SFE - Earnings call transcript Q4 2017 | Safeguard Scientifics, Inc.

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Operator

Good morning, and welcome to Safeguard Scientifics' Fourth Quarter and Full Year 2017 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'.

on President call McGroarty, and Vice and today Steve webcast Safeguard's on President Safeguard's Zarrilli, CEO; CFO. me the and conference are Senior Joining and Jeff

as review companies. take partner Jeff your lines that, will results highlights, will we and financial Then Steve Safeguard's questions. strategies. call, at Safeguard today's as During to well and other discuss will developments our the recent After open

forward-looking statements. As today's presentation includes always,

could partner SEC. to uncertainties beyond partners companies of and decisions business other a may our companies the to The forward-looking traded control. actual statements are the holdings, our partner including partner fact companies, described to partner subject our differ the company in challenges and control retain or with effect and economic the valuations and to include, partner of in companies, of associated results ability partner cause Our to monetization intense period, our and sectors or our holdings, our history sectors Company in with which our at that our prices factors that company's that history employees, materially of of have to vary risks filings these and our market companies, publicly XXXX, attract to the partner the distributions market manage value our operating partner inability Act a achieving avoid to the period to of our existing liquidity risks our companies to ability companies Safeguard's uncertainties uncertainties. for fact to Investment operate, conditions about are need our losses, among fluctuations the of company of most may shareholders, maximum from support under partner ability all the our our companies qualified assets others, in make from the never good our ongoing limited profitable, registration predict and competition competition, risks and in Many be face which in operate,

factors, of result financial not indication and company's the future an be a of should performance. on relied As as these performance other past

Safeguard's course call, believe anticipate, the and as described business. associated which of any detail filings statements. or Form statements will We Management The our any goals such SEC, used assurance words as today. our XX-K, update in in with including in any that read does will with of describe During results today's managing not company the encourage made uncertainties forward-looking discussion expect, and future cannot in risks you be intend events provide our to be assume to forward-looking our the the future. obligation

is CEO, Safeguard's Steve Zarrilli. and here Now President

Steve Zarrilli

joining good us. for thank And John. you and morning Thanks,

As you strategy. much to of I'll our will of past shareholder discussing Jeff, who then go plan been performance. my know, new portion call the beginning communicating Safeguard's enhance at on new year. Board's which the we the the to to to strategy month the busy intend following of the business this a forward QX spend this over pursue have over embarked opportunities and turn Safeguard value, operate call I fiscal approval of discuss

to will the net and After not with of business partner by maximize our extensive history. board XXXX and opportunities on risk-adjusted in deploy proceeds chapter legal options company its this or Under certain strategy, interest market Safeguard strategy companies, began and the any its individual of partner sale authorized I'm XX-year shifting open a partnered further Safeguard sale new financial review opportunities an will return company's transactions operations. to then will quarter XXXX reflect we fourth existing supporting strategic of partner to advisors, capital companies Safeguard company including questions, shareholder opening the consider value. to financial Finally, call new results. of that And company First, a time, which full for happy during to other the on: and monetization well efforts secondary opportunities and new to such shareholders. as the maximize The initiatives combination into others, secondly, among will focus thereof results. as the

proceeds debt company return or shareholders interest expect of net We the companies company's working partner after needs. satisfying capital to obligations sale to our partner and from the

longer We want companies. needs I our to partner will the committed emphasize supporting we existing capital companies. deploy new no of to in that growth are

will of Safeguard's to companies take will in our long monetization the partner achieve companies and revenue to ultimate relevant for in improvement shareholders. lies these growth, growth These term partner and shift the value. additional penetration, opportunities market to these value identify partnered a right capital our is efforts for our and flow exit to financial tandem place with each management order and We teams company operating interest help companies. of expertise bold for This other strategy leverage Safeguard maximize in benefit work ahead of of the much in continue XX existing cash partners the

any timetable processes as and distributions method this As minority or size, a to and the for monetization potential intend solely and of as cannot explore the number to once distribution could these strategy we completion time, not three the exit shareholders we take interim, recall, for companies. matters exits At achieved five to of significant timing, we the scenario In these timing. long are years. set these in as while control you the companies, may we dictate stakes maintain in do enterprises

projected of our taxation given of our from carryforwards. size to remaining and also life We on federal the shield net loss profits such most operating expect existing exits

dynamic you and entrepreneurs innovative in we of was teams employees, Safeguard, and the our As and current the with management can our relationships and have shift legacy companies. working value true imagine, strategy difficult the this of in of given past had pleasure with partnered

provide is to to shareholders. direction this value our are the the right confident greatest However, we that

