Q2 2019 Earnings Call
Good morning, and welcome to safeguard Scientifics second quarter 2019 financial results Conference call.
Please note this event is being recorded.
I would now like to turn the conference over to John Shave Safeguard Investor Relations. Please go ahead.
Good morning, and thank you for joining us for this update on safeguard Scientifics second quarter 2019 financial results joining me on today's call and webcast for Brian Sisko safeguards, President and CEO and more current and safeguards senior Vice President and CFO .
During today's call, Brian will provide a corporate and strategic update and review recent highlights including developments at safeguard and our partner companies.
And Mark will discuss our results afterwards, we will open it up to your questions.
As always todays presentation includes forward looking statements and those statements are subject to risks and uncertainties.
The risks and uncertainties that could cause actual results to differ materially include among others, our ability to make good decisions about the monetization of our partner companies for maximum value or at all and the return of the value to our shareholders. The ongoing support of our existing partner companies.
The fact that our partner companies may vary from period to period.
Challenges to achieving liquidity from our partner Company Holdings.
Fluctuation in market prices of any publicly traded partner company holdings competition.
Our ability to attract and retain qualified employees.
Market valuations in sectors in which our partner companies operate.
Our inability to control our partner companies or need to manage our assets to avoid registration under the investment company active 1940, and the risks associated with our partner companies, including the fact that most of the companies have a limited history in history of operating office losses faced intense competition and may never be profitable the effect of economic conditions in the business sectors in which safeguard partner companies operate and other uncertainties described in our filings with the FCC.
Many of these factors are beyond beyond the company's ability to predict or control as a result of these and other factors the company's past financial performance should not be relied on as an indication of future performance.
During the course of todays call words, such as expect anticipate believe and intend will be used in our discussion of goals or events in the future management cannot provide any assurance that future results will be as described in our forward looking statements.
We encourage you to read safeguards filings, which the FCC, including our Form 10-K , which describe in detail the risks and uncertainties associated with managing our business.
The company does not assume any obligation to update any forward looking statements made today with that here is Brian .
Good morning, everybody. Thank you for joining US we've continued to do in 2019, what we started to pursue early in 2018.
We have returned an aggregate of over $180 million back to our balance sheet. Since we began pursuing this strategy by being patient and by being opportunistic.
We've now reached a significant milestone in the execution of this strategy, we repaid our debt and currently we have aggregate cash and marketable securities of nearly $50 million on hand.
The repayment of our debt relieves us from limitations on share repurchases and our dividends that were previously applicable to us under the terms of that facility.
We continue to believe that the current value of our portfolio interest.
And our cash and equivalents exceed our current share price.
In that context, our board has adopted a capital return policy, whereby whenever we have cash and equivalents on hand, which exceed our requirements for estimated ongoing operating costs expenses and follow on support for our partner companies.
We will undertake to repurchase shares and or pay dividends.
Subject to compliance with the FCC rules and regulations, which are replicable to us.
We will always try to take into account the tax implications of such actions in determining what we do and when we do it.
The precise form timing and manner of such activities will be announced in the near future.
We have and are continuing to work with Evercore, our financial advisor regarding the ongoing execution of our strategy.
The process has been very informative.
Regarding what we should do to maximize the overall value of our partner Company Holdings.
And return that value in the best possible way to reward our shareholders.
Based upon that work. We currently believe that the continued pursuit of individual partner company exits will provide the best return to our shareholders at this time.
As we continue to proceed down this path, we have been and will continue to consider all alternatives as circumstances dictate including among others the sale of into individual partner companies.
The sale of certain partner company interest in secondary market transactions.
Or a combination thereof, as well as the sale of the entire company.
We will also continue to consider financing transactions, which could expedite the return of value to our shareholders.
We remain bullish regarding our portfolio of partner companies.
Recently Syapse entered into a deal with Pfizer to develop a precision medicine medicine solution front apology.
This marks the third major Biopharma company to partner with sign ups.
The company signed similar agreements with Amgen in May of this year and with Roche in January of 2018.
Furthermore.
Syapse completed an equity financing at a significantly higher valuation versus the valuation of safeguards initial capital deployment.
We have deployed $18.6 million into Syapse at this point since 19 cents excuse me since 2014, and we own 19.4% of that company.
During the quarter safeguard partner company medium out was recognized for excellence in marketing and media by AD exchange.
Mediamath was declared a winner in the best educational four program and best accounts support Biotechnology Company. These are just a few examples of the good things that are going on within the portfolio that we remain.
