Safeguard Scientifics Inc (SFE) 2006 Q1 法說會逐字稿

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  • Operator

  • Good morning. My name is Mike, and I will be your conference operator today. At this time I would like to welcome everyone to the first quarter 2006 conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [OPERATOR INSTRUCTIONS] Now I would like to turn the call over to Mr. Peter Boni, Vice President and CEO of Safeguard Scientifics. Thank you, sir. Please begin your conference.

  • - President & CEO

  • Thanks, Mike, and good morning, everybody. Thanks for joining Safeguard's first quarter 2006 conference call. Joining me is Chris Davis, Executive VP and Chief Financial and Administrative Officer. And I'm Peter Boni, CEO of Safeguard. Following our remarks, we will answer some questions, but I would like to give you the forward-looking statements comment right now. During the course of today's conference call, we will use such words as expect, anticipate, believe, and intend when referring to goals or events in the future. We can't be certain of the final outcome as will be described today. In Safeguard's filings with the SEC, including the annual report on Form 10-K, we describe in detail the risks and uncertainties associated with managing our businesses. We encourage you to read this language in our filings.

  • Now with that being said, I'm very pleased to report the Q1 2006 results. The continuation of the robust operating performances from our partner companies, and the acquisition of Acsis in December, 2005, combined to produce a 44% increase in revenues, and a 60% reduction in net losses. Equally important, igniting our deal machinery produced another transaction with our recently announced stake in Authentium. Based in West Palm Beach, Florida, Authentium is the leading provider of On-Demand security solutions to Internet service providers, telecom carriers, and other independent software vendors. Now this marks the second deal involving a technology company in a high growth market within the past 5 months. And it's further evidence that we are executing against our strategic plan to drive long-term shareholder value. A little bit more on Authentium later.

  • Indeed this quarter's progress was driven by our execution on our game plan. Reposition, time, ignite, augment, and execute. The plan guides our use of time, talent and financial resources, as we work to accelerate the deployment of our cash to provide a superior return to you, the investor. By positioning ourselves as a holding company, we're able to build, and then realize value in a risk adjusted way. We believe we offer a great choice for [inaudible] stage companies in high-growth markets, through our ability to provide growth capital, and strategic and operational guidance. Significant competitive advantages for our partner companies. Our sea level professionals have been in the entrepreneur's seat. They understand the challenges young companies face. Our executives provide strategic planning, assessment, mentoring and guidance to further develop our partner companies. We believe the improved results from our partner companies are evidence of our ability to identify high-growth companies and add value to help them grow.

  • In addition to our sea level staff, we're using advisory boards to augment our deal sourcing efforts and partner company growth. Just last month, we introduced both our Information Technology and our Life Science Advisory Boards. We're particularly pleased with the caliber of the industry experts who have agreed to participate. The advisory boards are charged with providing expert guidance and strategic direction for the benefit of Safeguard and it's partner companies. Augmenting our internal resources with these advisory boards, is a key milestone in our strategic plan. We believe that our updated vision and charter truly reflect our focus and our aspirations. Our vision: to be the preferred catalyst for creating great information technology and life sciences companies.

  • Our charter states simply that Safeguard builds value in high-growth revenue stage IT and life science businesses. We provide growth capital, as well as a range of strategic, operational, and management resources to our partner companies. Safeguard participates in expansion financing, corporate spin-outs, management buy-outs, recaps, industry consolidation, and early stage financing. We've identified 5 key strategic things that reach across both IT and life sciences. These themes: maturity, migration, convergence, compliance, and cost containment. We've developed a methodology to aggressively identify and partner with companies that are capitalizing on the trends, promising entrepreneurial companies which have a competitive advantage in IT or life sciences markets, that represent sizable opportunities.

  • We have a finely honed strategy and substantial resources, and were looking for tomorrow's success stories. For example, our deal teams continue to evaluate a robust pipeline, and we continue to see an upswing in the volume of high quality partnering opportunities, validating our go to market strategy. Our most recent deal supports that we're well positioned to put available capital to use in very exciting companies. I also want to share with you some highlights of our partner companies, where we believe Safeguard's participation demonstrated execution of our game plan.

