Q2 2022 Safeguard Scientifics Inc Earnings Call
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Greetings and welcome to Safeguard's second quarter 2022 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. If you would like to ask a question, please press star one on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host Mr. Matt Barnard, General Counsel. Thank you, sir. You may begin.
Good afternoon and thank you for joining us for this presentation of Safeguard Scientific's second quarter of 2022 financial results. Joining me on today's call webcast are Eric Salzman, Safeguard's Chief Executive Officer, and Mark Herndon, Safeguard's Chief Financial Officer. Following our prepared marks, we'll open up the call to your questions.
As always, TAFE's presentation includes four low-key statements. Reliance on four low-key statements involves certain risks and uncertainties, including but unlimited to, the uncertainty of the outcomes of corporate strategic transactions, if any, the uncertainty of the future performance of our companies, our ability to make good decisions about the monetization of our companies, the ongoing support of our companies, our inability to allow or control our companies, fluctuations in the market prices if any of our companies are publicly traded, and the effect of regulatory and economic conditions generally. In other, in turn, you subscribe to our channel with the SEC.
Many of these factors are beyond our ability to predict or control. As a result of these other factors, our past financial performance should not be relied on as an indication of future performance. During the course of today's call, workshops, as expected, 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 urge you to read Safeguards' filings with the SEC, including our Form 10Q, which describe in detail the risks and uncertainties associated with managing our business.
The company does not assume any obligation to update any four looking statements made today. With that, I would now like to introduce Eric.
Thanks, Matt. Thanks for joining us on our second quarter 2022 earnings call. This afternoon, we would like to cover the following topics.
We will provide some overview comments on the State of Safeguards portfolio companies.
We'll provide some color on the capital raising environment for our portfolio and our follow-on deployment activity. We'll share an update on M&A activities in the portfolio. We'll share public market multiples that we use among other tools to value the portfolio. We'll provide some recent highlights on each company and lastly we'll provide an update on the Houlihan Loki process.
After my remarks, I will hand the call over to Mark Herndon, our CFO , to walk you through the financials for the quarter and we'll then open up the call for questions.
State of the Portfolio.
I would highlight the capital raises at SIAPS and Moxie as among the more notable developments over the past quarter, with each company raising a significant amount of capital to support its growth.
SaaS raised $35 million from Enovatus Capital and Insight Investors.
The capital helps support SIAC's continued commercial traction, partnering with leading community health systems to support precision medicine, and entering into life sciences partnerships with established biopharmaceutical companies.
Moxie raised $30 million in growth equity funding led by Piper Sandler Merchant Banking and boutique healthcare venture capital firm, Vensana Capital.
The round also included participation by certain existing Moxie investors.
The capital will support MOXIE's rapid growth as it revolutionizes how information is shared between healthcare payers and providers and will promote the continued development of its advanced clinical data exchange solutions.
Q2 was an active and varied quarter across the portfolio, with some companies showing strength, meeting or exceeding their quarterly projections, while others experienced softer bookings or revenues below plan.
For those that experience some softness in the quarter, reasons include supply chain shortages of key components, shortening shortening shortening shortening shortening shortening
or slower sales cycle and decision making by customers.
What's encouraging is that pipelines remain strong and supply chain issues are being addressed.
On the profitability side, there has been a shift to a greater focus on profitability at each of our companies that began in Q1.
This shift has accelerated in Q2 as boards and management teams have been working to bring operating expenses down and shorten the time and capital needed to reach breakeven.
We believe this trend is also true for the overall venture capital community as VC funds are increasingly focused on cash runway and liquidity at their portfolio companies.
We speak to our CEOs and CFOs frequently, many on a weekly basis, and are actively involved helping them align their cost structures to the current demand and capital raising environment.
The capital raising environment has changed over the past several months.
Private debt capital has become more difficult to secure as Treasury yields have widened, inflation has spiked, and global uncertainty continues.
As an example, we have noticed that certain venture debt lenders are requiring equity or junior capital to come in as part of a debt financing.
For venture capital investors, their focus, as mentioned earlier, has centered on understanding the path to cash flow breakeven and how much cushion is built into the plan.
