Safeguard Scientifics Inc (SFE) 2006 Q2 法說會逐字稿

At this time I would like to welcome everyone to Safeguard's second quarter 2006 conference call. On the call today is Chris Davis, Executive Vice President and Chief Financial and Administrative Officer; and Peter Boni, President and CEO of Safeguard. [OPERATOR INSTRUCTIONS]

Please note that the Company would like to caution you concerning reliance on forward-looking statements. During the course of today's conference call words such as expect, anticipate, believe, and intend will be used when referring to goals or events in the future. The Company cannot be certain that the final outcome will be as described today. Safeguard's filings with the SEC, including the annual report on Form 10-K describe in detail the risks and uncertainties associated with managing their businesses. You are encouraged to read this language in their SEC filings. With that, let me turn the call over to Peter Boni, President and CEO of Safeguard Scientific.

Thank you for joining us to review our second quarter financial results and the business developments since our last conference call. I'm pleased to announce that Safeguard reported solid results for the second quarter, highlighted by our sixth consecutive quarter of double digit revenue growth. In addition to the long term financial progress being made by our partner companies, we're pleased by recent developments at Safeguard. In particular we added depth to our management team, acquired a stake in a new information technology company, and provided growth capital and strategic and operational support to our existing partner companies.

We continued to evaluate a strong pipeline of deal opportunities, we have the management talent to source the deals and bring them to fruition, and we believe we're making sound, strategic decisions that will drive long term value for our shareholders. Before jumping into the transactions and partner company details, I'd like to highlight that Safeguard's progress has been driven by solid execution against a clear strategic plan. Which we call reposition, time, ignite, augment, and execute. This plan guides our use of time, talent, and financial resources as we go up to accelerate the deployment of cash and provide a superior return to shareholders. Positioned as a holding company, Safeguard is able to build and realize value in a risk adjusted way. We're able to set ourselves apart as we continue to build value for our shareholders, our partner companies, and our employees. We believe Safeguard is uniquely positioned as the premiere partner for revenue stage companies in the IT and life sciences market. Through our ability to provide growth, capital, and strategic, and operational guidance.

Our executives understand the challenges young companies face. We provide strategic planning, mentoring, and guidance to further develop our partner companies. In addition, we've recently put in place Advisory Boards comprised of leading industry experts to provide additional expert guidance to Safeguard and our partner companies and to augment our deal sourcing efforts. Safeguard is only as good as its people. From founding the right companies to providing strategic direction and necessary capital to build value, and ultimately realizing that value for our shareholders. During the second quarter we added significant talent to the management team to help us execute against our strategic plan considering the increase in pipeline activity over the past several quarters.

In June, Dr.Gary Kurtzman joined Safeguard as Vice President in our Life Sciences Group. Gary brings considerable knowledge in specialty pharma, drug development, and diagnostics, and firsthand funding and operational experience with Life Sciences companies. Erik Rasmussen recently joined Safeguard as Vice President and Principal in our information technology group. Erik has a background steeped in equity funding and venture capital, along with experience working closely with revenue stage entrepreneurs. Gary and Erik both are skilled in deal sourcing and market analysis and with their combined industry knowledge, will be a great asset to Safeguard and our partner companies. We also announced the addition of a seasoned industry executive to our Board of Directors, George McClelland, George has on outstanding track record in executive management and the IT, healthcare, and equity funding industries as well as providing entrepreneurial leadership to early end revenue stage companies.

These additions to our team will help us to continue driving the deal machinery forward. We've developed a methodology to aggressively identify and partner with companies that are capitalizing on 5 strategic themes--majority, migration, convergence, compliance, cost containment. These promising entrepreneurial companies have a competitive advantage in information technology and life sciences markets that represent sizable growth opportunities. As I said, we continue to see a large volume of high-quality partnering opportunities in both information technology and life sciences. Which validates our go to market strategy. Over the past several months, we've been active along numerous fronts, completing a new deal and providing growth capital to existing partner companies. Several of which also completed important strategic transactions.

