Safeguard Scientifics Inc (SFE) 2006 Q3 法說會逐字稿

Good morning. My name is Holly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2006 Results Conference Call.

[OPERATOR INSTRUCTIONS]

Thank you. I will now turn the conference over to Mr. John Shave. You may begin your conference, sir.

Good morning, and welcome to the Safeguard Scientifics Third Quarter 2006 Earnings Conference Call. I'm John Shave, Vice President of Investor Relations and Corporate Communications for Safeguard. With me today are Peter Boni, President and Chief Executive Officer of Safeguard; and Chris Davis, Executive Vice President and Chief Administrative and Financial Officer.

In terms of the format for today's call, Peter will review quarterly highlights noting completion of Phase I of your game plan. Chris will then review the financial highlights for Safeguard and our partners companies and provide some insight towards valuation. After that we will take questions and answers.

Before we begin, Safeguard 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 outcomes will be as described today. Safeguard's filings with the SEC, including the annual report on Form 10-K describes risks in more details. You're encouraged to read this language in theses filings.

With that, let me turn the call over to Peter Boni.

Thanks, John, and welcome to the Safeguard team. For those of you that have not yet had a chance to meet John, he was recently with Reynolds and Reynolds of Vice President of Investor Relations. He joined Safeguard in September as Vice President of Investor Relations and Corporate Communications.

John is responsible for developing, implementing and managing all aspects of the company's corporate communications, strategic investor relations and marketing communications programs. We believe Safeguard has a great story to tell. Our momentum is building, and we look forward to John's contribution in helping us maximize value going forward.

I'd also like to thank you for participating in today's call. Thanks for your interest in Safeguard. We're very excited about the continuing progress that Safeguard has made on our strategic plan. Our recent performance illustrates how we're building shareholder value; a good portion of which we believe has yet to be realized by the market.

Safeguard is a holding company. We put capital to work and IT and life sciences companies with attractive growth opportunities. We're building value in our companies by providing capital, operational support and strategic direction. Now we just closed the sale of an IT partner company that not only provided a significant return for Safeguard's shareholders, but also reinforced the overall business model and competitive differentiation of Safeguard.

As John mentioned, I'll provide a brief overview of the Safeguard results, but I'll focus my comments on recent business development that I believe are building value for our shareholders. With that, let me turn to the reported results. For the third quarter of 2006, we're quite pleased to report that our revenue was $50.6 million. That's an increase of 49% year-over-year, and it represents the fifth consecutive quarter of double-digit revenue growth after adjusting prior period results to account for discontinued operations. Additionally, all partner companies increased quarter-over-quarter on both their top and bottom line result.

Visible progress. While our reported results can be important to analyze, we're a holding company, not an operating company. As such, we believe it is most important to consider whether we find the right companies to acquire, build value in those companies, and then realize that value where appropriate through well timed exists. In the third quarter, we made progress on each of these fronts.

The most significant event of this past quarter was the sale of Mantas. Mantas, a provider of advanced fraud detection and anti-money laundering compliance solutions for global financial institutions, was a Safeguard partner company since 2001. The sale to i-flex, which was announced in August and closed at the beginning of October, was valued at $128 million, with Safeguard receiving net proceeds of 113 million subject to post closing adjustments.

We're pleased that in addition to providing growth capital, we leveraged our extensive range of strategic and operational experience to accelerate growth and build value at Mantas. So let's look at Mantas from the initial deployment of capital to the sale. What did Safeguard provide? Beginning with the initial spin-off from SRA, Safeguard's focus was to guide Mantas towards a successfully and scalable software business model.

Leveraging its broad range of strategic and operational experience, Safeguard helped Mantas accelerate growth and build value. Safeguard's ongoing strategic and operational guidance in growth capital enabled Mantas to recruit seasoned management team, consolidate the product platform and refine strategy and operations, focus on profitability, and achieve best-of-breed status in its industry.

