Safeguard Scientifics Inc (SFE) 2005 Q2 法說會逐字稿

Good morning. My name is Marvin and I will be your conference facilitator today. At this time, I would like to welcome everyone to the second-quarter 2005 earnings conference call for Safeguard Scientifics. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). Ms. Dusossoit, you may begin your conference.

Thank you. Good morning to everybody. Thank you for joining us to review Safeguard's second-quarter 2005 results, which we released yesterday after the market. I am here with Tony Craig, our President and CEO; Chris Davis, Executive Vice President and Chief Administrative and Financial Officer and Bob Keith, the Chairman at Safeguard. Today Bob will open our call with comments on the news that we released yesterday regarding the appointment of a new CEO at safeguard.

As shown on slide 2, if you're following along on the Website, Chris will then provide details on Safeguard's financial results for the second quarter and for six months of 2005. Then Tony will speak about recent activities and the outlook at our Company. Finally, as usual, we will take your questions.

On slide 3, before we begin, I want to caution you concerning reliance on forward-looking statements. In the course of today's call, we will use such words as expect, anticipate, believe, intend when referring to our goals or events in the future. We cannot be certain that the final outcome will be as we describe today. In Safeguard's filings with the SEC, we describe in detail the risks and uncertainties associated with managing our businesses. We encourage you to read this language in our filings. Now I would like to introduce Bob Keith, Chairman of Safeguard's Board of Directors.

Thank you. Good morning. I am pleased to be here this morning to tell you about the selection of Peter J. Boni as the new President and CEO of Safeguard Scientifics. The Board spent a great deal of time and effort on this search and I am extremely happy to announce Peter's appointment. As you read in our release yesterday, Peter brings more than 20 years of experience in leading high-technology companies. Currently, he is an operating partner of Advent International, a large Boston-based global private equity firm. He is also non-executive Chairman of IntraLinks, a provider of on-line secure environments for the exchange of confidential information.

Peter served previously as Chairman and CEO of Surebridge, a software applications outsourcer and as CEO of Prime Response, a publicly traded company providing customer relationship management enterprise software. He has first-hand knowledge as an operating executive as well as significant experience in acquiring and integrating companies. Safeguard's Board has full confidence that Peter is the right person to lead Safeguard as it enters a new era of growth.

In turn, I really would like to thank Tony Craig on behalf of the Board of Directors for leading Safeguard through a difficult turnaround over the past several years. Tony, you chartered a new strategic direction for the Company and with your guidance, the Company accomplished a significant financial restructuring, including reducing and extending the maturity of our debt and completing the sale of CompuCom Systems last fall.

As I said at the annual meeting and our news release, Tony will move into a consulting role at Safeguard and has graciously agreed to assist in a smooth transition to executive leadership for Safeguard. We also expect Tony to remain on our Board of Directors during the transition. Tony, once again, thanks very much for your efforts.

Thank you, Bob. I feel good about what we have accomplished over the last several years and I'm very pleased to welcome Peter to Safeguard. Let me turn the call directly over to Chris Davis for the financial review of our second quarter.

Thank you, Tony and good morning. We were very pleased with the second-quarter performance of each of our five consolidated Companies. Safeguard's consolidated revenue increased 20% from $39.9 million in the second quarter of 2004 to $48 million in the second quarter of 2005. Included in the second quarter of 2005 is $3.8 million of revenue from Laureate Pharma. Consolidated operating loss was reduced from $14.8 million in the prior year to $8.1 million in 2005, a 45% improvement. In addition, each Company reported improved operating results in the second quarter of 2005.

On slide 5, you will see the results of operations by segment for the second quarter of 2005 versus the first quarter of 2005. On slide 6, you will see the results of operations by segment for the second quarter of 2005 versus the second quarter of 2004. On all the slides, we present each consolidated Company's revenues in the first column, their total operating income or loss in the second column. In the third column, we present Safeguard's share of pre-tax income or loss after any minority interest adjustments. Each column is net of intercompany transactions.