As we discussed during our last conference call, we provided $5.5 million for a 12% stake in Authentium, a leading provider of security solutions such as antivirus, real-time anti-spyware, intrusion prevention, firewall application control and policy-based desktop security management and compliance. The transaction completed in April, hit several key themes in the Safeguard strategy. It's a growth market, a recurring revenue stream, and it's within our targeted geography, all playing on strategic themes of convergence, migration, and cost containment.

In addition to putting capital to work in new deals, we also provided support to several existing partner companies which we believe will help to build value over the long term. In particular, we provided Acsis $6 million of follow-on capital to fund its growth strategies and expand its business. Safeguard assisted Alliance Consulting and divesting of the southwest region in May. The proceeds were earmarked for strategic growth initiatives focused on our specific markets that carry higher potential revenue and margin growth. With Safeguard's help, Alliance quickly sourced and completed the acquisition of Fusion Technologies in July, an IT consultant in New Jersey, Fusion has operations in Hyderabad and Bangalore, India. The acquisition accelerates Alliance's strategy of delivering high value global delivery enabled information management and applications outsourcing services. Most of the funding for this deal was provided from the recent sale of the southwest region.

Clarient announced the proposed purchase of substantially all of the assets of Trestle Holdings including its high-speed scanning technology and virtual systems. This deal should strategically position Clarient as a leading provider in the anatomical pathology market. Safeguard agreed to provide Clarient with up to $3 million of capital if needed to fund the purchase. Safeguard is also assisting Laureate Pharma in the $9 million expansion its biopharmaceutical manufacturing facility in Princeton, New Jersey, to increase capacity and broaden its service offerings. The expansion is being funded with proceeds from the sale of its Protoin, New Jersey operations last December.

Now let's turn to progress that's being made with our partner companies. Authentium is the leading developer of securities solutions technologies such as antivirus, real-time anti-spyware, intrusion prevention, firewall application control, and policy based desktop security management and compliance. Authentium's multiproduct integration and delivery platform enables it to partner with most software developers and virtually any type of Internet service provider or network operator globally. Presently, Authentium technologies scans more than 3 billion e-mails per week and is deployed on more than 7 million consumer and office PCs worldwide. Security solutions are converging with Internet service offering and migrating from the desktop to the service provider, providing cost and convenience advantages for customers. Authentium's inception and enforcement technology works deep within the operating system, providing Authentium key positioning to use leverage distribution to provide value-added desktop security applications to millions of end users.

With computer security threats on the rise, analysts predict there will be substantial growth in the information security market. Within this large space, Authentium has carved out a highly differentiated sector to attract Internet service providers and network operators. Its customers include Cox communications, EarthLink, and Qwest communications.

Acsis, a leading enterprise software company, assists manufacturing companies improving visibility and efficiencies throughout the the entire supply chain. Acquired in December of last year, 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 over 600 installations and 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. Acsis recently announced the launch of an end-to-end RFID offering with SAP America to help customers understand RFID technology, achieve mandated compliance promptly, and affordabaly and incorporated the technology with minimal impact on existing processes.

The Acsis and SAP approach provides a complete platform to start small scale and then derive value through preconfigured analytics. SAP and Acsis have received multiple accolades in the RFID industry. SAP was ranked number one in the readers' choice award for RFID software by Consumer Goods Technology magazine. It also received the early adopter award for RFID software in January. Acsis was named a top 20 RFID solutions provider by ABI Research. We recently provided $6 million in additional capital to Acsis to fund its growth strategies and expand its business. This funding enables Acsis to pursue an agressive grow to market strategy and develop next generation software applications that improve visibility and efficiency throughout the entire supply chain.

Through additional funding, and with Safeguard's guidance, Acsis is migrating to higher margin software solutions. We believe that recent customer wins and a growing pipeline demonstrate they are well positioned for overall growth and profitability. Given the current state of the RFID market, our priority is to position Acsis for long-term growth and success. We also have our eye towards improving their profitability profile over time, which we expect will benefit from continued expansion of the margins as software grows as a percentage of their overall revenue.

