Horizon Technology Finance Corporation

Greetings and welcome to Horizon Technology Finance Corporation second quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Megan Bacon. Director, Industrial Relations and Marketing. Thank you, Ms. Bacon. You may begin.

Thank you, and welcome to Horizon Technology Finance Corporation's second quarter 2023 conference call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer, Jerry Michaud, President, and Dan Trollio, Chief Financial Officer. I would like to point out that the Q2 conference 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.

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. We had a solid second quarter horizon despite the quarter beginning with the fallout from the banking crisis and the ongoing economic and credit concerns. To that end, our advisor, Horizon Technology Finance Management, closely focused on the credit quality of our portfolio companies, while we also selectively originated new loans and increased our balance sheet's investment capacity. We are navigating through a challenging period, and the macroeconomic environment remains uncertain, but we have built a resilient and expert team of professionals that positions us well to succeed long-term in both maximizing the value of our current portfolio of investments as well as adding attractive new investments to our portfolio. Turning to our specific results for the quarter, we generated net investment income of $0.54 per share, well in excess of our declared distribution level, due largely to higher interest rates on our floating rate debt investment portfolio, as well as lower incentive fees earned by HTFM. Dan will further discuss the impact of incentive fees on NII in his remarks. Based on our outlook and our undistributed spillover income of $1.02 per share as of June 30th, we declared monthly distributions of $0.11 per share through the end of 2023. We once again achieved a portfolio yield of over 16% on our debt investments for the quarter at or near the top of the BDC industry. We raised $44 million of equity from a follow-on offering and from our At the Market program, both at a premium to NAV. The equity raises enabled us to increase our investment capacity and to reduce our net debt to equity ratio below our target of 1.2 to 1. We also increased our investment capacity by successfully expanding both our key bank and our New York Life facilities by a combined $75 million. Our proactive efforts have positioned us well to fund our current backlog and future originations as the environment improves. Our portfolio at quarter end stood at $715 million. We finished the quarter with a committed and approved backlog of $159 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. Finally, we ended the quarter with a net asset value of $11.07 per share. Due to the difficult capital-raising environment for companies over the last few quarters, resulting in some companies being unable to access new capital to maintain operations. We wrote off three debt investments, as well as marked down the fair value of other debt investments, contributing to the 27 cent per share reduction in NAV for the quarter. However, with our close working relationships, expertise, and consistent support of our portfolio companies, we believe our overall credit profile improved during the quarter. We will continue to closely manage our portfolio and will remain selective in originating new investments in the near term as we look for the economic and investing environment to stabilize. We continue to believe our portfolio and backlog is positioned to generate strong NII in the second half of the year. I'm also pleased to report the completion of the acquisition of our advisor, HTFM, by Monroe Capital on June 30th. Our advisor maintains its entire team and will generally operate as it has with the added benefits of the Monroe umbrella. With Monroe's fundraising abilities and platform, HTFM will have the capability to compete and win larger investment opportunities, which will provide Horizon with a larger and more diverse portfolio of investments. In summary, while the environment remains unpredictable, Our experienced and expert team is doing all of the right things to steer us through the cycle. We will continue to execute our investment strategy, maintain a sharp focus on credit quality, and seek to carefully grow the portfolio with high-quality investment. With that, I will now turn the call over to Jerry and Dan to give you more details and color on our performance. Jerry?

