Safeguard Scientifics, Inc.
Q2 2019 Earnings Call Transcript

Published: 11 Aug 2019

[Operator:]

Good morning and welcome to Safeguard Scientifics' Second Quarter 2019 Financial Results Conference Call. Please note this event is being recorded.I would now like to turn the conference over to John Shave, Senior Vice President Investor Relations and Corporate Communications. Please go ahead.

[John Shave:]

Good morning and thank you for joining us for this update on Safeguard Scientifics' second quarter 2019 financial results. Joining me on today's call and webcast are Brian Sisko, Safeguard's President and CEO; and Mark Herndon, Safeguard's Senior Vice President and CFO.During today's call, Brian will provide a corporate and strategic update and review recent highlights including developments at Safeguard and our partner companies and Mark will discuss our results. Afterwards, we will open it up to your questions.As always, today's presentation includes forward-looking statements and those statements are subject to risks and uncertainties. The risks and uncertainties that could cause actual results to differ materially include among others our ability to make good decisions about the monetization of our partner companies for maximum value or at all and the return of the value to our shareholders, the ongoing support of our existing partner companies, the fact that our partner companies may vary from period-to-period, challenges to achieving liquidity from our partner company holdings, fluctuations in the market prices of any publicly traded partner company holdings, competition, our ability to attract and retain qualified employees, market valuations in sectors in which our partner companies operate, our inability to control our partner companies, our need to manage our assets to avoid registration under the Investment Company Act of 1940, and risks associated with our partner companies including the fact that most of our partner companies have a limited history and a history of operating losses, face intense competition, and may never be profitable, the effective economic conditions in the business sectors in which Safeguard's partner companies operate, and other uncertainties described in our SEC filings.Many of these factors are beyond the company's ability to predict or control. As a result of these and other factors the company's past financial performance should not be relied on as an indication of future performance.During the course of today's call, words such as expect, anticipate, believe, and intend will be used in our discussion of goals or events in the future. Management cannot provide any assurance that future results will be as described in our forward-looking statements.We encourage you to read Safeguard's filings with the SEC including our Form 10-K which describe in detail the risks and uncertainties associated with managing our business. The company does not assume any obligation to update any forward-looking statements made today.With that, here's Brian.

[Brian Sisko:]

Good morning, everybody. Thank you for joining us. We have continued to do in 2019 what we started to pursue early in 2018. We have returned an aggregate of over $180 million back to our balance sheet since we began pursuing this strategy by being patient and by being opportunistic. We've now reached a significant milestone in the execution of this strategy. We repaid our debt and currently we have aggregate cash and marketable securities of nearly $50 million on hand. The repayment of our debt relieves us from limitations on share repurchases and/or dividends that were previously applicable to us under the terms of that facility.We continue to believe that the current value of our portfolio interests and our cash and equivalents exceed our current share price. In that context, our Board has adopted a capital return policy whereby whenever we have cash and equivalents on hand, which exceed our requirements for estimated ongoing operating expenses and follow-on support for our partner companies, we will undertake to repurchase shares and/or pay dividends subject to compliance with the SEC rules and regulations, which are applicable to us. We will always try to take into account the tax implications of such actions in determining what we do and when we do it, the precise form, timing and manner