Turning to Alliance Consulting, they provide leading global software solutions and IT consulting to meet the needs of pharmaceuticals, healthcare, financial services, and manufacturing and distribution clients. Alliance recently announced the acquisition of Fusion Technologies, an IT consultancy with extensive operations in Hyderabad and Bangalore, India. The acquisition more than doubles the size of the Company's India operations and it supports the Company's plan to respond to a growing demand for its services. Funding for this deal is provided in part from the sale of Alliance's southwest region. Alliance's annual revenue run rate now is greater than $100 million with notable growth in recurring revenue. We believe the acquisition of Fusion will positively impact Alliance's growth and drive meaningful value improvement for Safeguard and its Shareholders.

Mantas is a leading provider of comprehensive behavioral detection software solutions for global financial services companies, meeting the needs of loss prevention and regulatory compliance demands. This enables clients to improve the performance and operational transparency of business operating in multiple global markets where behavioral detection technologies 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 is on target to meet revenue goals for the year and has achieved key global client wins and strong international and domestic bookings.

For example, they recently announced the strategic partnership with Serasa and DMR Consulting to bring powerful and robust solutions to help Brazilian financial institutions meet the threats of money laundering. In addition, Mantas was selected by First Curacao Bank ND and Bermuda Commercial Bank as the provider for their anti-money laundering and future compliance programs. Mantas continues to focus on developing cost effective product and service compliant solutions that deliver enhanced functionality and performance to global financial institutions.

With technology driving fundamental changes, Pacific Title & Art Studio is positioned to lead the expansion of digital technologies by providing digital post production and archival services to the motion picture industry, Pacific Title provides a range of state-of-the-art digital post production capabilities and is leading the transformation to optical analog inventory production at processing to the more dynamic cost-effective and flexible digital imaging processing technologies. Major movie and trailer production remain off last year's pace. However, Pacific Title's patent pending archival solution, Rosetta YCM process, and Digital Intermediate Solutions continued to generate new business growth and incremental revenue. Pacific Title has also increased the emphasis on special effects, digital color correction, 3-D animation, and other sophisticated elements.

To summarize in our IT sector, we put $5.5 million to work in the Authentium deal. Acsis is well positioned for growth in the RFID market. Alliance's strategic acquisition expands its capacity to deliver solutions globally. Mantas announced key client wins and a strategic partnership, and our partner companies are making progress against their operational plans and building value for our shareholders.

Turning to our life sciences companies, Clarient, trading on the NASDAQ market under the symbol CLRT, is a extensive cancer diagnostics company. Clarient recently reported another quarter of double-digit revenue growth year-over-year. Clarient recently announced a proposed $3 million deal to purchase substantially all of Trestle's assets, including their high-speed scanning technology and virtual systems. Strategically positioning Clarient as a leader in technology and services for the characterization, assessment, and treatment of cancer. Complementing Clarient's proprietary cellular image analysis system, Trestle's technology should enable Clarient to cover virtually all of the pathology samples needing anatomical laboratory analysis. The expanded suite of products and services support drug discovery efforts, improve patient outcomes with fewer side effects, and enables acceleration in time to market for next-generation products.

Clarient's laboratory recently moved into a new larger facility contributing to an increase in test volume. Clarient is well positioned to achieve their diagnostic services strategic plans. We supported Clarient since 1996 and helped them reposition from higher growth and diagnostic services. We're very pleased with the revenue trajectory and their continued growth prospects. We increased our ownership stake last November and we've recently committed to an additional $3 million to assist the Trestle acquisition.

