Safeguard Scientifics Inc (SFE) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Safeguard third quarter 2010 conference call. This conference may be recorded. I would like to introduce your host today Mr. John Shave, Vice President of Business Development and Corporate Communications. Sir, please go ahead.

Good morning, and thank you for joining us for Safeguard Scientific' s conference call and update. Joining me are Peter Boni, Safeguard's President and Chief Executive Officer, and Steve Zarrilli, Senior Vice President and Chief Financial Officer. During today's call, Peter will review highlights from the third quarter of 2010, and some subsequent events, and Steve will discuss Safeguard's financial results strategies. After that, we'll open the line for your questions.

Before we begin, I must remind you that today's presentation includes forward-looking statements. Reliance on forward-looking statements involves certain risks and uncertainties including, but not limited to, the uncertainty of future performance of our partner companies, the risks of acquisition or disposition of interest in partner companies, capital spending by customers, the effect of regulatory and economic conditions generally, the development of the life science and technology markets and other uncertainties that are described in our S.E.C. filings. During the course of today's call we will use words such as expect, anticipate, believe and intend, and our discussion of goals or events in the future. Management cannot be certain that final outcomes will be as described today. We encourage you to read our filings with the S.E.C. including our form 10K, which describe in detail the risks and uncertainties associated with our business. The company does not assume any obligation to update any forward-looking statements made today.

Any statements made herein, or in discussions undertaken with these materials regarding or relating to the proposed acquisition of Clarient by GE Healthcare, are intended solely to describe the execution by Safeguard of its long-term strategy to build towards the achievement of successful exits from its partner company relationships, as well as the potential impact of the transaction on or with respect to safeguard and the potential benefits that may be recognized by the shareholders of Safeguard. Nothing included herein or said today should be deemed or construed as a recommendation, or a solicitation with respect to G.E. Healthcare's tender offer for the shares of Clarient. Any statements made with respect to the Clarient transaction are being made on behalf of Safeguard, solely in its capacity as a stockholder of Clarient, and not on behalf of Clarient. Now here is Safeguard's President and CEO, Peter Boni.

Thanks, John. Good morning, and thank you all for joining us today for this quarterly update on Safeguard Scientifics and our partner companies. The results for the quarter ended September 30th were distributed earlier today, and as you can see, Safeguard continues to execute against its game plan, and improving the strength of our balance sheet, increasing our financial flexibility, and, ultimately, building value for our shareholders.

Our partner companies, again, have shown steady growth in maturation. During the third quarter aggregate partner company revenue increased 73% year-over-year, and we continue to be encouraged by the growth and their improved performance. We are, as a result, increasing our aggregate partner company revenue guidance to the range of $360 million to $385 million. This is the second time this year that we have revised our guidance upward. Our previous guidance was $325 million, to $350 million, while the initial guidance was $300 million to $325 million. This is evidence that we are building genuine value.

The transaction was announced subsequent to the third quarter, and we are excited by the potential G.E. Healthcare acquisition of our partner company Clarient. Now Safeguard owns 30.2 million common shares of Clarient and 700,000 warrants at various strike points. When the transaction closes, anticipated to be late 2010 early 2011, net proceeds to Safeguard will be approximately $145 million.

Let me provide you with a brief case study on Clarient, because it underscores our ability to identify and build value in companies with high growth potential, and then drive shareholder value. Over the past five years, we have enhanced Clarient's financial strength, we have developed alliances and syndication partnerships with top tier partners, and we have set a stage to realize values through this well timed exit with G.E. Healthcare.

Clarient was founded in 1996 as MicroVision Medical Systems, later renamed ChromaVision, to develop and manufacture digital microscopes. Under the leadership of a new CEO, Ron Andrews and with direction from Safeguard's current management team, the company was repositioned and rebranded as Clarient. To focus the business solely on cancer diagnostic services, Clarient sold its instrument systems business to Carl Ziess MicroImaging in 2007, for $12 million, completing its evolution from an equipment sales model to a diagnostic services model.

