Yep! @dcdenu4’s econd image here is what your inputs should look like.
In the Data Needs section of the HQ User’s Guide, it notes that:
The LULC raster should include the area of interest, as well as a buffer of the width of the greatest maximum threat distance. Otherwise, locations near the edge of the area of interest may have inflated habitat quality scores, because threats outside the area of interested are not properly accounted for.
So, either approach that @dcdenu4 mentioned will be correct, and which approach you choose will depend on the threats you’re choosing to model and whether they extend beyond the area of interest.
And if you use the second approach, be sure to only include what’s within the purple box in your analysis.