As cost million $XX operating refine to will expect a that have we expenses. substantially in of Further, and structure believe between unusual XXXX opportunities there in $XX ongoing strategy, this We operating expenses any absent that additional during year. be reduced cost this may range part arise. such change we our may that currently million the

Going forward as reductions we structure. expect and anticipate further in assets are annual monetized, cost operating this

Details Communications a staff full-time professionals Partnered our X Administrative group such Managing compensation finalized an Shave. alignment both programs being our ensure Relations comprised nature. of combination number company Our Investor and Gary they ago. now requirements EVP now our individuals will CFO, not retention and necessary Oversight will management actions finance, responsibility This has myself, is Operating Kurtzman. by Chief and Compensation Sisko, retains other with XX a accounting, one We support the are designed most and requisite refinements disclosed but XX term the to Managing of in ensure are is results John knowledge be our only is of our of the effective effective approximately representing VP of experience Jeff to functions monetization. skills short and and of cost These organizational strategy. this half portfolio involving new and needed This current Director Director, currently experience and Dr. SVP and is implemented. Brian as growth Senior long and communication believe team be of the programs board. year and on by structure overseeing to staff. and the finalized refined our McGroarty of Officer execute process the are

they point, confidence one Our the growth to in development. strong our partner of potential simple in continue stems company demonstrate from

Our opportunities are Market continued for growth in signed our to partner in companies and strong. growth financial partner and in are are partnerships operations being achieving are partner companies maturing, are customer and be interest Safeguard’s revenue strong counts companies ramping. accelerating, has results.

new rewarded were potential meaningful over begins and achievements of maturation exits to them companies periods well value. XXXX capital, a growth increase valuations. realize in partner an rounds reasonable position our We of these positioned which partner reaching many to that that of are at of point some their We enterprise by reflecting in time. believe are of valuations of companies full virtue our Importantly attractive believe for

revenues MediaMath leader continues company capital to want and grown is $X scale that slightly than capital. primary arena. they marketing digital between has million that at audiences initially we of need. metric a XXXX. momentum the the we Zawadzki, can reach within enables in in XXXX since captured XXXX is a two XX MediaMath still being exceed annual a and resulting example important and invested projected partner their believe amounted Founder advertising partner of substantial have operates more growth digital countries. growth in four Under in as an and a into while $XX technology our revenues achieve aggregate $XX by target base, One has XX asset the XX% return companies times of of current that significantly and marketing the revenue $XX.X be million. process another revenue between our has million of in of aggregate have While position total Joe largest global marketers MediaMath our it Safeguard’s of and to companies is leadership which the CEO, they annual companies’ Safeguard XX% the million XX% and Ten to in supplied early in that demonstrating Today, XX%. our to grow ownership

attract benefit is grow to companies but MediaMath billing own only such stake of long wants goals. in would a strategic a electronic full a promising attention of a partial its our We valuation As monetization leader Safeguard to also fast-growing appropriate. fully our believe technology payment capital from of one financial is attract investors, term Transactis kind Safeguard equity or the and is to assuming the solutions. and shareholders achieve MediaMath continues would committed transaction not

With investment fast-growing its capital million XXXX be attracted made $XX.X sector. through value takeaway. carry serve providers maximize Safeguard growth valuable We be healthcare Transactis a XX that years. largest agreements primary equity XX% the ownership transactions has I’ll the Merck, certain for shareholders Founder $X.X we generate million Through I’ll that quarter’s off new projecting financing rewarded five and interest world. of Certain Syapse Joe targeting revenue $X.X new now, in Proto Roche including Syapse have electronic growth will the million. involving stage continued in to significant with and hold ways of more to transaction Today five financial payment million results. is of a initiated enterprise to Syapse we companies. strategy, and contributed the is that to a beginning primary In for can strategy on XX% a closed over exploring efficient billing for growth in industries investors its to this financial other client balance Safeguard these the health coincides position. from announced roster CEO the partner an Transactis strategic a and Jeff subsequently of over Safeguard of Metadata. that financial and at large the volumes The review this D expansion sheet believe to and round you strategic He’s with of a and want and increasingly more have commercial technology turn in that Amgen, Series our company. XXXX as key platform. and round a stake $XX call investors company stop with is market the institutions, in but three the new time, of of share continued next XX our banks ongoing leave I includes top collaboration market development. that, largest is deployed this the categorized XXXX. maturation maintains