For each Company, I will compare the quarter sequentially as well as to the year-ago quarter. I will begin with Alliance Consulting, which provides custom software solutions and IT consulting service to Fortune 2000 clients. In the second quarter of 2005, Alliance Consulting reported revenues of $21.5 million and breakeven operating income. When compared to the first quarter of 2005, Alliance's revenues declined slightly by $300,000 but their operating results improved by $600,000 to breakeven. Alliance attributes this slight decline in revenue to restricted spending on IT consultants by several customers, which led to cancellation of several projects and delayed commencement of other engagements. Compared to the second quarter of 2004, Alliance's second-quarter revenues decreased by $2.3 million while the operating results improved by $2 million to breakeven. Alliance attributes the decline in revenue to its largest customer canceling active projects to control their costs.

In addition, the 2004 period included a substantial amount of acquisition-related integration projects for their largest customer. Breakeven operating results were achieved despite lower revenue through increased cost controls and expanded utilization of Alliance India resources.

Next is Clarient, the technology and services resource for pathologist, oncologist and the pharmaceutical industry. Clarient, a public company in which Safeguard holds a 57% interest, reported its second-quarter 2005 results on July 21st. They reported revenues of $5.2 million and an operating loss of $3.2 million. In the quarter, revenues increased 30% over the first quarter of 2005. Clarient attributed the increase in revenues to their new diagnostic lab services operations, which increased 40% over the first quarter, an excellent performance in the equipment business where a concentrated sales effort resulted in record sales. With the increased revenues, their second- quarter operating loss declined 24% from the first quarter of 2005. As compared to the prior year, Clarient achieved a 118% increase in revenues in the second quarter of 2005 due to the new diagnostic lab services operations as well as to increase ASIS (ph) sales partially offset by a decline in fee per use revenue from the installed base of these systems. Their second quarter operating loss decreased 42% from the prior year primarily related to the success of the new diagnostic lab services.

Laureate Pharma reached $3.8 million in revenues in the second quarter of 2005 and reported an operating loss of $2.7 million. Laureate provides bioprocessing and drug delivery services to support the development and commercialization of pharmaceutical and biological products. As compared to the first quarter of 2005, revenues at Laureate increased 46% and operating loss decreased 16%. During the quarter, Laureate signed contracts with four new clients with work commencing during the quarter on two of those new contracts. Since we acquired Laureate Pharma in December of 2004, only a portion of their results were included in our fourth quarter when it was grouped with the other companies' segment. The 2005 results include the full six months of results from Laureate, which is now reported as a separate segment. We will not be able to provide year-over-year quarterly comparisons for Laureate during 2005 but we will continue to compare their results on a sequential quarter basis. As a point of reference for all of 2004, Laureate Pharma reported revenues of $10.2 million and a loss of $9.8 million.

Mantas reported $8.1 million of revenues and an operating loss of $800,000 in the second quarter of 2005. Mantas is a leading provider of sophisticated analytic applications that address risk management, fraud detection, anti-money laundering and trading compliance. Second-quarter revenues at Mantas increased 14% sequentially from the first quarter of 2005 as a result of higher product license acceptances in the second quarter as well as increased service revenues due to new customer implementations. The decrease in Mantas' operating loss on a sequential quarter basis is primarily attributable to this increase in their revenues. The second quarter of 2005 reflected significant improvement with a 47% increase in revenues and an 81% improvement in their operating loss as a compared to the second quarter 2004. These improvements resulted from a $1.7 million increase in services revenue primarily from several key deals signed in the fourth quarter of 2004 as well as $900,000 more license revenue from client acceptances in the quarter.

Mantas recognizes revenues from software licenses, postcontact customer support and related consulting. The business has a long sales cycle plus a long revenue recognition cycle. Therefore, we believe backlog is a good way to measure Mantas' progress. At the end of June 2005, the Mantas backlog was $44 million compared to $37 million at March of 2005.