The successfully relationship culminated with the sales of Mantas to i-flex Solutions, a leading IT solutions provider to the global financial services industry and a subsidiary of software giant Oracle. From the transaction, we received 113 million in cash, nearly four times our carrying value, and we expect to report a net gain of $83 million in Q4. The sale of Mantas was valued at approximately 3.5 times Mantas trailing 12 months revenue. That's a 44% premium to the industry average 2.4 times for a software company in the financial services vertical. We were able to achieve that premium because we enabled Mantas to build a profitable, high performance leader in space, and it was a Sarbanes Oxley compliant company that was highly valuable to a strategic buyer.

Turning to the point of growing value in our partner companies, you'll note that on recent conference calls we've spent considerable time discussing the progress of our partner companies in both the IT and life sciences areas. Our largest revenue producing company, Alliance Consulting which is 99% owned by Safeguard, they delivered another 30 plus growth quarter -- 30% plus growth quarter.

The IT consulting field is growing by single digits in comparison. Now that's a great performance. We're really pleased with the gains that Alliance has been making, and we believe they're well positioned to continue that progress based upon their domain expertise in business intelligence with a global delivery capability and the focus on targeted vertical markets.

Similar to the Mantas relationship, Safeguard has not only provided growth capital to Alliance Consulting, we've been adding strategic guidance and direction that we believe is helping to build value for our shareholders. In addition to helping the company strengthen its management team and define its go to market strategy, Safeguard helped Alliance sell a non-strategic unit, and then acquired Fusion Technologies at the beginning of the third quarter.

This acquisition expanded Alliance's ability to service customers via a global delivery model, in addition to bringing significant client relationships and skill sets in areas that are aligned with the company's strategic focus. Outsource services, which are recurring revenue in nature, increased from 26% to 32% year-over-year. During the second quarter, Safeguard provided $6 million in follow-on funding to Acsis, an existing IT partner company that is an enterprise data software collection company. It's capitalizing on the emerging RFID market.

The funding provided growth capital to Acsis as they continued to shift their business model increasingly towards providing software solutions to the customers. We believe recent RFID mandates from domestic and international retailers, the FDA and the Department of Defense will create demand for Acsis products. We believe Acsis has significant long-term upside potential. They have quality products. The management team is continually being improved and enhanced.

The company has established a go to market partnership with SAP, the largest application software provider in the world, and they are they are positive industry drivers. Additionally, Acsis released two new products, completed a new release of its flagship product, and significantly increased its customer -- its active customers, including a major win with a big pharma company.

Another partner company, NexTone Communications was named to Deloitte's Technology Fast 50 for Maryland. NexTone, which provides intelligence session management solutions, saw revenue increase nearly [8,000%] from 2001 to 2005. The company also received $25 million in new debt capital to fuel market expansion, growth in revenues, number of customers and profitability in 2007, as NexTone logs record growth in growth in voice over Internet protocol peering and session management.

And recently competitor, Acme Packet completed a very successfully IPO and boasts a $900 million plus market cap. The market for their products is expected to grow six-fold over the next several years. We're also active in adding value to our life sciences partner companies during the third quarter, and in Clarient, in particular. Clarient is a publicly traded company. Safeguard's ownership position is currently 60%, following the $3 million in funding we provided than enabled Clarient to acquire the assets of Trestle.

The acquisition helped to strategically position Clarient as a leading provider in the anatomical pathology market, integrating image analysis, high-speed scanning capabilities, and virtual microscopy into one offering. Clarient's goal is to provide community pathologist access to the highest quality advanced cancer testing in the market. We believe that Clarient is making the right strategic moves to enhance long term position for the company. We're optimistic that this value would be realized in the market overtime.

During the quarter, Clarient also was named to Deloitte's Technology Fast 50 Program for Orange County. Clarient increased in revenue 312% from '01 to '05 and placed the company in the top 10, thanks in part to the phenomenal growth in its diagnostic services business, which grew 162% versus last year. Safeguard also deployed capital in both the life sciences and information technology areas over the past several months. We deployed cash in two life sciences companies, acquiring a 36% stake in Rubicor Medical for $20 million ,and a 24% stake in NuPathe for $3 million, with an additional $3 million committed.