  • Solid operating results are only half of our story. Our business model is also predicated on putting capital to work, adding value through partner company growth, and ultimately helping them maximize their own value. During the quarter, Safeguard supported Mantas in the sale of its telecom business, the Subex Systems. The sale enables Mantas to focus on its core business, providing a wide range of comprehensive behavioral detection software solutions for financial services companies, to meet increased regulatory and compliance demands applied to anti-money laundering. Safeguard also assisted in Alliance Consulting in divesting its Southwest region to Logicalis, completed earlier this week, May 1st. Included in the sale were Alliance's Phoenix, Dallas, and L.A. operations. Alliance plans to use these proceeds for strategic growth initiatives focused within specific markets that carry higher potential revenue and margin growth.

  • The most recent event that we find quite exciting, was the acquisition of a stake in our newest partner company, Authentium. They maintain a unique position in a highly attractive IT security market. Authentium is a leading developer of security software technology, such as antivirus, real time anti-spy ware, intrusion prevention, firewall, applications control, and policy-based desktop security management and compliance. Its multiproduct integration and its delivery platform enables it to partner with most software developers and virtually any type of Internet service provider, or any type of network operator globally. Presently, Authentium technology scans more than 3 billion e-mails a week. And they're deployed on more than 7 million consumer and office PCs worldwide.

  • Security solutions are converging with Internet service offerings, along with migration from the desktop to the service provider. Thus, producing distinct cost and convenience advantages for customers. Authentium's interception and enforcement technology enables the company to work deep within the operating system, providing Authentium key positioning to use leveraged distribution to provide value added desktop security applications to millions of end users. With securities threats on the rise, analysts expect the security software market to grow at a compounded annual rate of 16% through 2009. In April, Safeguard co-led a $15 million financing for Authentium. We provided $5.5 million of capital for a 10% stake. This transaction hits on several key themes in the Safeguard strategy. It's a growth market, a recurring revenue stream, it's within our targeted geography, and it plays on the themes of convergence, migration and cost containment.

  • Our other recent acquisition in the IT sector is Acsis, a leading enterprise software company that assists manufacturing companies to improve visibility and efficiencies throughout the entire supply chain. Acquired in December of '05, we believe Acsis is a key player in the migration of mature supply chain management systems to newer technologies, like radio frequency identification, RFID, and addresses several of Safeguard's strategic themes, including compliance and cost containment. With the addition of several talented executives, Acsis' management team now has the focused leadership and the blend of business and technology expertise required to accelerate the development of new solution, and capitalize on significant market opportunities. With over 600 installations in 26 countries in mission critical environments, Acsis is a proven market leader in the growing RFID market, and has provided its real time solutions to an impressive number of Fortune 500 clients. Recent customer wins and a growing pipeline confirm that Acsis is well positioned for growth.

  • Looking at some of our more mature partner companies, Alliance Consulting has capitalized on a deep domain expertise in selected vertical markets, and with Safeguard's guidance, has developed a strategy focused on business intelligence consultancy, leveraging both global delivery to Fortune 2000 clients, and it's recently announced it selection to implement the J.D. Edwards ERP applications for a global chemical manufacturer. Alliance joined with its clients, McKesson and Wyeth, to present its On-Demand customer data integration solution at a major customer event -- or a major industry event in 2006, the Customer Data Integration and Master Data Management Summit. Alliance's 37% year-over-year growth is above the average for its industry. With several key Q1 client wins, Alliance continues to prove its ability to create high-quality, competitively price solutions and meet the needs of pharmaceutical, healthcare, financial services, manufacturing and distribution clients. Alliance is 1 of our largest revenue producing companies. Their growth and profitability or -- their growth and profitability profile has produced dramatically, and we believe their performance is driving meaningful increases in their value.

