Safeguard Scientifics Inc (SFE) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Safeguard Scientifics fourth quarter and year-end 2011 results conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session, with instructions following at that time. (Operator Instructions). As a reminder this conference call is being recorded. And now I'll turn the conference over to your host, John Shave. Please begin, Sir.

Good morning and thank you for joining us for Safeguard Scientifics 2011 year-and conference call and update. Joining me on today's call are Peter Boni, Safeguard's President and Chief Executive Officer; Steve Zarrilli, Senior Vice President and Chief Financial Officer; and Jim Datin, Executive Vice President and Managing Director with responsibility for leading our deal team professionals.

During today's call Peter will review fourth quarter and 2011 highlights, as well as other developments, then Steve will discuss Safeguard's financial results and strategies. After that we will open the lines for your questions. Before we begin I must remind you that today's presentation includes forward-looking statements.

Reliance on forward-looking statements involve certain risks and uncertainties, including but not limited to the uncertainty of future performance of our partner companies and the risks of acquisition or disposition of interest in partner companies, capital spending by customers, and the effect of regulatory and economic conditions generally, as well as the development of the life sciences and technology markets and other uncertainties that are described in our SEC filings.

During the course of today's call words such as accept, anticipate, believe, and intend will be used in our discussion of goals or events in the future. Management cannot be certain that financial outcomes will be as described today. We encourage you to read our filings with the SEC, including our Form 10-K which describe these risks in detail. The company does not assume any obligation to update any forward-looking statements made today. Now here is Safeguard's President and Chief Executive Officer, Peter Boni.

Thanks, John. And thanks to all of you for joining us today for updates on Safeguard Scientifics and our partner companies. Results for the fourth quarter and year ended December 31 were distributed at close of market yesterday. 2011 was an exceptional year of value creating activity at Safeguard. We executed two well-timed exits with net proceeds of $182 million, including escrowed amounts, booking a cash on cash returns of 4 times in 14 times on the sale of our positions in Portico Systems and Advanced BioHealings respectively.

Safeguard's deal teams deployed $69.4 million of capital in seven new partner companies and made three follow-on deployments in existing partner companies for $14 million. The strategic and operational support of Safeguard's partner companies drove aggregate revenues to increase 27% year-over-year.

We also launched Penn Mezzanine, Safeguard's first platform expansion initiative in alternative asset management, through which we expect to generate management fee and interest income, as well as profit participation opportunities. The repayment of $31 million in corporate debt bolstered Safeguard's balance sheet, improving the company's ratio of total debt to equity year-end to 1 to 8.

In short, the team is executing a focused and disciplined strategy, which is enhancing Safeguard's brand as the preferred catalyst to build great companies, ultimately boosting the company's financial strength, flexibility and driving value for our shareholders. Our momentum is strong and I find our prospects really quite exciting. This year is off to a very promising start, despite the macroeconomic environment where geopolitical headlines disrupt global capital markets and our domestic economy's growth is tenuous and politically charged.

For those who are new to the Safeguard story I will review the hallmarks of our strategy which are built on three pillars, focus, discipline, and execution. Focus is the first pillar of Safeguard's strategic foundation. We deploy capital to high potential businesses and specific segments of life sciences and technology industries that exploit five strategic growth driving themes, maturity, migration, convergence, compliance, and cost containment.

In life sciences we target opportunities in the areas of lower relative technological and regulatory risk. Not in new therapeutics, but rather in molecular and point-of-care diagnostics, medical devices, specialty pharmaceuticals, and some selected healthcare services. In technology we pursue transaction enabling applications with a recurring revenue business model in internet new media, financial technology, healthcare IT and other selected business services.

Safeguard's discipline complements our focus. We will not deploy capital or pursue exits simply for activity's sake. If an opportunity clears our strategic growth and return hurdles, we will respond appropriately. Now while Safeguard's deal team evaluates over 1000 proposals annually, we remain disciplined in our capital deployment process. Today we hold interest in 17 partner companies. We have typically deploy up to $25 million in growth capital per company. We will time our exits from ownership positions in these companies to achieve targeted risk-adjusted returns on capital of three to five times over three to five years.