That we have remaining on hand.
Additional partner company prognosis.
Has additionally partner company progress has has achieved important milestones with its announced collaboration with data bounce.
To harness their comprehensive data ecosystems to deliver expanded analytical solutions to their life sciences and payer customers.
Safeguard has deployed $12.6 million and prognosis.
And we own 28.7% of that company.
We remain committed to supporting the needs of existing partner companies and we will continue to leverage our capital and relevant expertise to help these partner companies achieve additional market penetration.
Revenue growth.
Cash flow improvement and growth and long term value.
As referenced earlier, we expect to keep a certain minimum amount of cash and equivalents on hand to the extent, we deem necessary to pair expenses and cover anticipated follow on investments in partner companies.
As we continue to monetize the portfolio, we expect that need to keep capital on hand for follow on funding and our corporate expenses decreased over time.
We've accomplished a lot under our new strategy, including streamlining our internal operations to reduce costs.
Repaying our debt.
And moving forward with strategic transactions involving our partner companies.
That have returned significant capital back to safeguard.
Which has also allowed us to retire our debt and will allow us to implement a return of capital program.
We are pleased with what we've accomplished but much work is left to be done.
Our momentum in 2019 has been excellent.
And we continue to believe in the value of our portfolio and the way we have been going about realizing that value for our shareholders.
The Transactis transaction is the most recent example.
Of our ability to bring the value of the of our partner companies back onto our balance sheet.
We are currently working with other partner companies on exits and hope to have more news to share in the coming months.
As this additional capital as return to our balance sheet.
We intend to return the excess capital to our shareholders as soon as practicable in the form of repurchases and our dividends.
We believe that our partner company interest will continue to mature and attract strategic and financial buyer attention.
And as we continue to explore the other alternatives we referenced above.
Now, let me turn the call over to Mark for a review of the quarter's financial results.
Thank you, Brian our second quarter resulted in net income of $36.1 million or $1.75 per share on a basic and fully diluted basis as compared with a net loss of $24.9 million or $1.21 per share for the same quarter of 2018.
Our year to date results, our net income of $57.8 million or $2.80 per share on a basic and fully diluted basis as compared with a net loss of $31.1 million or dollar 51 per share for the same six month period in 2018.
Our second quarter results were driven by the exit of Transactis, which resulted in a 50.4 million dollar gain.
Our year to date results have now benefited from both this transactis event as well as the first quarter's 34.9 million dollar gain from the propeller transaction.
In addition to the accounting gains the combined effect of these transactions has been a significant improvement to the company's liquidity position.
Safeguards cash cash equivalents restricted cash and marketable securities at June Thirtyth, 2019 totaled $98.4 million as compared to $46.2 million at 2000 eighteens year end.
Safeguard borrowings at June Thirtyth 2019, under our senior credit facility totaled $44.5 million.
As you know the terms of that facility require that qualified cash balances over 50 million be used to repay principal along with associated make whole interest.
Accordingly in July we made a final principal and interest payment of $49.5 million to repay the facility in full which relieves us of our prior restriction from repurchasing shares or declaring dividends.
Our second quarters general and administrative expenses were $2.6 million compared to 5.1 million for the same quarter of 2018.
This lower level of general and administrative expenses is primarily the result of our reduced cost structure implemented during 2018.
Which also resulted.
We are included $1.7 million severance charge during the second quarter of 2018 that did not recur this year.
Our general and administrative expenses for the six months ended June 32019, or $5.7 million as compared to $10.7 million for the comparable period in 2018.
Similarly, the expense the lower expenses were the result of the absence of a $2.8 million severance charge was incurred in 2018 to reduce the overall level of staffing and the absence of 1.4 million professional fees incurred in 2018 associated with activist shareholder matters that did not recur in 2019.
Corporate costs, which exclude interest depreciation severance.
Stock based compensation and other nonrecurring items were $1.9 million for the three months ended June Thirtyth 2019, and 4 million for the 2019 year to date period.
These amounts are lower than the 2.4 and $5.8 million for the three and six months ended June 32018.
Due primarily to the significantly lower level of staffing.
We continue to believe that the corporate costs for 2019 will be lower than the $8 million to $9 million target that was announced in 2018.
We are pleased that these about these savings for our shareholders and we will continue to work towards continuing to decrease these costs where possible.