  • Mantas is a leading provider of comprehensive behavioral detection software solutions for global financial services companies, to meet increased loss prevention, regulatory and compliance demands. This enables clients to improve their performance and transparency of business operations in multiple global markets, where behavioral detection are revolutionizing everyday business compliance and decision making. Mantas has been cited by the industry as the best of breed solution in its market. Operationally, Mantas achieved 3 key global new client wins, and strong domestic and international bookings in Q1. Mantas is increasingly focusing on building higher growth and higher margin offerings, including new product initiatives and penetrating global Tier 2 accounts. These factors contributed to an outstanding Q1 revenue growth. Their second quarter in a row of profitability and excellent positioning for future growth.

  • With technology driving the fundamental changes, Pacific Title and Art Studio is positioned to lead the expansion of digital technologies, by providing digital post-production and archival services to the motion picture industry. Pac Title provides an array of state-of-the-art digital post-production capabilities, and is leading the transformation to optical analog image reproduction in producing to more dynamic cost-effective and flexible digital image processing technology. With major movie production off last year's pace, Pac Title's modest Q1 growth was led by new product offerings. The patent pending archival solution, Rosetta YCM process, and digital intermediate solutions are generating new business growth and incremental revenue for Pac Title. They continue to increase their emphasis on special effects, digital color correction, 3-D animation, and other sophisticated elements.

  • So in summary in the IT sector, we have recently completed 2 exciting deals. One of our largest revenue producers, Alliance, continues to make significant progress in both a fundamental and a financial performance perspective. We have a best of breed company, Mantas, doing extremely well in a hot sector. And Pacific Title continues to make progress in an interesting niche market.

  • Turning to our life sciences companies, Clarient, trading on the NASDAQ under the symbol CLRT, is a comprehensive cancer diagnostics company. Last week they announced their fifth consecutive quarter of significant year-over-year revenue growth. By combining innovative proprietary technologies, such as a highly reliable automated cellular imaging system, Clarient provides precise, meaningful test results and expertise to support drug discovery efforts, and improve patient outcomes with fewer side effects. Clarient is leveraging its technical expertise and proprietary systems to provide its diagnostic products and services to a much larger customer base. Clarient has recently moved its laboratory operations into a newer, larger facility. In addition, with a key distribution and development agreement in place, Clarient is well-positioned to achieve strategic plans, thus creating significant value for their shareholders.

  • Laureate Pharma provides bioprocessing services to support the development, manufacture and commercialization of protein-based biopharmaceutical products. They do this for pharmaceutical, diagnostic and biotechnology companies. Focusing on products and clinical trials, or early commercial production, the combination of its FDA registered facility, and its expertise in working with the lower volume, more complex processes, provides Laureate Pharma's competitive differentiation in the rapidly growing biopharmaceutical outsourcing industry. Laureate Pharma is expanding its manufacturing capabilities at its facility in Princeton, New Jersey, with proceeds from the December sale of underutilized operations. A huge growth in backlog from 4 new clients, including recently announced contracts with Seattle Genetics and Bradmer Pharmaceuticals, coupled with Laureate's fully integrated capabilities designed to meet the demands of the growing pharmaceutical industry, are all expected to improve results, and improve revenue.

  • Our life sciences partner companies are on the cutting edge of major trends. These trends were presented at Bio 2006, an April conference attended by over 19,000 industry people. Among the trends that most impact Laureate and Clarient, personalized medicine is becoming more of a reality, as demonstrated by the advent of bio-markers within diagnostics that target specific diseases. The use of innovative new drugs in lesser than blockbuster volumes, meeting unmet medical needs. And at that conference, we also heard much about public company and M&A valuations trending up in the life sciences arena, a pattern that is expected to reward companies meeting these important trends.

  • Although our quarterly financial reports generally focus on the consolidated majority holdings, we're very pleased with the progress being made, and the value being created in our minority partner companies. Including in our information technology group, Nextel Communications, a voice-over Internet protocol session management product company. In our life sciences group, we're very optimistic about the milestone achievements at Ventaira Pharmaceuticals, a specialty pharma company using novel drug delivery technology. And Neuronyx, developing stem cell-based therapeutic products. With that, let me turn it over to Chris to provide a more detailed review of the quarter's financial results. Go ahead, Chris.