of such activities will be announced in the near future.We have and are continuing to work with our core, our financial advisor regarding the ongoing execution of our strategy. The process has been very informative regarding what we should do to maximize the overall value of our partner company holdings, and return that value in the best possible way to reward our shareholders. Based upon that work, we currently believe that the continued pursuit of individual partner company exits will provide the best return to our shareholders at this time. As we continue to proceed down this path, we have been and will continue to consider all alternatives as circumstances dictate, including among others the sale of individual partner companies, the sale of certain partner company interests and secondary market transactions or a combination thereof, as well as a sale of the entire company.We will also continue to consider financing transactions which could expedite the return of value to our shareholders. We remain bullish regarding our portfolio of partner companies. Recently, Syapse entered into a deal with Pfizer to develop a precision medicine solution for oncology. This marks the third major biopharma company to partner with Syapse. The company signed similar agreements with Amgen in May of this year and with Roche in January of 2018. Furthermore, Syapse completed an equity financing at a significantly higher valuation versus evaluation of Safeguard's initial capital deployment. We have deployed $18.6 million into Syapse at this point since 2014 and we own 19.4% of that company.During the quarter, Safeguard partner company MediaMath was recognized for excellence in marketing and media by AdExhanger. MediaMath was declared a winner in the best educational tool program and best account support by a technology company. These are just a few examples of good things that are going on within the portfolio that we remain -- that we have remaining on-hand. Additional partner company Prognos has -- additionally partner company Prognos achieved important milestones with its announced collaboration with Datavant to harness their comprehensive data ecosystems to deliver expanded analytical solutions to the life sciences and payer customers. Safeguard has deployed $12.6 million in Prognos and we own 28.7% of that company.We remain committed to supporting the needs of existing partner companies. And we will continue to leverage our capital and relevant expertise to help these partner companies achieve additional market penetration, revenue growth, cash flow improvement and growth in long-term value. As referenced earlier, we expect to keep a certain minimum amount of cash and equivalents on hand to the extent we deem necessary to pay our expenses, and cover anticipated follow on investments in partner companies. As we continue to monetize the portfolio, we expect that need to keep capital on hand for follow-on funding and our corporate expenses to decrease over time.We've accomplished a lot under our new strategy including streamlining our internal operations to reduce costs, repaying our debt and moving forward with strategic transactions involving our partner companies that have returned significant capital back to safeguard, which has also allowed us to retire our debt and will allow us to implement a return of capital program. We are pleased with what we have accomplished but much work is left to be done. Our momentum in 2019 has been excellent. And we continue to believe in the value of our portfolio and the way we've been going about realizing that value for our shareholders. The Transactis transaction is the most recent example of our ability to bring the value of our partner companies back onto our balance sheet.We are currently working with other partner companies on exits and hope to have more news to share in the coming months. As this additional capital is returned to our balance sheet, we intend to return the excess capital to our shareholders as soon as practicable in the form of repurchases, and/or dividends. We believe that our partner company interest will continue to mature and attract strategic and financial buyer attention. And as we continue to explore the other alternatives we referenced above.Now let me turn the call over to Mark for a review of the quarter's financial results.