As background for all deployments since January 2006 that have been realized, written down or written off, Safeguard has realized aggregate cash on cash returns of 2.4 times. By way of comparison, according to Cambridge Associates US venture capital investments made since 2006 generated average cash on cash returns of 1.2 times. Now, based upon our involving diversified deployment strategy, equity and debt in companies at varying stages, we believe that our aggregate returns on total capital deployed could reach two to four times over that three to five year period.

Exit opportunities may arise in any time and in different forms, including privately negotiated sales of stock or assets in public offerings. In the case of a publicly traded partner company exits could involve the sale of stock in the open market. Execution is how focus and discipline are tested and that is how Safeguard has distinguished itself. Focus, discipline and execution have served Safeguard and its shareholders well. By any measure the Company is fundamentally stronger today, better positioned for continued growth in value creation, not only in 2012 but beyond.

Let me move on and highlight Safeguard's newest partner companies. We have five in all since the last call. They include in alphabetical order Crimson Informatics, Hoopla Software, Lumesis, Medivo and Spongecell.

Crimson Informatics combines mobility technology and high-powered data and analytics software into a single revolutionary offering in the usage-based auto insurance market. I will refer to that as UBI. UBI analyzes data on driver behavior and enables underwriters to base insurance coverage on more detailed information.

The Crimson offering helps drivers improve their driving and benefit from personalized rates, then safe driver discounts. As the demand for UBI has grown in the US and throughout Europe, Crimson has secured large marquee customers for wide scale rollouts.

According to a report for management consultant A.T. Kearney last year, the potential US market alone for UBI could grow to 55 million subscribers and that is from less than 1 million today. By 2014 more than 20% of US and European vehicles are likely to have an embedded data capturing hardware, according to the Kearney report. In December Safeguard deployed $1.7 million and we have a 24% primary ownership position.

Hoopla Software has a complete performance optimization system designed to steer the actions and behaviors of employees. Hoopla's platform leverages enterprise data, advanced game mechanics and sophisticated communication tools to cultivate a high performance culture and then they drive results. According to Gartner research more than 50% of organizations that manage innovative incentive-based programs will gamify those processes by 2015. Note the new word in the American vocabulary, gamify. Safeguard deployed $1.3 million and we have a 25% primary ownership position.

Our newest partner company, Lumesis, is based in Stamford, Connecticut. Lumesis provides robust visualization and analytical tools and time sensitive notifications for the fixed income market. The company's lead product, DIVER, is an interactive web-based fixed income research tool that offers more than 130 data sets from more than 30 distinct sources.

DIVER provides timely and meaningful demographic and economic data that impact the fiscal well being of states, counties and other municipalities that include data and portfolio visualization tools, analytics and notification applications. Earlier this month Safeguard deployed $2.2 million into Lumesis and we have a 32% primary ownership stake.

Medivo is a healthcare IT company. They provide data analytics and lab testing services via the Internet that empower and enable patients and physicians to improve health. Medivo has a convenient online HIPAA compliant platform that connects patients to a nationwide network of physicians, Lab service centers and home testing services.

Managed-care companies sponsor broad-based screening programs to their members and life sciences companies fund advertising to specific physician and patient populations on the Medivo platform. The company also delivers clinical data analytics services and direct-to-consumer lab testing access. In November Safeguard deployed approximately $6.3 millionm and we have a 30% primary ownership position.

And last but not least, Spongecell is an Expansion Stage business. Earlier this year Safeguard led financing for Spongecell, an advertising technology company that turned standard banner ads into dynamic ads with rich media features, including engagement rates by 25% to 50% versus standard banner ads.

Spongecell's interactive features, like video, social media, interactive maps, are all easily integrated without disrupting the creative workflow. In addition, Spongecell allows companies to collect data and analytics that provide a detailed portrait of audiences that cannot be produced in other advertising platforms. Spongecell competes in the display advertising market, expected to grow to over $27 billion in five years, 2016, at a compounded annual growth rate of 20% in 2011. In January Safeguard deployed $10 million in Spongecell and we have a 23% primary ownership stake.