Thanks, Rob, and good morning to everyone. Given the ongoing macroeconomic, banking, and VC headwinds in Q2, our portfolio size remained flat from the prior quarter at $750 million as of June 30th. In the second quarter, we funded 11 debt investments totaling $50 million, including a $10 million debt investment to a new tech portfolio company focused on security imaging and a $10 million debt investment to a new healthcare information portfolio company providing AI-enabled technology for dementia care. We expect to remain selective in originating debt investments in the near term, given the environment. However, the top of our pipeline is beginning to reflect greater demand by companies that have raised fresh equity and are demonstrating growth. We believe we are well situated to compete for these opportunities, having raised $44 million of equity through a follow-on offering and our ATM in the quarter, as well as expanding our borrowing capacity under our credit facilities in the quarter. Our onboarding yield of 13.6% during the quarter remained near our historic highs, reflecting the higher rate environment in our markets, as well as our discipline in structuring and pricing transactions, which we expect to produce strong and net investment income. We experienced two loan prepayments, one refinance loan, and one partial pay down during the quarter, totaling $30 million. We expect prepayments to remain muted in the third quarter of 2023 compared to our historic levels given the weak IPO and M&A markets. Our debt portfolio yield of 16.3% for the second straight quarter is a first testament. to the value of our floating interest rate structures in a rising interest rate environment. We again generated one of the highest debt portfolio yields in the BDC industry. As of June 30th, we held warrant and equity positions in 97 portfolio companies with a fair value of $31 million. During the quarter, we received $1.5 million of warrant and equity-related proceeds. As we have consistently noted, and as evidenced by these proceeds, Structuring investments with warrants and equity rights is a key component of a venture debt strategy and a potential generator of shareholder value. In the second quarter, we closed $74 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 $159 million compared to $187 million at the end of the first quarter. We believe our committed backlog with most of our funding commitments subject to our portfolio companies meeting certain key milestones, provides a solid base to prudently grow our portfolio as we selectively add quality investments in new portfolio companies in the second half of 2023. Along with our pre-screen and underwriting process, which ensures we remain selective on new originations, we are working closely and creatively with all of our current portfolio companies to ensure they are able to navigate through the current market challenges, including the ability to raise additional capital. For example, during the quarter, we diligently worked with our portfolio company, Evelo Biosciences, a public biotech, and its larger investors to ensure the company has the necessary financial resources to complete its Phase 2A trial for its lead product. Through our efforts and collaboration, In July, the company's lead investor successfully completed a $25 million private placement in public equity. In concert with the pipe, Horizon received a $5 million paydown on its outstanding $45 million loan, and Horizon converted $5 million of its loan to equity at the same price paid by the pipe investors. Not only did Horizon prudently reduce its exposure, but it now has the potential for significant upside gains. We believe this unique series of transactions is evidence of our ability to create innovative solutions in times of stress, which provide immediate credit relief for borrowers and the opportunity for additional value to our shareholders while preserving income-generating assets. As of June 30th, 90% of our debt portfolio consisted of three- and four-rated debt investments, a step up from 86% as of March 31st. the number of two-rated debt investments declined to four in the quarter. We had one one-rated debt investment at the end of Q2, down from three in the last quarter. Our one-rated credit represents 1.4% of our total debt portfolio. Turning now to the venture capital environment. According to PitchBook, approximately $40 billion was invested in VC-backed companies in the second quarter of 2023, as it returned toward pre-pandemic VC activity levels. While exciting investment opportunities continue to present themselves, we expect the investment environment to remain depressed for at least the near term. The decrease in available equity capital for companies while creating challenges also creates opportunities as companies and investors seek other capital, particularly debt capital, to fill their capital needs. We believe venture lenders, especially public BDCs, remain best positioned to fill this need, especially with the void created by the collapse and pullback of the venture banks. In terms of VC fundraising, $21 billion was raised in the second quarter as the market remains on pace to record a six-year low. However, VC dry powder remains high due to sidelined investor capital, which should enable VCs to provide a level of ongoing support for potential portfolio companies until improved exit markets emerge. VC backed exit activity hit a decade low due to the current economic environment and the closed IPO window. Total exit value for the quarter was just 5.5 billion, mostly driven by acquisitions. While the IPO backlog continues to build, given the uncertain environment, we expect VC backed exit activity to remain mostly acquisition driven in the near term. In terms of market conditions for new venture loan investments, we are seeing a return to the market of greater growth opportunity transactions that are well supported by their investors. Over the first two quarters of 2023, many opportunities were with companies focused on balance sheet improvement and cost reduction. Given the continued challenging environment horizon through at least the third and fourth quarters of 2023, expects to maintain a pragmatic and cautious approach to new investment opportunities while preserving and improving the value and quality of its portfolio. As the economic and investing environment stabilizes, we believe we have many opportunities to reaccelerate the growth of our portfolio through new high-quality venture debt loans. A key baseline for future prudent portfolio growth is our committed, approved, and awarded backlog. which as of today stands at $243 million, and our advisor's pipeline of new opportunities, which as of today stands at over $1 billion. To sum up, we remain focused on credit quality and providing our portfolio companies with support and alternative solutions when necessary to ensure optimal outcomes for our portfolio. As the environment stabilizes, we expect an increase in attractive, quality companies looking for venture debt solutions, which will enable us to thoughtfully grow our portfolio, our committed backlog, and our advisor's pipeline. In the meantime, based on the size of our portfolio and our current portfolio yield, we believe we remain well-positioned to generate solid NII for our shareholders and additional long-term shareholder value.

