue to churn the portfolio at that rate and eventually raise additional capital accretively above book.

Christopher Testa, National Securities Corporation.

Thanks for taking my questions this morning. Just out of the $48 million that you funded in the second quarter, how much of that would you say closed after June? During June, I should say. After June 1. I'm sorry.

So I would say that -- I don't actually have the number in front of me, but I would say that somewhere between 70% and 80% of it closed in the last month of the quarter.

Okay, great. And just the current committed backlog, what's that number? And how much of the current committed backlog is from new portfolio companies from the second quarter?

The committed backlog is $29 million and all of those transactions are second tranches of transactions that are already in our portfolio.

Got it. And what's the -- I know prepayments were very slow for you in much of the market in the first couple quarters here. What's been the activity so far in Q3?

We don't really have a good sense of that yet. It's still fairly early in the quarter. If you look at the second quarter, I think it was $5.4 million; previous year, it was $25 million. So one would probably be at the high level; one would probably be at the low level.

So we don't have any solid look yet at the third quarter. We are watching some companies that are doing some interesting things, but we don't have any higher numbers on that yet.

Okay. And are you looking for the ABS? Should that be completely run off by the end of Q4 this year?

There will be a small tail that will carry --

Okay.

Into 2016.

Got it. And which of the segments that you lend in do you think there's going to be the most room opening up from the tech banks and others kind of pulling back from that? Where do you think the most opportunity is going to open up if competition were to abate a bit?

Yes, I think that it's really going to be across the board. I think that -- if you think about technology companies being revenue-driven companies, I think the banks struggle with term loans that -- where the companies aren't quite meeting their revenue hurdles and then they have to come back for refinance. I think the banks struggle with that because they are far more regulated than lenders -- than pure venture lenders are. So I think they struggle with that.

On the life science side, it's the size of the transactions. They are generally larger transactions and so the banks have always and will continue to need strong partners in that marketplace. A couple of the traditional players in that market have pulled back a little. So I think that makes it a little bit more difficult for them to be -- to play a significant role.

Casey Alexander, Gilford Securities.

Most of my questions have been answered, but what is the regularly scheduled paydown in amortization for the third quarter?

It'll be approximately $6 million.

$6 million. Okay, great. Thank you. That's it.

Greg Mason, KBW.

I just had one quick follow-up question on mBlox. It's a portfolio company you've had for a while, but looks like you've got a couple of new $1 million pieces that have a 100% end-of-term payment. And just curious: we haven't seen anything like that in your portfolio before. So just curious on those two new add-on investments.

That's basically in lieu of a warrant position based on the value of the company. We swapped out that structure rather than having warrants.

Jonathan Bock, Wells Fargo.

Thank you for taking my questions. So just to -- a few just investment-specific items in-line of what you mentioned about 2-rated credits. I was curious: we saw just a slight markdown to Lantos Technology this quarter. It may be -- just on a dollar basis, it was sizable to some of the others. Can you give us a sense of that credit and its performance near term?

So like all of our companies, Jonathan, they are private. But typical for 2-rated credits. They are behind plan in raising capital and working through that with support from their investors.

Okay. And Rob, we very much appreciate the comments that you gave about stock buybacks. It was a thorough retort; it was a thorough argument. And I guess the question I would submit is does a stock buyback need to be -- it almost feels as if there's some amount of mutual exclusivity, that it has to be one or the other.

And in many cases, it does not need to be that way. When we think about if you're in the business of making 13% returns on coupons and a little bit of warrant coverage, there's a stock with a 13% yield trading at a deep discount to book with 20%-plus upside. Some investors might argue that that is on par with what you're generating today.

Now it doesn't mean it needs to be all your capital, but then when you also mentioned your investments and how you're looking for some big warrant payoffs, buybacks actually increase investors' exposure to the benefits of those warrant payoffs in the future. So I'm just curious on the exclusivity -- the mutual exclusivity, at least I was --

Yes, Jonathan. We took all of these points, which have been very carefully outlined in the literature, and a lot of things that you've written and others have written. We took all of that into consideration and our Board thought long and hard about it and this is the conclusion that we've come to at this time. And so hope you respect that.

Yes. No, we do. And thank you very much.

This does conclude the question-and-answer session of today's program I like to hand the program back over to management for any further remarks.

Thank you and we appreciate your questions and your interest in the Horizon story. We enter the third quarter with a stronger portfolio that reflects our recent actions to deploy capital into high yielding loan opportunities from our pipeline.

Since many of our loans were funded in the last few days of second quarter and prepayment activity was lower than normal, our results have not yet realized the impact of our growing portfolio. While we made progress in the second quarter, there remains much work to do going forward against our strategic goals.

We remain positioned to continue funding high yielding loans from our pipeline. We will also continue to provide our shareholders with a steady distribution and add to our growing and maturing warrant portfolio. We look forward to sharing that progress with you in the future.

Before signing off, I would like to share with you our sadness over the sudden and untimely of our beloved friend and director, Chris Woodward. Chris was an original member of our Board of Directors and we will greatly miss his guidance, advice, and friendship. Our hearts and prayers go out to his family and all those he touched in his very active life.

This concludes the Horizon Technology Finance Corporation's conference call. Thank you.