Safeguard Scientifics, Inc.
Q2 2015 Earnings Call Transcript
Published:
- Operator:
- Good morning and welcome to the Safeguard Scientifics' Second Quarter 2015 Financial Results Conference Call. All participants will be in a listen-only mode. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] 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 Safeguard Scientifics' second quarter 2015 conference call and webcast. Joining me on today's call are Steve Zarrilli, Safeguard's President and CEO; and Jeff McGroarty, Safeguard's Senior Vice President and CFO. During today's call, Steve will review highlights from the second quarter and other developments at Safeguard and our partner companies, then Jeff will discuss Safeguard's financial results and the strategies. After that, we will open the lines to take your questions. As always, today's presentation includes forward-looking statements. Reliance on forward-looking statements involves certain risks and uncertainties, including, but not limited to the uncertainty of future performance of our partner companies, the risks associated with our acquisition or disposition of interest in partner companies, risks associated with our decisions about the deployment of capital, and the effect of regulatory and economic conditions generally, as well as the development of the healthcare and technology markets and other uncertainties that are described in our SEC filings. During the course of today's call, words such as expect, anticipate, believe and intend will be used in our discussions 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. Now, here is Safeguard's President and CEO, Steve Zarrilli.
- Stephen Zarrilli:
- Thank you, John, and thank you all for joining us today for an update on Safeguard and our partner companies. Through our disciplined strategic focus Safeguard remains on-track to achieve its goals and objectives for 2015 which include, increasing the total number of our partner companies to approximately 30, deploying $35 million to $50 million in new partner companies, and $30 million to $50 million in follow-on funding for current partner companies, generating continued growth in partner company aggregate revenue to a range of $430 million to $450 million and realizing a minimum of two profitable exits with a minimum aggregate cash value of $50 million. At the half way point of this year we have completed one profitable exit with the sale of DriveFactor in the second quarter for gross proceeds of approximately $10 million. In addition, our partner companies continue to grow revenue on an aggregate basis and have achieved significant development milestones. These milestones include product launches, customer wins, patent issuances, strategic partnerships, as well as profile-raising industry awards and media coverage. Long-term our goal is to significantly increase Safeguard’s assets under management and we believe that we can achieve this goal by executing against our strategic objectives. Jeff will provide more granularity around our activities to date against these goals. In the meantime, I want to discuss an important notion that influences all that we do here at Safeguard on a daily basis, discipline. That is the key driver to execute our strategy. Simply stated, discipline is a virtue that is essential to accomplish goals and resolve conflict. We view discipline as the foundation of both our near-term execution as well as our sustainable long-term success. In 2014 Safeguard issued 18 term sheets to promising entrepreneurial businesses. We ultimately closed just 9 of those deals due to our disciplined assessment of valuation and potential to realize reasonable cash-on-cash returns upon exit. We did not succumb to the pressure to increase our valuation parameters regarding the other nine opportunities. Of course discipline alone does not guarantee success; neither should discipline be confused with inflexibility. Discipline is and will remain our guide as we work to identify high potential growth-stage businesses to deploy capital into within Safeguard's defined vertical markets in healthcare and technology. Discipline will also be used in assessing such opportunities in relation to valuation. We are well on our way to developing a truly diverse asset base of innovative market leading companies while retaining discipline in deployment and exit decisions. Despite often volatile capital markets we believe we can continue to grow shareholder value through consistent increases in deal volume and profitable exits. Our disciplined business model includes providing capital and expertise to emerging and growth-stage enterprises that are developing innovative products and services and define segments of the technology and healthcare markets, also supporting our partner companies' growth with strategic guidance and a range of financial and operational expertise and finally realizing gains on exit transactions. This evergreen business model serves Safeguard well providing a steady capital base to pursue attractive deals, talented asset managers and patient shareholders. Our strategy is to build an organization that is recognized