There were also notable developments at partner companies MediaMath, NovaSom, PixelOptics and Putney. MediaMath enables digital advertisers to figure out which ads to buy, how much to pay for them, how to analyze which factors drove performance. Their revenue increased approximately 43% in 2011 and it's expected to generate continued strong growth in 2012. Their customer base is among the Who's Who of digital advertising and the Company is continually recognized as a leader in its space. We have a 22% primary ownership stake in MediaMath.

NovaSom is a provider of diagnostic devices and services for home testing and evaluation of obstructive sleep apnea. An expansion stage Company, NovaSom's home sleep test reduces the cost associated with diagnostics by two-thirds, as compared to sleep labs. It's been adopted by some major HMOs and they've recently released a wireless device for home deployment. We deployed $20 million of capital in NovaSom last year and we have a 30% primary ownership position.

At PixelOptics results are really encouraging from the regional launch of the Company's innovative electronically focused eyewear. And then last month, Brett Craig, formally the president of Transition Optics joined PixelOptics as President and CEO. He is succeeding founder Dr. Ron Bloom, who continues as the Company's Chief Visionary Officer.

A progressive regional rollout of PixelOptics emPower! eyewear is expected to result in a full national presence by the end of this year, as well as an international presence. Safeguard has a 25% ownership position in PixelOptics.

As for Putney, a high-growth expansion stage specialty pharma company that is developing a high-quality generic meds for pets, we deployed $10 million of capital last year and we have a 28% primary ownership position. Putney is using the proceeds from its series C financing to increase both the number of products and the overall brand value of drugs in its pipeline, as well as enhance its management ranks.

Now let's review some recent developments to illustrate how we're expanding Safeguard's business model. Safeguard's partnership with Penn Mezzanine, formed in 2011, represents our first initiative to augment our capabilities as a growth capital provider and then participate in the management of external alternative sources of capital.

We expect this platform expansion initiative to produce management fee and interest income, as well as profit participation. Managed by a team of experienced mezzanine lenders, this platform enables Safeguard to provide flexible financing strategies to our current and prospective partner companies, as well as other potential lower mid-market borrowers to build value in their businesses and ultimately realize that value through well-timed exits.

Penn Mezzanine closed its first round last year after raising more than $64 million. That was including $30 million of committed capital from Safeguard. As of December 31 Penn Mezzanine has deployed in excess of $26 million in seven companies. Safeguard deployed $13.6 million in Penn Mezz and in Penn Mezzanine capital deployment participation in 2011. And we have a 36% ownership position in Penn Mezzanine.

There is 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 give you an update on Safeguard's financial strategies and our performance. Go ahead Steve.

Thanks, Peter. Over the next few minutes I wanted to outline a few big picture trends in the Company's financial performance and some initial thoughts on valuation. Let's start with valuation.

At December 31 Safeguard's interest in its 15 partner companies represented an aggregate of $168 million of capital deployed. Our net cash, cash equivalents and marketable securities totaled $258 million as of the same date. The sum of these components is $426 million. Using shares outstanding of approximately 21 million, this total represents approximately $20 per share.

Over the past five years the Safeguard team has delivered meaningful and measurable results for shareholders. Despite unprecedented volatility in capital markets, we remain focused on building value in partner companies, realizing that value and then communicating our progress concisely, consistently and credibly.

Discipline focused on enhancing Safeguard's financial strength and flexibility also has positioned the Company for continued success. We repaid and restructured corporate debt, controlled holding Company expenses, developed alternative sources of capital and income. Today Safeguard is stronger, leaner, and better positioned to execute our game plan than at any other time over the last 10 years. This team's focus on value creation is keen and we remain optimistic about perspective opportunities.

Focus, its that simple and that powerful. Of course share repurchases, early debt retirement or special dividends can not be ruled out as potential uses of cash to enhance shareholder value. While our team has demonstrated that our deployed build realize strategy delivers solid cash on cash returns, we also are aware of the views of our shareholders and factor them into our decision-making. Our interest are closely aligned with Safeguard shareholders by virtue of our long-term compensation incentives. Our management team remains focused on building and realizing value for shareholders.