Pacific Title reported revenues of $9.4 million and operating income of $2.2 million in the second quarter of 2005. Pacific Title provides high-technology, digital and other specialized postproduction services for the Hollywood, motion picture and television industry. Pacific Title achieved increases in revenues as well as improved gross margins compared to both the first quarter of 2005 and the second quarter a year ago. The improvement resulted primarily from main title design work, their new digital intermediate services and increased sales of higher margin services.

To summarize, we're pleased with the progress of our consolidated companies during the quarter and we will continue to work closely with them to help them achieve their financial and operating objectives. Investing in young companies that have not yet reached profitability is part of Safeguard's business model. As we have discussed before, these companies are at a stage when they are investing for growth and as a result, most of them report operating losses which are then included in our consolidated results.

Now that we have reviewed each company's individual results for the second quarter, let's look at the consolidated financial results. As shown on slide 7, Safeguard's consolidated revenues increased 12% in the second quarter of 2005 as compared to the first quarter of 2005. For the second quarter of 2005, you can see that our consolidated net loss from continuing operations improved by 52% from the first quarter of 2005. This improvement was due to improved operating results at all of our consolidated subsidiaries as well as a decrease in equity loss. Slide 8 shows Safeguard's consolidated revenues from continuing operations for the second quarter of 2005, which includes Laureate Pharma, increased 20% as compared to the prior year quarter. Our net loss from continuing operations in the second quarter of 2005 increased $17.9 million over the prior year. This was primarily due to other income in Q2 of 2004, which included a $31.7 million gain associated with the sale of Sanchez.

The nature of our business model will result in quarterly variances of this kind as we monetize and exit investments from time to time. The increased loss was also due in part to the inclusion of Laureate Pharma's operating results in 2005. Partially offsetting these changes were improved operating results at the other consolidated subsidiaries, a $1 million savings on interest expense as a result of our refinancing of the majority of our 2006 convertible notes in February of 2004.

Slide 9 shows Safeguard's consolidated revenues from continuing operations for the year-to-date 2005, which again includes Laureate Pharma, increased by 15% as compared to the prior year. Our net loss from continuing operations in 2005 increased $28.2 million over the prior year primarily due to the other income in 2004, including gains of 8.5 million related to the sale of the consolidated company and a gain of $31.7 million related to the sale of Sanchez. As previously mentioned, the nature of our business model will result in quarterly variances of this nature as we monetize and exit investments from time to time.

The increased loss was also due in part to the inclusion of Laureate Pharma's operating results in 2005. Partially offsetting these changes were the improved operating results at the other consolidated subsidiaries and $3 million of interest savings as a result of last year's refinancing.

Finally, the loss from discontinued operations of $21.5 million in 2004 represented Safeguard's share of operating results from CompuCom in 2004. In addition to the consolidated financial information, we have included the parent company balance sheet on slide 10. This shows the financial position of Safeguard as if all of the consolidated companies were accounted for on the equity method. It further allows you to see that Safeguard has sufficient assets available to cover corporate expenses, to fund our current companies and to acquire new businesses.

Slide 11 shows the carrying value of our investments at June 30, 2005 at $170 million. The components included in this calculation are the carrying values of our interest in public companies, in private companies and in private equity funds. The total carrying value of our public company investments at June 30, 2005 was $18 million. The carrying value of our private company investments at June 30th was $126 million. Our carrying values represent the original acquisition price, plus any follow-on investments, plus our share of the earnings or losses of each company and any impairment charges we may have reported since that time. Carrying value may not reflect actual market value since under GAAP, we do not mark-to-market the value of any of our companies.

In evaluating Safeguard, we think you should look beyond the carrying or book values. But since there are no market values readily available for our private companies, we will continue to discuss operating and business milestones in our news releases, quarterly reports and conference calls so that you can track their progress as they grow. This is how we evaluate the improvement in the value of our private companies and we believe it will help you to measure our net asset value or NAV. Lastly, at June 30, 2005, the carrying value of our private equity fund interest was $26 million.