as an innovative capital provider capable of delivering consistent superior returns. That's why during the quarter Safeguard joined with other major Philadelphia-area corporations and institutions to form a healthcare innovation collaborative. Our partners in this initiative include Ben Franklin Technology Partners of Southeastern Pennsylvania, The Children's Hospital of Philadelphia, Comcast, Drexel University, Independence Blue Cross, Thomas Jefferson University and Jefferson Health System along with the University of Pennsylvania Health System. Through our own efforts and our work with this group we believe we can continue to bring disruptive innovation to market quickly and advanced healthcare for all. In our last conference call we highlighted the leaders of our technology deal team and details about how we deploy capital in select technology vertical markets. This quarter we are going to focus on our Healthcare deal team's Managing Directors, Dr. Gary Kurtzman and Al Wiegman and their strategic framework for growing Safeguard's assets under management in Healthcare verticals. Al Wiegman joined Safeguard in 2013 bringing two decades of venture capital experience and deep domain expertise in healthcare services and technology. Previously Al was a general partner at HLM Venture Partners where he participated in 30 early and growth-stage transactions and notable exits involving some of the largest VC investors in the country. Al serves on the Boards of Safeguard partner companies Aventura and InfoBionic. Gary Kurtzman joined Safeguard in 2006 and has more than 30 years of experience in healthcare operations and finance. He was responsible for three of Safeguard's most successful exit transactions since that time including Advanced BioHealing which was acquired by Shire Pharmaceuticals in 2011 for 13x cash-on-cash return and Crescendo Bioscience which was acquired by Myriad Genetics in 2014 for a 4x cash-on-cash return. Gary's healthcare experience is both broad and deep. He is a Board Certified internist with a hematology subspecialty who has written more than 40 research articles, book chapters and reviews and is the credited inventor on 12 U.S. patents. Gary has also been the CEO and COO of startup life science companies. Gary serves on the Boards of six of Safeguard's healthcare partner companies including Good Start Genetics, Medivo, meQuilibrium, Propeller Health, Syapse and Trice Medical. Al, Gary and the rest of the Healthcare team target emerging businesses and vertical markets that are focused on the broad challenges of improving access to healthcare, enhancing healthcare quality and reducing cost and waste. Both healthcare enterprises and consumers have strong interest in all of these themes. Recent U.S. Supreme Court rulings that support the Affordable Care Act underscore the fundamental importance of access to high quality, cost effective, healthcare. Each of these broad challenges also present Safeguard with opportunities for growth. The first challenge access includes businesses involved in insurance exchanges, Medicaid expansion and consumer protection. The next challenge, quality addresses performance enhancements or penalties, care innovation and wellness promotion. The last challenge, cost is focused on improving cost effectiveness reducing of our payments and ensuring meaningful use of treatment in the healthcare system. Safeguard is finding multiple deployment opportunities across healthcare. In fact many of our partner companies are growing in a vertical market that addresses those core challenges. Today we'd like to feature two of these promising partners. Partner company Good Start Genetics addresses several facets of healthcare quality and cost challenges of our healthcare strategic framework. Safeguard has deployed $12 million in Good Start Genetics since 2010 and has a 30% primary ownership position. This commercial stage molecular genetic information company focuses on fundamentally transforming the standard of care in reproductive medicine. The company provides physicians and their patients with actionable information concerning the inherited genetic disorders through proprietary next-generation DNA sequencing capabilities. According to the CDC approximately 1.2 million women seeking fertility treatment annually in the U.S. this presents a total adjustable U.S. market opportunity of 1.25 billion to 1.5 billion per carrier screening and reproductive health. While Good Start Genetics has made tremendous strides in developing its market-leading screening technology, the company faces headwinds on reimbursement from healthcare insurance providers. Revenue growth has slowed because payers often regard Good Start Genetics as an out-of-network laboratory. The company is making progress with its contract negotiations with healthcare payers and we expect to report success on this front in the coming months. In the meantime, Good Start Genetics continues to expand access to its genetic carrier screening tests for in vitro fertilization as well as for the broader women's health community including obstetrics, gynecology and maternal fetal medicine