Rubicor located in Redwood City, California has developed three devices for minimally-invasive breast biopsies, all of which have received FDA clearance. We look forward to helping Rubicor revolutionizes this $500 million biopsy devices market by moving procedures from the operating room to the physicians office. NuPathe located in Conshohocken, PA is a specialty pharma company focused on treatments for diseases of the central nervous system including migraines, Parkinson's disease and schizophrenia.

The lead product and development delivers migraine medication via a patch instead of oral medication, which is associated with nausea and vomiting. Its potential for long duration of action may also result in a decrease in migraine recurrence. We believe that NuPathe's approach represents a significant opportunity to tap into a $2 plus billion market for migraine relief.

During the third quarter, Safeguard also acquired a 47% ownership position in Portico systems for $6 million. Portico also at Conshohocken, PA offers health plan enterprise class software solutions built exclusively to support end-to-end provider network operations. Since 1997 Portico system has enabled payors to streamline their provider business processes and leverages a unique blend of healthcare operations experience. payor/provider related expertise and technology skills to build holistic solutions.

Portico has recently seen rapid adoption of the solutions by customers such as Blue Cross Blue Shields in both New Jersey and Massachusetts. Portico helps health plans improves their operational efficiency, reduce cost, leverages their provider network as strategic assets, streamline their business process and comply with regulatory mandates.

We've targeted healthcare IT as an extraordinary area of growth, but some experts predicting a segment that will grow to 7.5 billion by 2008. We're also evaluating the growing pipeline of IT and life sciences companies that we believe have exciting growth prospects. As you can see there's a lot of good things happening at Safeguard. We look at a score card for Safeguard since I join the company as CEO in August 2005 and its shows why I'm quite excited.

The company is executing well against each of the key initiatives that I've outlined. We're a holding company. We have 15 companies. Nine information technology and six life sciences companies, five are majority own, three are public. We've timed our exists well to produce sizeable gains for the Safeguard shareholders. We've ignited the deal machinery. Since I joined the company as CEO we've completed deals in both IT and life sciences areas.

Moreover, the pipeline of opportunities that we're evaluating continues to grow. And we have ample funds to execute our strategy before the sale of Mantas. Now, we have more. We've augmented the organization. Since I joined Safeguard, we've added professionals in IT, life sciences, finance, legal and investor relations. We've also added two Board Members, George McClelland a seasoned industry executive with a track record of providing entrepreneurial leadership.

And most recently, Michael Cody who oversees corporate and new business development, strategic alliances and venture capital investments for EMC Corporation. Our partner companies have augmented their management and their boards as well. In addition, we're working alliances and syndications for deal flow and partner company support. And we put together a highly valuable IT and life sciences advisory board staffing them with the best and the brightest in their industries.

And finally, we are executing boldly, there is a tremendous amount of activity here at Safeguard. We're extremely focused on growing shareholder value. In summary, we're pleased with the continued progress that Safeguard Scientifics and its partner companies have been making since we last spoke and the sale of Mantas demonstrates the driver of our economic engine.

With that, let me turn it over to Chris to go over Safeguard's financial results. Chris?

Thank you, Peter. Q3 was an exciting quarter for Safeguard on many fronts as we made significant progress executing our strategy. Before turning to the financial performance of our partner companies, it's worth reiterating that Safeguard has a distinct business model and that has an impact on the presentation of our results and how we believe shareholders should look as out from evaluation perspective.

We believe the true all of our partner companies is not fully reflected in our financial statements. The carrying value or book value does not reflect the market value of our partners companies. Mantas is a perfect example of that. With that let's take a look at Safeguard consolidated financial results and the progress of majority own to partner companies. As a reminder Safeguard adopted FASB123R at the beginning of the year and this has increased our Q3 expenses by about $800,000 year-over-year.

Safeguard consolidated revenues increased to $50.6 million in the third quarter of 2006 from 34 million in the third quarter of last year. This year's third quarter includes $4.2 million of revenue from Acsis, which we acquired last December. After restating prior periods for discontinued operations related to our post quarter and sale of Mantas, revenues are up 49% year-over-year, the fifth consecutive quarter of year-over-year growth in quarterly consolidated revenues for Safeguard.