Laureate Pharma specializes in development and bioproduction of preclinical and clinical material up to medium commercial sale manufacturing. Laureate's expertise in working with lower volume, more complex processes, and their extensive experience working with therapeutic monoclonal products provides competitive differentiation in the rapidly growing biopharmaceutical outsourcing industry. Laureate Pharma announced a $9 million expansion of its biopharmaceutical manufacturing facility in Princeton, New Jersey. The expansion provides several separate production suites and expanded purification in production capacity and includes additional stainless secured tank bioreactors and disposable single use bioreactors. The same technologies used in the large scale production. Laureate is able to accommodate increased customer demand for protein based pharmaceutical products without disruption of ongoing customer projects.

Growth in backlog from several new client wins including Seattle Genetics and Iconic Therapeutics, coupled with Laureate's fully integrated capabilities designed to meet the demands of the growing pharmaceutical industry, position the Company for revenue growth, significant increases in Laureate's pipeline lends confidence that additional client wins will follow. All of our quarterly financial reports generally focused on the consolidated majority holdings, we're pleased also with the progress being made and value being created in our minority companies, including our information technology group NexTone Communications.

NexTone is a Voice over IP session management product company. They recently reported a 187% year-over-year quarterly revenue growth, fueled by the addition of, count them, 66 new customers and significant repeat business. These impressive results reflect the continued growth in Voice Over IP adoption and NexTone's market traction.

In our life sciences group, we're very optimistic about the milestone achievements at Neuronyx, developing stem cell-based therapeutic products and Ventaira Pharmaceuticals, a specialty pharma company using novel drug delivery technology. In May, Ventaira announced the completion of a study that proved Ventaira's new technology delivers medicated aerosol to the lung in higher proportions than ever reported for a hand-held device. With that, let me turn it over to Chris Davis and provide a more detailed review of the quarter's financial results. Chris?

Thank you, Peter. I agree with your comments that we're pleased with the second quarter 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 repeating that Safeguard has a distinct business model that has an impact on the presentation of our results and how we believe our shareholders should look at us from evaluation perspective. For example, we believe the true value of our partner companies is not fully reflected 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 you 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 of our partner companies. As a reminder, Safeguard adopted FAS 123R at the beginning of this year, which increased our quarterly expenses by $1.2 million year-over-year. Safeguard's consolidated revenues increased to $56.4 million in the second quarter, from $44.7 million in the second quarter of last year. This year's second quarter included $4.6 million of revenue from Acsis, which we acquired last December. This is the sixth consecutive quarter of strong year-over-year growth in quarterly consolidated revenues for Safeguard.

Turning to the partner companies, Alliance Consulting reported impressive revenues of $25.9 million, up 32% from Q2 of 05. Alliance reported an operating loss of $700,000 in Q2 '06, which compares to operating income of $300,000 in Q2 '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. Alliance's operating loss included $800,000 of severance and restructuring charges related to the consolidation of their facilities. They also reported a $1.6 million gain from the sale of their southwest region, which is not reflected in their operating results, but is included in discontinued operations.

At Mantas, the second quarter of 2006 reflected excellent progress. Revenues were $8.4 million, up 12% from Q2 last year. They also produced turnaround from an operating loss in Q2 of '05 to operating income of $1.1 million in Q2 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 second quarter of 2006 were down $1.9 million from last year. The decrease was primarily related to declines in visual effects revenue, as well as a decline in scanning and recording partially offset by an increase in digital intermediate and digital YCM revenues. Gross margins decreased 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 second quarter of last year. Acsis reported $4.6 million of revenues in Q2 and an operating loss of $1.9 million reflecting the cost to build their management team and to fund the development of their new products. As Peter highlighted, we provided Acsis additional growth capital to help them achieve their long-term strategic goals.

In life sciences, Clarient recently announced their second quarter results, compared to the prior year, Clarient achieved a 44% increase in revenues. These outstanding results reflect the continued momentum of their new business strategy and strong growth in the services group, up 139% 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, have increased capacity, and are expanding their sales force. Clarient also expects increases in system sales from the efforts of its global distribution partner, Dako. Laureate Pharma's revenue declined $400,000 in the second quarter of 2006 as compared to the prior year. And their operating loss increased by $400,000. Laureate announced several client wins and has a growing pipeline that we believe will lead to 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 increase their value. Some of the partner companies have reached profitability. Some have not. It's important to realize that this is normal for companies that are at this stage of their life cycle and funding their growth. What is most important is that they continue to make sufficient progress and position themselves to achieve their potential. The key to increasing net asset value and realizing long-term value growth for our shareholders.