physicians. One of Safeguard's newest partner companies, meQuilibrium addresses the wellness promotion aspect of the quality challenge. The scientifically validated and clinically proven approach is based on 15 years of research showing the link between stress and resilience and grew out of research on resilience at the University of Pennsylvania. It is clinically validated, HIPAA compliant, software-as-a-service platform is scalable and is designed for mobile or desktop use. It guides users through personalized assessments to develop long-term roadmaps focused on critical skills to boost resilience. Researchers found that guidance or coaching can improve resilience providing a lifetime of benefit including reducing effects of stress. Studies show that up to 95% of U.S. workers experienced moderate-to-severe stress compelling absenteeism, productivity, injury and turnover costs. These factors cost U.S. businesses an estimated $300 billion annually and healthcare expenditures are estimated to be 50% more for high stress workers. meQuilibrium serves two key markets; large enterprise companies eager to mitigate employee absenteeism and loss productivity due to stress and secondly payers and health plans seeking to drive differentiation and innovation in an era of consumer driven healthcare. meQuilibrium also serves individuals looking to improve the quality of their lives. Enterprise clients include Comcast and Hewlett-Packard. Data from the aggregated meQuilibrium user base provide metrics and insights on workforce wellbeing that insurance [ph] form human capital strategies and decision making. Safeguard deployed $6.5 million in meQuilibrium in April for a 32% primary ownership position. Proceeds from the $9 million series B financing will be used to accelerate sales and marketing and expand product development. So with that, here is Jeff McGroarty for an update on our financial performance for the second quarter of 2015.
- Jeffrey McGroarty:
- Thank you, Steve. As Steve mentioned earlier, we remain on track to realize our goals for 2015. As of June 30, we had 28 partner companies compared with our goal of 30 by year end. The cost of our interests in those companies was $282.7 million. The carrying value of those partner companies at June 30 was $167 million. Safeguard's reputation for building successful businesses in targeted vertical markets of technology and healthcare means our pipeline is always full with prospects. We expect to meet our year end goal for new partner company deployments. During the second quarter, we deployed $18.9 million of capital in three new partner companies, InsideVault, meQuilibrium and Sonobi. For the six months ended June 30, capital deployments in new partner companies totaled $31.6 million for six new partner companies. Steve addressed the opportunity with meQuilibrium earlier. Our deployments in InsideVault and Sonobi described in more detail in our news release that was distributed earlier this morning expands Safeguard's holdings in the digital media ad tech vertical. Follow-on funding during the second quarter totaled $10.1 million for five existing partner companies, AdvantEdge healthcare solutions, AppFirst, Clutch, Pneuron and Quantia. For the six months ended June 30, follow-on funding totaled $19.5 million for 8 companies. In the second quarter we sold DriveFactor for initial proceeds of $9.1 million excluding $1.1 million held in escrow. Second quarter results reflect a $3.2 million impairment charge related to our position in InfoBionic due to the discontinuation of its first generation product. We believe InfoBionic remains an attractive growth opportunity because of the size of the cardiac arrhythmia market its device serves and its disruptive business model. Safeguard intends to provide $3.5 million in follow-on funding as part of a $7 million Series B1 financing to be utilized for development and commercialization of its second generation product. We also recognized an impairment charge of $2.9 million in the second quarter related to Quantia. Quantia was acquired by Physicians Interactive in July. Net initial proceeds to Safeguard were $7.8 million excluding $1.2 million which will be held in escrow until July 2016. We expect continued growth in aggregate revenue of our partner companies. Aggregate revenue for 2015 is projected to be between $350 million and $450 million excluding DriveFactor and Quantia, which were recently sold. Aggregate revenue for the same partner companies was $359 million for 2014 and $290 million for 2013. Corporate expenses for the six months ended June 30, were $8.3 million and are tracking slightly lower than our previous annual guidance of $17.5 million to $18 million. Safeguard's financial strength, flexibility and liquidity are evident on this slide showing the company's balance sheet at June 30. Safeguard's cash, cash equivalents and marketable securities totaled $105.5 million. The carrying value of outstanding debt was $51.1 million resulting in net cash, cash equivalents and marketable securities of approximately $54.4 million. Now here's Steve, who will lead us through the Q&A segment of the call.