[Mark Herndon:]

Thank you, Brian. Our second quarter resulted in net income of $36.1 million or $1.75 per share on a basic and fully diluted basis. As compared with a net loss of $24.9 million or $1.21 a twenty one per share for the same quarter of 2018. Our year-to-date results are a net income of $57.8 million or $2.80 per share on a basic and fully diluted basis, as compared by the net loss of $31.1 million or $1.51 per share for the same six-month period in 2018.Our second quarter results were driven by the exit of Transactis which resulted in a $50.4 million gain. Our year-to-date results have now benefited from both this Transactis event, as well as the first quarter's $34.9 million gain from the Propeller transaction. In addition to the accounting gains, the combined effect of these transactions has been a significant improvement to the company's liquidity position. Safeguard's cash, cash equivalents, restricted cash and marketable securities at June 30th, 2019 totaled $98.4 million, as compared to $46.2 million at 2018 year end. Safeguard borrowing at June 30th, 2019 under our senior credit facility totaled $44.5 million.As you know, the terms of that debt facility require the qualified cash balances over $50 million be used to repay principal, along with associated make-whole interest. Accordingly in July, we made a final principal and interest payment of $49.5 million to repay the facility in full, which relieves us of our prior restriction from repurchasing shares or declaring dividends. Our second quarter's general and administrative expenses were $2.6 million compared to $5.1 million for the same quarter of 2018. This lower level of general and administrative expenses is primarily the result of our reduced cost structure implemented during 2018 which also resulted or included a $1.7 million severance charge during the second quarter of 2018 that did not recur this year.Our general and administrative expenses for the six months ended June 30, 2019 were $5.7 million as compared to $10.7 million for the comparable period in 2018. Similarly, the lower expenses were the result of the absence of a $2.8 million severance charge was incurred in 2018 to reduce the overall level of staffing and the absence of $1.4 million of professional fees incurred in 2018 associated with activist shareholder matters that did not recur in 2019.Corporate costs which exclude interest, depreciation, severance stock based compensation and other non-recurring items were $1.9 million for the three months ended June 30, 2019 and $4 million from the 2019 year-to-date period. These are amounts are lower than the $2.4 and $5.8 million for the three and six months ended June 30, 2018 due primarily to the significantly lower level of staffing. We continue to believe that the corporate cost for 2019 will be lower than the $8 million to $9 million target that was announced in 2018. We are pleased that these -- about these savings for our shareholders and we will continue to work towards continuing to decrease these costs where possible.As we indicated in our first quarter call, we are pleased to have now completed the move of our office space to a new smaller, less expensive space, which will result in a significant long-term cash savings. The sublease regarding our previous office space, which began in June 20189 will be concurrent with our lease there and will result in $3.7 million of income that will substantially offset the remaining $4.1 million of lease payments we are committed to under the original lease terms. While we do not expect further dramatic reductions to our cost levels, we will continue to look for further ways to extract efficiencies from our operations as we continue to pursue our strategy and support our partner companies.Now with respect to our partner company holdings following the impairment of NovaSom, we now have 15 partner companies representing an aggregate cost of $202.2 million and having a carrying value of $64.1 million at June 30th, 2019. During the second quarter, we deployed $6.7 million of capital to five partner companies. The most individually significant being a $3 million funding into Syapse which we had also disclosed as a subsequent event in our first quarter call results.We continue to expect aggregate 2019 follow-on funding to approximate levels from 2018. As we may opportunistically decide to deploy small, additional amounts into certain partner companies, if attractive opportunities arise. And finally, we would like to provide you with some commentary about the health and home surety of our portfolio. We experienced an impairment of $3 million for the three and six months ended June 30, 2019 with respect to our interest in NovaSom. This was a result of an inability of NovaSom to attract additional equity financing, as it eventually became insolvent.For the three months ended June 30, 2019, our share of the losses of our equity method partner companies was $8.3 million, as compared to $15.6 million for the comparable period. Our share of the losses from the equity method partner companies for the six months ended June 30, 2019 were $15.6 million, as compared to $26.5 million for the comparable prior period. These reductions are the results of fewer companies in the portfolio and more companies reducing their burn rate. However, I will also note the second quarter was slightly higher sequentially from the first quarter of 2019 by $0.9 million.And lastly, we continue to project revenue growth in the aggregate consistent with our prior guidance. Our projected range of the aggregate partner revenue company revenue for 2019 is now between $365 million and $390 million for the 15 remaining partner companies. That would represent a growth rate of between 10% and 18% for the same partner companies in 2018. I should also remind everyone that Safeguard reports the revenue on its equity and cost method companies on a one-quarter lag basis.Now here's Brian to share some final thoughts and lead us through the Q&A segment of the call.