  • - EVP, CAO & CFO

  • Thank you Peter. Good morning, everybody. I agree with Peter's comment that we're very pleased with the overall performance of the Q1 results, and the progress that Safeguard is making against our strategic plan. Before turning to the financial performance of our partner companies, it's worth noting that Safeguard has a distinct business model, and that has an impact on the presentation of our results, and how we believe our shareholders should look at us from a valuation perspective. For example, we believe the true value of our partner companies is not reflected fully in our financial statements. The carrying value, or book value, does not reflect the actual market value of our companies. Because market values for our private companies are not readily available, we discuss operating and business milestones to provide a measure of their progress. This makes it possible for you to evaluate their growth and value, and to calculate a net asset value, or NAV, for Safeguard.

  • With that, let's take a look at Safeguard's consolidated financial results, and the progress with our partner companies. Safeguard's consolidated revenues increased to $55.5 million in the first quarter of 2006, from $38.5 million in the first quarter of last year, with notable improvement across the partner companies. This year's first quarter included $4.4 million of revenue from Acsis, which we acquired in December of 2005. This is the fifth consecutive quarter of strong year-over-year growth in quarterly consolidated revenues for Safeguard, with 46% growth in Q4 of 2005, and 44% growth in Q1 of 2006.

  • Turning to the partner companies, Alliance Consulting reported impressive revenues of $25.2 million, up 37% from Q1 of '05. They also significantly improved their bottom-line from Q1 of '05. Alliance had strong performance in existing accounts, and added key new accounts, including expansion of outsourcing, master data management, and global delivery services, which are expected to continue to grow during the remainder of 2006.

  • At Mantas, the first quarter of 2006 reflected excellent progress. Revenues were $9.4 million, up 43% from Q1 of '05. They also produced a turnaround from an operating loss in Q1 of '05, to operating income of $1.6 million in Q1 of '06. The improvement was due to increased client license acceptances, and implementation of cost savings initiatives. Mantas expects revenue to continue to improve in the remainder of 2006, through higher growth and higher margin opportunities.

  • At Pacific Title, revenues of $7.6 million in the first quarter of 2006 represent a 3% increase over last year. This performance was led by increases in digital intermediates and visual effects, as well as revenue from a new business line, Digital YCM. Gross margins decreased slightly in 2006 as compared to 2005, due to higher direct costs and overhead.

  • Because we acquired Acsis in December of 2005, we do not have comparative data for the first quarter of last year. Acsis reported $4.4 million of revenues in Q1, and an operating loss of $2.2 million. Safeguard has received a number of questions since the acquisition regarding our expectations for Acsis' performance in 2006. In business for over 20 years, Acsis has recently experienced several years of modest profitability. We have encouraged them to invest in their growth through the addition of management resources, and new sales and product initiatives. We expect these strategies to result in modest losses in 2006, while we invest in their long-term value creation.

  • In life sciences, Clarient recently announced their first quarter results. Compared to the prior year, Clarient achieved a 68% increase in revenue, representing the highest quarterly revenue in the company's history. These outstanding results reflect the continued momentum of their new business strategy, and strong growth in the lab services group, up 192% year-over-year, including a favorable mix in the types of tests being performed. Clarient expects continued increases in revenues from diagnostic services in the remainder of 2006, as they now offer a more comprehensive suite of advanced cancer diagnostic tests, and they're expanding their sales force. Clarient also expects increases in system sales from the distribution efforts of its global distribution partner, Dako.

  • Laureate's revenue remained level in the first quarter of 2006 as compared to the prior year, and they were able to reduce their operating loss by 5% in 2006, compared to the prior year. We continue to be encouraged by their recent wins and growing pipeline, that should turn into increased revenues in coming quarters.