- Stephen Zarrilli:
- Thanks Jeff. Operator, let's open the phone lines for any questions.
- Operator:
- [Operator Instructions] Your first question comes from Joe Janssen with Barrington Research. Please go ahead.
- Joe Janssen:
- Hey, good morning, Steve. Thanks for taking my question.
- Stephen Zarrilli:
- Good morning Joe.
- Joe Janssen:
- Good morning. The $18.9 million deployed on the three new companies, can you just quickly break that out and then maybe just comment on the decision to exit Quantia during the quarter or that was [indiscernible] the quarter?
- Stephen Zarrilli:
- Sure, I'll speak to Quantia, but I'll let Jeff speak to the deployment. So with regard to Quantia, we actually determined within the last year that the business was probably not growing as rapidly as we would have liked, but the capital required might be substantially more than what we would have originally expected. And for those reasons we felt that Quantia might survive and thrive better in a different environment and that the use of capital associated with Quantia from our perspective could probably be put to better use elsewhere in the opportunities that we're seeing. As we pointed out, we've seen a number of opportunities. So the pipeline is full of ideas. So for those reasons we figured we would minimize our losses and move on and we've been pretty specific in the past in explaining that. We realized that we are never going to be a 100% perfect in the opportunities that we choose and that part of the strength of this management team is its ability to recognize when something isn’t necessarily going as planned and to exit sooner sometimes faster than we would have originally anticipated. In many cases it will result in a complete return of capital. In this particular situation we did have a small write-off associated with the exit. And with that, I'll let Jeff speak to the three deployments.
- Jeffrey McGroarty:
- Sure. The $18.9 million is broken out, $7 million went into InsideVault and that got us a 25% primary ownership interest, $6.5 million into meQuilibrium and that was for 32% ownership interest and $5.4 million went into Sonobi for a 23% ownership interest.
- Joe Janssen:
- Okay, great. And one follow up. Maybe just comment on the current pipeline. I think you put numbers out there before, kind of in terms of what you've looked at, you looked at 800 last year, I think you've put a number out 300 in Q1. I am just curious kind of what that looked like in Q2 and may be just some general comments on the second half of the year?
- Stephen Zarrilli:
- Yes, we're close to looking at almost 600 opportunities through the second quarter. So we're actually on a pace that would suggest something between 1100 and 1200 opportunities if that pace continues in Q3 and Q4 and we don’t expect it to actually slow. So interestingly, we spent some time in today's call talking about discipline because we really do believe that that's a key thing that our shareholders should stay focused on as it relates to Safeguard. We are doing a lot of work to make sure that this team stays focused and disciplined on opportunities that we think we can actually provide the returns that you all are expecting in the future. So 18 last year resulted in nine closed deals. We're actually on a similar pathway this year. I've reported to our Board earlier this week that we issued seven term sheets and actually ultimately walked away from four this year thus far because we couldn’t get comfortable with the negotiated valuation parameters of the deal.
- Operator:
- Your next question comes from Bob Labick with CJS Securities. Please go ahead.
- Bob Labick:
- Good morning.
- Stephen Zarrilli:
- Good morning Bob.
- Bob Labick:
- Good morning. I want to start with your July investment in Apprenda, could you tell us your current ownership stake?
- Stephen Zarrilli:
- I'm sorry Bob you cut out there for a second.
- Bob Labick:
- I am so sorry. Yes, I guess in the release you mentioned you invested further in Apprenda in July and I was just wondering what percentage ownership you have now after that new investment?
- Stephen Zarrilli:
- Sure. I'll let Jeff answer that.
- Jeffrey McGroarty:
- Hey Bob, yes, we invested another $10 million in Apprenda and our primary ownership is going to go up from about 21% to roughly 29% following that round. We were 10 of 24.