Now let's move on to key financial metrics for the quarter and year ended December 31. At 12/31 we had $258 million in cash, cash equivalents and marketable securities. This amount does not include an aggregate of $18.7 million of restricted cash and cash held in escrow.

During the quarter and the year primary uses of cash were, operating expenses of $4.1 million in the fourth quarter, total operating expenses of $17.7 million for the year, or approximately $0.85 per share, and that compares to $16 million or $0.78 per share in 2010. During the fourth quarter Safeguard deployed a total of $19.6 million into partner companies Crimson, Hoopla and Medivo, as well as into Penn Mezzanine loan participations and a follow-on deployment in Alverix.

For the full year 2011, Safeguard deployed $96.9 million. During 2011, Safeguard repurchase $30.8 million of our convertible senior debentures. In 2012 we project uses of cash to be between $100 million and $150 million in the following primary areas, corporate expenses, capital deployment into new partner companies, follow-on funding for current partner companies, and mezzanine participation, and the expansion of our platform.

During 2011 we received approximately a $0.5 million in cash returns related to our Penn Mezzanine participations. We expect to receive between $1.4 million and $1.6 million in 2012 from such participations. This cash return directly offsets our operating cash expenses.

Our federal tax carry forwards totaled $159 million at December 31, 2011 compared with $266 million at December 31, 2010. Significant gains realized in 2011 on the sales of Advanced BioHealing and Portico Systems were offset by the use of those tax loss carry forwards.

Previously our Internet new media partner companies reported revenue on a gross basis. It is anticipated that our Internet new media partner companies will report and forecast revenues on a net basis going forward. As a result, Safeguard has updated it's aggregate revenue guidance for 2012 and prior years to reflect revenue on a net basis. This change in presentation does not impact the long-term value of our partner companies.

Overall partner company aggregate revenue for full year 2011 was $140 million. Our technology partner companies accounted for $116.5 million of that total, representing an increase of 38% as compared to 2010. Aggregate revenue for all partner companies for the period 2007 through 2010 were $31.5 million and $50.1 million, $67.7 million, and $110.5 million, respectively.

Safeguard's partner companies remain well positioned for continued revenue traction and value creation. For 2012 Safeguard projects partner company aggregate revenue in a range of $160 million to $165 million. Revenue for Safeguard partner companies is reported on a one quarter lag basis. Our partner companies continue to execute aggressively, are using their cash to grow, and in some cases generating cash, and making strategic and opportunistic acquisitions.

We work with the management teams of each partner company to evaluate levels of existing and required capital, strength of personnel resources, and unique opportunities for growth. Our focus on these ongoing processes allows Safeguard to assist partner management teams in unique ways to drive value creation and maturity. And with that I will turn it back over to Peter to lead the question-and-answer session.

Thanks, Steve. Just to let you know Jim Datin, our Executive Vice President responsible for our capital deployment and capital returns initiatives is not on the road today. He's joined our call. Steve, Jim and I will take questions now, Tyrone, if you would open up the phones.

(Operator Instructions) Greg Mason of Stifel Nicolaus.

I wanted to dig in to some of those new investments you made, but before that maybe talk a little bit bigger picture about your investment philosophy. I know in the past you've said your target is deploying $5 million to $25 million in new investments, but I think three of these five new investments you've made are $2 million and under for your initial investment. So, could you talk about what you are seeing or your reasons for kind of going outside of that normal target of $5 million to $25 million?

Sure, Greg. We don't view this as outside of our normal target. We have stated $5 million to $25 million per company for the life of the company inside of our holdings. This was the first of what might be another round of activity. Many folks have noted that in the technology world Internet enabled firms have far less capital requirements to start themselves up. Some folks have said that $500,000 is the new $5 million. That the good news is it takes far less capital to build a business in that space. But just by putting $2 million in doesn't mean that is the end of it. And we really looked at the businesses as terrific opportunities going forward and had an opportunity to take an early stake. Oftentimes when you get an early stake you have the opportunity to play later on. You don't take the early stake, you don't have the opportunity to play later on.

Okay, great. And then another bigger picture. It feels like the pace of deployment has picked up significantly. Just based on our database it looked like two new deals in 2009, one new deal in 2010, then in 2011 you did seven new deals and already two this year. So can you talk about what you are seeing in the marketplace or why your -- appears to be your pace of deployment has picked up significantly?