Now let's look at the market value of Safeguard's ownership in public companies on slide 12. We currently have ownership interest in two public companies, Clarient and eMerge with an aggregate market value of $47 million as of August 2nd. Slide 13 shows a roll forward of our parent company cash balances since year-end. At that time, we reported $162 million in parent company cash. On a cash basis, our corporate operations are not level throughout the year. We expect full year SG&A expense to be about $18 million. Let me also note that parent company cash at June 30, 2005 does not include $10.6 million of additional cash balances at our majority-owned consolidated subsidiaries nor $15 million held in escrow for interest payments on our convertible debentures. Parent company cash as of August 2, 2005 was $150 million.

We anticipate going forward that Safeguard will spend cash for acquisitions, for additional funding to our companies to foster their growth and approximately $7 million during the balance of the year relating to pre-existing commitments primarily to the private equity funds. Now I'll turn the call over to Tony Craig for his perspective on our Company and some trends contributing to their growth.

Thank you. First, I would like to spend a few minutes on each of our consolidated companies to bring you up-to-date on their activities and tell you about a lot of the things they have done during the second quarter. Alliance Consulting, on slide 14, made very good progress in the second quarter continuing its path to profitability. Tony Ibarguen has been at the helm of Alliance just over a year and he is guiding the gradual and successful shift in Alliance's business to higher margin projects by leveraging its new global delivery capability and promoting its master data management practice. Alliance's ability to combine their management expertise with their new offshore software development resources in Hyderabad, India means that the Company can provide its customers with cost-effective, true global delivery capability.

Alliance has also been driving productivity improvement in sales and other aspects of their business. In the second quarter, they lowered their breakeven point by further reducing overhead expenses, moving their headquarters from Center City, Philadelphia to a suburban location and by outsourcing much of their internal IT function to their Indian operation. The competitive landscape in IT services is highly fragmented and Alliance's flexible approach to engagements and its deep domain expertise in pharmaceuticals, financial services, and manufacturing and distribution our key advantages. Alliance is winning new business selling deeper into existing clients and benefiting from repeat engagements with existing customers despite a difficult selling environment.

Clients are tending to award business in multiple stages rather than in one large project. Although one large customer canceled some projects in the second quarter in order to control their cost, Alliance started a large engagement with another brand-new customer where activity has been strong and two subsequent engagements have been commenced. Alliance expects its targeted sales efforts will drive new business wins in the second half of 2005 and they remain on target to deliver positive operating results by year-end. We're very encouraged by their progress.

The 118% in second-quarter revenue at Clarient, in slide 15, one of our life science companies, is evidence of their successful transformation. They have expanded from a one product company to a more comprehensive business model encompassing wider distribution of their ASIS system and the successful launch of a diagnostics laboratory. The big news at Clarient is the signing of a five-year distribution and development agreement with DakoCytomation, the world's largest antibody reagent and auto staining company. Through this partnership, which was finalized last week, Dako will sell its market leading staining systems in combination with Clarient's digital cellular imaging and analysis systems to help pathologists and physicians make diagnostic and therapeutic decisions. Accurate testing is a crucial factor in determining the right drug therapy for a patient in the fight against cancer.

Dako's (ph) sales force, which numbers around 150 people, will begin selling Clarient's imaging system to its installed base of customers and to new customers in North America in September and with its strong European presence, hopes eventually to expand sales to more than 17 countries around the world. In terms of market reach, Dako provides Clarient with a strong commercial partner for market expansion of its ASIS platform. The agreement also contemplates that the two companies will begin jointly developing more advanced diagnostic systems as well. So you can see why we're excited about the prospects of this agreement.