- Bob Labick:
- Got it. Okay, and then with that investment Apprenda is now your second largest, I guess investment at cost behind MediaMath and could you just discuss your comfort level there? Obviously you've upped your stake and your dollars. So talk about the thought process behind having such a large investment in one company there?
- Stephen Zarrilli:
- Sure. So point well made. We have a fair amount of capital exposed to Apprenda and we see great opportunity for the company. In fact over the last 12 to 18 months there's been a number of large enterprises that have taken a look at Apprenda and have shown real interest in figuring out how they are partners with the company in the future. We had a unique opportunity to get ahead of what we think is a big curve for Apprenda to put capital in at a reasonable valuation getting an increased ownership percentage in that business under the dynamics that we think that exist was pretty valuable for us. So Apprenda now is moving into the spotlight of becoming a pretty substantial Safeguard partner company. It is interesting and I've been asked in the past and it’s a constant theme whenever we have a couple of companies like a GoodStart or a Putney or a MediaMath that start to show real promise, the next question becomes so what's next. We had the same questions asked of us when we were building value in Advanced BioHealing. Apprenda represents that next generation of partner companies here at Safeguard that I think we're excited about. I know we're excited about and hopefully our shareholders will be as they learn more about companies like Apprenda.
- Bob Labick:
- Great. Thank you very much.
- Operator:
- Your next question comes from Jim Macdonald with First Analysis. Please go ahead.
- Jim Macdonald:
- Good morning guys. Thanks for giving out quarterly revenue now. So that's good. I noticed that there is some seasonality there. Could you talk to that? I assume that some of that is December's seasonality for MediaMath, but is there - that's reported in the March quarter, is there other seasonality?
- Jeffrey McGroarty:
- That's really the big driver Jim, you've right. It's the quarter lag that we apply. MediaMath and some of our other ad tech companies really have a large Q4. So they flow into our Q1 reported results.
- Jim Macdonald:
- And maybe you could give us a couple of words about the two new ad tech companies. Do they have a MediaMath potential do you think?
- Stephen Zarrilli:
- They do and you're referring to InsideVault and Sonobi. We continue to build on a theme around ad technology that we believe is going to be pretty substantial for us. InsideVault is a SaaS based next-generation search platform that leverages data science and algorithms. Search still represents the lion's share of the overall digital spending. So we think that it is an important place to be. And this California based company is already in the initial revenue stage. So we think it is going to grow pretty rapidly and we're thrilled to be a part of it. Sonobi is actually a fully enabled solution for accessing premium online ad inventory and it's really a publisher focused solution which are, there are very few of those out there in the market today in the way that Sonobi has created its business. It runs its business out of both New York and Florida. So we think that these are two opportunities that present a continuation of the opportunities that we're seeing build out in ad tech.
- Jim Macdonald:
- Just one more if I could, just while we are on ad tech. Any further thoughts on MediaMath and the potential exit there?
- Stephen Zarrilli:
- Well, MediaMath like many successful technology companies has a lot all of alternatives that they can pursue and we similarly are looking at a variety of alternatives that would make sense for our shareholders. MediaMath understands that the timing of our potential exit from MediaMath may not necessarily coincide with whatever they are considering in the boarder market. So we are going to continue to work through a variety of different alternatives over the next three to six months and as they become more fully formed we will be happy to share those with our shareholders.
- Operator:
- Your next question comes from Greg Mason with KBW. Please go ahead.
- Greg Mason:
- Great, good morning, everyone. First Steve, on your comments on two profitable exits it seems like you've added a minimum aggregate cash value of $50 million. I don’t remember that from last quarter. Just in that $50 million so far is that just DriveFactor or are you putting DriveFactor and Quantia in that $50 million for this year so far?
- Stephen Zarrilli:
- Yes, good morning Greg, it's just DriveFactor at this point.
- Greg Mason:
- So if we think about one more profitable exit with an aggregate of $50 million, that's $40 million of additional value. Is that what you're implying there and if we look through your portfolio excluding MediaMath, you know almost no one has a cost carrying value north of $10 million, so should we be thinking kind of $30 million type of profit?