So how does this impact the safeguard portfolio?
Many of our companies have secured the capital to either reach cash flow break even or reach what we believe is the next key valuation creation point.
SIAPS and MOXIE were able to complete financings in the current environment as mentioned in our earlier remarks.
Several of our other companies are exploring debt and equity raises to support their businesses.
Among our portfolio companies, one is formally in the market raising a growth equity round to fund itself to cash flow breakeven.
We hope to close that financing in 2-4, but there can be no assurances of that.
Two other portfolio companies are exploring capital raises as part of launching M&A processes to give them enough cash runway to complete a sale.
We also mentioned on our Q1 call that one of our companies had been approached by a PE fund to preempt a broader capital raise process.
That PE investor performed preliminary due diligence and liked what it saw, but wanted to wait for two bookings to come in before deciding if they would proceed to the next stage.
Unfortunately, Q2 bookings came in softer than plan, which has put those discussions on hold.
This company is an example of what I mentioned earlier. It posted record first half 2022 pipeline growth, but experienced a slower sales cycle and the deals, while still in the pipeline, have yet to convert into bookings.
Follow on deployments.
To remind investors, our framework for follow-on deployments in the portfolio is as follows. First,
The standalone risk-adjusted returns on the new money deployed must be attractive.
Second, at least two of the following three criteria must be met.
One, participating in the round preserves safeguards, influence, and ability to drive an exit.
Two, our participation is required to complete a larger financing.
or 3. Participating in the round is directly linked to the return on safeguards existing holdings in the company.
Note that we deployed $5 million year-to-date, including $2 million in Prognos, $1.4 million in Clutch, and $1.6 million in SIOPs in July .
We did not participate in the Moxie financing because it did not meet the above criteria. Don't misunderstand this, we are even more excited about Moxie post this financing and continue to be an active stockholder, board member and supporter of the company.
As we look at the balance of 2022 and as we mentioned in our earnings release, given the macro conditions as well as company specific developments, we could come in at the upper end of the $5 to $9 million guidance for follow-on deployments that we provided at the beginning of the year. We will continue to look at the balance of the $5 to $9 million guidance for follow-on
M&A.
On our Q1 call, we disclosed that two companies were interviewing bankers as part of exploring M&A processes.
During Q2, each of these companies selected their bankers.
RBC for one company and Piper Sandler for another.
Each company and its advisors are completing internal prep work and are planning to launch formal sale processes after Labor Day.
While the M&A environment has become more difficult of late, both companies have strategic value to a number of larger companies and we hope that this will be borne out through the M&A process. Let meuber
However, it is much too soon to handicap how this will play out, and we will update you accordingly.
Also, on our Q1 call, we shared that one of our companies received inbound interest from a strategic buyer.
The parties have made significant progress towards a transaction, but a definitive agreement has not been signed yet, and there can be no assurance that the parties will reach the final agreement.
While this company is not one of our larger positions based on expected exit value, if this deal were to close on the terms being discussed, it would still be an important transaction for safeguards.
On a related note, from time to time we get questions from investors about why it takes so long to sell companies.
A typical timeline to sell a company would be as follows. There is approximately one to two months of prep work before the company's bankers would typically reach out to a wide list of potential buyers.
There's another approximately two to three month process to solicit first round and second round bids.
That is followed by another one to two months of negotiation between the parties and extensive diligence performed by the potential buyer covering everything from business, accounting, technology, tax, legal, management contracts, etc.
In the background, the performance of the company during the sales process matters, meaning if the company beats its numbers or misses its numbers during this multi-month period, it can have an impact on the deal.
Lastly, company culture and personalities play a non-trivial role in M&A transactions.
Based on my direct experience with dozens of buy-side and sell-side transactions, a good rule of thumb is to plan for four to six months from launch to close, but of course this could always be shorter or longer.
For all of our portfolio companies active in M&A,
Mark, Matt, and I are usually very closely involved with companies from the banker selection stage through the definitive agreements.
public market multiples.