We reported $9.6 million in net loss for the third quarter compared to a net loss of $10.6 million in 2005. Included in these results was the adoption of FASB 123R at the beginning of the year. Total consolidated stock-based compensation expense for the third quarter 2006 was $1.4 million. Also included in the third quarter 2006 results within the equity loss category was $1.8 million of in process research and development expense related to our acquisitions in Rubicor Medical and NuPathe, as well as a $3.2 million net gain on the re purchase of our convertible bonds.

In addition Acsis had an operating loss of $2.5million in Q3 with no comparative amount in Q3 of the prior year. As I pointed out earlier the results of Mantas, which was sold on October 2nd are now included in discontinued operations for all periods presented. Discontinued operations for 2005 also includes the operations of Laureate's Totowa New Jersey operation, which was sold in the fourth quarter of 2005 and Alliance's southwest region, which was sold in the second quarter of 2006.

Turning to our partner companies Alliance consulting reported impressive revenues of $27.5 million up 34% from Q3 of 05. Alliance reported operating income of $800,000 in Q3 of '06 as compared to an operating loss of $400,000 in Q3 last year. Alliance had strong performance in existing accounts and added key new accounts for its outsourcing, master data management, and global delivery services. Revenues were also higher due to the impact of Fusion acquisition in July.

At Pacific Title, revenues were $7.6 million in the third quarter as compared to $7.5 million last year. The consistent demand in an industry with a downturn in film production was driven by growth in digital intermediate and archival revenues. Because we acquired Acsis in December of 2005, we do not have comparative data for the third quarter of last year. Acsis reported $4.2 million of revenue in Q3 and an operating loss of $2.5 million, reflecting the cost to build out their management team and fund the development of new products.

In life sciences, Clarient recently announced their third quarter results. Compared to the prior year, Clarient lad an 86% increase in revenue with 162% revenue increase in their diagnostic services. 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. Overall grows margins have improved lead by significant margin improved from the diagnostic services. With these improvements continuing, Clarient is targeting to be cash flow positive by the end of 2007.

Laureate Pharma's revenue increased to $2.2 million in the third quarter of 2006 as compared to 1.1 million in the prior-year period, and their operating loss decreased by $300,000. The increase in revenue is primarily related to new client wins in 2006. This improvement will become much more evident as the growing backlog gets delivered going forward.

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 our partner companies have reached the profitability. Some have narrowed their losses. What is most important is that they are continuing to make sufficient progress and positioning themselves to achieve their potential, the key to growing net asset value and realizing long-term value growth for our shareholders.

In addition to deploying $35 million in capital in partner companies, we repurchased $16 million of face value of our convertible senior debentures for approximately $12.6 million in cash, resulting in a net gain of $3.2 million. This is the second bond repurchase Safeguard has made this year. For the year, Safeguard has repurchased a total $21 million of face value of bonds and has used $16.4 million of cash, leaving a little under $4 million available in our repurchase program.

As Peter mentioned earlier, we have positioned Safeguard as a holding company. As a result, we think it is 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 as of September 30th was $209 million with $17million coming from our public companies, 155 million from our private companies, and 8 million from our remaining private equity fund interests.

This total also includes the 29 million of carrying value relating to Mantas, which was qualified as an asset held for sale on our parent company balance sheet. Updating the market values of Safeguard's ownership of public companies, we currently have ownership interests in three public companies, Clarient, Traffic.com and eMerge with an aggregate market value of $53 million as of October 30th. That's three times their current carrying value. And as we mentioned earlier, Mantas was sold for almost four times its carrying value.

Our carrying values represent the original acquisition cost and follow-on fundings, plus our share of the earnings or losses of each company reduced by any impairment charges. It's important to recognize that carrying value does not reflect the actual market value of these holdings, because under generally accepted accounting principles, we cannot report the fair value of our companies.

Therefore in evaluating Safeguard, we think you should look beyond the carrying value or book value of our partner companies. The multiple unrealized exits like Mantas and the market value of our public company holdings versus their carrying value are ways to estimate market value. Since there are no market values readily available for our private companies, we discuss their operating and business milestones, so that you can track their progress. This is how we evaluate the growth and value of our partner companies, and we think it will help you to measure improvement in our net asset value or NAV.