- Stephen Zarrilli:
- I think, I am going to leave this Greg, is that we're expecting proceeds of at least another $40 million from at least one profitable exit over the next six months.
- Greg Mason:
- And any gain on that would be the difference of your cash received in the carrying value, correct?
- Stephen Zarrilli:
- The way we describe this is that's cash in the door, that's proceeds coming back to Safeguard. It doesn’t necessarily imply profit of $40 million.
- Greg Mason:
- Right the profit will be the difference of that cash and the carrying value, correct?
- Stephen Zarrilli:
- Correct.
- Greg Mason:
- Okay. One final question on the equity income line, last quarter is a negative $8.7 million, this quarter was a negative $13.7 million. As we walk through the impairments are about $6 million impairment, but you have the $6 million gain, so we were kind of thinking those would offset each other. What's the driver of the $5 million increase in equity income loss in the quarter, quarter-over-quarter?
- Stephen Zarrilli:
- You are looking Q2 versus Q2 of prior year Greg?
- Greg Mason:
- I was looking first quarter of this year versus second quarter of this year?
- Stephen Zarrilli:
- Okay and you're looking at the total in aggregate Healthcare and Technology?
- Greg Mason:
- Yes, just on your income statement, the consolidated statement of operations, the equity income lines, looking at an acceleration of kind of recorded loss from your portfolio companies or if they are one-time items this quarter?
- Stephen Zarrilli:
- The one-time item as we said more or less offset. We had a $3.2 million impairment and a $2.9 million impairment offset by a $6.1 million book gain on the sale of DriveFactor. So really the main driver last quarter you've got a quarter lag. So you've got some, as we talked about earlier on the call you've got some big quarterly results in our media tech space, which tends to drive a lower net loss in Q4 and on a quarter lag our Q1. And also what you are seeing is the impact of an increasing number of partner companies and capital deployed in those partners companies which are primarily in the initial revenue stage and are therefore generating losses in the net income level.
- Greg Mason:
- Okay, great. Thank you.
- Operator:
- Your next question comes from Paul Knight with Janney Montgomery. Please go ahead.
- Paul Knight:
- Hi Steve, if you look at the overall portfolio it’s been a little choppier the last two years on exists. Do you think that regularity was going to come back closer to your goal in 2016?
- Stephen Zarrilli:
- Yes, if we clear an exit with another one or two companies this year we will have in relatively consistent year-over-year between 2015 and 2014, although '14 three exits came in the beginning of the year and here you might see them back loaded to the end of '15. So that period of time from January Q1 of '14 to Q3 or Q4 of '15 tends to make it look longer than it probably is when you are looking at it on a year-to-year basis. But, so that’s near-term how we are thinking about it, so I don’t think we're that far off from the pace that, and in fact I don’t think we're off pace in any extent from where we thought we would be. I can’t calibrate this so finely that I have something happening in each quarter within each year. They tend to get bunched up a little at times, so that’s what you are seeing here. As I look forward to '16, '17 and '18 there is an interesting build that going on now. It’s look like we are going to be able to potentially get to a point where you are going to see that same level of consistency 3, 4, 5 exists and that’s what we are looking at, that’s how we are projecting forwards. So I think the underpinnings of the strategy that we put into place just a little over two years ago when I became CEO, have started to take real root and we've got not only those that are high profile companies that our shareholders are looking at, we've talked about some of the companies that have had a little bit of a longer life with Safeguard and how we are potentially positioning those for some potential exits in the near future. And then you've got this next generation of companies and I think we have mentioned apparently this morning there is a number of others and they are going to start to lead into the exit opportunities in '16, '17 and '18.
- Paul Knight:
- And then last Steve, is that you may have a lot experience in the diagnostics eco systems with your Good Start Genetics investment and your Crescendo exit, but that's your portfolio adds don’t, - you are not having many diagnostic portfolio adds. How will the pipeline look, what are your thoughts on the diagnostics space and healthcare in general?