As we indicated in our first quarter call. We are pleased to have now completed the move of our office space, the new smaller less expensive space, which will result in a significant long term cash savings.
The sublease regarding our previous office space, which began in June 2019 will be concurrent with our lease there and will result in $3.7 million of income that will substantially offset the remaining $4.1 million of lease payments. We are committed to under the original lease terms.
While we do not expect further dramatic reductions to our cost levels. We will continue to look for further ways to extract.
Efficiencies from our operations as we continue to pursue our strategy and support our partner companies.
Now with respect to our partner company holdings following the impairment of Novus them. We now have 15 partner companies, representing an aggregate cost of $202.2 million and having a carrying value.
$64.1 million at June Thirtyth 2019.
During the second quarter, we deployed 6.7 million of capital to five partner companies.
The most individually significant being a $3 million funding into Syapse, which we had also disclosed and subsequent event in our first quarter.
Call results.
We continue to expect aggregate 2019 follow on funding to approximate levels from 2018.
As many opportunities to opportunistically decide to deploy small additional amounts in the certain partner companies if attractive opportunities arise.
And finally, we would like to provide you with some commentary about the health and maturity of our portfolio.
We experienced an impairment.
Of $3 million for the three and six months ended June 32019, with respect to our interest in Odessa.
This was the result of an inability of Novus arm to attract additional equity financing as it eventually became insolvent.
For the three months ended June Thirtyth 2019, our share of the losses of our equity method partner companies.
With $8.3 million as compared to $15.6 million for the comparable period.
Our share of the losses from the equity method partner companies for the six months ended June Thirtyth 2019 were $15.6 million as compared to $26.5 million for the comparable prior period.
These reductions are the result of less companies in the portfolio and more companies reducing their burn rate.
However, I will also note the second quarter was slightly higher sequentially from the first quarter of 2019, but zero point $9 million.
And lastly, we continue to project revenue growth in the aggregate consistent with our prior guidance.
Our projected range.
Of the aggregate partner revenue company revenue for 2019 is now between 365 and $390 million for the 15 remaining partner companies.
That would represent a growth rate of between 10 and 18% for the same partner companies in 2018.
I should also remind everyone that take our reports the revenue on its equity and cost method companies on a one quarter lag basis.
Now here's Brian to share some final thoughts and lead us through the queue ne segment of the call.
So we still have a lot of work to do as we.
Continued to execute on our strategy.
We will keep you all apprised of our progress.
And we thank you for your continued support John questions.
Operator, we can open up the.
The platform the question.
Thank you if he would like to ask a question simply press Star then the number one on your telephone keypad. If you would like to withdraw your question press the pound.
And your first question comes from the line of Bob Labick with CJS Securities. Please go ahead.
Hi, Good morning, it's Pete Lucas for Bob.
I guess.
Regarding evercore in the process go forward strategy you mentioned it is informative I don't know if there are any other details you can give us there and as far as the distribution strategy plan, you mentioned, considering all possibilities and financing transactions I don't know if you can talk about what you're looking at there and lastly on the timing you mentioned near future is there a specific.
Date or presentation, you're looking for or any sense, you can give us on that timing.
Thanks Pete.
So ever.
Obviously.
We have spent considerable amount of time and effort.
Even before the Evercore engagement.
Looking at different ways of valuing the portfolio when the companies and.
Current value future expected value net present value of future expected all those things but.
We've.
Don.
Even further analysis with Evercore assistance.
To make sure that we're viewing things the right way to confirm our belief in the approach that we're taking to.
To to return value to the to the balance sheet and ultimately the shareholder so their work has been.
Considerable help and assistance in kicking the tires on all the different ways that we we.
Should be viewing.
The current value and the potential value of the portfolio. So.
They'll continue to provide that assistance there they've been engaged as our financial advisor generally not not just for any specific endeavors or initiatives.
And we'll continue to leverage their capital markets.
Expertise in there and all of our other investment banking expertise tech to inform the board's decisions on what they then turn around and have US here on the management team execute against.
Regarding return of capital issues.
I'll restate for the umpteenth time.
We're committed.
And our board has not wavered from the commitment of returning capital as soon as soon as practicable.
There are no deviation from.
That intended strategy and.
Nothing.
Nothing we will be.
Better to ultimately announce it.
Then when we get to that specific point, where we can tell you exactly what what the what decisions are made but what has now transpired is the repayment of our debt. So we previously we were in a position where until we actually did get that repaid we.