[Brian Sisko:]

So we still have a lot of work to do as we continue to execute us for our strategy. We'll keep you all apprised of our progress. And we thank you for your continued support. John, questions?

[John Shave:]

Operator, we can open up the platform for to question.

[Operator:]

[Operator Instructions]And your first question comes from the line of Bob Labick with CJS Securities. Please go ahead.

[PeterLukas:]

Hi. Good morning. It's Pete Lucas for Bob. I guess regarding Evercore in the process go-forward strategy, you mentioned it as informative. I don't know if there are any other details you can give us there. And as far as the distribution strategy plan, you mentioned considering all possibilities and financing transactions. I don't know if you can talk about what you're looking at there? And lastly, on the timing, you mentioned near future. Is there a specific date or presentation you're looking for? Or any sense you can give us on that timing?

[BrianSisko:]

Thanks Pete. So, Evercore, obviously we have spent considerable amount of time and effort even before the Evercore engagement looking at different ways of valuing the portfolio and the companies and current value, future expected value, net present value, future expected, all those things. But we've done even further analysis with Evercore assistants to make sure that we're viewing things the right way to confirm our belief in the approach that we're taking to return value to the balance sheet, and ultimately to shareholder.So their work has been of considerable help and assistance in kicking the tires on all the different ways that we should be viewing that the current value and the potential value of the portfolio. So they'll continue to provide that assistance. They've been engaged to our financial adviser generally not just for any specific endeavors or initiatives. And we'll continue to leverage their capital markets expertise and all other investment banking expertise to inform the board's decisions on what they then turn around and have us here on the management team execute against.Regarding return of capital issues, I'll restate for the umpteenth time, we are committed and our board is not wavered from the commitment of returning capital as soon as practicable. There no deviation from that intended strategy and nothing will be better to ultimately announce than when we get to that specific point, where we can tell you exactly what decisions are made. But what has now transpired is the repayment of our debt. So we previously we were in a position where until we actually did get that repaid, we couldn't execute on anything no matter what our cash position was. So to have that out of the way is a huge accomplishment that was high on our list of things that we need to get done to allow for the execution against returning capital.For a specific scope our Board is working through -- continues to work through analysis to figure out exactly what amounts of capital they want us to return and when in what form, okay. That decision obviously is impacted in large part by an analysis how careful they want to be about how much capital we keep on the balance sheet to make sure we absolutely unequivocally will not get into a potential situation, where we can't then provide support for the partner companies as we want to. Okay, so they're just being --they're performing the function that you want them to be performing, which is not getting over our skis and just jumping to a conclusion and starting to return capital back, which may not be the best long-term decision for them to mix.So that's number one. Then on top of that depending upon the decision regarding what is excess capital and when it's not, when we have that and when we don't. We're limited by the securities laws. There's in particular buybacks would be are impacted by what material nonpublic information we are in possession of. And we all know that this model puts us in a position where we always know stuff that's going on in the portfolio that we're not it -- we're not permitted to disclose because it involves specific, potentially specific partner company transactions et cetera. So our decision-making revolves around when we actually can execute against plans and that's not necessarily easy to do because, we do have a partner company portfolio that there's a lot of stuff always going on.So we're always dancing around what's the material what's not can, we do this can we not do that. So it -- because we're not announcing some specific action doesn't necessarily mean that we're not -- there's a bunch of different things that play into plan ability to deliver better information, more direct and granular information to everybody. But we restate yet again the commitment is to return capital sooner rather than later and to do it with utmost regard for what the tax implications of that to our shareholder population or not that that will drive behavior completely but it's -- it always will be taken into account.So I think that as much as I can say about that topic without beating a dead horse. And I think you finished up by asking about timing overall. Now where we feel we are in the process. We're still comfortable restating what we've said all along that from the get-go we view this as a two to four year process. And I think what fair to say we're so comfortable that that's the timeframe within which we're working. And obviously that made that could get expedited in certain circumstances if we have a flurry of activity. But we don't plan on hope. We plan on legitimate drive to tactical plans that tie back to the strategy.So I think we're still working within that timeframe and through that timeframe the cost structure that we are working with will decline as asset base declines. But for the moment, I think we've done a pretty good job of getting the cost structure to a point where it's stable. And we will be operating under this cost structure for next couple of years and then we'll start to whittle away further in some material way at it, where we can save $10 will save $10 but that's not necessarily relevant for these quarterly calls to be talking where to save pennies so.

[PeterLukas:]

Great. Very helpful. Next one for me, just if you could clarify on the follow-on funding. I think we're $10.6 million year-to-date, and you said it will be less than or approximately levels of 2018. So just remind us of approximate numbers that we'd be looking at there?

[MarkHerndon:]

Sure. As you said we continue to believe that our follow-on deployments will approximately 2018 levels which were $16.4 million. So I think we're talking about in that part. So far in 2019, our year-to-date deployments are $10.6 million. So we believe that we made -- we may have additional opportunities throughout the rest of this year to support our existing partner companies. But we haven't specified exact amount. We intend to participate in those rounds with existing partner companies, if they're attractive opportunities for our shareholders.

[PeterLukas:]

No, that's perfect. And last one for me. I know it's difficult and almost impossible to predict exit strategies for specific companies. They were all in certain places in their life cycle, but any way you could comment on which companies you're most optimistic about at the moment?

[BrianSisko:]

We have 15 companies, so I'd say there's by 14 up, now as you said it's difficult. You're always hoping that things will pop opportunistically, but as I said earlier hope isn't the plan we operate against. But we --let me answer your question by saying we are highly confident that we'll have additional activity in 2019. But I'm not going to get into pointing fingers towards specific companies that we think will be involved in activity.

[PeterLukas:]

Yes. No, understood. Had to ask, but I assume that would be the answer. But I appreciate it. That's it for me.

[Operator:]

Your next question comes from the line of Jim Macdonald with First Analysis. Please go ahead.

[JamesMacdonald:]

Just a couple follow-ups to your detailed answers there. So regarding the Evercore process have you gotten any indications of what you might get selling the whole portfolio? Have you gotten any -- that Evercore is estimated or any specific offers or anything?