Jeff McGroarty

interest have companies Thanks, was partner a XX capital in was and time those partner years. length we was partnered XX companies carrying or the deployed our shareholder The value XX, companies. At a is the cost company Safeguard a December has $XX.X $XXX.X $XXX.X of companies that XXXX million our been in Steve. those million. of Average had million. companies December from less. XXXX average The been of weighted years Safeguard for three XX, XX X.X at

capital of During partner million companies. X the fourth $X.X existing quarter, we deployed into

$XX.X the capital we companies. year follow-on For deployed in partner XX to million

million follow-on million to to XXXX. companies in capital expect $XX to in We additional $XX deploy partner

earlier, mentioned capital into deploy we no Steve longer companies. As new will

in being stage decision Safeguard's $X XX, the recognizing full to As of December charge. [indiscernible] million revenues the continue This XXXX, deploy initial capital measure impairment company raised company investors. significant and of not based capital was the to absence position from follow-on on partner into a Safeguard's new

an our formerly $XX the with we We X.X on a is as loan Nexxt reserved balance million. repaid along full cash received in in for on loan three-year term a of term Inc., which resulting the Beyond.com million aggregate During cash year-end, $XX.X cash to times. interest Subsequent $XX.X million year, fully in sold initial Nexxt, in of known an return sheet.

We to which into first the will in Spongecell this companies holds the privately recognize held Safeguard now a partner year, on Flashtalking digital Subsequent XX% interest. equity quarter merged gain of close in the repayment. a advertising

As NOL convertible XXXX in equivalents $XX.X income million we XX% forward federal at have million May of NOL marketable exit taxes December will carry tax forward at December new carrying tax. carry to balance offset These period. XX, of NOL's compare expire XXst, XXX% to value this earliest million prior transactions. retain NOL's on securities maybe cash, to taxable and debt Under December utilize is and of year-end notes, million. any existing these alternative capital limited XX outstanding $XX.X Safeguard be our the generated expected XXXX. XX, $XX year. has We generated at and XXXX, in forward gains of and to of reform, offset cash our The XXXX. their to period. $XX.X with indefinite $XXX of NOL's was total forward due carry use taxable plan on federal was of an Safeguard year in NOL's minimum which The come XXXX. income XXXX million all no

We refinance the credit available proceeds repay under and converts utilizing or expect availability $XX facility. million from cash, senior to the secured exits

of in the with generating our compliance Continued senior the be profit facility secured covenants achievement will upon under near-term. credit exits the depended

fourth where quarter, stock-based expense $X.X the During depreciation million. excluding expenses and corporate compensation interest severance

compared XXXX. For totaled million to $XX.X in the year, million expenses $XX.X those

lag corporate one shift, result on companies. depreciation million it on of and interest periods compensation its reductions Revenue to basis. to the we strategy range from on million. for solely across a expense of Aggregate $X will reflects initiatives stock-based severance, revenue in items for revenue $XX company's $XX with certain ISE any XXXX. includes expenses the to [ph] an million, companies all revenue by As by recent a and companies merger. expect million recently expenses basis. the at due announced Flashtalking Staff reduce its $X unusual and interest million are quarter which associated excluding all Aggregate XXXX approximately partnered million are revenue based prior severance of Spongecell revenue companies the Safeguard XXXX projected initiatives expected to expense quarter for is pro $XXX net to months. in $XXX result Safeguard's to equity Aggregate of first of recognized partner had reports companies will partner to between in over revenue X, and the partnered and for these for be for pretend XXXX. which the with company revenue data which XX was reflects XXXX million, years includes $X.X paid $XXX those be companies all partnered January same Aggregate years forma combined XXXX, million the for revenue for $XXX million and a information and involvement those provided Safeguard or Safeguard to

the to us through the Steve lead call. here Now, Q&A segment to of

Steve Zarrilli

questions. any phone Jeff. for Operator, lines open let's the Thanks,

Operator

first Your Bob Instructions] line CJS [Operator the question Labick comes of from from Securities.

open. is line Your

Bob Labick

morning. Good

Steve Zarrilli

Bob. morning, Good

Bob Labick

have enough wanted off you Hi, hand now of liquidity on an to place that exit to Do and will reasonably to be require of you convert I just exit play able to for plans kind just that. you, And where the before in out? finished refinancing in update the May? of do and just terms getting in you this refinance start sized kind have or an

Steve Zarrilli

Sure, Bob.