After its repositioning, Clarient grew revenues tenfold, achieved profitability, and grew its market cap by more than $430 million, based upon the proposed acquisition price. Throughout Clairient's transformation, Safeguard worked as an active partner to support Clarient's growth, including initial and follow-on the rounds of equity capital, mezzanine debt facilities, lines of credit guarantees, executive management recruitment, sales and marketing expansion, facilities project management, and strategic communications and partnerships. In addition, Safeguard facilitated a $40 million private placement in Clarient by Oak Investment Partners during the first quarter of 2009. This transaction allowed Clairient to retire its debt, reduce the interest expense and fees, add working capital to drive growth, and propel the company towards net income. In total, Safeguard will realize net proceeds of approximately $206 million from its ownership of Clarient.

Now, let's take a few moments to summarize Safeguard's business model for any newcomers on today's call, and then we will provide some third quarter results. We, typically, deploy up to $25 million in growth capital per company to develop high potential life sciences and technology businesses that exploit five strategic means, maturity, migration, convergence, compliance, and cost containment. Safeguard has 17 partner companies today, ten in life sciences and seven in technology. We time our exits from ownership positions in these companies to achieve aggregate targeted risk adjusted returns on capital of 3x to 5x at a minimum. Exit opportunities may arise at any time, and could be in different forms, including privately negotiated sales of securities or assets, public offerings of partner company securities, or in the case of a publicly traded partner company, the sale of securities in the open market.

Several Safeguard partner companies continue to grow revenues and mature operationally. And the potential is very real for additional exit transactions over the course of the next year, despite an uncertain economic outlook. MBA activity has been checkered and IPO pricing has been soft, but if an opportunity clears our strategic growth and return hurdles, we will respond appropriately. In the meantime, we will continue to work every day to build value in our partner companies, drive their growth, and keep their spending plans in line. Now, we have said this often, and it bears repeating, that discipline is the hallmark of our strategy. Our deal teams evaluate many hundreds of opportunities throughout any given year as potential partners seek growth capital.

Those of you who attended our recent investor day event in New York City, heard us say that we remain focused on enhancing value in our partner companies, rather than just deploying capital, or pursuing exits simply for activity's sake. Safeguard's pipeline of new opportunities is substantial, and our diligent research and analysis of those opportunities are ongoing. So more to come.

Now, let's review some specific recent developments at some of our partner companies that illustrate the power of the Safeguard business model. Avid Radiopharmaceuticals, one of Safeguard's partner companies that focuses on the area of diagnostics, remains on track to have its N.D.A.filed, that's new drug application, filed within the F.D.A. before year end for its amyloid imaging agent designed to image Alzheimer's disease pathology. Positive Phase III results for this agent were recently reported at the Scientific Congress for Alzheimer's Disease , and that was the subject of a front page New York Times article that I'm sure many of you have seen. In addition, Avid is progressing with Phase II trials of its imaging compound for the detection of brain changes associated with Parkinson's disease and dementia, and its compound for imaging beta cell loss in diabetes remains in proof-of-concept Phase I trials. Safeguard deployed $12 million of capitol in Avid since 2007, and hold as 13% ownership stake.

Our group of diagnostic companies now includes Good Start Genetics, which is developing more accurate and comprehensive pre-pregnancy genetic testing based upon proprietary next generation gene sequencing technology. This is designed to replace single disorder only tests that are currently on the market. In September, we deployed $6.8 million of capital for a 27% primary ownership position in Good Start. The U.S. clinical laboratory testing market for the company's DNA sequencing technology is estimated at $4.7 billion. It's a fast growing area, and Good Start Genetics' platform is also applicable to some other areas, such as oncology, cardiovascular, and adult genetic disorders and the like.