As we do each quarter, we provide the enterprise value to revenue multiples and consensus revenue growth rates of our public peers to help investors triangulate around potential valuations.
Please keep in mind that this is only one of several valuation methodologies and should not be relied upon exclusively. There are differences in company size, growth rates, margins, net debt, capital structures, and liquidity discounts all come into play.
Note that the following data is as of August 5th.
For our tech-enabled healthcare companies, the EEV to 2022 revenue multiples of our publicly traded peers were 3.8 times, with consensus revenue growth for 2022 of 17%.
This is essentially unchanged from our Q1 earnings call.
For our single marketing technology position, the EV to 2022 revenue multiples for the peer group were 3.3 times with consensus revenue growth for 2022 of 15%.
essentially unchanged from a multiple standpoint from our Q1 call, but with a decrease in the estimated 2022 revenue growth, which was 19% at the time.
Flat valuation multiples from Q1 to Q2 at first seemed quite counterintuitive given the major equity market corrections in both Q2 and in the first half of 2022.
However, our public peer multiple data is not available on our website.
is calculated as of the week before earnings. So our Q1 multiples that we shared last quarter were from April 29th and today's are from August 5th.
Between those two dates, the S&P was flat, the Russell 2000 was up 3%,
Our public health care peers were down 2%, our public MarkTech peers were up 7%, and Safeguard stock was up 2%. Hence, there was no material change in the valuation metrics of the public peers from our last call to this call.
For 2022, we expect our portfolio companies in the aggregate to grow revenues in excess of 14%, although company-specific and macro conditions can impact this estimate.
Mark will provide an update on aggregate cash and debt of the portfolio in his section.
I will now run through quick Q2 highlights for each of our companies, focusing on their achievements since our last call.
Aptana beat its first half 2022 product bookings plan and added Novo Nordisk and Nestle as key new logos.
For SIOPS, we highlighted the $35 million financing round earlier in the call, and the company continues to achieve market momentum, closing expansion deals with several top 10 Lacunck Merc Hawk companies.
Prognos hired a financial advisory firm to assist it in exploring an equity raise.
and it signed five new data sources year-to-date for the marketplace, including entry into electronic medical record and rare disease testing.
TRICE educated and trained over 100 doctors through its MedEd strategy in Q2 and is seeing strength in its ECTRD carpal tunnel and BSC bronchoscopy product lines.
Infobionic posted 10% year-on-year ARR growth. ARR stands for annualized recurring revenues.
and 20% year-on-year growth in deployed devices.
From equilibrium, contracted ARR was up 24% year on year and first half gap revenues were up 22% year on year.
the company announced a significant product upgrade which includes new campaign functionality and real-time access to data and analytics.
From OXI, we highlighted earlier in the call, it's $30 million financing.
year on year they're live.
Health care provider sites were up 95% and live connections grew to 3.5 times what they were in Q2 2021.
Clutch, its Fiserv partnership went live into production and is now processing certificates with 29 brands.
The company continues to increase its footprint with NCR, SMB, and their White Label product, increasing to over 5,000 locations in use.
and they completed full certification and launched a Microsoft partnership.
Lumisys has been a stable performer growing its customer base and improving its products.
Again, note that this is not a comprehensive assessment of each company and specific risks do apply to each name.
I would now like to say a few words about the Houlihan Loki process.
We announced the hiring of Houlihan Lokey in our Q1 2022 earnings release in order to help us explore a range of strategic alternatives for safeguards.
Our design objectives for the Houlihan Loki assignment are as follows.
If possible, find a go-forward business plan that can be attractive to shareholders.
and provide safeguard shareholders superior per share value than what our current runoff plan is.
2. Don't sell the assets below their fair value or natural exit values. 3. See if we can extract value for our NOLs and our New York Stock Exchange listing or public shell that we can't otherwise achieve in a runoff plan.
Over the past three months or so we've reached out to a large number of parties including venture capital, private equity, secondary private equity, hedge funds, family offices, operating companies.
CDCs and other financial institutions.
We have begun to explore potential frameworks with a handful of groups around different structures that could meet our goals of providing superior value to safeguard shareholders beyond our current plan.