- Stephen Zarrilli:
- Yes, it’s interesting Paul, it’s not for the lack of desire to do a couple more diagnostics deals. We just have not found anything that’s been really compelling to us. And we do recognize and then Good Start is experiencing a little bit of this in the near-term with regard to reimbursement as a risk. We are finding that there is an accelerating pace around healthcare tech or healthcare information technology and interestingly enough we are trying to take advantage of this. Not only because the market provides interesting opportunity, but we are actually able to leverage the other side of our skill sets in the technology group to help us evaluate these deals as well. So you are seeing a little bit of a number of things kind of playing into how the portfolio is shaping up. So we are not advertise is not fixed for, we are looking for opportunity, we are still looking for interesting device opportunities. We have talked a little bit about doubling down on InfoBionic and the rationale there is we still see great market opportunity for InfoBionic. We did have to take a step back because of some challenges with the first generation of the product. But, we did bottoms up analysis and said this is a device player that we wanted to be a part of. So we are looking hard for device diagnostic and healthcare information technology. I think in the last six months you probably saw us more heavily oriented to healthcare IT. I wouldn’t read too much into that as a particular trend. We are also looking at the potential of some other resources coming to Safeguard, personnel resources that may actually bring some other depth of capability that would play into some of those other market areas that I just described.
- Paul Knight:
- Thank you.
- Operator:
- [Operator Instructions] Your next question comes from Bob Labick with CJS Securities. Please go ahead.
- Bob Labick:
- Thanks, good morning again. You have touched on a number of, you know your high profile names, certainly at least one that you haven’t given us an update on I was hoping you could tell us what’s going on with Putney?
- Stephen Zarrilli:
- So, Putney continues to demonstrate substantial growth. We really think the world of the team there. They know that they are in a market dynamic today where animal health and specifically companion animal health is getting a lot of attention. Jean Hoffman and her team are pretty savvy and they are going to look at opportunities as they get presented to them and leverage the growth rate that they are enjoying. Putney actually had if I think my, they had seven new product approvals within the last 10 months, so they are demonstrating that they can take an existing compound or compounds and reformulate, get the buyer equivalency and then get them into the market. And I think it is those types of attributes along with solid revenue growth that is going to position Putney interestingly in the marketplace. And I think outside parties are taking notice and I think the management team will prudently assess what those opportunities present. And the good news is management and the investors are aligned in their perspective on Putney and we are just to make money and to make sure that we maximize value for our shareholders.
- Bob Labick:
- Okay, great. And then may be a tough but more conceptual question. Do you talk about taking profitable exits that you know two times, three times, four times, whatever the number is versus holding on another quarter or year to try to maximize every dollar in your investments, how do you weigh those decisions internally and what leads to an exit in that regard?
- Stephen Zarrilli:
- Yes, one of the things that we always remind ourselves of and we try to remind our shareholders of is, we believe in the concept of well timed risk adjusted exits. And what that means to us is that we are not necessarily looking for every dollar or profit. We want to maximize what we think the return on that asset could like for our shareholders without taking further undue risk to try to attain another turn of profit. Every time we get to a certain stage in our companies evolution and when we are presented with potential opportunities for exit, one of the first questions we ask ourselves is, if we don’t exit now what’s the timeline to a future exit opportunity, what additional costs may be incur getting to that opportunity and what’s the actual value increase that’s going to occur? And a lot of it is educated guessing, but those are some of the questions that we ask ourselves as we decide whether or not it’s a good time to have a partial or full exit opportunity from any one of these assets. And obviously as the asset gets more mature and the industry in which it plays becomes more mature, those questions take on another level of dynamic that has to be evaluated, much like and that paradigm actually exists at the earlier stage too. So, as we are considering what to do with a company like MediaMath or Putney or any of those that are out there in that high tracking category and we are also looking to say so what happens when you have the a hiccup like within InfoBionic where you have to kind of reassess the landscape, reassess the company’s capability and determine what you want to do from the standpoint of deal, stop, and try to find an early exit, or do you continue to go and look for the bigger opportunity. And Bob that’s the way we look at each and every situation. Obviously as you would expect each and every situation has its own dynamic that we have to assess, but we are constantly thinking about those types of questions, because we realize that you can overplay your hand and it may not work to your benefit. But more importantly, you have to also look at where we are expert in the market. And we are actually really good I think as a team in the early stages of the company's development and when they get a certain stage of growth we probably need to ask ourselves the question, are we the best owner of this asset or should we take the profits that are embedded, use them for what we do really well and let somebody else take them to the next evolution.