Another target segment for Safeguard within life sciences is regenerative medicine, and the most mature partner company in this area is Advanced BioHealing or ABH. ABH is on track to generate over $30 million in revenue in 2010. Now, that's up more than 50% from 2009. The company's growth continues to be self-funded in line with its increasing demand for the bio engineered skin substitute, Dermagraft for diabetic foot ulcers. This is a market estimated at more than $1 billion in size. ABHcontinues to expand its U.S. commercial sales and marketing efforts, and is exploring new applications for the products in domestic and international markets. In mid 2010, a pivotal international trial was launched using Dermagraft to heal venus leg ulcers. This is a market opportunity estimated at $600 million annually. Safeguard deployed $10.8 million of capital in ABH. since February of 2007, and we have a 28% ownership position.

Last quarter, I highlighted NuPathe in our specialty pharmaceutical's target segment. NuPathe raised $43 million in net proceeds from its I.P.O. in August, and recently submitted an N.D.A. to the F.D.A. for its lead product candidate Zelrix, a single use transdermal patch for the treatment of acute migraine. This is the first ever submission to the FDA if a transdermal patch for the treatment of migraine. Commercial launch of Zelrix is expected for the first half of 2012, and Safeguard deployed $18.3 million of capital in NuPathe since September 2006, and we own 18% of NuPathe's outstanding common shares.

Among our seven technology partner companies, healthcare IT companies Advantage Healthcare Solutions, or AHS., and Portico Systems, again, reported solid growth during the quarter. And we see strategic and financial buyers continue to drive acquisition activity in the healthcare IT sector.

AHS is now one of the nation's 15 largest medical billing firms. The company's state-of-the-art technology efficiently collects financial information, and then accelerates the reimbursement of third party claims and patient payments. This enables hospital based physician groups, larger office based medical practices, and also surgery centers to maximize revenue, and decrease their billing and practice management costs, frequently, in dramatic ways. AHS. is achieving profitable growth organically , as well as by acquisition. It expects 2010 revenues to increase more than 95% verses 2009. And the company also has an active pipeline of potentially accretive acquisition candidates. Safeguard deployed $13.5 million of capital in AHS since November 2006, and we hold a 40% ownership position.

Portico Systems offers innovative software and services solutions to health insurance companies that help reduce administrative, medical and I.T. costs. Portico has 39 healthcare customers, big ones, who serve more than 42 million members. Company revenues have grown at double digit rates over each of the last five years, and Safeguard deployed $9.3 million in Portico since August 2006, and we have a 45% stake in that company.

Within our internet and new media segment, growth at MediaMath is especially impressive. Annual revenue for 2010 expected to be more than double, actually, their C.E.O. reported almost triple growth year-to-date. Year-over-year it's -- through September from the 2009 levels, and demand continues to build for MediaMath's enterprise class digital media buying and reporting service. The company's platform allows advertising agencies and advertisers to analyze billions of daily impressions, ordaily ad impressions. The company's been recognized as well. It's named by Always On as the leader in their space .and among the top 100 private companies globally. And it's C.E.O., Joe Zawadzki, was named among the top 100 movers and shakers by Silicone Alley Insider. Now we led MediaMath's 2009 financing, deployed $6.7 million of capital, and we hold a 17% primary ownership position.

We have no shortage of progress throughout Safeguard's other partner companies, but in the interest of time, I will stop now and turn the call over to our CFO, Steve Zarrilli. Steve will update you on Safeguard's financial strategies and performance. Go

Thanks, Peter. Good morning. This morning my focus is on trends in our performance and strategic objectives. However, I'll be happy to elaborate on any aspect of our financial or strategic initiatives during the Q&A period.

Today Safeguard is stronger, leaner, and better positioned to execute our strategic game plan than at any time over the last five years. Now, and for the foreseeable future, our emphasis is on the -- on increasing Safeguard's cash balance, reducing our debt, and further leveraging our operating infrastructure.

G.E.'s announced acquisition of partner company, Clarient, is an important illustration of the power of Safeguard's business model and focus on financial fundamentals. Net proceeds from the Clarient transaction will further strengthen our balance sheet, enhancing our financial flexibility. That strength, in turn, allows us target higher growth opportunities, and support value creation in our partner companies.