I should add that discontinued operations in the second quarter of 2006 included a $1.6 million gain from the sale of Alliance's southwest region, which was sold during the second quarter. In 2005, discontinued operations also included the operations of Laureate's Totaling, New Jersey operation, which was sold in the fourth quarter of 2005, and Mantas' telecommunications business, which was sold in the first quarter of 2006. All prior periods have been reclassified to conform to the current presentation.

As Peter mentioned earlier, we have repositioned Safeguard as a holding company. As a result, we think it's helpful to look at our parent company balance sheet. This shows the financial position of Safeguard as if all of our consolidated partner companies were accounted for on the equity method. The carrying value of our holdings at June 30, was $178 million, with $13 million from our public companies and $157 million from our private companies. At June 30, 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 three public companies, Clarient, traffic.com and E-merge with an aggregate market value of $33 million as of August 1. More than two times the current carrying value. Our carrying values represent the original acquisition costs and any follow-on fundings, plus our share of the earnings or losses of each company reduced by any impairment charges. Carrying value does not reflect the actual market value since under generally accepted accounting principals we can not mark-to-market the value of our companies.

In evaluating Safeguard, we think you should look beyond the carrying value or book value of our partner companies. Since there are are no market values readily available for the private companies, we discussed their milestones so that you can track their progress. This is how we evaluate the growth and the value of the partner companies and it will help you to measure improvements in our net asset value or NAV.

We reported $9.2 million loss for the second quarter of 2006 compared to a net loss of 7.7 million in 2005. Included in these results was the impact of adopting FAS 123R at the beginning of this year. Total consolidated stock-based compensation expense for the second quarter of 2006 was $1.7 million, an increase of $1.2 million over the second quarter of 2005. In addition, Acsis had an operating loss of 1.9 million in Q2, with no comparative amount in the prior year.

Turning to sources and uses of cash, at the end of 2005, we reported $141 million in parent company cash. Since then, we used $5.5 million to acquire a 12% stake in Authentium, we used $6 million for a follow-on funding to Acsis, and $1 million for Laureate's facility expansion. We used $1 million for follow-on fundings to Neuronyx and Ventaira, and we funded prior private equity fund commitments with $2 million. We used $9 million for corporate operations and we used $3.8 million to repurchase $5 million of face value of our convertible senior debentures, and finally, we received $1 million of proceeds from the sale of our holdings in a legacy company. As a result, parent company cash on June 30, was $118 million. Note that this parent company cash does not include $16 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 August 1, parent company cash was $116 million. We anticipate going forward that Safeguard will use its available cash to fund the growth of our current partner companies to acquire interest in new businesses, and to purchase up to $16.2 million in additional debentures from time to time.

In summary, consolidated revenues were up 26% year-over-year. Parent company cash is $118 million. The sale of Alliance's southwest region resulted in a gain of $1.6 million. And the acquisition of Acsis in December of 2005 added $4.6 million of revenue in Q2. Peter will now wrap up our comments. Peter?

Thanks, Chris. So, our partner companies continued to make progress towards their strategic goals. We saw significant revenue growth from our consolidated partner companies in the second quarter. Resulting in our sixth consecutive quarter of double-digit revenue growth. We ignited our deal machinery and produced a 12% stake in Authentium. We continued to evaluate our robust pipeline of high quality opportunities for Safeguard in both IT and life sciences. We've added significant talent to the management team and the Board of Directors. We're using our Advisory Boards to augment our deal sourcing efforts and build value within our partner companies and, most importantly, we're executing our strategy boldly with confidence and we'll continue to strive to build long-term value for our Shareholders. And I look forward to keeping you aware of our progress as we go forward.