  • To summarize, we're very pleased with the progress of the consolidated partner companies during the quarter, and we will continue to work with them to drive their value. While most of our partner companies have not yet reached profitability, it is important to realize that this is normal for companies that are investing in their growth. What is most important is that they continue to make sufficient progress and position themselves to achieve their potential, the key to realizing long-term value growth for our shareholders.

  • Discontinued operations in the first quarter of 2006 included a $1.9 million gain from the sale of Mantas' telecommunications business. The results of Alliance's Southwest region, which was sold on May 1st, are also reported as discontinued operations. In 2005, discontinued operations included the operations of Laureate's Totowa, New Jersey operation, which was sold in the fourth quarter. All prior periods have been restated to conform to the current presentation.

  • We also think it's helpful to look at the parent company balance sheet. This shows the financial position of Safeguard, as if all of the consolidated partner companies were accounted for on the equity method. The carrying value or our holdings at March 31st was $169 million, with $15 million from our public companies, and $146 million from our private companies. On March 31st, the carrying value of the remaining private equity fund interest that we hold was $8 million.

  • Updating the market values of Safeguard's ownership of public companies, we currently have ownership interests in 3 public companies. Clarient, traffic.com, and eMerge, with an aggregate market value of $41 million as of May 2nd. This is about 2.5 times the current carrying value. Our carrying value represents the original acquisition costs and follow-on funding, plus our share of the earnings or losses of each company, reduced further by any impairment charges. Carrying value does not reflect the actual market value, since under Generally Accepted Accounting Principles, we cannot mark to market the value of our companies.

  • In evaluating Safeguard, we think you should look beyond the carrying value or book value of the companies. Since there are no market values readily available for our private companies, we discuss operating and business milestones, so that you can track their progress. This is how we evaluate the growth and the value of our private companies, and will help you to measure improvement in our net asset value. With improved partner company performance, we reported $6.5 million in net loss for the first quarter of 2006, a dramatic improvement from the net loss of $16.1 million in 2005.

  • Partially offsetting these improvements, was the impact of adopting FAS 123R. Total consolidated stock-based compensation for the first quarter of 2006 was $2.1 million. So far in 2006, we have repurchased $5 million of face value of our convertible senior debentures for $3.8 million in cash. Turning to other uses of cash at the end of 2005, we reported $141 million in parent company cash. Since then, we used $1 million for follow-on fundings to Neuronyx and Ventaira Pharmaceuticals. We funded prior private equity fund commitments with $1 million. We used $5 million for corporate operations, and we received proceeds of approximately $1 million from the sale of holdings in a legacy company. As a result, parent company cash on March 31st was $132 million. Note that parent company cash does not include $14 million of cash balances at the consolidated partner companies. Nor does it include $11 million held in escrow for interest payments on the convertible bonds. As of May 2nd, parent company cash was $125.1 million. Since the close of the first quarter, we provided $5.5 million to our Authentium for our 10% stake.

  • We anticipate going forward, that Safeguard will use its available cash to fund the growth of our current partner companies, to acquire new businesses, and will spend up to $16.2 million to purchase additional convertible bonds from time to time. In addition, we expect that corporate SG&A expenses will be about $17.5 million for the full year in 2006. So in summary, our consolidated revenues were up 44% year-over-year. Our consolidated net loss was cut by 60% year-over-year. And nearly all of our consolidated partner companies reported improved revenues. And the acquisition of Acsis added $4.4 million of revenue in Q1. Peter will now wrap up our remarks. Peter?

  • - President & CEO

  • Thanks, Chris. Well to wrap it up, so far this year, we had great operating performances in the first quarter from our partner companies. The acquisition of Acsis in Q4 of '05 added to our strong revenue growth. Igniting the deal machinery produced another deal, with the acquisition of a 10% stake in Authentium. We continue to evaluate a robust pipeline. And we continue to see an upswing in the volume of high-quality opportunities for Safeguard. We're using the recently announced advisory boards to augment our deal sourcing efforts and build value within our partner companies. And most importantly, we are executing on our strategy boldly, with confidence, and we continue to strive to build long-term value for our shareholders.