Note that our discussions are at an early stage and we will continue to update you in subsequent earning calls.
Of course, there is no assurance that we will be able to identify a transaction that meets these design objectives.
And regardless, we continue to focus on all ways to maximize the value of the portfolio, reduce our operating costs, and return value to shareholders.
At this time, I will hand the call over to our CFO , Mark Herndon.
Thank you Eric.
Fifth star's net income for the quarter in June 30, 2020 was 0.5 million or 0.3 cents per share as compared to net loss for 2021 second quarter of 0.3 million or 0.2 cents per share.
This quarter's results were primarily impacted by a $5.3 million non-cash dilution gain resulting from Moxie Health raising capital during the quarter.
The remaining results were fairly typical with respect to general administrative expenses and other aspects of equity income loss met.
We have continued our open market stock repurchases, resulting in the repurchase of approximately 221,000 shares during the quarter for $0.9 million or an average price of $4.27 per share.
In subsequent to the quarter, approximately 40,000 additional shares have been accumulated during a low-volume trading environment for approximately $0.2 million or $3.96 per share.
This brings our total repurchases for this year to over 400,000 shares for approximately $1.9 million or $4.60 per share.
We have approximately $1.1 million of authorization for open market purchases remaining pursuant to this planned program.
Safeguard into the quarter with $17.5 million of cash, cash equivalents, and restricted cash, and we continue to have no debt obligations.
Our general and administrative expenses were $1.1 million for the second quarter of 2022, which is 42% lower than the $2 million reported in the comparable quarter of 2021. This decline was principally attributable to lower stock-based compensation of $0.5 million in the absence of an LTIP expense that did not recur in 2022.
Corporate expenses for the quarter, which represent general and administrative expenses, excluding stock-based compensation, severance expenses, and non-recurring and other items, such as L-typical rules and transaction expenses.
We're 0.8 million as compared with 1 million, 1.0 million in the comparable corridor of 2021, a 13% decline.
On a sequential basis, this quarter's corporate expenses were essentially flat with the last quarter about $15,000 lower or 2%.
we continue to expect the level of the quarterly level of court expenses have stabilized at this approximate value.
Also, I'll note that the corporate expense measure continues to benefit from director fees being paid entirely in equity and a significant portion of management's compensation being paid in equity.
With respect to our ownership interests, we have an aggregate carrying value at June 30, 2022 of $25.6 million as compared to $26.5 million at December 31, 2021.
This year-to-date activity included increases for the funding of convertible loans at Prognos and Clutch that aggregated $3.4 million and a dilution gain of $5.3 million related to marketing.
These increases were largely offset by decreases due to the application of the equity method accounting across all of our companies.
Our share of the losses of our equity method ownership interest for the three months ended March 31st, excuse me, June 30, 2022 was 3.9 million as compared to 5.4 million for the comparable period in 2021.
There were no significant exit events or impairments during this quarter.
However, we did collect 0.1 million amount that will be reported as a gain on the sale of ownership interest that represents the collection of an escrowed about from a prior transaction.
The quarter is decreased in equity method loss as a result of a lower level of losses at several companies due to a variety of events, including the limiting of loss recognition when our carrier value is reduced to zero.
I would also like to remind everyone that we report our share of the losses from the equity method companies on a one quarter lag. So this quarter's share of losses reflect the first quarter of 2022.
Also with respect to ownership interests, the third party debt of this group of nine companies was approximately $161 million versus the $149 million at March 31, 2022.
This increase is primarily related to one of our companies raising approximately $10 million of venture debt.
cash at this same group of nine companies has increased to about $70 million from $62 million last quarter.
This increase primarily related to the equity raise at Moxie, which was offset by quarterly burn at other companies.
And for clarity, please note that these figures do not include Stuyvesant Capital, which was raised in July of 2022.
In terms of revenue performance, we reported a 14.1% increase in our group of nine companies for the trailing 12-month period ended March 31, 2022, which is the TTM on a one-quarter tag.
We continue to see our fastest organic growth from equilibrium and MOXIE.