This concludes our remarks. Joining us for Q&A, you are John Loftus, Executive VP, and Managing Director of the Information Technology group, and Jim Datin, Executive VP and Managing Director of our Life Sciences Group. I also understand from our conference coordinator that we had some technical difficulties with the webcast today. So the entire call will be available for replay from the website and we apologize for the difficulty. The wonders of modern science. Would you begin the Q&A session now?

Certainly. [OPERATOR INSTRUCTIONS] And your first question comes from Michael Donahue with Emerging Growth Equities.

Hey, guys.

Hi, Mike.

Good morning, Michael.

A few questions. From a net asset value perspective, how did the second quarter compare with the year-ago quarter? And what kind of trend could you be looking for going a year out?

Let's give that to Chris.

If you use the carrying value that I was describing on our call, you would see that net asset value has come down from a year ago. And it's come down primarily because of the losses that have been reported. However, as we talked about, we think the more important measure is really the NAV on a market value basis and we think that that easy improving because of the good performance of the Companies. That won't be realized in the financial statements until there's an exit and then I think everybody will see the increased value for any exits that might take place.

Right. So if you're going to look at the realization of the value of one of your companies as a milestone, can you give us some sense of how far we need to be looking out before we see one of those events?

Mike, we stated as part of our strategy that will time our exits in order to realize risk-adjusted value and we've given no profile as to when you might see that. We don't preannounce things. We'll announce it when we have an event.

Which one of your companies would you say is the furthest along in development?

We have a variety of companies that are nicely positioned and making money and continue to grow. We have a variety of companies that are a little bit less mature and we are building value in those companies. And I think it was pretty well balanced and can you see by the performance of the companies which ones are further along than the others.

All right. How does your pipeline look? You got things that you're excited about now going forward?

Yes, we're very excited, Mike, on the pipe, both in IT and in life sciences. Like I stated, we don't preannounce events, but we will give you announcements when we have transactions completed.

All right. I got it. That's all I have. Thanks, guys.

You're welcome.

Your next question comes from Lee Zimmerman with Robert Baird.

In the quarter the stock has fallen about 25%. And it was reported that a huge short position has come on the stock. And I know you like to execute boldly. What are your plans to deal with this? Because I think it is a problem, and I just wonder what your thoughts are on it?

I take full responsibility for executing against our strategic plan, Lee. I don't take any responsibility for the Fed and nervousness in the markets for interest rates or missiles flying in the Middle East. And the whole market has been down as a result of some external events over which none of us has any control. Most small cap companies and most high-tech companies have fallen by the wayside in that current environment.

We're longer-term focused than missiles flying in the Middle East this week. We're executing boldly against our strategic plan. We firmly believe that we're on a great track to realize value with all of our companies and place our capital properly to enable additional realization or value and we're executing that plan.

Yes. How does Pacific Title fit into that? It seems a little bit outside of your plan. And also, Laureate, you've talked about the backlog increasing several quarters now. Yet it hasn't come to the revenue line. Any thoughts on that?

Yes, let me work backwards, okay? Laureate has announced several new customers and an increase in its backlog. There's a timeline between the time a booking is signed and the revenue is realized. We continue to feel confidence that in the back half of this year, with that significant increase in new customer flow and that significant increase in backlog, that they will begin to deliver revenue from those contracts and you'll see that increase going forward.

Pac Title, I'll call that a legacy company from Safeguard going back to the '90s, really. And when previous management was thinning out the ranks of its holdings, trying to balance the irrational exuberance that went on during the time of the bubble, it was thought that Pac Title had presented itself with significant opportunity and profit and they decided to continue with that company. So it's a legacy company, probably not one that we would target today. However, they do play to the analog to digital migration, they are a leader in the Hollywood community. They have continued to produce profits for themselves and for Safeguard. So they're a $30 million company that is continually profitable. And even this quarter, with a modest decline in revenue because of a decline in Hollywood film activity, they're a profitable company. And we don't apologize for that.