With that, I will now turn the call over to Dan. Thanks, Jerry, and good morning, everyone. During the second quarter, the yield generated from our debt investments once again produced NII that more than covered our distributions. In addition, we were very active in the quarter in further strengthening our balance sheet, providing us with significant amount of additional capacity with which we can prudently make new investments. During the quarter, we successfully completed a follow-on offering, raising $39 million in net proceeds. We also utilized our ATM program successfully and accretively raise an additional $5 million of capital. In addition to our equity raises, we expanded our key bank revolving credit facility by $25 million to $150 million and increased its accordion feature by $150 million to $300 million. We also expanded our New York Life credit facility by $50 million to $250 million. We continue to believe our proactive and 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 June 30th, we had $107 million in available liquidity consisting of $50 million in cash and $57 million in funds available to be drawn under our existing credit facilities. We currently have no outstanding balance under our $150 million key bank credit facility and $177 million outstanding on our $250 million New York Life credit facility, leaving us with ample capacity to grow the portfolio. Our debt-to-equity ratio stood at 1.19 to 1 as of June 30, and netting out cash on our balance sheet, our leverage was 1.05 to 1, which is below our target leverage of 1.2 to 1. Based on our cash position and our borrowing capacity on our credit facilities, Our potential new investment capacity at June 30th was $274 million. The second quarter, we earned total investment income of $28 million, an increase of 51% 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 rates on our debt investments. Our debt investment portfolio on a net cost basis stood at $700 million as of June 30th, a slight decrease from March 31st, 2023. For the second quarter of 23, we achieved onboarding yields of 13.6% compared to 14.3% achieved in the first quarter. Our loan portfolio yield was 16.3% for the second quarter compared to 14.2% for last year's second quarter. Total expenses for the quarter were $11.9 million compared to $9.9 million in the second quarter of 22. Our interest expense increased to $7.2 million from $4.2 million in last year's second 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 $2.5 million in last year's second quarter due to an increase in the average size of our portfolio. Our performance-based incentive fee was $0.1 million down from $2.1 million for last year's second quarter. The lower performance-based incentive fee was related to an incentive fee cap and deferral for the second quarter of 2023. The investment income for the second quarter of 2023 was $0.54 per share compared to $0.46 per share in the first quarter of 2023 and $0.35 per share for the second quarter of 2022. The company's undistributed spillover income as of June 30th was $1.02 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 distribution. As we have said previously, we will experience prepayments throughout the remainder of the year. However, in today's environment, we still expect repayment to be below our historical levels. To summarize our portfolio activities for the second quarter, new originations totaled $50 million, which were offset by $6 million in scheduled principal payments and $30 million in principal prepayments, refinancings, and partial paydowns. 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 originations. At June 30th, the portfolio consisted of debt investments in 54 companies with an agri-fare value of $683 million and a portfolio of warrant, equity, and other investments in 99 companies with an agri-fare value of $32 million. Based upon our outlook for 2023, our board declared monthly distributions of $0.11 for share for October, November, and December of 23. We remain committed to providing our shareholders with distributions that are covered by our net investment income over time. Our NAV as of June 30th was $11.07 for share, compared to $11.34 as of March 31st, 23, and $11.69 as of June 30th, 22. The 27-cent reduction in NAV on a quarterly basis was primarily due to our paid distributions and adjustments to fair value, partially offset by net investment income. As we've consistently noted, 100% of the outstanding principal balance of our debt investments bear interest at floating rates with coupons that are structured to increase as interest rates rise with interest rate floors. As of today, 95% of our debt portfolio will benefit from additional increases in the prime rate. This concludes our opening remarks. We'll be happy to take questions you may have at this time.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your questions from the queue. For participants using speaker equipment, it may be necessary to pick up your handsets before pressing the star keys. One moment please while we poll for questions. First question comes from the line of Bryce Rove with P. Reilly Securities. Please go ahead.

Thanks and good morning. wanted to ask about the portfolio's internal ratings and then also about some of the realized activity in the second quarter and subsequent to the second quarter. So first on the internal ratings, you highlighted in the prepared remarks that the one and two rated credits fell in absolute numbers, and then the four rated credits actually went up. Can you talk a little bit about kind of the dynamic that's driving at least the improvement to the four-rated credits. And then I'm assuming the ones and twos kind of came down primarily as you cleared out some of the, I guess, the underperformers here in the quarter.