Why don't I let Jim Datin speak to his rich and full pipeline.

Hi, Greg, it's Jim. Just to follow-on Peter's comments, our pipeline is the best that it's been in my six plus years here at Safeguard. We have a very structured outbound activity to proactively look for good deal opportunities. Two of our partner companies came through that process last year. Because of our success of having sold four companies just over the past year, we now have a very strong pipeline of inbound opportunities that come from CEOs, other venture capitalists, private equity groups out there that want to partner with us. So from our perspective it's a great time to be putting capital to work. And we also had the ability to do a couple recaps recently to reset valuations and get a bigger stake in companies as well.

I will supplement that a little bit, Greg. The capital providers have actually been downsizing as an industry over the last couple of years because their fund-raising initiatives have really been retarded by all of the disruption we've had in capital markets. With an evergreen model it's so well-known that Safeguard has capital and we're finding significant activity as a result of that.

Okay, great. Then, from -- I appreciate the overview of the new portfolios, but maybe if you wouldn't mind giving us a little more detail in terms of what were the key characteristics you feel about the growth prospects? Competitors that you looked at and industry multiples, starting with maybe Spongecell and Medivo as the bigger investments.

Steve and Jim, why don't you attack that and then I will supplement it.

Sure. Maybe starting on the healthcare side. One of the areas, Greg, that you know that we've be looking to put more capital to work is healthcare IT, which is a natural fit for Safeguard because we are able to use the healthcare experience that we have, as well as our IT backbone here. So, Medivo was a perfect hybrid for us because we're able to leverage the strength of the deal teams on a both a due diligence and in helping add value to the company moving forward. Medivo currently has revenues. They are expecting to go through a strong growth potential this year and it fits our two core themes of Medivo reducing the cost of healthcare and bringing the data closer back to the patient, empowering the patient to make more informed decisions.

The same can be said for Spongecell. And clearly that industry is transitioning significantly from, as Peter said, old banner aged stagnant advertising to a more rich media, where there is an opportunity to expand both internationally and domestically. We expect the company to go through -- produce good results in growth this year, both in terms of revenue and EBITDA.

And I will just further augment those statements by noting that our successes over the last 24 to 36 months have put us in positions where we get some first peeks at some of these opportunities. So, our competitive framework is such that we are actually looking at some of these companies well before the competition may be aware. And then have had the chance to get involved in structuring our discussions with those companies to put us in a better position to succeed in the overall competitive framework of deploying that capital.

I will supplement that, Greg, by talking about strategic growth drivers and we are really seeing the impact of that maturity, migration, conversions, compliance, cost containment. Many of our new businesses are playing on those themes. The migration of desktop to mobile, the use of big data analytics for decision support. The convergence of information technology into healthcare applications, not only to facilitate the paying of healthcare, but actually the providing of healthcare services at a far lower cost. And then, of course, doing this in a regulatory compliant way. So we are really playing to those strategic growth driving themes. Those are seen in some of the new deployments we have done.

Matt Dolan of ROTH Capital.

First question just on the aggregate revenue you put up in 2011. Can you give us an apples to apples comparison of -- now with the adjusted reporting style for tack, what would you have put up relative to guidance? It looks like from a percentage standpoint you might have exceeded your guidance, but was just hoping to get a clearer number there.

Well, as we've noted in the past, a good deal of the 2011 revenue came from our technology businesses. Since the life sciences firms after the sale of ABH, Clarient and the like, we're really in the initial and moving to the expansion stages of revenue. So the technology businesses grew 38% in 2011, that we thought was pretty robust and we are off to a great start in 2012.

So, in addition to that, Matt, more specifically we would have been at the top end of the revenue guidance that we had provided to you last quarter on an apples to apples comparison basis.

And then within your $100 million to $150 million in cash usage this year, should -- maybe, Steve, you could tell us what to anticipate? I know you touched on this slightly, but on debt pay down is that a component of the forecast or will you shift proportionally more towards straight equity deployments or -- and mezzanine.