Couldn't execute on anything no matter, what our cash cash position was.
So to have that out of the way is a huge accomplishment.
That was high on our list of things.
Just to get done to allow for.
Yes, the execution against returning returning capital to our specific scope our board is.
Working through continues to work through analysis to.
To to figure out exactly what amounts of capital they want us to return and when and what form okay.
That.
Decision, obviously is impacted in large part by an out an analysis.
How careful they want to be about how much capital we keep on the balance sheet to make sure we absolutely unequivocally will not get into.
A potential situation, where we can't then provide support for the partner companies as we want to okay. So they are just being there are performing the function that you want them to be warming, which is not getting over our skis and just jumping to a conclusion and starting to see a return capital back which.
May not be the best long term decision for them to make so that that's number one then on top of that depending upon.
The decision regarding what is excess excess capital and when it's when we have that and when we don't.
We are limited by the securities laws theirs.
In particular buybacks will be are impacted by what material nonpublic information were in possession of and we all know that this model puts us in a position where.
We always know stuff that's going on in the portfolio that were not it.
You know were not permitted to disclose because it involves specific potentially specific partner company transactions et cetera. So our decision making revolves around when we actually can execute against plans and thats not not not necessarily easy to do because we we do have a partner company portfolio that there's a lot of stuff always going on so we're always dancing around what's material. What's not can we do this can we not do that so.
It.
Because we're not announcing some specific action doesnt necessarily mean that were not.
There was a bunch of different things that play into it.
My inability to.
To deliver better information to more more direct and granular information so too.
The body.
And but we.
I'll restate, yet again that commitment is to return capital sooner rather than later and to do it with with utmost regard for what the tax implications of that to our shareholder population or not that will drive behavior completely but it's always it always will be taken into account.
So I think that.
That.
That's as much as I can say about that topic without.
Beating a dead horse.
And I think you finished up by asking about timing.
Overall.
Now, where we feel we are in the process.
We're still comfortable restating.
What we've said all along that from the get go we view this as a two to four year process.
And I think.
Fair to say, we're still comfortable.
That that's that that's the timeframe within which were working.
And obviously that made that that could get expedited certain circumstances, if we have a flurry of activity.
But we don't plan on hope we plan on.
Legitimate legitimate thrive.
Tactical plans that tie back to the strategy so.
I think we're still working within that timeframe.
And work through that timeframe the cost structure that we are working with will decline as as the asset base declines, but for the moment I think.
We've done a pretty good job of getting the cost structure to a point, where it's stable and we.
We'll be operating under this cost structure for.
And the next.
A couple of years.
And then we will start to whittle away further in some material away at it.
We're well, where we can save $10 will save $10, but that's that's not necessarily.
Relevant for these quarterly calls to be talking about.
So.
Great very helpful.
Next one from me just if you could clarify on the follow on funding I think were 10.6 million year to date, you said it will be less than or approximately levels of 2018, So just remind us up.
Approximate numbers that we'd be looking at there.
Sure sure.
As you said, we continue to believe that our follow on deployments will approximately.
2018 levels, which were 16.4 million.
I think what we're talking about and that.
So far in 2019, our year to date deployments are $10.6 million.
So.
We believe that we may we may have additional opportunities throughout the rest of this year to support our existing partner companies.
But we havent specified exact amounts.
We intend to participate in those rounds with existing partner companies. If there are attractive opportunities for our shareholders.
No that's perfect and last one from me I know, it's difficult and almost impossible to predict exit strategies for specific companies.
They are all certain places in there.
Lifecycle.
But any way you could comment on which companies you're most optimistic about at the moment.
We have 15 companies so I'd say, there's by 14 up.
No.
As you said it's difficult the.
You're always.
Hope in that.
Things will pop Opportunistically.
But as I.
Said earlier hope isn't the plan that we operate against.
But we let me let me.
Answer your question by saying we are highly confident that we'll have additional activity in 2019, but I'm not going to get into pointing fingers towards specific companies that.
That we think will.
Okay.
So that will be involved in activity.
Yeah, no understood had to ask but I assume that would be the answer but I appreciate it thats. It from me. Thank you guys.
Thank you.
Your next question comes from the line of Jim Macdonald with first first analyst.
Please go ahead.
Hey.
Just a couple of follow ups too.
Your your detailed answers there.
So.
Regarding the Evercore process have you.
Got any indications of.
What you might get selling the whole portfolio have gotten any.
That that Evercore has estimated or any specific offers.