Yeah, good morning. This is Jerry. Yeah, so through the kind of chaos of what happened with the banks and everything, actually that we're some companies in our portfolio that have just been doing extremely well. And they were able to continue their growth. They were able to continue to raise capital in an otherwise very difficult market. And so we don't get to talk about our four-rated credits very much. I'm glad you actually brought it up. But there were a few that definitely – did quite well, have done quite well through this period. And so it's always nice as we go through our evaluations at the end of every quarter to be able to talk about those as well. On the other end of the spectrum, raising capital in this market was extremely difficult, especially in the early part of the second quarter. There was a lot of chaos around the banks What was happening with the banks, companies were looking to figure out where to put their deposits. They were also looking to figure out how to deal with an orphan loan from a bank that they didn't know how to work with. And so we saw a lot of opportunity on the new side of companies just wanting to refinance debt out of their banks. I think the market basically said that that is not really – this is not really the time to be doing that. And so VCs and investors and the boards of these companies had to figure out other ways to finance their businesses. And it was quite chaotic at the beginning of the second quarter, but I would say that we have seen some stabilization. Companies, I think, have gotten more rational about where they need to go to get their financing to keep the companies viable. In some cases, as we mentioned, companies that were severely underperforming potentially or underperforming were not able to raise capital in this market. So the market is very dynamic right now. What I do like and what I can see a positive trend on is what we're seeing coming into the top of our pipeline now are much more rational opportunities where there's growth, where investors have already put in very fresh capital, and their runways are significantly expanded, and they're in markets that right now are pretty exciting, both on the healthcare side, the biotechnology side, and I'm certain everybody's heard AI mentioned for just about everything, but there are some companies that have gotten ahead of that market and are well-financed and doing quite well. So we're seeing some stabilization. We don't think we're necessarily out of danger relative to markets being still unstable relative to the IPO market and M&A market. But we are definitely feeling, as we mentioned, feeling better about our portfolio today than we were at the beginning of the second quarter. And I think that's reflected in some of the valuations and movement in our credit ratings.

That's helpful, Jerry. Let's see. In terms of some of the realizations in the second quarter, you talked about realizing losses or writing off three investments. It looked like Interior Defined and Secure Transfusion left the portfolio. I assume that was kind of the major source of the of the realized losses. Just curious what the third write-off was, and then kind of a related question in terms of the July activity. Should we think about some realized losses coming through with the Better Place transaction that you noted in the press release?

Yeah, so, Bryce, as you can see in the schedule investments, you know, the change quarter over the quarter, you did pick out the interior to fine and STS were two deals that we realized in the quarter. And I'll just point out that they were one-rated credit, non-approval, and the fair value was marked at what we basically realized this quarter. So the NAV impact on that was very minimal this quarter. The third deal is a private deal. We don't necessarily name names, but it was a deal basically what Jerry was talking about, not able to raise additional capital and had a transaction on the table, and that just fell through. And then as far as July goes, we don't give future guidance. We can say we're working through each one of our companies in real time, and do not have anything to report on Better Place specifically or anything in the portfolio that you should expect to happen in the third quarter. Okay. Okay.

Well, that's helpful, Dan. Appreciate it. Thank you.

Next question comes from the line of Christopher Nolan with Leidenberg Thalmann. Please go ahead.

Hi. Following the acquisition of the manager by Monroe Capital, well, first of all, are you going to start co-investing in Monroe with their family of funds?

So currently the plan really is to operate as we have been, Christopher. This is Rob. And so our activities are focused primarily on the public company, Horizon, HRZN. I think over time we will be looking for opportunities to both raise additional separately managed accounts that will be dedicated to the Horizon platform under Monroe, as well as seek opportunities where there might be an opportunity to co-invest, but initially we will be focused on the same target customers and transactions that we are today.

And then I guess as a follow-up on that same vein, on leverage, following the Monroe acquisition, is the plan to take up your debt-to-equity target?

No. As Rob mentioned, we're running the public company as normal, so the target leverage will stay around the 1.2, 1.3 times.

Okay. And then final question. For the market in general, are you seeing any banks effectively being able to step into the void created by the seizure of Silicon Valley Bank?

I think it's too early to tell. So the short answer would be no, not particularly. But I think it's too early to tell. I think the banks that have made some, you know, the bank that acquired SCB and some of the other banks that are hiring banks, banking people who are available in the marketplace, there's some expectation that they plan on doing something, but we haven't seen any bank really come to the forefront and say, oh, this is going to be the next Silicon Valley bank. I don't think there is going to be a next Silicon Valley bank. I think that whatever banks do is going to be far more measured just based on the reality of being a bank and being regulated and some of the things that probably SVB got a lot over their skis on. But we haven't seen that yet. I don't think that's a settled market at all yet.

Okay.

That's it for me. Thank you. Thank you.

Thank you. Before we take the next question, a reminder to all the participants that you may press star and 1 to ask a question. Next question comes from the line of Ryan Lynch with KBW. Please go ahead.

Hey, good morning. Just a question on IMV that obviously had a write down this quarter. I know that's in the process of the bankruptcy process in Canada. Can you just talk about does that mark reflect what you guys expect to receive out of that bankruptcy process or what does that mark down sort of reflect?

