Safeguard Scientifics' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Safeguard Scientifics Inc. (SFE)

Q1 2012 Earnings Call

April 26, 2012 09:00 AM ET

Executives

John Shave – VP, Corporate Communications

Peter Boni – President and CEO

Steve Zarrilli – SVP and CFO

Analysts

Greg Mason – Stifel Nicolaus

Matt Dallman – Roth Capital Partners

Paul Knight – CLSA

Nick Halen – Sidoti & Co.

Presentation

Operator

Good morning ladies and gentlemen and welcome to the Safeguard Scientifics First Quarter 2012 Results conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call is being recorded.

I would like to introduce your host for today's conference, Mr. John Shave, Vice President of Business Development and Corporate Communications. Sir, you may begin.

John Shave

Good morning and thank you for joining us for Safeguard Scientifics’ first quarter 2012 Conference Call and Update. Joining me on today’s call are Peter Boni, Safeguard’s President and Chief Executive Officer and Steve Zarrilli, Senior Vice President and Chief Financial Officer. During today’s call Peter will review first quarter 2012 highlights as well as other developments, then Steve will discuss Safeguard’s financial results and strategies. After that, we will open the lines for your questions.

Before we begin, I must remind you that today’s presentation includes forward-looking statements. Reliance on forward-looking statements involves certain risks and uncertainties, including but not limited to the uncertainty of future performance of our partner companies and the risks of acquisition or disposition of interests in partner companies, capital spending by customers, and the effect of regulatory and economic conditions generally, as well as the development of the life sciences and technology markets and other uncertainties that are described in our SEC filings.

During the course of today’s call, words such as accept, anticipate, believe and intend will be used in our discussion of goals or events in the future. Management cannot be certain that financial outcomes will be as described today. We encourage you to read our filings with the SEC, including our Form 10-K which describe in detail the risks and uncertainties associated with managing our business. The Company does not assume any obligation to update any forward-looking statements made today.

Now here is Safeguard’s President and Chief Executive Officer, Peter Boni.

Peter Boni

Thanks John and thank you all for joining us today for an update on Safeguard Scientific's and our partner companies. Results for the first quarter ending March 31st were distributed earlier today. Now as a whole we are especially encouraged by the steady growth and development of our 16 partner companies during the quarter. In the face of some macroeconomic headwinds and wobbly capital markets Safeguard's performance validates our strategic focus on growth stage, life science and technology businesses.

Today's prepared remarks will be brief since not much time has passed since our 2011 year end update that was late in February. Nevertheless there is solid progress to discuss. During the quarter we had two new technology partner companies and deployed follow on financing for a few of our current partner companies. Four of Safeguard's 16 partner companies have achieved sustained, positive EBITDA status. Moreover our platform expansion initiative is gaining traction. Safeguard's partnership with Penn Mezzanine is generating interest income and planning is under for a continued evolution of that vehicle as a long term activity for us.

In short our team is executing a focused and disciplined strategy that enhances Safeguard's brand as the preferred catalyst to build great companies, alternatively boosting the company's financial strength and flexibility and driving value for our shareholders.

Safeguard's continued progress underscores that substance that trumps even the macroeconomic environment where global capital markets are volatile and domestic economy remains fragile and politically charged. Now year-to-date M&A and IPO activity remains curiously subdued despite current low interest rates in corporations large cash balances, as surveyed by investment bank Think Equity concluded that the technology IPO window may be reopening. Recent pricing may signal an upturn in demand for tech offerings. Through March 13 tech IPOs raised and aggregate $1.8 billion with 22 deals in the wings targeting an additional $7 billion in capital and the passing of the Jobs act may only add to this upturn. Now we'll keep an eye on all of these macro-economic trends and then the potential trickledown effect for our partner companies.

In the meantime Safeguard's disciplined and focused are unwavering, were augmenting companies for expansion and growth and ultimately an exit transaction remains our path to continued financial strength and flexibility as well as improved shareholder value.

Now for those of you who are new to the Safeguard story I'll review the hallmarks of our strategy which are built on three pillars, focus, discipline and execution. Focus is the first pillar of Safeguard's strategic foundation. We deploy capital to high potential businesses in specific segments of life sciences and technology industries that exploit five strategic growth driving themes, maturity, migration, convergence, compliance and cost containment.

In Life Sciences we target opportunities in the areas of lower relative technological and regulatory risk not in new therapeutics but rather in molecular and point of care diagnostics, medical devices, specialty pharmaceuticals and some selected healthcare services.

In technology we pursue transaction enabling applications with a recurring revenue business model. In internet new media financial technology, Healthcare IT and other selected business services. Safeguard's discipline compliments our focus. We will not deploy capital or pursue exits simple for activities sake. Now if an opportunity clears our strategic growth and return hurdles, we respond appropriately. Our deal team evaluates more than 1000 proposals each year. We typically deploy up to $25 million in growth capital per company and then time our exits from ownership positions in these companies to achieve an aggregate targeted risk adjusted return on capital of two to five times over three to five years.

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