- Operator:
- Your next question comes from Bill Sutherland with Emerging Growth Equities. Please go ahead.
- Bill Sutherland:
- So Steve, can we think about 2016 may be being the year where proceeds will exceed your plans for new and follow-on investing in terms of dollars.
- Stephen Zarrilli:
- Yes, that’s the goal, so that the proceeds from the sale or the divesture of interesting companies exceeds the capital that has been put into the market, that would be the – that’s the goal and '16 has real hope and possibility for that to occur.
- Bill Sutherland:
- I mean with a bluebird or two could it even happen as earlier as later this year?
- Stephen Zarrilli:
- We always remind our shareholders that there always a bluebird opportunity that potentially could be out there. We've demonstrated in the past that those bluebird opportunities exist. I think the last one that probably is on peoples' minds is Stingworks [ph] which was just about 18 months ago. So yes, I am trying to make sure that our shareholders recognize that there are some other interesting things that are occurring with companies that are outside of that expansion stage revenue category that we have and that could provide real opportunity for acceleration of profit creation as things go our way.
- Bill Sutherland:
- Okay, and then in the add tech investments, I guess there are four now and that’s clearly become more of a buyer's market particularly in the private side and I'm not sure if it’s how it is going to play out in terms of the competitive issues now the, all the entrants and so forth, but obviously this has worked to your favour in you being able to make initial stakes Sonobi, and InsideVault, but how do you think this plays out potentially as you get to the profit realization faze of this?
- Stephen Zarrilli:
- Well, the question kind of drives on, we do have a fair amount exposure to add tech. We think it is fairly well diverse given the types of deployments we have in MediaMath and Spongecell and Clutch falls into that category in large degree and Sonobi and InsideVault they all kind of represent a different part of the puzzle. Interestingly and they are aside and probably more than just saying it in a half joking way, I think Joe Zawadzki of MediaMath looks at our add tech portfolio and says, each one of those companies, people love to have an opportunity to own under his platform because he sees how they all kind of tie together. So, you know we look at these opportunities much like we looked at MediaMath and I think people tend to forget about how we ultimately got ourselves to where with MediaMath. That was five and a half years ago. We were just reminiscing this week where you know MediaMath when we first put money into them five and a half years ago or six years ago, they were doing about $7 million of gross revenue. And we sales up their way into $25 million of capital into a company that I think arguably is worth a lot more than that and I think we've tried to express what we think the valuation range looks like for MediaMath. We think that the same type of dynamic exists for the rest of this ad tech portfolio. And we are really happy to have this opportunity and the thing that’s really interesting for us is we're getting presented with some inside opportunity here with some of these companies and they are coming to us because now we have such a great track record in this category. And we are getting some inside opportunities that may be others aren’t seeing as early as we are and that gives us a bit of a leg up.
- Bill Sutherland:
- Okay, thanks Steve.
- Stephen Zarrilli:
- You are welcome.
- Operator:
- There are no further questions at this time.
- Stephen Zarrilli:
- Great, so thank you for your continued interest, confidence and support in Safeguard. Before we conclude our call, I'd like to inform you that we are hosting our 9th Annual Safeguard Scientifics' Investor Day on October 08, at the Le Parker Meridien in New York City. Please stay tuned for more details in the coming months. In the meantime enjoy the rest of your summer. Thank you.
- Operator:
- Thank you. This concludes today's conference call. You may now disconnect.
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