All right. I don't hold you responsible for the war in the Mid East. I want you to know that.

Thank you, Lee. I appreciate that.

If -- is it possible you'll think about buying some stock back, if this stock keeps going down? Have you thought about that at all?

Our intent at this time is to take our capital and deploy it in IT and life sciences businesses that we believe will have superior growth opportunity for Shareholders.

Okay. Thank you very much.

You're welcome, Lee.

Thanks, Lee.

Your next question comes from Bill Sutherland with Boenning & Scattergood.

Thank you. Good morning, everybody. Chris, year-to-date, have you repurchased any converts?

Just the one purchase in the first quarter that we talked about. We spent 3.8 million to buy back 5 million par or face amount of the bonds.

Okay. And there's remaining a 16 and change?

16 and change is the balance of funds that have been authorized for repurchases. Right. There's $145 million of bonds outstanding at par value.

Right. The -- in Acsis, that was all equity, that funding that you all have put in there?

That's correct, yes.

Well, we haven't put it in.

Yes, that's right, Bill.

That's to happen in this quarter?

No, it's done. It happened prior to June 30.

Oh, it did, okay. I could use a little more clarity Asis as far as the mix of business, software versus service.

Do you mean Acsis, the Company or Asis, Clarient's product line?

You know what, I'm saying Asis, because I got that on the brain. I mean Acsis, I'm sorry.

Why don't I ask John Loftus to address what's going on at Acsis for you.

Thanks, hi, John.

Good morning, Bill. We're very excited about Acsis. They're undergoing a shift from their services and software products accelerating the software products that address the growing RFID market. We expect over time, a significant shift towards more license revenue. They've announced several new products this year already. And we'll have several more that will come out and that combined with the maturing of the RFID market over time will significantly change the ratios in that business. And that is sort of our strategy.

In particular, the relationship with SAP has provided them with dramatically more reach and I think validates the value-add component of their software, in terms of providing an end-to-end solution. So I think that's a story that develops in concert with a very exciting macro trend with RFID and a very strong customer list to sort of co-invent the future with as they move forward in the software world. As far as the numbers are concerned, we haven't broken out the mix of services versus software. Once they're in the fold a little bit longer and we have some comparative information, we may provide more detail on that. So far, we haven't done that.

I was just trying to get an understanding of whether it's traditional maintenance revenue that any software company has, whether they actually have implementation arm.

Yes, they have all of the normal things, including some hardware revenue, too, Bill. So they have maintenance and support revenue, software license revenue, services revenue around implementing their products, as well as some hardware revenue that is associated with their end-to-end solution that they offer.

Okay. Thanks, John. The funding that you're going to provide probably going to provide Clarient for Trestle, that will be equity?

Yes. That would be additional common shares, if and when Clarient asked to take down the money.

So if they take it down, you'll go up from 57%?

Yes. Although the impact will be fairly modest. But it would increase it somewhat.

Okay. And then on Mantas, just noticing that at least the two wins you named were both offshore banks and then you mentioned the partnering deal in Brazil. And it made me start to wonder about the domestic market opportunities for Mantas's. Is there a maturation situation going on at least in terms of the big money center banks for their product line?

Mantas addresses a number of exciting markets. And from any money laundering to broker and trader surveillance to identity theft and operational risk, I think it's a very big market. It's still growing. I think there's still room for penetration as they go forward. Bill, as you know, a number of customers do not let you release information as well as we think there's a huge opportunity in tier 2, which is why we've highlighted some of the wins that were highlighted there as they move forward.

Okay. Thanks, everybody.

Thank you, Bill.

[OPERATOR INSTRUCTIONS] There are no further questions at this time. I will now turn the call back over to Mr. Boni for any closing remarks.

Thanks. Well, a thoughtful plan well executed by talented people generally produces results. We appreciate your support and interest in Safeguard. And look forward to reporting continued growth and new deals as we go forward. Thanks very much.

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