Clarient's new diagnostic services business had another extremely successful quarter. Sales rose dramatically. 40% over the first quarter of 2005 and laboratory test volumes continue to grow at a healthy rate. The significant top-line growth and reduction in operating loss that Clarient reported in the second quarter is encouraging. In fact, Clarient's CEO, Ron Andrews, expects continued growth in its lab service business as well as an increase in sales of system. As a result, Clarient has negotiated a move to a larger single facility about halfway between its two current facilities that will house both its diagnostic services and its instrument services group. That move is expected to take place later this year.

Laureate Pharma, shown on slide 16, had a busy and productive second quarter. As Chris mentioned, revenues grew 46% from the first quarter of 2005 and they had several contract wins for bioprocessing, purification and aseptic filling. Laureate Pharma specializes in the production of complex proteins such as monoclonal antibodies that are the basis of many new drugs in the market today. It has modern facilities, state-of-the-art equipment and extremely knowledgeable staff. They are well positioned to add customers and have plenty of capacity to do so. Accordingly, we have helped Laureate Pharma to implement a sales and marketing strategy for developing even more business. In the second quarter they launched a disciplined and thorough approach to marketing their bioprocessing services to qualified prospects. This effort has already generated new customers and a healthy pipeline of potential business. They signed contracts with four new customers during the quarter, renewed one with an existing customer and have several additional contract negotiations under way.

In May, Laureate Pharma hired a West Coast regional sales manager to focus on prospects in that part of the US. With a growing number of U.S. biotech firms needing fast high-quality production of their pharmaceutical products and with demand outstripping industry capacity, Laureate Pharma is in excellent position to capture more business.

Turning to slide 17, Mantas, a provider of sophisticated analytical applications to financial services and telecom clients worldwide, had another good quarter as you heard Chris say with a 47% increase in revenues from last year's second quarter. They booked new contracts with several global financial services firms in the second quarter to provide proprietary broker and trading compliant software and they also renewed a fraud maintenance contract with a major telecom company.

Recently, Credit Suisse selected Mantas' anti-money laundering solution, which provides automated comprehensive and consistent surveillance of accounts and correspondence across business lines. It alerts compliant staff to detective behaviors and provides information that helps them analyze and resolved issues. Despite the lumpy nature of revenues in this business from quarter-to-quarter, Mantas' back log is strong and the company is successfully leveraging its leadership position in the marketplace. They have been recognized for the third consecutive year by the writers of Waters financial technology magazine as the best compliant company in the world.

Turning to Pacific Title, on slide 18, they had an excellent quarter with record sales of specialized postproduction services in the Hollywood motion picture and television industry up 15% over last year's second quarter. We're very pleased with this outcome. During the quarter, Pacific Title opened their second digital intermediate suite providing additional state-of-the-art editing and color correction capabilities. After several years of focusing investment in this new technology, Pacific Title is now gaining traction and beginning to generate steady and significant revenues as Hollywood shifts to an all-digital model.

In the second quarter, Pacific Title won significant work for its DI suite on several upcoming feature film projects. Each project is typically in-house for about three to four weeks and turnaround time is often the critical factor in competitiveness. With their complex software designed to create special effects and digital color correct films and more than 200 terabytes of storage, Pacific Title can accommodate even the most demanding of projects. Pacific Title achieved another important milestone in the second quarter. It delivered its first digital archiving project using the Rosetta process. This proprietary process is a superior method for archiving films that restores and preserves the quality of the film keeping it closer to the original. Market for this technology is growing as Hollywood converts to all-digital technologies for the production and archiving of motion pictures. The expectation is that Pacific Title will do much more of this highly specialized proprietary work for the major studios.

The pace of business in Hollywood appears to be good. Pacific Title has a full pipeline of projects. With its digital intermediate suites now established and initial customer acceptance of its new Rosetta process, the Company has a firm foothold on the forefront of digital revolution in Hollywood.