Or anything.
As as I said, Jim I'm, not going to get into further detail.
At a granular level, because that's not fair to.
You know to the to the process that we try to run and the people that we talk to but.
I think the proof is in the putting our our board's decision to continue down the path of.
But for the moment.
Individual company pursuit of exit is the right way to go read into that what you're well if somebody came to us and offered us $500 million for the portfolio, we'd be announcing the transaction that's not the case so.
Okay.
And the way that secondary Mark the secondary market works people are looking to engineer returns so.
Willingness to pay X dollars typically doesn't depend on current values depends upon.
Trying to engineer 2.53 X returns and that doesn't necessarily lead to actionable.
Actionable.
Event.
Okay, and you mentioned tax implications of your distribution strategy could you say a few more words about what you're thinking about there.
Well I think just generally to put it into buckets.
Buybacks are obviously.
One way that we can go to return capital and there's.
That provides to people a different tax treatment than if we work to without regard to.
Whether we can.
Characterize a dividend as a return of capital dividend.
You are in a situation where people are then faced with holding stock and paying a paying tax despite the fact that they.
Still have a considerable amount of capital invested in the stock. So that Mark you want to embellish on that a little bit better than I can sort of having that and you're right on the right path right and we understand the tax implications of a taxable dividend and we've heard from a variety of shareholders. So thats certainly something that they would like to avoid there are other dividend circumstances, where if it.
Opportunity presented itself, we would we would evaluate.
Outside of that we believe that repurchases would be tax efficient way to get value back to the shareholder base.
Okay and.
Yes in terms of a repurchase plan is based on your comments is that likely to be done under a.
Five or whatever that C or whatever that plan is.
Given your.
You mean can be Tenbfive plan can be five whatever you have tenbfive whatever the stupid thing as well.
[laughter] well, that's certainly one of one of the route the it take when that's not to not to play lawyer here, but.
If we were in the market repurchasing given the concerns that we always have to deal with about material nonpublic information. If we can get a plan in place.
During a period, where we're not tainted with information that that plan can that operate in the market.
Without regard to what additional material non public information may crop up in the meantime, you have to get that in place.
And act against it so thats clearly one of the tools that we will consider using that as amounts get.
Larger you can undertake things that are more programmatic and tender offers that with that or.
Yes, a little bit different animal require.
A lot of disclosure and work and expense, but obviously that makes sense at some point.
Hi, Good Tenbfive plan is definitely one of the tools that.
That we've used in the past and would use it to help deliver capital back to shareholders population.
And then.
On the another aspect you talked a little bit about the minimum cash I had sort of estimated that to be somewhere about near where the cash you have now can you make any 50 million or something.
Can you make any comments, whether I'm wrong on that estimate or high or low.
Well the there's been no specific decision made as to what that amount is and that's that's an ongoing dialogue that I.
We hope to have an answer to sooner rather than later, but.
And hopefully I won't get myself in trouble here by by being too specific but.
The we're not talking about keeping $100 million on the balance sheet, okay, but I don't know if 50 is exactly the right number fits higher LOE, our board will make that decision.
And it did.
It's interesting you know.
You want a public company board to be doing things in a manner that protects everybody and.
The boards being very careful about making sure that they that we don't put ourselves in a situation where.
We don't have capital that we would like to to apply it doesn't so much depend upon the operating.
Cash numbers I think thats much more math.
But it's the it's the.
Making sure that we're not short bonds on the other front.
But until I have an answer from the board I don't have an answer from the board.
And a couple more here on.
Portfolio so.
So the three that you.
That.
Our.
Were removed this this quarter so notice I'm hopeful on T. Rex.
Is there any potential recovery for those.
You probably had I think you are probably investing in bridge debt or something and oversight. So I don't know is there any any recovery you might hope for those three companies.
No so for Nova So the answer is no jim to be to be Frank with you.
It was just to put a little bit more color on that as recently as the as first quarter of this year, we had an ally in place to sell that company.
And we also had.
Over the course of a period of time when we were.
Going through all the alternatives, we have had otherwise in place to refinance the company to bring additional equity capital, then and Florida for reasons unrelated to the company specifically things that were outside the company's control none of the transactions happen, we had things like the the Salesforce getting rated by a competitor things like that so.
But no the answer to the question is we were bridging through to those potential transactions. So that's why you saw us putting small amounts of capital.
Because we were aiming towards transactions that were pending.