Turning to sources and uses of cash at the end of the second quarter of 2006, we reported $118 million in parent company cash. Since then we used $3 million to fund Clarient's acquisition of Trestle, which increased our equity stake in Clarient to 60%. We used $3 million to acquire a 24% stake in NuPathe. We used $20 million to acquire a 36% stack in Rubicor Medical. We used $6 million to acquire a 47% stake in Portico Systems. We used $1 million for a follow-on funding to Ventaira Pharmaceuticals.

We used $4 million for corporate operations, including acquisition-related expenses, and we used $12.6 million to repurchase $16 million of face value of our convertible senior debentures. As a result of all this activity, parent company cash on September 30th was $68 million. Note that parent company cash includes $29 million of marketable securities, but does not include $11 million of cash balances on our consolidated partner companies, nor the $10 million held in escrow for interest payments on the bonds.

As of October 30th, parent company cash was $179 million, including the net cash proceeds of $113 million that we received from the sale of our interest in Mantas, which includes $19 million currently held in escrow. We anticipate going forward that Safeguard will use its available cash to fund the growth of our current partner companies, and to acquire interests in new businesses. In summary, revenue growth was strong at 49% year-over-year. We have ample parent company cash of $179 million to fund our strategic plans.

The sale of Mantas and the market value of our public holdings being a multiple carry values provide support to our belief that our financial savings do not fully reflect the market value of the assets that we own, and the value that we are building. And lastly, the Mantas gain of $83 million is expected to make 2006 a profitable year for Safeguard.

Well, thanks, Chris. We are very enthused about the opportunity to build shareholder value here at Safeguard. We've successfully deployed capital and a number of new exciting opportunities. We've instrumental in building values in our partner companies, and we've demonstrated our ability to realize that value where appropriate and strategically timed exists.

With that, I'd be happy to open up the call for questions. Also with me is Jim Datin, Executive VP and Managing Director of our Life Sciences Group, and John Loftus, Executive VP, and Managing Director of the Information Technology Group. So Holly, I'd be happy now to take some questions.

[OPERATOR INSTRUCTIONS]

You are first question is from the line of Bob Labick.

Good morning. Congratulations on lot of favorable actions during the quarter.

Hi. Thanks, Bob.

First question I wanted to ask, obviously you have a significant cash balance. Could you discuss in a little more detail the pipeline of opportunities out there for you. Are there ample opportunities to deploy capital? Should you consider repurchasing more debt at this level? How do you think about that, and give us more details on the pipeline, please

Our pipeline is very rich with opportunities, Bob. As we are executing our five-part plan, if you recall, igniting the deal machinery was a significant piece of our activity for Phase 1 of our game plan. And we've done just that. We've got seven transactions as I started with the company. Two of those transactions were acquisitions done by our partner companies with five done by us. The pipeline continues to be very rich in both IT and Life Sciences and that's where we expect to go.

Great. And you have substantial NOLs and in some expiring in '07 and '08. Would you expect to be able to use those over the next few years?

I'm going to pass that question to Chris.

Thanks, Bob. You're correct. We do have significant NOLs that are available to shelter the gains on exists or to shelter the operating profits of any of our consolidated companies. And Mantas would be a good example of where we can use those NOLs.

We don't have any significant explorations in the next several years. So right now, we're focused on building value and timing exists and the NOLs will be available when we need them.

Okay. Great. In terms of focusing on maximizing value, could you walk us through the process of when you decide to maximize value in holding? It seems like you have two companies right now, that are approaching or just past breakeven, in terms of earning and that seems like a time you guys may exit. That's Alliance and Clarient are both, you know, approaching those milestones, could you just walk us through the process of how you go about maximizing value?

Every situation is different in our holdings, Bob. But Mantas is a great example of the process we go through to maximize value. First of all, we target an area that is right for opportunity. With the win to its back as opposed to it's back to the wall and with positive market dynamics. That's where Mantas was when the original acquisition took place.