In summary, I want to repeat how pleased we are with the progress made by our companies in the second quarter and first half of 2005. As we have said, time-to-volume companies face lots of challenges as they scale their businesses and dynamic growth often results in lumpy revenues. As they invest for long-term success, there are often challenges to maintaining consistent progress toward profitability. Nevertheless, I have no doubt that Safeguard is working with five great companies; Alliance, a sizable IT consulting business that is close to profitability; Mantas, a leader in its field with exceptional technical expertise; Pacific Title, a profitable company on the cutting edge of the digital revolution in Hollywood; Laureate Pharma, a young bioprocessing company with existing capacity in a rapidly growing market and Clarient, a newly transformed business staking out its future in the growing field of cancer diagnostics.

Safeguard will continue to work closely with the managements at each company to help them define their growth strategies and achieve their goals. And of course, we will provide you with regular updates on the progress.

In closing, I want to thank you all for your interest during the past few years. I look forward to Peter Boni joining our company as President and CEO in a few weeks. As Bob mentioned, I'll be working with Peter to ensure a smooth transition. As a fellow shareholder, I'm looking forward to the next chapter of safeguard's future with Peter at the helm. Let me turn the call back to Janine for any questions that you may have.

Thank you, Tony. Marvin, we're ready to begin the Q&A session, if you would.

(OPERATOR INSTRUCTIONS). Bill Sutherland with Boenning & Scattergood.

I apologize for calling in on the mobile and also I may have missed some of Tony and Chris' comments but I would like to just address a couple of the trends I saw in operations; the impressive job Alliance did of getting just over breakeven in the quarter and curious whether we should expect that to be sustained from this point forward or could it be still unprofitable near-term?

I'm glad for that question actually. My remarks that you may have missed highlighted that fact that even on flat or slightly lower revenues, Alliance has substantially improved its operating profitability. It did that by lowering their breakeven point and by exporting some of the functions they had to lower cost capabilities in India. So that sort of puts the emphasis more back on top-line growth as opposed to efficiency improvement for sustaining the breakeven point that they got or improving upon it. So Alliance's whole focus now is growing the market, growing the master data management service and increasing in the volume of the global delivery capabilities they have using the efforts that we have in India.

How much revenue is being generated offshore now, Tony?

We haven't actually disclosed that one, Bill.

I know Laureate is at a phase where it can be very bumpy quarter-to-quarter as far as revenue. Can you give us a little more color on the surge in revenue in Q2 sequentially and whether there is some directional -- some direction there that we can assume going forward?

The key to Laureate, and I'll let Chris answer the specific quarterly comparison, is really activating this marketing program and generating new customers. As you remember, we acquired them as a spinoff from Perdue and with that got the capacity and the science and the people and the production capability to be able to sustain much more volume that they were doing. So the entire key here is really building the go-to-market model and attracting new customers to use the capacity that they have. They have certainly indicated in the last quarter, the ability to do that with the number of new customers that have been imported and the increase in sort of pipeline activity that I discussed earlier today.

So there's no reason to think it is a level that is just a blip in other words?

Well, you can't make a straight line out of a point but I think you would watch this closely over the next couple of quarters and our measure of progress here is really how well they do in attracting new customers.

Bill, in case you missed the numbers, the second-quarter revenue was the $3.8 million compared to 2.6 million in the first quarter of this year.

Yes. Chris, I got the quarterly operating numbers last night so that's what I was actually referencing was the fact that it was such a big sequential improvement. The last question just on the operating lines was on Pacific Title and remind me again about the degree of seasonality in the second half for Pacific relative to the first half.

Historically, there has been a degree of seasonality in Hollywood and production of films as cycled around July 4th weekend, the fall breakout, Christmas and so forth. This year we did not see the same seasonality as we had done in previous years. Now again, that point, I don't know if it is indicative of a trend, but at this point, Hollywood seems to have a very healthy backlog of activity. There does not seem to be any imminent labor disturbance that would cause the blips of the past. So for the moment, at least, we are full and in fact Title is doing all they can to respond to the demand they are seeing.