When that when it became apparent that that was not going to come to fruition and that this was headed to a situation where the the senior creditor was going to control the strings.
You know we have.
We folded because we weren't going to put in another.
10 million or whatever to the company that we had too much capital exposed there to start with and the company needed some substantial capital to continue to grow too.
A cash flow breakeven point, and we weren't in a position nor do we view it is worth the risk of putting additional monies in place to do that.
So the outcome is that we in this bankruptcy will not receive any any proceeds which is why it's written down to.
Zero.
Okay.
And.
On who Plenti Rex we yes, we have potential recoveries down the line in both of those the this is part of our decision making process that we.
We're doing this in the context of what our strategy is so while there is still.
A lot of promise to these companies potentially.
The timeframe within which will occur in the amount of capital that we would have to put at risk to continue to play lead investor.
Our decision was lets take a passive seat and.
Play an observer kind of role Mark, Yes, I want us to that so let me just add that both those companies had rounds of capital that were infused into the company. So those additional investments that the values that which they were transacted at support and are in excess of the value that we have that we carry those assets that so those are those are not.
Go on so to speak that they are there and they remained remain valuable just a smaller portion of our portfolio now.
Okay, and so that sort of leads to my next one what percent of the or how many of the remaining 15 companies would you say are.
Well funded or recently funded or.
That kind of thing.
So that's that's tough to answer the way you phrased the question Jim but.
Like because the company like science, who is just.
This is hopeless.
I've got our general counsel sitting across from me, so hopefully won't kick me, but perhaps just killing it okay. They are doing great.
They are they have capital needs and we will continue to have capital needs as they grow okay. So that's one category of.
Of companies and I'd throw into that the companies like.
Tom.
Potentially prognosis.
Companies like that need capital for one reason or other companies that are still in their more development stage.
That need capital per se.
Based upon what the plan has been all along and we'll continue to have some capital need.
Some portion of which you hope to be able to satisfy always with layering on debt.
So.
If I look across our portfolio of what we what we're talking about as partner companies.
I think there's probably half the companies.
That.
You still have the need for capital.
As they build and prove their value to the strategic potential strategic buyers out there.
And then there's a couple more on top of that that are.
Going down the the hard core growth path with potential for raising very large rounds.
No. So there's there's capital need across but.
The.
The.
We we look at this is we are no longer.
The primary capital provider for.
Anywhere near a majority of this portfolio. There's other people around the table. These are attractive companies for new third party.
To come in with a different investment thesis than we do because they are later stage investors so capital need on us.
It's consistent with what we've said before we expect our required capital needs for these companies to decline over time that tie. This back to the question was asked before regarding.
Excess capital.
We're just trying to be extra careful that to the extent.
That dynamic point change a little bit we're not.
On April to support companies that we would otherwise want to be supporting.
If the economy generally has has a hiccup, we don't want to get caught short and and put these companies in a situation where theyre all of a sudden lacking in the support they need.
Despite the fact that they continued to force to accomplish what they.
Our intended to accomplish.
Does that answer your question on up.
Yes, that's very helpful. Thanks, very much guys.
And your next question.
Comes from the line of food This Collins please.
The Securities. Please go ahead.
Well, thank you guys.
Good morning, Thanks for taking my call.
A lot of my questions were answered by the previous questioner, we did a good job.
On.
What you mentioned something about a new financing.
No we will not a fan of the old financing and we wonder why with $50 million of excess excess cash and then exits to come in the future.
On why you would what you consider front for financing is your letter of credit line of credit. So open is the other sort of broad question.
And we're also wondering.
You know about these three.
Right off sale on.
I guess I was kind of answered before but.
It seems like its a lot three out of 18 has a lot to come the one time.
And we're just wondering you know he said if they are really total zeros.
And we thought to actually doing pretty well actually so we're surprised about it.
You can elaborate on that.
Yes, sure so on the financing.
Upfront Bruce that don't please don't read anything more into that than should be.
The only reason that was that there was a mention made in the prepared materials was.
It was to make the point that we're always considering.
All alternatives. So there are things that are available out there that would provide capital potentially if we wanted to.
Finance some portion of the portfolio and deliver that capital back to shareholders. So the board's thinking about that but I wouldn't put any there is no current.
Transaction that were.
That we're pursuing so don't don't worry about.
US doing that without.
Proper thought and it might do in the future that may very well be something that makes a little bit of sense. Some non non recourse financing that.