Here is a summary of how Safeguard's balance sheet is expected to strengthen over the next two quarters. At September 30th, we had $55 million in cash, cash equivalent to marketable securities, excluding cash held in escrow, and restricted cash equivalents totaling $23 million. The cash balance at December 31st was $106 million, excluding $6.9 million held in escrow. The restricted cash equivalents I referred to primarily relate to the interest escrow associated with our 2014 convertible debentures. A year ago, our debt to equity ratio was 1 to 1. Today the ratio is 1 to 2, achieved through our strategic initiatives to enhance Safeguard's financial strength and flexibility and to improve our balance sheet. Assuming the Clarient, G.E. transaction closes, Safeguard's cash balance would be approximately $200 million on a proforma basis at September 30th. A debt to cash ratio of 1 to 2.6. After the anticipated repurchase of the outstanding balance of $31 million in Safeguard's 2.625% convertible debentures in March of 2011, our cash balance would be approximately $170 million on a proforma basis and a debt to cash ration of 1 to 3.6. We are definitely prepared to put that cash to work. supporting existing partner companies and deploying capital in new high growth opportunities.

In the third quarter, primary uses of cash were cash operating expenses of $3.4 million, this total excludes interest payments, non cash stock based compensation, and depreciation expense. For the nine months cash operating expenses totaled $11.5 million. Expenses for 2010 are expected to be within our previously updated range of between $14.5 million to $15 million.

In addition, we deployed $6.8 million in Good Start Genetics, and we deployed another $4.3 million to support the capital needs of existing partner companies.

Safeguard's debt balance at September 30th was $78.2 million, $31.3 million represented by our 2.625% senior convertible debentures with a due date of March of 2024, but with an expected put date of March 2011. And $46.9 million in the recently issued 10.125% senior convertible debentures due in March of 2014.

In 2011, we intend to continue our disciplined evaluation and pursuit of growth opportunities and to augment existing capital with well timed exits, and, or alternative pools of capital. There is no shortage of interesting opportunities with attractive economic parameters. Our deal teams are actively evaluating several new partner companies.

We believe that Safeguard and its partner companies remain well positioned for continued revenue traction, and value creation in 2010 and beyond. Our current partner companies grew revenue in the aggregate by 73% year-over-year in Q3. As we disclosed in this morning's news release, we are increasing our guidance on projected aggregate partner company revenue for the year to range between $360 million to $385 million. As a reminder, Safeguard reports the revenue of its equity invested in cost method partner companies on a one quarter lag.

Our partner companies continue to execute aggressively, are conserving cash, and making strategic and opportunistic acquisitions. We have worked with the management teams of each of our partner companies to evaluate levels of existing and required capital, strength of personal -- of personnel resources, and unique opportunities for growth. These ongoing processes allow us to assist management in unique ways to continually drive value creation and maturity. Now, with that, I will turn it back to Peter who will kick us off on our Q&A session.

Thanks, Steve. Let's open the phone lines up for any questions.

(Operator Instructions). Our first question comes from the line of Bob Labick of CJS Securities.

Good morning. First, let me offer you congratulations on a great job at Clarient, the turn around, all the effort and the great value creation you did.

Thank you, Bob.

And with that in mind, assume you close it as expected, you will, as discussed, have a significant net cash balance, approaching $150 million. I was hoping you could expand on your plan -- tell us a little bit how you anticipate your portfolio will be? You have 17 partner companies now, does that grow to 30? How do you see the investment of those funds over the next year or two?

Bob, I think we will take the same very prudent approach that we have continued to take, of evaluating opportunities and then deploying capital where we see the very best opportunity. We have a rich pipeline of activity. We continued to be very choosy over the last four years. We have evaluated over 1,000 companies in any given year. And we have put out I think a grand total of just about 40 term sheets during that period of time to get to the 17 companies that we have.