TRICE now has a full year of operations from its 2021 acquisition of 10x and has moved into the over $20 million revenue category that you will see on our table at the press release.
All right, now.
It's time to turn over to the Q&A segment of the call. So, operator, I'll ask you to open up the lines for a few questions if there are any.
At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation term will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we poll for questions.
Our next question comes from the line of Neil Goldman with Goldman Capital Management. You may proceed with the question.
Neil, you may proceed with your question.
Silence.
Neil, are you on mute?
Hello? Can you hear me?
Hello?
Yes, we're hearing now. Okay, I was on mute. So your carrying value was 154.4.
in terms of the original investments. 19-7 was various. A lot of that media math that basically is not important anymore.
Yes, yes I think you're referencing the cost of the total investment that's in the table of the fresh waste of the $154 million and yes there have been no changes actually from March 31st except for the cost of media math is now including in the all others category.
Okay. And in terms of the raising of funds for the three companies last quarter and then one in July , were they at the equivalent value or were they higher or lower than what you had carried on that?
Well, I'll address the...
Sorry.
No, no, go ahead.
So the MOCC equity raise, you may have noticed, we recorded the $5.3 million dilution gain. So that would indicate that the MOCC equity raise is a little bit higher than the MOCC equity raise.
The round was at a premium for our carrying value. And then we had other events that were at unpriced values.
Eric, you want to fill in some gaps there for me?
Yeah, so the financings that we participated in…
year to date.
were structured as
inside convertible
note rounds which convert under certain circumstances into the subsequent round, a price round, or achieve a certain...
contractual return if the company were to be sold before the company raised capital which
So, the short answer is that those financings did not have a price on it, a pre-money valuation. They had basically a variable conversion price at a discount to the next round, if there were a next round, or a contractual return if the company were sold over a period of time.
Is that clear?
On the cash side, you had 17.5. When you say you'll be at the upper end of the range of investment, are you talking about additional potential $4 million at this point?
of investing in companies? Yeah, that would be the that would take us to the upper end of the range that we provided. And from a cash burn standpoint,
without any transactions or anything. For the second half, what would be the cash burn from just running the business and legal accounting and all the rest?
Yeah, and let me add a couple of things there. So, if you're looking at the cash burn of the company on a quarterly basis, I think corporate expense number.
is a good metric to start with.
I'll emphasize our comments including the word could for the deployments for the rest of the year. We continue to have a variety of circumstances at a few companies that may result in some deployment or no deployment whatsoever. Like we said, we're already at the bottom of the range and there could be a couple other events the rest of the year.
Okay, so you'll end up a year with over $10 million in cash if nothing else happens at this point. Is there a second to their statement?
If you make investments up to four and your cash burn on an operating basis is how much?
I think your math is pretty close there. I haven't done it completely in my head as you've been talking. But yeah, we have over $17 million now and we're spending less than $1 million per quarter. And it just depends on how much further investment we have.
Right, so I mean yeah, so it would be slightly over 10 without any any more buyback, okay?
All right, that's all I have at this moment. Thank you. Thank you.
As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Matt Burmeister. Private Investor, you may proceed with your question.
Hi, thanks for taking my questions.
The stock is at a 13-year low.
And Warren Buffett famously says, when it's raining gold, grab a bucket, not a thimble. Why not decrease the minimum cash requirement to buy back a more substantial amount of shares?
start and I'll let Mark go in.
We have set a, we call it a minimum cash, it's really a maximum cash. Like anything above $18 million we've stated we'd use to return to shareholders.
We are updating that number each quarter mathematically as we get closer to an exit of all the assets.
That number has to just decline over time and we'll be discussing and we do discuss that with our board every quarter
Right now, if you take Mark's math, we are below the $18 million threshold and still have an active share buyback plan in place.
with 1.1 million remaining on it.
So while we haven't set a...
formal
lower threshold above which we return capital, we effectively are returning capital below that threshold today through the share buyback.
Now, your question about buying more shares back.
The volume of our stock, as you know, is quite limited.
And in fact, the last 30 days average daily trading volume has been 11,000 shares.