[BrianSisko:]

As I said Jim, I'm not going to get into further detail at a granular level because that's not fair to the process that we try to run in. And the people that we talked to, but I think the proof are in the pudding. Our Board's decision to continue down the path for the moment individual company pursuit of exit is the right way to go, read into that what you will. If somebody came to us and offered us $500 million for the portfolio, we'd be announced in a transaction. That's not the case. So and the way that secondary mark, the secondary market works people are looking to engineer returns, so its willingness to pay x dollars typically doesn't depend on current values, it depends upon trying to engineer 2.5x, 3x returns and that doesn't necessarily lead to actionable --what actionable event.

[JamesMacdonald:]

And you mentioned tax implications of your distribution strategy. Could you say a few more words about what you're thinking about there?

[BrianSisko:]

Well, I think just generally to put it in the buckets; buybacks are obviously one way that we can go to return capital. And there's -- that provides to people a different tax treatment than if we were to without regard to whether we can characterize a dividend as a return of capital dividend. You're in a situation where people are then faced with holding stock and paying tax despite the fact that they still have a considerable amount of capital invested in the stock. So that's, Mark, do you want to embellish on that a little bit better than I can?

[MarkHerndon:]

Sure. I mean and you're growing on the right path, right. And we understand the tax implications of a taxable dividend. And we've heard from a variety of shareholders so that's generally something that there would like to avoid. There are other dividends circumstances where if the opportunity presented itself, we would evaluate, outside of that, we believe that repurchases would be a tax efficient way to get value back to the shareholder base.

[JamesMacdonald:]

Okay. In terms of a repurchase plan is based on your comments is that likely to be done under 5 or 1 whatever that C3 or whatever that plan is given your --

[BrianSisko:]

You mean 10 B 510

[JamesMacdonald:]

10B 5 whatever, yes, whatever the stupid thing is called.

[BrianSisko:]

Well, that certainly one of the routes you take when that's not so not to play lawyer here, but if we were in the market repurchasing given the concerns that we always have to deal with about material nonpublic information, if we can get a plan in place during a period where we're not tainted with information that plan can then operate in the market without regard to what additional material nonpublic information may crop up. In the meantime, you have to get that in place and act against it. So that's clearly one of the tools that we'll consider using as amounts get larger, you can undertake things that are more programmatic and tender offers that would -- that are a little bit different animal, require a lot of disclosure and work and expense.But obviously that makes sense at some point but 10-B5 plan is definitely one of the tools that we've used in the past, and would use to help deliver capital back to shareholder population.

[JamesMacdonald:]

And then on another aspect you talked a little bit about the minimum cash. I had sort of estimated that to be somewhere about near where the cash you have now. Can you make any $50 million or something? Can you make any comments whether I'm wrong on that estimate or high or low?

[BrianSisko:]

Well, there's been no specific decision made as to what that amount is. And that's an ongoing dialogue that I would hope to have an answer to sooner rather than later. But and hopefully I won't get myself in trouble here by being too specific, but we're not talking about keeping a $100 million on the balance sheet, okay. But I don't know, if $50 million is exactly the right number or if it's high or low. Our Board will make that decision and it it's interesting you want a public company board to be doing things in a manner that protects everybody and the board's being very careful about making sure that they--that we don't put ourselves in a situation where we don't have capital that we would like to apply.It doesn't so much depend upon the operating cash numbers. I think that's more maths. But it's the making sure that we're not short on the other front. But until I have an answer from the board, I don't have an answer from the board.

[JamesMacdonald:]

And a couple more here on the portfolio. So the three that you that are were removed this quarter so NovaSom, Hoopla and T-REX, is there any potential recovery for those and you probably had, I think you were probably investing in bridge debt or something in NovaSom, so I don't know, is there any recovery you might hope for those three companies?

[BrianSisko:]

No, for NovaSom, the answer is no, Jim, to be to be frank with you. Now is just to put a little bit more color on that as recently as first quarter this year, we had an LOI in place to sell that company. And we also had over the course of a period of time when we were going through all the alternatives, we've had LOI is in place to refinance the company to bring additional equity capital in. And for reasons unrelated to the company specifically things that were outside the company's control, none of the transactions happen. We had things like the salesforce getting rated by competitor things like that.So but no, the answer to the question is we were bridging through to those potential transactions. So that's why you saw us putting small amounts of capital because we were aiming forwards transactions that were pending. When that -- when it became apparent that was not going to come to fruition. And it this was headed to a situation where the senior creditor was going to control the strings, we folded because we weren't going to put in another $10 million or whatever to the company that we had too much capital exposed there to start with. And the company needed some substantial capital to continue to grow through a cash flow breakeven point.And we weren't in a position nor did we view it as worth the risk of putting additional monies in place to do that. So the outcome is that we in this bankruptcy will not receive any proceeds which are why it's written down to zero. And on Hoopla and T-REX, yes, we have potential recoveries down the line and both of those, see this is part of our decision-making process that we're doing this in the context of what our strategy is. So while there's still a lot of promise to these companies potentially, the timeframe within which it'll occur and the amount of capital that we would have to put at risk to continue to play lead investor, our decision was let's take a passive seat and play an observer kind of role. Mark, do you want to add to that?