Revenue for those companies, as you've seen, has grown from $100 million in 2007 to approaching $400 million. So we're pretty picky about what we get. But when we get it, we think we have a good track. So we will continue to evaluate these opportunities and deploy the capital when we see the right opportunity. I can't be predictive on that. But

To add to that, Bob, I think you will see us continue to practice the same methodology of wanting to put somewhere between $10 million to $25 million of capital into any particular opportunity we see.

Okay, great, but I was going to ask you that question. So also, you have had the time horizon of three to five years on some previous investments and right now, obviously, that's coming to fruition as the team has been there probably a little over four years and we are seeing some great exits. Will that continue to be your time horizon on investments, or are there opportunities to either -- to have shorter term investments?

Good question, Bob. We are, based upon capitol availability ,evaluating moving into the lower mid market space, if you will, and maybe we will be doing two to three year kinds of opportunities, and perhaps it will be a 2x to 4x cash return target, as opposed to 3x to 5x.

Okay. Great.

So that will be blended with the current stages that we are now working upon.

Right. So you would have a little bit of each potentially.

Potentially.

Great. And then at the analyst day, you discussed that you're in the early stage of looking to leverage your infrastructure with outside investors like family offices or foreign investors. Can you maybe elaborate a little bit on the type of structures or economics that would be attractive to Safeguard if you go forward?

The notion on this is we would attract some partners that would co participate with us, side-by-side on the same terms with our current deployment of capital. We would gain for that a management fee for the capital, and a carried interest when an exit matured. And that carried exit would simply work to augment our cash-on-cash return for the money that we deployed. That's the strategic motion.

Thank you. Our next question in queue comes from the line of Troy Ward of Stifel Nicolaus.

Great, thank you. Good morning, gentlemen.

Hi, Troy.

Real quick, now that Clarient has been monetized and, obviously, some point early in the 2011 it will be coming out of your revenue guidance. Can you speak just to the revenue increases, potentially, that have been in some of our other portfolio companies and what the new guidance might look like?

Well, we have talked about ABH and MediaMath as an example of companies with very strong and substantial revenue growth, but our other smaller companies are showing some double digit revenue growth as well. We're serious about these five strategic growth drivers, maturity, migration, convergence, compliance, and cost containment, that has enabled this growth from $100 million to approaching $400 million over the last few years. And we will continue to look for that.

And then following up the second on Bob's comments previously, when you talk about the middle market, maybe a PE backed transaction, can you tell us what one of those transactions may look like that you would be focused on, potentially, going forward with this additional capital.

That's being somewhat predictive, and I don't want to do that, Troy. Hypothetically, though, there's some $500 billion in the fresh money, in the private equity community. And more than 80% of that is, actually, mid market on up kinds of transactions. We think the lower mid market is a neglected space that builds on Safeguard's potential and it's infrastructure and its domain expertise. It could be in health care services and business services, for instance.

Okay, and then finally, can you give us an update on your view of the M&A activity in life science? Of course, we've heard a lot about big pharma to rebuild pipelines and things like that. Can you provide us some color on what are you seeing in that M&A environment.

Just a comment, Troy, that these big strategic buyers, whether it be life sciences or technology, have been sitting on a huge war chest of cash. It's been a volatile capital market. There's been disrupted and discounted I. P.O.s and the economic recovery that we have seen from the disruption of the last couple of years has been tenuous. So there's been a slow, cautious, bargain hunting group of M&A buyers, but we're beginning to see that they are loosening their war chest of cash -- their grip on that war chest of cash, and beginning to make some strategic deployment of that capital. Companies like G.M. have been doing this over the last quarter or two. So what we think is this could very well be a trend going forward for 2011. That the strategic buyers are coming out of the woodwork now saying they just have to put this capital to good use to enable their growth.

Great, thank you.

Thank you. And our next question comes from the line of Matthew Palmer of Ross Capital.

Good morning, everyone, and thank you for taking the questions.

Sure thing, Matthew.