  • So I look forward to keeping you aware of our progress. This concludes our remarks. Jim Datin is on the road today. But John Loftus just came back from the road, so John will be joining me for our questions and answers, along with Chris. So Mike, if you could begin the Q&A process now, I'd appreciate it.

  • Operator

  • [OPERATOR INSTRUCTIONS] We have no questions at this time, sir. We do have a few questions popping in. Would you like to take them?

  • - President & CEO

  • Sure. I'll be happy to.

  • Operator

  • Bill Sutherland, Boenning & Scattergood.

  • - Analyst

  • Good morning, guys. And good work in the quarter. Since John is there, maybe we can get a little more color on Authentium, just to start off off.

  • - President & CEO

  • John, why don't you address that.

  • - EVP & Managing Director, IT

  • Sure. Hi, Bill. We're very excited to get into Authentium. There have a very dynamic management team, led by a global CEO, John Sharp. They are in a hot area, security. As Peter articulated, they have proprietary technology in the antivirus, anti-spy ware, firewall, and several other areas, as well as a multiproduct integration platform that let's them integrate third-party ISPs. All that delivered in a unique go to market through ISPs, cable operators, telecoms, and CLECs. So its's a very exciting play, recurring revenue model, designed from the ground up to be delivered through the channel in support of the ISPs and the CLECs, providing security as a bundled offering to their own end customers.

  • - Analyst

  • So is the model -- it's a subscriber kind of driven model, John? Or am I not thinking of it right?

  • - EVP & Managing Director, IT

  • Yes, it is. Their customers pay them based on a subscriber basis. And so, through an ISP, as the ISP rolls it our, Authentium typically gets a payment based upon the number of subscribers that are leveraging the software, that have downloaded it from the ISP. They have other lines of business where their tool kit is a very sophisticated tool kit. And it can embed some of their technology in other security software products. In that case, it is a license sale for those products, as they go forward. So it's a mix. But the primary driver of the piece that we're very excited about is the recurring revenue component.

  • - Analyst

  • All right. And the last thing is, can you give us any sense of size? I realize it's not consolidated.

  • - EVP & Managing Director, IT

  • Bill, we haven't released that. It's a minority investment, and we respect the company's sort of desire there.

  • - Analyst

  • Okay. Very good. I wondered if I could get a little color on margins at Alliance? I know seasonally, Q1 has some pressures. Chris, do you want to talk about that?

  • - EVP, CAO & CFO

  • Yes, Bill, what you're seeing in Q1 of '06 is some of the seasonal effects that they experience in Q1 of each calendar year. So nothing unusual there. Nothing that would have any implications beyond the current quarter.

  • - Analyst

  • Okay.

  • - EVP, CAO & CFO

  • I should mention that you are seeing the effect of 123R coming through. So everybody needs to adjust their thinking a little bit about operating results because of that stock-based compensation that is now included.

  • - Analyst

  • That's right. That's right. For Alliance and Mantas, can you give us -- you talked about some great client wins. You probably don't want to start talking about a bookings number every quarter, but can we get any feel for that?

  • - EVP, CAO & CFO

  • Bill, we haven't released that. And I guess at this point, both pipelines are strong. Both management teams are operating on all cylinders. But at this point, we're not releasing booking numbers.

  • - Analyst

  • Okay. And let's see. I believe that covers most of my questions. I'll get back in the queue. Thanks, everybody.

  • Operator

  • Eric Swergold, Gruber McBain.

  • - Analyst

  • Good morning. It's Eric Swergold from Gruber McBain. Congratulations on re-igniting your momentum.

  • - President & CEO

  • Thanks, Eric.

  • - Analyst

  • 1 question I have for you is, given the expected [inaudible] of this KKR offering, which is absolutely massive in size, it certainly shows a public appetite for the private equity margins. And given their [inaudible] fee structure relative to what the end shareholder receives at Safeguard, what are you doing to get noticed, in terms of those investors that are piling into the KKR vehicle, that could have a much better deal through owning Safeguard stock? Thank you.