Matt, no repayment of corporate debt anticipated this year. So, you have got three primary categories or four really. You've got new partner company deployments and follow-on, that's two. You've got Penn Mezz, that is three; and then you have corporate expenses, that is four. And that is a gross number, so it's not offset by the $1.5 million or so of additional cash that we expect from Penn Mezz. And we've given ourselves a little bit of a range to work with here, so that we can be opportunistic. But I think you will see a fair amount of consistency between what you see in 2012 compared to what you saw in 2011 from a dollar perspective.

And just two follow-ups to that. A, what are your corporate spend expectations? B, from a timing standpoint it seemed like last year you had a lot of exits up front and a lot of deployments into the second half of the year. Should we anticipate similar timing this year?

Deployments, interestingly enough, and this kind of builds on a prior question. One of the reasons why we've been able to get out of the gate a little bit more robustly in Q1 is because we've had this capital to work with. And that is actually prudent for us to have somewhat of a more steadier stream of deployments over the course of the year. I think that actually works well for us in a number of ways, including operationally, so that we can use our skill sets and our functional expertise in a more leveraged fashion. From an expectation of exits, we are going to continue to try to make sure that we are realizing opportunities to monetize when we think it's appropriate. Our companies are growing pretty nicely and you never know when there's going to be an opportunity presented. But when we look at where these partner companies are today, we can't be very predictive as to whether or not it's going to be first half, second half or even into parts of 2013. So, as we get clarity, we'll share that clarity with you.

And last one maybe on PixelOptics. I know we were thinking of demand being -- excuse me -- demand really picking up here in the first half of the year. Maybe, Jim, you can touch on what you've experienced so far in the initial commercial ramp with that company. If so, just touch on the manufacturing capabilities and the ability to meet that demand. Thanks.

Matt, Steve is going to take that question, since he sits on the Pixel board along with Dr. Gary Kurtzman.

So, Matt, let me just frame the discussion here a little bit for you. Very broadly there is an $82 billion vision and optical market that we are trying to penetrate. But more specifically, the premium progressive lens market is stated to be about 8.7 million pairs a year. And our goal is to have a 20% to 30% market share. And at 20% that would be 1.7 million pairs per year that we would be selling. The broader progressive lens markets, the first one was premium, the broader progressive lens market is 62 million pair. Our goal would be to be somewhere between 2% to 5% of that marketplace, which would result in a similar number of pairs, roughly about 2 million pairs per year.

Now, if you put that into perspective as it relates specifically to PixelOptics, here are a couple of quick facts. There are 1400 stores currently in place. What that means is opticians, or what we call eye care professionals, and we expect that number to grow to about 2000 by the end of the year. Of the 1400 approximately 400 are currently selling emPower! and we started in the Southeast. We will be working our way to the West Coast, then migrating ourselves back to the Northeast over the course of the year. So, we expect 2012 to be a year in which Pixel begins to generate its early-stage revenue. We believe that Pixel, using Safeguard's terminology if you will, is positioned to move quickly into the expansion stages, not the high traction stage, as it works its way into 2013.

Paul Knight, CLSA

Peter and Steve, you had mentioned earlier possible distributions to shareholders. I know that institutions out there would appreciate or look forward to participation in payouts. What milestones would you have to get to for that to become more likely?

Steve, you want to make a comment?

Yes. This obviously gets to the question of whether or not there are stock buybacks or dividends in our future. And clearly as we've tried to indicate in the past, we're on a regular basis looking at the cash that we have, the utilization of that cash and whether or not we are in a position to provide some return to shareholders. The primary question that we ask ourselves everyday, and I would expect that you would expect us to be asking ourselves this question, is can we put this capital to work in a meaningful fashion to provide meaningful returns to our shareholders? And we think that the answer is yes.

Jim pointed out that he has never seen the pipeline as robust. We have been on a very definitive game plan to put this capital to work in a very disciplined fashion and we believe that our exit opportunities will provide the returns that our shareholders are looking for. That doesn't preclude us from looking at other opportunities to provide a return to our shareholders in the future, but as we said today we think that the highest and best use of our cash is as a deployment into our core business. Keep in mind, with about $250 million of assets under management, at one level, through one lens that is a large number, but through another lens that isn't necessarily as large compared to some of our competitors in the marketplace. So, we constantly balance that equation as well when we consider how to best utilize our cash for the benefit of our shareholders.