Let's see. So first, I wanted to touch on the life sciences side of the house. With regard to ABH, clearly ABH has continued to generate impressive growth this year. Again, and as you look toward 2011, can you talk about the drivers of that growth, such as sales force size, maturity, and planned additions, as well as the pace of growth.

Sure. ABH to date has been generating revenue principally in the U.S. They have their trials ongoing for their current product in their existing application in the diabetes foot ulcer space. This, actually, would double the size of their market space. ABH has continually grown their sales force. They have been self-funding in their efforts to grow, and they continue to do exactly that. What they have also seen is the product Dermagraft has been employed by physicians earlier in the process, as opposed to waiting until a diabetic foot ulcer is chronic and the patient is near amputation. They are being preemptive in their application of Dermograft much sooner in the process. And that by itself has enlarged the market space and has enlarged the growth.

With ABH taking the same product and bringing it to the Venus leg ulcers market, essentially you have a company that's penetrating at a $500 million space that could well have a $2 billion worldwide market opportunity in front of it with, fundamentally, the same product offering. So they're really in a good space. They have plenty of capacity. Their profits are substantial. Their gross margins are substantial. And they continue to work well within this changing world of reimbursement.

That's excellent. And maybe one on the technology side, with regard to MediaMmath, you mentioned, again, the impressive growth year-on-year. Can you tell us about -- a little bit more about where the growth is coming from and maybe specifically if it's coming from increased penetration of existing customer accounts, or if it's from new accounts? And also, maybe as a follow on to that, if you could tell us about the significance of the Terminal One buying platform and it's opportunity and maybe in a yearly feedback on its success?

Well, growth is coming from its penetration to both advertising agencies and then significant advertisers, principally, CPG advertisers. And recognize, too, that online ad sales is substantially on the rise. It grew just 14% last quarter to a record of $6.2 billion, according to some industry reports. So this rising demand for digital is also moving into the video ad arena. So there's certainly a mega trend of analog to digital that MediaMath is capitalizing on. I believe, also, last quarter for the first time digital display advertising revenue exceeded newspaper advertising revenue. So that's clearly an indication of this giant migration of analog to digital.

Very interesting. And finally, I know you get this question a lot of where are you going to put your new investments. And looking at life sciences and specifically your exit of Clarient, your team over the years I'm sure has developed a wealth of expertise in cancer diagnostics and laboratory services and how that business and industry work. As you look for new investments, what's the probability that you will make future investments in this industry, given your overall view of the market performance opportunity and your experience with Clarient? Thank you.

Well, diagnostics continues to be an attractive segment for us that we do have some degree of focus, and as you pointed out, some degree of expertise, particularly, molecular diagnostics. We have a number of companies in that diagnostic space today. Devices and specialty pharma are the other two segments where we continue to target. And I would think the past should be an indication of the future there.

Okay. Thank you very much, guys.

Thank you, our next question comes from the line of Bill Sutherland of Boenning and Scattergood.

Thanks and good morning. Hey, Steve, any investments since the end of the quarter?

Nothing since the end of September, Bill, but we are constantly in a process of evaluating potential opportunities. So we never say never as it relates to what may transpire in Q4.

But with existing companies, I'm just trying to get a feel for some of cash flow.

There has not been any significant deployment of capital into existing partner companies since the quarter end. There are a couple of scenarios that we are evaluating where we may be able to augment the capital structure with some modest mezzanine facilities to benefit the companies.

Okay. Nupathe is an asset for sale, correct?.

Correct.

What -- and what -- remind me what that means as far as your window for acting on that.

It doesn't necessarily suggest that we have a particular intention to do something with it within a prescribed period of time. It's more of an accounting convention to allow us to apply fair market value accounting to the asset, and recognizing that the category in which it resides suggests that at some point in the future we will monetize our investment.

Okay.

Just to point out on NuPathe, we really considered new path's IPO as a financing event to enable the company to get closer to commercialization, as opposed to an opposed to an "liquidity event." As a financing event, that was a 50% up ground. We view that as a highly successful activity for NuPathe.