We used our -- not only our capital, but our operational support services and our strategic guidance to help build that company, build it's management team, set up it's game plan and then execute. And in Mantas' case they're now a $35 million company recognized as a leader in its field, great growth prospects and nicely profitable.

So that was positioned well for a -- an exit. That's really the premium evaluation metrics. That kind of activity is the activity that takes place in each of our holdings. Now, each one of our holding are different, and we'll take a look at each one and determined [whether] it's most mature or what is going on in a given marketplace to unable the exits to be the best time, in order to maximize risk adjusted value.

Great. My last question and I'll get back in queue. Could you discuss what actions you're taking or plan to take -- potentially in 2007 or in the future to increase clarity for investors to the underlying non-consolidated holdings that you have? Is there any opportunity for you to give investors a better look at the performance of those companies, maybe as an aggregate of our portfolio of IT has done -- as reporting this in our portfolio of life sciences. What are the opportunities for you to increase that clarity?

Yes. Thanks, Bob. We do expect to increase some clarity. And I'll let Chris outline some of that.

Well, there is a couple things that we've had inquiries about and a couple things that we're considering doing in that regard. One would be to provide a carrying value by company, rather than in the aggregate. The next would be to provide some comparable companies, for both the consolidated and the equity method companies.

And then, lastly, we're going to continue to provide visibility into their progress and the milestones that they are making. Whether we get to the point of disclosing group results for the equity method companies is something that we're looking at. And frankly, it depends on how many companies there are in the group, and whether those companies are comfortable having a public disclosure of their results.

Great. Well, thank you very much. I will get back in queue. I look forward to seeing you tomorrow.

Same here, Bob. Thanks, again, for your interest.

Thanks.

Your next question is from the line of [Devin Gillis].

Hi, Peter. It's Colin Gillis from Canaccord.

Hi, Colin.

Can you just talk a little about you know terms of the management team, any key positions left that you're still looking to fill, or any update in terms of how you feel in the overall rounding out of the team?

The major positions inside of Safeguard are really filled, and I was really pleased that John Shave to come in this past quarter as VP of Investor Relations and Corporation Communications. But outside of that, there is no major position that is open. My management team is filled. And we're off now executing against the game plan.

Beautiful. Then just in regards to Mantas I was -- an excellent transaction for you. Are you looking at more opportunities that within the complimentary space to these core companies that are providing services to the financial institutions?

Yes. We have target areas in the IT arena, and financial services is definitely a vertical that has our interests, as does the IT healthcare related vertical and also, a web enabled businesses. We like the analytical space, pieces of enterprise application, and also, pieces of the IT infrastructure to include security and communications. The recurring revenue models are of a special interest to us as well, whether it's the on demand delivery model of software a service, or the technology enabled services.

And then just finally, you talk a lot about trying to ignite the deal engine, is that something that we should expect to see accelerating throughout 2007? Or do you think that you've got sort of -- a set of procedures in place now where you're processing through opportunities at the pace that you want?

No, I can't predict what deals we are going to do and what deals we are going to close. I will tell you that we have active deal machinery in place in both IT and life sciences. They are doing a good deal of outbound deal sourcing in our specific targeted areas, also in our area of where we have the greatest geographic branded footprint, which is the Mid Atlantic, but that's over 50 years still down to the Southeast and the Midwest and got even some of the southern provinces of Central and Eastern Canada.

But the inbound deal sourcing is all throughout North America. We have alliances, syndication, partnerships, advisory boards bring us deal flow, and the deal flow has been very rich

Okay. Great. We look forward to it. Thank you.

You're welcome.

Your next question is from the line of Bill Sutherland.

Thank you. Good morning, everybody.

Hi, Bill.

Thanks for taking the question. Peter, just following up on Colin's question, do you find increasing competition for the deals you want with the -- with all the players out there now?

We think we're well positioned competitively, Bill. Our differentiation really does stand out, and we're finding that inertia sometimes is the biggest competitor.

Okay. Chris, would you mind on slide 20 going through the -- in the uses column going through the specifics on the new holdings? I got interrupted when you were doing that.