And you had mentioned earlier Penn Mezzanine. Could you go back over how much capital is there, what is currently already paying out in terms of dividends? What would you like -- would like to see as the perfect result of your Penn Mezzanine funds?

So Penn Mezz has actually exceeded our expectations in a number of ways. The pace of deployment of capital has been on target. And what I mean by that is not too slow and not too fast and they are finding some terrific opportunities in areas where they are trying to put forth a credit in the amount of $2 million to $7 million. The structure of those deals are also meeting expectations, generally 12% to 14% coupons with warrant coverage to augment the return with some closing fees attached to that. And we have used approximately $9 million of capital in the deployment or the participation of these loans and it's already providing us with current cash flow. I mentioned in 2011 cash in was about $0.5 million. When we look at 2012 on a conservative basis, we think that number is somewhere between $1.4 million and $1.6 million. And that $30 million was fully deployed against a average of 12% to 14% coupon, that would be generating somewhere between $3 million and $3.5 million of cash, annual cash flow to Safeguard.

All of those factors work well for us and our meeting or exceeding our expectations. One last point as it relates to Penn Mezz. They are finding that the marketplace that they are focused on, that credit size of $2 million to $7 million, is very robust and under served. And they're able to really kind of have the pick of the litter, if you will, on opportunities. And B, they've got some great deal source. About 50% of their activity is provided through funded sponsors, which is actually an important metric for us because it shows stability of those businesses and the ability for those funded sponsors to keep a proper level of equity in those organizations, which makes our credit risk less. And it also provides for future pipeline development for Penn Mezz activity.

Then, the last on the portfolio companies. The BD hand-held diagnostic launches in Japan, I guess, this month. Any initial color there for Alverix? And then secondly, Good Start, any color on traction there as they roll out commercial?

Jim, you go ahead and make comments.

Sure. The CDC just published earlier this month that the flu season is here. Becton Dickinson is actively marketing the product in both United States and Japan, where it has been approved. It has been recognized as the most sensitive flu test available at the point-of-care. The Veritor system is built on Alverix's platform and Becton Dickinson has been very active with that. We expect to be able to share progress with you in the near future on that.

In regards to Good Start, they did receive their CLIA lab approval. They are completing a beta launch wrap-up at this point from their pilot. And we expect that in Q2 they will be launching their products and platform on a nationwide launch across the US They are on target at this point, meeting our expectations in terms of financials and timelines.

Next question is from Nick Halen of Sidoti & Co.

First question I had was I was wondering if you guys could elaborate a little bit on what caused the $5.7 million impairment charge that you guys took relating to swap.com.

Jim and Steve both, I will let you comment.

Sure. The company has launched their recent swap marketplace, but has struggled to transition to be a revenue-based company at this point. They are currently evaluating strategic options at this point, as there has been some interest in the company. At this point we thought it was the prudent thing to do considering the marketplace.

And then also, I know at your investor day MediaMath mentioned they would possibly raise capital in the beginning of 2012 and I was wondering if you guys have any updates on that, if they have actually raised any of the capital yet.

We don't have any updates, Nick. We looked at that as a potential not a certainty. So we don't have any updates.

And then lastly, I know you guys -- you break down your partner companies in to specific stages and it seems like a lot of your companies are making some great traction right now and I was wondering if any of your partner companies are approaching or starting to make significant progress towards the high traction stage?

I will let Jim speak to that and then I will supplement that with a comment, Nick.

We have several companies that are expected to grow revenue substantially this year. NovaSom, for one, is expecting a significant increase. Putney is planning to have further products approved in their pipeline. Beyond continuous impress us, they had over a 30% revenue growth last year in a challenging marketplace. We expect the strong growth rate to continue again this year. There are other companies -- MediaMath we continue to believe from both the top line revenue and EBITDA will continue impressive revenue growth. We mentioned Spongecell earlier that -- where we've recently put capital to work in. We think that's going to continue that growth. The other one would be Bridgevine, which in a challenging marketplace had a strong year and looks to have another impressive year in terms of revenue and EBITDA growth.