Sure. Steve, what is the -- remind me what's in other long-term liabilities, the $5.2 million?

Well, I should know that.

I can look it up in the K.

You know, I apologize, Bill, I don't recall specifically.

No, that's all right. And then the last thing I was wondering, what is the growth at the new revenue target for the year, the range would imply? I backed into math of 36% to 46%. Is that about right?

No it was $280 million so in 2009.

So it was 28 -- okay. $280 million, Peter? Is that correct?

Around there, Bill.

Okay. Good.

Actually 260 something.

Okay. I believe that was all I had. Thanks, everybody.

You're welcome.

Thank you, sir. Our next question comes from the line of Nick Halen of Sidoti and Company.

Hello, nick.

Good morning, guys. I just had one question about taxes going forward. The numbers I have in front of me are correct, I think with the tax laws carried forward that you guys have you could offset gains of about I think $126 million. I was, basically, just wondering if you plan on using those towards the eventual gain on the Clarient acquisition. And, also part two of that, what can we expect in terms of taxes going forward.

Go ahead, Steve.

So any gain that we generate from the result of our operations, or any income we're looking to shelter that income or gain with the existing tax NOLs that we have. Keep in mind, when we are producing net income, either by virtue of operating income and, or capital gains, we are therefore not necessarily creating new NOLsfor Safeguard. So we do need to expect that if we are successful in our monetization activities, as we currently anticipate, over the next 12 to 36 months, that we will eventually become a taxpayer. We will have used those tax NOLs as we have always intended, and we will be in a position where we will have to begin paying taxes on income and gains. But we expected that the pace in which we use those, will probably be such that we will -- over the next 12 to 24 months we will be sheltering most, if not all, of the gains that we recognize. But the reality also is that we are grateful for the opportunity to be able to put those NOLs to use, because we wouldn't want them to expire without having the benefit apply to Safeguard and our sheltering of that income from a taxation perspective.

Great, thanks, guys.

Thank you, sir. Does that conclude your question?

Yes.

Thank you. Our next question in queue comes from the line of Chris Cook of Zazove.

I was just curious, the attributable revenue you have -- I was just curious in that calculation.

I'm sorry.

Of the $360 million to $385 million of revenue that you are expecting your partner companies to generate this year, how much is attributable to Safeguard on an ownership basis?

We have taken the revenue of our partner companies and added it together, irrespective of what our percentage ownership is on each of those companies.

Understood. So if you calculate what your attributable share is, what is that?

Directionally, Chris it's about 35%.

Okay. Great, thanks.

Thank you, and our next question comes from the line of Sam Rebotsky of SER Asset Management.

Good morning. Congratulations, the Clarient transaction is wonderful.

Thanks, Sam.

As far as the capital loss and the net operating loss going forward, do you have the break out between net operating loss and capital loss, the way it is before the Clarient, and I assume the Clairient would be a capital gain stock transaction, and not an NOL transaction? And what would it look like after the two pieces?

Well, keep in mine, Sam, we can use our NOLs for capital gains sheltering. To answer your question specifically, as of September -- as of the end of last year, and it hasn't changed substantially since then, the total NOL balance was $198 million, and the total capital loss carryover balance was $157 million. So that gives you a total of $355 million, and you can assume that we can use all, or virtually, all of that to shelter capital gain activity going forward.

So a stock transaction could be used as an NOL also? Is that what you are saying?

If we were to sell an equity security and it results in a gain, we can use these NOLs to shelter the gain on the -- on the net gain of Safeguard in that particular period.

Okay, great.

Taxable period.

Great. Okay. Well, keep up the good work.

Thank you, Sam.

Thank you, sir. I show no further questions in the queue at this time.

On that note, ladies and gentlemen, thanks for your continued interest and support of Safeguard, and we will continue to keep you updated as we progress towards executing our game plan.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may now disconnect. Everyone, have a good day.