Our 10B51 plan buys the maximum allowed in the market on a daily basis.
and that plan has been put in place.
our ability to make any changes to that plan.
is a function of having an open window.
So we put that plan in place when we had an opening window.
We hired Lulihan Loki.
We need to get through that process.
to then determine if we have, you know, when we have another open window to consider increasing the size of that plan or doing something more.
So it is definitely a topic where
We're talking about capital allocation has been something that's been first and foremost since I took over this position.
and we will continue to evaluate it and update you in subsequent quarters. Mark, anything you want to add to that?
No, I mean the only thing I would emphasize would be just the volume of the stock, right? So we're already, as you said, we're already in the market buying back stock right now.
Thank you.
So, I guess to help with the potential for further buyback, why not sell shares of Bright Health Group the 1.3 million shares.
I guess it follows well, sort of the same concept, right? Even if we add another dollar in the plan right now, there's only so many shares we can buy back given the volume of trading. But it is a potential source of funds in the future. We just haven't had to tap it yet.
So, Matt, the way that we would buy stock back if we had extra cash would be either a 10B5 plan, a kind of set it and forget it plan that we put in place, or self-tender, which we did. And that set it and forget it plan, by the way, is both buying in the market and doing block sales. So, Stifel, our investment banker, every day they're looking for blocks and they're buying in the market.
And then we get an update at the end of the day how many shares we bought. And the other way to buy stock back.
And the way to do it in size is to do a self tender, which we did last year.
To do a self tender you need a certain quantum or minimum amount of capital to have available to both launch the process, cover the legal and administrative costs, filings, etc. to make it all worthwhile.
You also, there's also sort of like you just can't do a self tender every month or two. Matt can.
can weigh in in terms of what the periods are between doing self tenders. So the self tender we used it in the past it is something that we will like look to again once we have sufficient capital to execute upon it.
Got it. Thank you so much.
Our next question comes... What... Let me interrupt just for a second. Since we were on this topic, we did have a question come in through the webcast about whether the new...
tax via the bill, the Inflation Production Act of 2022, would have any effect on our share of buybacks?
And I guess I'll address that and how we return capital. So I'll adjust that by saying, you know, well, you know once the bill becomes law and We fully evaluate all of the actual languages in the bill. We can give you maybe a broader assessment, but what I've read thus far is it is a 1% tax on the value of the buybacks or the amount of repurchases so We would factor that into our, you know, our analysis of whether or not it would be accretive.
with Clayton you may proceed with your question.
Hey guys, how are you?
All right, good. Good. Thank you, Jason.
Hey, a couple of questions. You put the 10B5 in place and there's been some disruption in the markets and you mentioned how your comps and stuff were sort of flat relative to the 5th. Is there anything that's transpired within the companies that would make you, if you were putting that together today, make you...
less constructive about the possibility that the purchases being made today are going to be accretive to us, the shareholders?
No.
There's that range that we established and that we have in place would be
would be relevant today is is relevant today if it weren't relevant today we would spend the plan we have the ability to suspend the plan you just can't turn it off so that's not all right was done yes if we concluded it was not a creative plan we would not we would not spend capital
would be relevant today, is relevant today. If it weren't relevant today, we would suspend the plan. We have the ability to suspend the plan, you just can't turn it off and on. If we concluded it was not accretive, we would not spend capital unless we thought it was accretive.
Okay, that's helpful. And then in your first part of your comment on the hulohand loki process,
How expansive is number one in terms of
you know, are you out there actively saying, hey, we'll look at, you know, a marijuana growing operation, or a biotech firm investment, or, you know, a debt structure investment as just a totally new wholesale business to get into? And how far-reaching might that be versus, you know, more of a...
sort of a merger with us getting some value. Just curious how far afield is the process with HulaN.
Yeah, so I'll answer it in two parts. So first of all, we chose Woolen and Loki because they're a market leader in these types of transactions. So I'll answer it in two parts.
Thanks for watching.
and
We've instructed them to go as wide as possible.
to go as wide as possible as it relates to
outreach and they've gone out to hundreds of parties.