[MarkHerndon:]

Sure. Let me just add that both those companies had rounds of capital that were infused into the company. So those additional investments, the values at which they were transacted at support and are in excess of the value that we have, that we carry those assets at. So those are not gone so to speak. They are there and they remain valuable or just a smaller portion of our portfolio now.

[JamesMacdonald:]

Okay and so that sort of leads to my next one what percent of the -- or how many of the remaining 15 companies would you say are well-funded or recently funded or that kind of thing?

[BrianSisko:]

So that's tough to answer the way you phrase the question, Jim. But like the company like Syapse who is just this is hope I've got our general counsel sitting across from me, so hopefully we won't kick me but Syapse is killing it, okay, they're doing great. They have capital needs and will continue to have capital needs as they grow, okay. So that's one category of companies and I throw into that the companies like Aktana and potentially Prognos, companies like that need capital for one reason. There are other companies that are still in their more development stage. They don't need capital based upon what the plan has been all along. And will continue to have some capital need, some portion of what you hope to be able to satisfy always with layering on debt.So if I look across our portfolio of what we-- what we're talking about is partner companies. I think there are probably half the companies that still have the need for capital as they build and prove their value to potential strategic buyers out there. And then there's a couple more on top of that that are going down the hard core growth path with potentials raising very large rounds. Now so there's capital need across but the way we look at this is, we are no longer the primary capital provider for anywhere near a majority of this portfolio. There are other people around the table. These are attractive companies for new third party to come in with a different investment thesis than we do. Because they are later stage investors.So capital need on us is consistent with what we've said before we expect our required capital needs for these companies to decline over time. To tie this back to the question was asked before regarding excess capital, we're just trying to be extra careful that to the extent that dynamic point changed a little bit. We're not unable to support companies that we would otherwise want to be supporting. If you the economy generally has a hiccup. We don't want to get caught short and put these companies in a situation where they're all of a sudden lacking and the support they need despite the fact that they continue to accomplish what they are intended to accomplish. Does that answer your question well enough?

[Operator:]

Your next question comes from the line of Bruce Kallins with Yakira Capital. Please go ahead.

[BruceKallins:]

Well, thank you guys. Good morning. Thanks for taking my call. A lot of my questions were answered by the previous questioner. He did a good job, yet you mentioned something about a new financing and we were not a fan of the old financing. And we wonder why with $50 million of excess cash and then exits to come in the future why you would -- what you would consider for financing? Is your letter of credit, the line of credit so open is another sort of side question. And we're also wondering about these three write off now, I guess it's kind of answered before but it seems like it's a lot. 3 out of 18 is a lot to come to one time, and we're just wondering, he said if they're really total zeros and we thought T-REX is doing pretty well actually, so we're surprised about it. Can you elaborate on that?

[BrianSisko:]

Yes. Sure. So on the financing front, Bruce, please don't read anything more into that and should be the only reason that was that there was a mention made in the prepared materials was it was to make the point that we're always considering all alternatives. So there are things that are available out there that would provide capital potentially, if we wanted to finance some portion of the portfolio and deliver that capital back to shareholders. So the board's thinking about that, but I wouldn't put any -- there's no current transaction that we're pursuing. So don't worry about us doing that without proper thought.And it might get in the future that may very well be something makes a little bit of sense now sometime non-recourse financing that would allow us to deliver capital back to the shareholders. But otherwise might be tied up and remnant assets or something. But it wasn't intended to lead to some further disclosure next quarter. So hopefully that gives you comfort on that side. On the write-off front, NovaSom is what I said it was. So, yes, it was --it certainly wasn't the outcome that we wanted. And you specifically asked about T-REX, T-REX has all kinds of good promise but as I described before, we'd based upon what we're trying to accomplish and the timeframe within which that company will we believe will ultimately come to fruition.It was our decision not to put additional capital. We have how much --

[MarkHerndon:]

And I guess, yes, just -- those are not write-offs, those have value and that value in excess of our current value as evidenced by these rounds that came in.