That's terrific.

The other comment, Bill, would be that some of the new services they are providing, particularly the archival and restoration services that they call the Rosetta process, we don't think will have the same degree of seasonality as the main title work. So we're hoping that that will fill in some of the traditional slow periods.

Then last, I've been kind of curious, as you continue down the road as really a company with one foot in IT and one foot in life sciences, does the Board ever address the issue of maintaining those dual focuses under one roof on a go-forward basis?

Bill, the nature of our business is one of constant reassessment and we're looking at pipelines of activity for new acquisition, both in the life sciences and the IT sector. There are places where these sectors converge, the application of technology in life sciences. So I wouldn't view it as a particularly disparate that we call life sciences IT different. They actually do converge and there can be a lot of overlap in the area where skills can be applied to grow young companies.

Sam Hrabowski (ph) with SER Asset Management.

Good morning, members. I'm very happy to see that you bought stock in the open market. This was very positive and the stock moves up and can you tell me do we expect to continue this process and --?

I think the acquisition of stock, first of all let me comment, over the past four years, it has been difficult because of all of the lack of opportunity. It is really an individual decision in my viewpoint. The fact that I bought, I'll speak for myself, says that I think we have good opportunities in front of it and it was a worthwhile investment on my part. I would let anybody else address the question on a personal basis.

That was very positive but it appeared to me that based on the Form 4 filings it must have been about 20 people that bought and I appreciate this as a stockholder. I think that is the most phenomenal message for you to send all your stockholders. As far as the convertibles, has there been any conversion or any of those convertibles from convertible to stock?

Good morning, Sam. This is Chris Davis. No, there has not been any conversion. The strike price for conversion is actually $7.22 a share. We are not anticipating any conversions until the stock price appreciates significantly.

One of the things about Clarient, which has done a phenomenal job and also the officers of Clarient also bought stock in the open market, if not currently, previously. Their capital has gone down due to the losses and as a 50% stockholder, do you expect to continue to have to put additional funds in there or what are your thoughts there?

I think we have to watch that company as it grows. They have their own Board and obviously we participate in that and we are a majority shareholder in it. A growth company will face whatever challenges it faces. It will face management challenges and potentially expansion challenges as well. We're very very pleased with the progress we've made to date.

As far as your private companies, what are your thoughts with a Mantas or a Pacific Title of some kind of public offering and what kind of time frame do you see is something like that happening?

That is an area where Safeguard has excelled in the past and it's an area where we've said those tools are available to realize value in the future. Now we have not had, and probably would not, be disclosing plans for that.

Even though you may not disclose plans, I guess, if the market could warrant a greater valuation and -- I mean your backlog on Mantas has gone up rather nicely although maybe your profits are not there yet with extra capital possibly and greater exposure. The timeline might shorten a public offering I thought but I was just wondering what your thoughts were, what the Boards thoughts were, what kind of stock market do you need to do something like that?

We're always evaluating the opportunity for realizing value and in that you weight the stage of the company, its growth, what it still has to do and what the receptivity is and potential valuation might be. This is a constant process and when we have one to realize value, we will certainly make it public.

That's wonderful. As I say again, I'm glad to see about a approximately 24 employees that were filed recently and whatever the rational, the stock did move up significantly, although in fact off and continue the good work.

(OPERATOR INSTRUCTIONS). We seem to have no questions at this time.

Okay, Marvin. Thank you for the Q&A. On behalf of Tony Craig, Chris Davis and Bob Keith, thank you very much for joining us this morning for the discussion on our new CEO, Peter Boni and for a review of Safeguard's second quarter. This call will be available for replay at our website starting later today and if you have additional questions that we were not able to take this morning or that you think of subsequently, please feel free to contact me at Safeguard at the Investor Relations department. Our next regularly scheduled conference call will be in early November. Thanks to you for listening.

This concludes today's conference call. You may disconnect at this time.