  • - President & CEO

  • Thanks, Eric. We've been watching the KKR transaction, as well. They have a great branded footprint, as does Safeguard. And victory has many fathers. It was interesting to see that they used many of the terms that we use in our positioning, in the most recent press release I saw. We've been active on the investor relations circuit. This month, Chris and I will be participating in 2 IR conferences. One put on by the AEA, the American Electronics Association, actually next week. And one at the end of the month, with SG Cowen and Company. We've also taken on to several road shows, visiting key potential institutional investors, to present Safeguard, present the Safeguard story, the strategy, the momentum, and the successes that we've had to date.

  • - Analyst

  • Thank you.

  • Operator

  • Sam Robotski, Sir Asset Management.

  • - Analyst

  • It's coming together. I guess it's maybe early in that area. But on the Mantas, the $1.9 million gain, was that reflected in the Mantas profitability numbers?

  • - President & CEO

  • Chris, go ahead with that.

  • - EVP, CAO & CFO

  • The 1.9 that you're referring to, I think is the gain on the sale, from the sale of discontinued operations. The sale of their telecom activities. And if that is what you're referring to, that's reported as discontinued operations, and it's below the line.

  • - Analyst

  • Okay.

  • - EVP, CAO & CFO

  • So it's not included in the operating income, as you see it in the segment information.

  • - Analyst

  • And how much cash proceeds did you get for that?

  • - EVP, CAO & CFO

  • The cash proceeds were 2.1, and the gain was 1.9.

  • - Analyst

  • And in the sales numbers, are the sales of this discontinued operation, are not included in the Mantas numbers then?

  • - EVP, CAO & CFO

  • That's correct. They are not. And the same would be true now for the Southwest region of Alliance, where even though the sale closed in May, we began discontinued operations in Q1. So in all of the numbers that we've presented to you, we have removed the revenue and the expenses, and any gain or loss on sale from the numbers that we've shown you today.

  • - Analyst

  • Mantas has put out an awful lot of press releases telling the story of what they're doing. Which is good. It's good to get a picture, more details. And with this, is there any way to read into that you're looking to possibly explore the possibility of either some kind of public offering, say a year or 2 years down the road, or what kind of time frame? Or does it require a market -- more of a market acceptance, as far as the underwriters et cetera, to sort of get greater value for the Mantas?

  • - President & CEO

  • Yes, Sam, the economic driver of our engine, or the driver of our economic engine is building value in our holdings, and then realizing that increase in value at some point in time, through an exit. And we always try to identify for ourselves an exit strategy. And that's the premise upon building value in each of our holdings, not only Mantas. And we're very pleased with the positioning of many of our holdings today. We really feel as though we're making great progress in building value.

  • - Analyst

  • Definitely the Mantas, the value is getting built. Because of the improved profitability and the sales of the structure. Is there an expectation that this will continue in a similar way based on all -- based on your orders and everything that's going on?

  • - EVP, CAO & CFO

  • Sam, I commented during the prepared remarks this morning, that we expected Mantas would continue the current trend of good performance during the rest of '06. But beyond that' we haven't given, and aren't going to, give any more specific guidance than that.

  • - Analyst

  • Well I want to commend everybody for putting together the team and doing what you guys are doing. Hopefully, you'll get noticed, and greater valuation will come into the stock, so you may have, at a higher valuation, the ability to do things with your stock. And, well, good luck.

  • - President & CEO

  • Thanks, Sam. If you keep pounding away, the breaks will come.

  • - Analyst

  • Okay.

  • Operator

  • There are no further questions. Do you have any closing remarks?

  • - President & CEO

  • Okay. Thanks very much, folks. Again, a thoughtful plan, well executed by talented people, we'll produce results. We're hopeful that we can continue this growth. Appreciate your time, and we look forward to speaking to you again, and keeping your advised as to our progress.

  • Operator

  • This concludes today's Safeguard Scientifics conference call. You may now disconnect.