That would allow us to deliver capital back to shareholders that otherwise might be tied up in bremen assets or something.
But it wasn't intended to lead to some further disclosure next quarter. So.
Hopefully that.
Gives you comfort on that side.
On the right our front.
No Basam is what I said it was so yes. It was certainly wasn't.
The outcome that we that we wanted.
The.
And you specifically asked about Trx Trx is a great trx has all kinds of good promise, but it.
As I described before we're we'd based upon what we're trying to accomplish and the timeframe within which that company will we believe will ultimately.
Come to fruition.
It was our decision not to put additional capital. We are we have how much and again just Rick those are not write offs that add value and that value in excess of our carrying value as evidenced by these rounds that came in yes, hoopla on T. Rex. They just are no longer partner companies because.
How we figure that it's it's how much control we have how much ownership interest we have we've just define partner companies in the past and this is going to get kind of torture. It as we go forward because.
These are still companies, we care about they just don't fit that category that we always used to use as kind of a line of demarcation for what was material to discuss with everybody.
So who knows.
Correction in particular has promised.
Okay. So how much do we still own have to actually let me.
I don't know what the line of demarcation is.
The good thing so you actually is not a zero you're saying at this point.
It's still worth something so we yeah, let's let's make let's make the distinction so.
Just to give you a quick.
Remind folks we started defining quote unquote partner companies as companies, where we had a significant level of control and economic interest.
Any kind of tied back to but not specifically into what is considered a good asset for the 40 Act purposes, Okay not to muddy up this conversation with that but we just.
For ease of reporting back when we were still putting more money into new companies et cetera that partner company distinction was.
A relevant line for us to follow and how we reported.
It also roughly ties to cost versus equity method accounting.
But by US, saying that a company is no longer a quote unquote partner company.
Unless we say there was a write off that you shouldn't equate the two things that we will evaluate all of the carrying value of all our companies on a quarterly basis that hoopla empty rise both.
In addition to that.
Other companies are included in the cost method, which are included in the tables.
Following the press release.
Okay, I would say that you are saying you got diluted below its stakes today, a certain percentage they take it off a little bit.
So that really count as a as a partner company, but still investment.
Correct correct.
And we expect to get some we've got we're hopeful to get some recovery on that.
Absolutely.
Do we still have a board seat on that.
On we have an observer seat.
We have an observer seat on T. Rex, but I think we gave up yes, that's not to say that we gave up our.
Our board involvement with hoopla.
And how much should we haven't hoopla.
Our carrying value coming into this this call was.
$300000 yet.
Okay.
Well with regards we used to have a line of credit we still have that.
Line of credit.
No we do not.
We have no institutional debt whatsoever Thats correct.
Which is a good long been a long time since becoming has been in that position, but we're happy to be here debt free.
Right.
Okay.
Well, thank you very much.
I appreciate thanks Bruce.
Have a good day.
Me too.
And your next question comes from the line of John Francis.
With friends is capital. Please go ahead.
Hi, John Forney.
Can you give us an update on Mediamath. Please.
I guess, what I would say to you John is meeting math.
It continues to do so.
One of the most significant demand side platforms in the market.
<unk> continues to grow.
I'm trying to think what else I'm at Liberty to disclose that.
They havent done any new financings recently.
There I believe they'd be considered one of the leaders in this whole privacy and identity debate that's going on in the.
In the media technology space.
Jos a wad ski continues to be recognized as one of the.
The industry so bonds.
They're they've made a fair amount of supplements to their management team over the past year.
I'm an observer on that board now.
And continue to have significant level of informational involvement and face to face access to the management team but.
Theres nothing else that I.
That I that I can really say there they continue to be in the range of.
Revenue.
Generation that we where we all know they are although no we never specifically assign a number to it.
They are included in our revenue guidance. So you can and as you would imagine that that their numbers large so it has a fairly significant impact.
On our revenue guidance, so as long as were.
Meeting, what our Guidances you can read into that.
What you want about Mediamath.
Meeting there.
Revenue guidance.
Okay. Thank you.
And your next question comes from line of Joshua Horowitz with Palm Global Fund. Please go ahead.
Thanks, everybody good job there.
All right. Thank you.
Good.
Couple of questions for you.
I guess the calculus way here.
If we.
Roughly estimate I don't know call it two years of expenses that.
14 $15 million, we add on.
Follow on commitments that we've made.
It should be.
Fairly easy to get some ballpark number then for what we think is quote unquote excess capital how do we think about that we just take the.