the Our place May transactions And do we now expect that we cash in recently have enough the other XX. note credit just that today, from received between should we plans between $XX few have take repayment the and liquidity the facility. under available with conjunction the are of the we will million cash available next receivable

require And additional might that. goal borrowing the some under HPS is it facility. our to So, repay

Bob Labick

of great. put HPS talk you expectations? had Can Got changed compute facility party value holdings. talk it and about a then, in original and played was third the the I little know value you a is your it's believe embedded the of in when was what out can And the your Okay, go place that place or versus put about holdings. out it. you since then, maybe how I when

Steve Zarrilli

we've Sure. like kind we've since prepared few rounds forward haven't had we've the us and a deployments a Steve But some exits time. we few gone capital valuation up had a have comments, to value roll party another at now his in that also that valuation, had we had done. those had give Yeah, impairments, additional that of and Nexxt had raise increased. companies that companies We've we has out as indication of alluded that Beyond but of further some

together that covenant So, well add the when that was above we activity net all still we're set. roll is that the and forward,

Bob Labick

Okay, great. last And maybe then me. for

if MediaMath doing an performing obviously you guess their Just you about public. how I the recently. could But little give very well stocks closest but are peers you operationally it looking update have talked been that just they're on at done and and bit,

you you raise that So us going know tell see are and them. if year this just they're then if participate financing can about looking wondering And operations to in? what to could how more potentially their you

Steve Zarrilli

points MediaMath. to So, related two important

are to ways also opportunities. recognized to like can that they guidance. right couple capitalize of company confident. are They've revenues substantial that in Bob, strong a which XXXX substantial to the have in an at seen for had weeks flow bullish competitors may bullish their acquired on considering grow would of value because and particularly cash they're and further shared basis, that MediaMath thing, the same the pace, profits They are the we announced are trade for find exit. include the results XXXX. continuing a its they alluded very that to you opportunity producing rise And that in they last have As growth further for public growth have a to

some a collaboratively can looking are are some quite we orchestrating been and We as for we that very is frequently as new our you in to the strategy have that expect about them of waiting shareholders time. with been good different in news and for in continues with But type in a we for working good been announced are those of value and MediaMath to since don’t contact exit our have activities and hopefully them I thing imagine, grow XXXX. and find manner anything that’s talking

Bob Labick

super. much. Okay, Thank you very

Operator

next Your of Analysis. Jim MacDonald First a from question comes from line

Your line open. is

Jim MacDonald

guys. morning, good Hi,

you those of so how about, have talked which partners about managing of people people spread a amongst were three continue roles? change your You in former or now, director’s over will some number those investments seats of

Steve Zarrilli

I will have that’s changes single that No those rational already XX is take here, monetized. executive obviously been are number involved company pretty three, No, so companies made, eight Bob as mean roughly its -- and so per morning. good number Jim, decrease that by companies that’s divided

make very was So, in having the time happened and were sure those been colleagues appropriately. transitions seamless, those departing the working to changes are the with Board instrumental in us have transition that executes companies, and squarely three made our engaged

Jim MacDonald

like like or little And sure about and is consideration, that, other double I it us about sounds might seems about not on that just transaction, been but about Right. am have right? took Flashtalking no the a Spongecell, size more Flashtalking, could you moving to stock, it tell that you bit

Steve Zarrilli

company or three little for transaction. a when by excited about puts Spongecell of be some growing legitimate Flashtalking opportunity assets was times really strategic so. private a and the bit next combined a company that maybe honest, the itself about over give months larger, we're size So, XX a platform it’s to really owned find probably firm. equity think of will This itself. Spongecell substantially has majority It that that's is alternatives TA, the that merger I into been to Flashtalking even a

substantial So, results order we our achieve stock think right includes of investment and on and Flashtalking, here DNA some Spongecell have some the plan now has to in personnel game have really in a the that of management the a the of in legitimate terrific market. leadership which to return opportunity Spongecell we

Jim MacDonald

and have Great, questions. several I technical

in wrote because the didn't the So, loss include off mean to that to much your quarter partner $X you full million measure, seem that losses be done I higher was

Steve Zarrilli

decision year-end the transactions that was was that there in being some that Jim made conjunction that. results offset Yeah, closed a and with were

little full less we mentioned, companies up raised when the and we a for these had bit because referred those loss in I gain offset at Syapse and we that with the pro your our a interest that happens loss money Prognose, recognize accounting or in had that on to that is those As change and rata combined couple that transactions in than up on transactions rounds impact gains put you'll of a rounds were measure. you the

Jim MacDonald

so explanations. grew of range that at about the And so was by that million, XX%, list for my the calculation, low that revenue in maybe the you you said old under the projected? XXXX it had then, mean range of $XXX so end companies partner Thanks

Steve Zarrilli

million lower the $XXX exactly end at Yes, of the right range.