[BrianSisko:]

Yes. The Hoopla and T-REX, they just are no longer partner companies because how we figure that it's how much control we have, how much ownership interest we have. We've just defined partner companies in the past and this is going to get kind of tortured as we go forward. Because these are so companies we care about. They just don't fit that category that we always used to use as kind of a line of demarcation for what was material to discuss without -- with everybody. So T-REX in particular has lot of promise to it.

[BruceKallins:]

Okay. So how much do we still owed of T-REX? I mean, I don't know what the line of demarcation is? But you're saying so T-REX is not a zero; you're saying it at this point it's still worth something. So --

[BrianSisko:]

Yes. Let's make the distinction. So just to give you a quick reminder, we started defining partner companies as companies where we had a significant level of control and economic interest and it kind of tied back to but not specifically into what is considered a good asset for the forty act '40 Act purposes, okay, not to muddy up this conversation with that, but we just -- for ease of reporting back when we were still putting more money into new companies et cetera that partner company distinction was a relevant line for us to follow. And how we reported. It also roughly ties to cost versus equity method accounting, but by us saying that a company is no longer a partner company.Unless we say there's a write-off that you shouldn't equate the two things.

[MarkHerndon:]

We will evaluate all, all of the carrying value of our companies on a quarterly basis that Hoopla and T-REX both in addition to other companies are including in the cost methods which are including in the tables following the press release,

[BruceKallins:]

Okay. I understand that. You're saying you just got diluted below stakes and a certain percentage and now you're taking it off a little bit. Doesn't really count as a partner company, but still an investment.

[BrianSisko:]

Correct.

[BruceKallins:]

And we expect to get some recovery. We're hopeful to get some recovery on it.

[BrianSisko:]

Absolutely,

[BruceKallins:]

Do we still have a Board seat on that?

[BrianSisko:]

We have an observer seat. We have an observer seat on T-REX, but I think we gave up-- yes, we --that's normally said that we gave up our board involvement with Hoopla.

[BruceKallins:]

And Hoopla how much do we have on Hoopla?

[MarkHerndon:]

Our carrying value coming into this call was about $300,000.

[BruceKallins:]

Okay. Now with regards we used to have a line of credit. Do we still have that a line of credit?

[BrianSisko:]

No. We do not. We have no institutional debt whatsoever.

[MarkHerndon:]

That's right. And which is a good -- it has been a long time since the company has been in a position but we're happy to be here debt free.

[Operator:]

Your next question comes from a line of John Francis with Francis Capital. Please go ahead.

[JohnFrancis:]

Good morning. Hi, can you give us an update on MediaMath please?

[BrianSisko:]

I guess what I would say to you, John, is MediaMath continues to be one of the most significant demand-side platforms in the market, continues to grow; I am trying to think what else I'm at liberty to disclose. They haven't done any new financings recently. They are I believe they'd be considered one of the leaders in this whole privacy and identity debate that's going on in the media technology space. Joe Zawadzki continues to be recognized as one of the industry savants. They're -- they've made a fair amount of supplements to their management team over the past year.I'm an observer on that board now. And continue to have significant level of informational involvement and face-to-face access to the management team. But there's nothing else that I can really support, they continue to be in the range of revenue generation that we all know they are, although -- we never specifically assigned a number to it. They're included in our revenue guidance so you can and you as you would imagine it that their number is large, so it has a fairly significant impact on our revenue guidance. So as long as we're meeting what our guidance is you can read into that what you want about MediaMath meeting their revenue guidance.

[Operator:]

And your next question comes from the line of Joshua Horowitz with Palm Global Fund. Please go ahead.

[JoshuaHorowitz:]

Thanks everybody. How are you? Couple of questions for you just trying to get the calculus right here. If we sort of roughly estimate, I don’t know, call it two years of expenses at $14 million -$15 million, we add on the follow-on commitments that we've made. It should be fairly easy to get some ballpark number than for what we think is excess capital. How do we think about that? If we just take the headline cash number and then subtract two years of expenses plus follow-ons. What is that equate to?

[BrianSisko:]

You're doing the math right I mean.