The headline cost number and then subtract.
Two years of expenses plus follow ons, what does that equate to.
No you're doing the math right I mean, that's the right. Yes, that's the right model to think about it is how how much would we spend in a in a year on on corporate costs on a cash flow basis, and how long of a period of time, you want to have as a cushion and how much do you expect to be deploying to partner companies right, you'll add those two up and subtract from 50 and that would be for the excess capital that generally speaking that would be the right mindset to have in the bank.
The period of time.
Our expense run rate has been improving and is fairly well defined the discussion. We would have is how long a period of time do you want to have available to us.
So if we had a calculation.
What do we do we get the $30 million of extra cost of that 40 is that 50.
Well I I as I tried to answer I think it was Jim's question before when he said is it 50.
I wish I could give you a specific answer but given that it's not my decision is the board is working through that calculus.
I don't want to.
I could give you a very broad parameter and saying, it's nothing less than 20 or 25, and it's certainly nothing nothing more than 75, but within that range.
You know where the board is going to come out I don't want to I don't want to try to put words in their mouth because.
I have never been a.
Okay, Crystal ball reader, but you're thinking about it the right way and therefore.
The added layer, which is the unknown firm for me at least in terms of what I can what I can report here today is how much buffer.
How much buffer do you want to keep to make sure that you don't get yourself in a pickle.
Thank you for that Mark is there some sophisticated tax analysis that.
Sure.
Designing we're analyzing that will.
The part of the year end financial analysis.
Obviously that will.
Herman the best cost shipment for return of capital to shareholders. What is the timing on that.
Yes, it sounds like from the comments that you're working on a fairly complex tax analysis and I guess what are the components of that analysis, if you're able to share at this stage.
Sure, Yes, just as background for others on the call and the company reported roughly $300 million and then a wells and carry forwards in the 2018 cents okay.
And we continue to believe that the gains from portfolios.
Our transactions this year.
Those gains will be offset by those into wells right. So we'll have no tax impact per se.
This year, because we've had.
A full valuation allowance on all those deferred tax assets historically.
That part of their regular ongoing process as well.
Annual tax returns are.
Completed and we project for the current year tax insurance is we would evaluate the level of taxable income as well as earnings and profits and that's something that generally happens towards the end of the year.
So that's an ongoing.
That answers your question.
And just two more quick ones on portfolio names.
You had.
Im glad and so on biopsy.
Are you able to share what valuation they lost capital.
I don't have that in front of me and I don't think that have they disclose that Matt.
Yes, Josh.
As you know, we know we defer to the companies and what they do and don't disclose on things like that I can tell you that it was a significant up round financing from previous round and a very significant.
Up.
Round from what we had.
What we originally deployed capital, but they have not.
Disclosed so we will not disclose any specifics regarding the valuations that were used for that financing round.
And lastly, I noticed some we saw the the write down the bankruptcy, we could we just put more money into that company recently.
I said in my response earlier, we had pending transactions over the course of the last six months or sale of the company.
A debt financing that would have increase the company's available debt and as you know with all these the.
What you're often doing with these debt financings is you reached the end of an interest only period and you look to refinance for a further interest only period that provides.
Cash burden relief.
We had.
Otherwise in place to do that we've also had all lies in place to do.
New equity financings that were going to be led in whole by new third parties.
Those transactions as they were pending in under our why we did contribute some additional capital to bridge the company in anticipation of those transactions getting done. So we we bridge small amounts of capital alongside the other active institutional investor to try to get to those transactions now you're basically betting that the transactions are getting done and we were betting that they were going to get done but.
We we ultimately reached the point, where we were no longer willing to.
That that transaction was going to get done. So yes, we did but it was small amounts than it was in anticipation of.
Transactions that would have had much better outcomes than where we ended up.
Got it I appreciate that well. Thank you guys and while we look thanks, John other updates on returns of capital appreciate it.
And we have time for a final question from the line of all for fields with Echo Lake Capital. Please go ahead.
Hi, My question went up.
Hi.
Yes. My question has been answered thank you.
No questions. Thank you.
Appreciate it.
Well, thank you everybody.
Hopefully weve answered your.
The majority of your questions and as you know we're always available for follow ons.
Individually.
As you see fit.
We'll continue to keep plugging away here and provide you with as much additional clarity on the topics you.
You've asked about today as we possibly can.
And this concludes today's conference call you may now disconnect.