Yes, maybe the easiest way is to read through the list that I had in the script.

Right.

So just quickly, it was $3 million provided to Clarient for them to do the Trestle acquisition, and then we have 60% stake out for that. $3 million that went into NuPathe to get a 24% stake with another $3 million committed, but not yet funded; 20 million into Rubicor for 36% stake. 6 million into Portico -- excuse me -- for a 47% stake; $1 million of a follow-on to Ventaira; $4 million for corporate operations and 12.6 million for the bond repurchase.

Great. I appreciate that. And how much, Chris -- while I've got you, how much Fusion revenue was in the quarter for Alliance?

I am sorry. Say that again.

How much of Fusion -- how much revenue from Fusion?

Fusion, it was about $3.5 million during the quarter. They closed that acquisition in mid July. So from the period from closing through the end of the quarter was about 3.5 million.

And did it contribute to Alliance showing some operating profit?

It did contribute to their good results during the quarter, yes. It improved margins and improved bottom line as they had expected it would.

Great. And then --

I guess I should also mention that the revenue from the Southwest sale is out of the quarter as you would expect for the sale, and that was probably around $2 million for the quarter. So there were some outs as well as some ins.

So there was 2 million of Southwest in Q2?

In Q2 or in the prior Q3 for the comparison that we're doing, yes.

Okay.

Right.

And then in Laureate, is there a seasonality to their business in Q3 in particular?

No. We don't see any particular seasonality. It's more a matter of winning new clients, which they've been doing a great job of, scheduling the work, doing the tech transfers and the initial front-end development work that they have to do, and then just performing under the contracts. And they are making good progress there, and we're actually expecting that Q4 will show the benefits of the contracts and the front-end development work that they've been doing.

Is there a way you can give us a sense of magnitude of the backlog or the pipeline?

That's not a number that we have disclosed to date. And I don't have it in front of me now, Bill. But we can add that as we go forward if that would be helpful.

Well, just -- yes, would just give us a sense of the growth potential.

Sure.

Great. Well, I think that's it for me. Thanks, everybody.

Thank you, Bill.

Thanks, Bill.

Your next question is from the line of Eric Swergold.

Good morning. Very exciting stuff. Two questions. One for Chris on the accounting side. I presume Mantas revenue is still included in Q3, because the sale didn't close until the beginning in Q4?

No, actually Eric, once you switch to discontinued operations, you go back and restate all of the prior periods. So in the material that we sent out last night and in the Q when it gets filed at the end of the week, Mantas will be removed from the consolidated results for all of the periods including this Q3.

Okay. Good. That's helpful. Second thing on the strategic side with regards to the deal machinery, Peter, you spent a lot of time talking about your deal machinery in terms of the pipeline and deals you have coming in and how you're putting money to work for your shareholders. Could you speak to how these well-timed exits, particularly on the healthcare IT side, particularly in the life sciences side, do you have people in your organization that are kind of building relationships with the big pharmas and others that will end up being the likely source of exits from some of these partner companies? Thank you.

Yes. Thanks, Eric. The short story is we have relationships with a good deal of people in each of the industries where we have participation or have targeted that area for participation to include the Big Kahuna companies that might be acquirers in the space, investment bankers that specialize in the space and other people within the industry that sponsor deal flow. That's all part of the alliances and syndication partnerships, are part of the relationships we have with a number of our advisory boards well.

Is there anything in the Safeguard's structure that precludes you from having a big pharma as a co-investor of substance, in some of these life sciences companies?

No, there is nothing that precludes that. And each of our companies sponsor their own relationships with a variety of people in the industry, whether it be through distribution arrangements or business partnerships. Acsis has a great partnership with SAP as an example.

Great. Thanks, very much.

You're welcome. Any other questions, Holly?

You have no further questions at this time.

Okay. On that note, folks, I want to thank you very much for your support of Safeguard, and thanks for taking time to listen to today's call. We're quite exited about the achievements that we've had as we've delivered our report card for the first year since I've been here at Safeguard. And we look forward to continually putting out a report card going forward. Thanks again.

This does conclude today's conference call. Thank you for your participation. You may now disconnect.