[MarkHerndon:]

That's the right, yes, that's the right model to think about it is, how much would we spend in a year on corporate cost on a cash flow basis. And how long of a period of time do you want to have as a cushion? And how much do you expect to be deploying to partner companies. Right, you'll add those two up and subtract from $15 million and that would be for the excess capital is generally speaking that would be the right mindset to have. And I think the period of time; our expense run rate has been improving. And is fairly well defined. The discussion we would have is how long a period of time does you wanted to have available to us.

[JoshuaHorowitz:]

So if we do that calculation and what do we -- do we get the $30 million of extra cash? Is it $40 million? Is it $50 million?

[BrianSisko:]

Well, as I tried to answer I think was Jim's question before when he said is it $50 million, I wish I could give you a specific answer, but given that it's not my decision, the board is working through that calculus. I don't want to -- I could give you a very broad parameter saying it's nothing less than 20 or 25 and it's certainly nothing more than 75 but within that range where the board's going to come out, I don't want to try to put words in their mouth because I've never been a crystal ball reader, but you are thinking about it the right way and therefore the added layer which is the unknown for me at least in terms of what I can report here today is how much buffer, how much buffer do you want to keep to make sure that you don't get yourself in a pickle.

[JoshuaHorowitz:]

Thank you for that. Mark is there some sophisticated tax analysis that you're designing or analyzing that will be part of a year-end financial analysis or audit set that will determine the best tax treatment for return of capital to shareholders? What is the timing on, I guess it sounds like from the comments that you're working on a fairly complex tax analysis? And I guess what the components of that analysis are if you're able to share at this stage?

[MarkHerndon:]

So, yes, just as background for others on the call, the company reported roughly $300 million of NOLs and carried forward in the 2018 10-K. And we continue to believe that the gain from portfolios or transactions this year, those gains will be offset by those NOLs, right. So we'll have no tax impact per se this year because we've had a full valuation allowance on all those deferred tax assets historically. Part of their -- a regular ongoing process as annual tax returns are completed. And we project for the current year tax returns as we would evaluate the level of taxable income, as well as earnings and profits. And that's something that generally happens towards the end of the year. So that is an ongoing -- is that answers your question?

[JoshuaHorowitz:]

And just two more quick ones on portfolio names. You had some great info on Syapse. Are you able to share what valuation they last raised capital at?

[BrianSisko:]

I don't have that in front of me. And I don't think -- is that -- have they disclose that, Mark?

[MarkHerndon:]

Josh, as you know, we defer to the companies and what they do and don't disclose on things like that. I can tell you that it was a significant up round financing from previous round. And a very significant up round from what we had -- what we originally deployed capital. But they have not disclosed. So we will not disclose any specifics regarding the valuations that were used for that financing round.

[JoshuaHorowitz:]

And lastly, I noticed some; we saw the write-down the bankruptcy. Did we just put more money into that company recently?

[BrianSisko:]

I said in my response earlier, we had pending transactions over the course of the last six months for sale of the company; a debt financing that would have increased the companies' available debt. And as you know with all these -- what you're often doing with these debt financings is you reach the end of an interest-only period and you look to refinance for a further interest only period that provides cash burden relief. We had LOI is in place to do that. We've also had LOIs in place to do new equity finance things that we are going to be led in whole by new third parties.Those transactions as they were pending in under a low LOI, we did contribute some additional capital to bridge the company in anticipation of those transactions getting done. So we bridge small amounts of capital alongside the other active institutional investor to try to get to those transactions. Now you're basically betting that the transactions are getting done. And we were betting that they were going to get done. But we've ultimately reached the point where we were no longer willing to bet the transaction was going to get done.So, yes, we did but it was small amounts. And it was an anticipation of transactions that would have had much better outcomes than where we ended up.

[JoshuaHorowitz:]

Got it. I appreciate that. Well, thank you guys. And we look like forward to further updates on returns of capital. We appreciate it.

[Operator:]

And we have time for our final question from the line of Ephraim Fields with Echo Lake Capital. Please go ahead.

[EphraimFields:]

Hi. Yes, my question has been answered. So thank you, no questions.

[Brian Sisko:]

Thank you, appreciate it. Well, thank you everybody. Hopefully, we've answered your -- the majority of your questions. And as you know, as we're always available for follow-ons individually as you see fit. We'll continue to keep plugging away here and provide you with as much additional clarity on the topic you've asked about today as we possibly can.

[Operator:]

And this concludes today's conference call. You may now disconnect.