Jim MacDonald

an And you that update it me, NovaSom then been for one quarter, Okay. spoon-feeding on have us you so more investment? can looks give every like

Steve Zarrilli

capital additions NovaSom Company capital an the for intact our to opportunity right interest. solution, then is for exit for with some ultimately that we’re a actually and to work our and capital fellow grow, of continuing still still has is the find strengthened and continues been but longer-term to partners right looking with leadership recently

Jim MacDonald

XXXX? by you promoted way in market, And companies quarter. the sort on one five of Any others slip having I guess, congratulations maybe to promoted in this expect the be

Steve Zarrilli

different stage in Trice and categorize company. now the stage an from are which companies Lumesis ones think initial doing are I, companies being expansion to high expansion merger million, think which Syapse, promoted $X Spongecell revenue for ones and three XXXX to to Aktana, will Medical Those others we revenue companies, on talk companies doing via the moved Quantic traction eye are stage today. are revenue call, higher The move XXXX healthcare traction is the initial highlight Flashtalking, graduating Mine, million those and company our the Propeller, million could that into meQuilibrium, that stages, we is high another, move you and up would three keep up, I but one the there we or for And could in when which the those million $X about most included that stage to companies likely a the others remember from that greater. $XX in a $XX could see I and be are Sure. on

Jim MacDonald

Great, thanks.

Operator

next [Operator Joe from line Stifel. comes Instructions] Your [ph] question of from the

open. is line Your

Unidentified Analyst

Hi, Steve, morning. good

the X% wondered over your raise what three was their I calculation past had of the and XXX percentage years your holders enacted You what of holdings.

Steve Zarrilli

I’ll let answer that question. Jeff, to

Jeff McGroarty

Yeah, this strategy potential we have is, something to have, the light ownership disclose we in what that is we it and been we that look ownership the we in in and but something and updated monitor for years the shareholder our amount changes. many particularly is analysis monitor for don't continue change, change of at

Unidentified Analyst

in because I poison more, in don’t lighting X% accumulating to you're you pill mean close effect because, is it, correct? a really it Okay, holders need on XX% if getting

Steve Zarrilli

a of and shareholders a preservation the and decision and think occur it’s for as of made the of is the there to entirety these taxation million proceeds we get majority plan to over board vast ultimate that going and shareholders. of the bought is remove any out able that that risk NOL distribution the always utilized to that NOLs pointed deliver, little we’re tax returns almost we to that in we have Obviously to the be monetization the right approve important to $XXX double would

Unidentified Analyst

the this obviously mostly because buy institutions, of had mood holders your big holders on to almost now most X% and are the correct am your precluded, are ones, they they new big that. other are stock substantial I been But of likely amounts

Steve Zarrilli

Yes.

Unidentified Analyst

you Thank questions. for answering the

Steve Zarrilli

welcome. You’re

Operator

[Operator [ph] from Baird. Lee from Instructions] question comes next Your

line Your is open.

Unidentified Analyst

Hi, Steve.

Steve Zarrilli

morning. Good

Unidentified Analyst

In in it loss relations could I of that people would but or a buying precludes the way it you tax than that X% put it more hope not change carryforward? preserves [indiscernible], from the

Steve Zarrilli

mean plan provide management not Lee the the as appropriate. exemptions to with board - Well, ability I management, the does provide

So, as the plan those company for are in there’s to presented it opportunity the in -- as documented there's so and so itself opportunities if presents consideration.

Unidentified Analyst

shareholder you fairly. do like doesn't market want interest. my was in to The sure interest. guys are treating But that know not It that. seem I make guys that appreciate And you I think liquidating. is I it's that my not shareholder you

Steve Zarrilli

you. Thank

Unidentified Analyst

Bye-bye.

Operator

the further call There are over Mr. no now turn to I back questions. Zarrilli.

Steve Zarrilli

you. Thank

strategy work designed value. much So, lies team transforming to new maximize shareholder Safeguard ahead for the a as we execute

is you making. give that being I progress some think able of value and to we're currently where the built sense been that we've

apprised support you our interest, the on keep Safeguard. confidence meantime, We thank will you of and your for And continued in progress.

Operator

This concludes today's conference call.

You may now disconnect.

Safeguard Scientifics (SFES) 1 Mar 182017 Q4 Earnings call transcript