As it relates to what we think would be
you know, attractive to us, to the board, to the shareholders.
I think we'd like to have a very wide aperture, but I think the reality is we know we're comparing everything against the runoff plan.
And so, definitionally, you can get your arms around a runoff plan, although there's going to be variability, as we've seen in terms of the value of exits and the time to exit.
Obviously, something that's an alternative to that will have to be compelling enough and understandable enough.
to make it worthwhile. So I would say wide aperture for Goulahan, but the sifting that we'll do at the next stage, at this current stage, has in mind
a lot of the topics that you've mentioned in terms of
We still have to be acceptable to our shareholders. It has to make sense to the board, it has to make sense to Mark and to me. This is a shareholder play, as you know, this is a stock play for me. And so with our shareholder hat, it has to be compelling as the first threshold question. And then if it is compelling, we'll then do more work on it.
I'll add one more thing just as it relates to the overall process.
It's a pretty low cost option for us to explore if there is something out there. I mean, the cost to go in low key is variable, it's success based.
and the real tax is on Mark, Matt and my time, which is a fixed cost, right? So for us to explore alternatives, we think it's in the best interest of the shareholders. What we get to and if we get to something, that remains to be seen and we'll report it back out to you, we'll give you an update next quarter.
Okay, and then I guess as a follow-up to that, it was really nice of you to lay out the schedule. People must be asking for all of our portfolio companies. I guess that four to six months sort of applies.
to us as well with this hula hand process, are you, you know, I understand that boards and directors, you know, of any public company are always open to, you know, do the right thing if something comes across their desk, but how do you create, you know, a, are you going to create sort of a, hey, you know, we want to look at everything we can, but if, you know, by the end of September , you know, we're going to have to look at the whole thing. So, you know, I think that's a really important part of the process.
or October or November or when do you get to a point where you say, you guys, shareholders, we haven't found anything. Of course, anything can come across the transom subsequent to that date, but that we've turned over all the things we thought were viable to turn over and we want to let you know we're going down this path unless something comes over the top that's just knocked our socks off. Will we get to a dividing line?
of a date where you will tell us that you're sort of done doing this? Is that important for the process with the counterparties that Houlihan might bring in, etc.? How do you think about that?
Yeah, well, I mean, the process is a process, right? So what I laid out
earlier in terms of timeline and steps and I apologize to any of our investors who kind of know M&A at the back of their hand, but we have gotten questions around like why does it take so much time? So we really wanted to kind of step you guys through the different pieces. So you can apply that timeline to our process with Houlihan.
We don't want this is not meant to be like an open-ended
meant to be like an open-ended like we're gonna
run a process for a year.
We'll see what we have and within the bookends of the timing that we described as a typical M&A process plus or minus, we're going to know if...
if you know if something hunts or it doesn't hunt and and the reason Jason is like if it doesn't then we have to plan accordingly as it relates to our current runoff plan.
Right.
So yeah, it's not just an open-ended, we'll continue forever.
And the whole way in, Loki, as I said, is a success fee. At a certain point, if there's not a real deal to be had there, then it's not going to be a good use of their time either.
Right. So it's not as clean as when you're running an auction process for a deal and you say, you know, preliminary bids are in here, then final bids are here, we're going to get down to two when we're going to get to a term sheet. It's not that finite because of sort of the open-ended nature of it. But in your mind, you're running it with some construct around there so that if by the end of the year or something, you know, you'll be done with the process and you'll be telling us how you're going to optimize the runoff of the company.
could lead to the wider end, the outer end of the time. But it is a process that will have a conclusion to it, not a open-ended forever.
aspect to it. Right. So we can move forward. Okay, great. I appreciate it. Let's go ahead and close the door.
Appreciate it.
Appreciate it. Thanks Jason, any time.
Matt, do you see any questions on the webcast?
No further questions on the webcast.
Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn the call back over to Mr. Eric Salzman for closing remarks.
Thanks, Laura. Thank you for joining us on the call today and for your continued interest and support of Safeguard. As always, please feel free to contact us if you have any additional questions and good evening.
Thanks.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.
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