Yeah, I mean, just like any time when we're valuing all of our assets at the end of the quarter, we're making our best estimate of what fair value is based on, in a situation like this, different probabilities of different outcomes. And based on the information we have up through the day we file, we go through that and come up with our calculations. So at this point in time, yes, that's our best fair value of what we expect. the investment to realize.

Okay. And then, can you just remind us, obviously you guys made some changes in the capital, it got paid back, got some equity in EVLO, can you just remind us what are the the next, obviously as a public company, so this information is out there, but it would just be helpful if you kind of remind us what are the next big test results that we're waiting for and what's your expectation or what are you hopeful to see out of that?

Okay, so you're talking about Avello. That's a publicly traded biotechnology company. We amended our loan in Q2 in concert with a $25 million pipe transaction that the company did They repaid $5 million of our $45 million loan. We also converted $5 million to equity at the exact same terms and price that the pipe investors invested in. So the company has capital now for a period of time. They're in the process of running a clinical trial, a two-way trial for a psoriasis drug. 2993 is the technical name and they expect based on based on public information they expect to have results of that in October okay and then as far as your your equity position that you guys have in there are there any

lockup or time restriction of when you could sell that position. Obviously, based on where the stock price is right now, there's quite a substantial gain. That gain could go much higher if things work out well, but obviously that could also reverse if things don't go well. I'm just curious, is there any sort of time restriction on that equity position you have, and any thoughts? Is the thought to be a long-term holder otherwise?

Well, the stock is restricted stock right now, Ryan, and the company is going to undertake to get those stocks registered, excuse me, So that process will take place here in probably the next quarter. And then we'll evaluate, as we always would, any asset based on what opportunities present themselves. So we'll see what happens.

Okay. Gotcha. Yeah, that's helpful. Quite a substantial gain on that you guys currently have on paper right now. This is the last question. I mean, I know you gave some commentary on the market. Obviously, the overall venture market is down. You know, it's been down pretty meaningfully over, you know, throughout 2023. I'm just curious. I'd love to give your sentiment. You guys are obviously operating that marketplace, you know, every day. I know trends haven't changed much. I mean, capital raising is down, investments down, exits are down, you know, in 2023, but have you seen any sort of meaningful or incremental shift in VC sentiment, either positive or negative, since the last time we talked three months ago?

I would say that the one thing that has changed, and you're basically correct in what you just said. One of the things we have seen change is VCs now are back to focusing on their portfolio almost laser-focused on each one of their portfolio companies and what the real needs are and what the real expectations are relative to funding the companies until there is a better exit market. And so the one thing I would say is we are seeing more creative but at the same time rational financing transactions that are being contemplated. These are things that can really get done. We mentioned the Avello transaction raising the $25 million, but we're also seeing some interesting kind of M&A and merger opportunities and other kinds of bridge financing and things like that. It's not as chaotic as it was 90 days ago. They've kind of settled down. They know what they need to do to support the portfolio companies. There are still companies that are going to find it challenging to raise capital in this market because there aren't good exit markets and because valuations on any company that raised money in 2021 probably has a valuation that today wouldn't hold. And so they have to figure out how to rationalize those valuations to make the companies look more attractive. All of that is going on right now. And so I can't sit here and say that, you know, the trends are all going in the right direction. But at least we're getting rational thought process and rational potential solutions to, and that requires us, by the way, and I mean the venture debt market, to also participate in helping these companies get through this kind of cycle into a better cycle. where the M&A market starts opening up more, the IPO market starts opening up more. You know, it will be interesting to see. You know, we firmly believe that when the markets turned, that the publicly traded biotech market went way too – the pendulum swung way too far in the wrong direction. And so we do believe there's some real value to be got in those companies where the valuations were just irrational. I mean, Avello, I think at one point was a $10 million valuation and they had $30 million of cash at one time. So, you know, we think there's opportunity there, but there's still a lot of risk because of, you know, markets not being open. So there's still, you know, we're still got a couple of quarters, I think, of challenging, you know, direct markets, but it's also macroeconomic driven, you know, in a big way too. And until we start seeing some improvements overall on a macroeconomic basis, it's going to be difficult for, it'll still be challenging for the IPO markets and M&A markets trying to work through the macroeconomic situation. So it's still going to be a challenging market for the next couple of quarters.

Okay, that's helpful update on kind of your thoughts and sentiment on the environment right now. That's all for me. I appreciate the time today.

Thanks, Ryan.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Robert Pomeroy, Chairman and CEO, for closing comments.

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

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.