So, the current high-traction firms are actually growing well and contributing cash. They're making money. And making more of it. EBITDA in particular significantly growing and we do, we anticipate that several of our expansion stage companies could make the shift to high traction in 2012.

Great. Thanks guys.

Your next question is from Roy Studness of first Manhattan.

I had a question. I was wondering how many shares have you guys repurchased under the new buyback authorization?

We have not purchased -- repurchased any shares, Roy.

So, why is that Steve?

We believe that our capital is best deployed right now in the deployments that we have noted and the opportunities that we are seeing. We did put into place a program that, should our shares drop substantially in relationship to book value, the board has given us some opportunity to then be reactive to that set of events. Which has not occurred and we don't expect it to occur, but should there be a substantial decrease in value in that regard than we have got some tools to use in order to address that.

And I guess I would just kind of respond to that a little bit in hoping for maybe a little bit more of a proactive approach. And as shareholders, I don't think we agree with the approach that you guys are currently taking in this regard. On the one hand you guys have put forth a lot of effort to describe the value creation at Safeguard and how undervalued the stock is and the strong financial strength that the company is in. And you obviously -- you put out the buyback authorization last year. So you have it on the one hand. But when you don't follow through on it and you don't actually put your money where the mouth is, so to speak, and actually buy back any of the stock when you say it is a great value, we think that kind of undercuts the credibility of the message a little bit. I don't think that is in the best interest of shareholders currently.

I appreciate the point of view, Roy. The circumstances that did not fall under the parameters of our buyback program.

And just to augment what Peter said, Roy, and we will respectfully acknowledge that we may have a difference of opinion here. Even just recently as yesterday in the Wall Street Journal there was an article highlighting the great debate that goes on within companies and with its shareholders between buyback or not to buyback. So, we understand your point of view and we respect that point of view. And that we hope that you will have some understanding of our point of view as well.

Roy, we continue to get capital market feedback and advice, as well, and we put that into consideration in our decision-making processes.

And is it fair to say, I guess, that -- I know you have the authorization, but your uses of -- your projected uses of cash that you mentioned at least in the press release and in the script did not include share repurchase. So, I guess and you mentioned the program you have in place, so barring that collapse in the stock price that none of us hope happens, for 2012 there really shouldn't be any meaningful buyback going on, is that fair?

We stated that we are open to the opportunities if circumstances dictate.

Okay. Thanks, guys.

A follow-up from Greg Mason of Stifel Nicolaus.

I believe if I remember correctly Abbott had a potential earn out based on performance. Can you tell us how that earn out stands on how Abbott's doing currently?

Sure. Abbott, as you know, Abbott was purchased by Eli Lilly. They are currently in the final stages of seeking FDA approval to be able to launch that. The PDUFA date is this spring, so we expect with a favorable review there that Lily, via Abbott, will launch this program by year-end.

And then your earn out is based on how that program does in commercialization?

We have two stages left. There would be a milestone payment to us based on the approval, and then secondly, there would be financial targets based on the sales over the next three years post-launch.

And, Jim, you actually touched on this a little bit. My question was how many products do you think is going to come online with Putney this year from what they've got in the pipeline?

Putney has submitted and will submit between last year and this year, 14 new products to be approved. So we're not sure what will come on this year based on the FDA timelines. On a conservative basis we believe that the organic growth will produce good growth and good returns versus last year. I think the crux of most of their new products will be coming online in 2013 and 2014.

Finally one last follow-up. Your expense expectations for this year? Steve, could you get that?

Yes. It's pretty consistent with that of last year. There is a little bit of additional amounts that have been provided for to allow for some staff building that we may take an opportunity to focus on, especially within the deal teams. And some other corporate development expenses that we have included within our projected uses of cash for the year. Most specifically around our platform expansion initiatives.

I think this number was $17 million last year so maybe up slightly from that this year?

Up slightly, up to about $18 million, correct.

Great, thank you.

Thank you. This ends the Q&A portion of today's conference. I'd like to turn the conference over to Peter Boni for any closing remarks.

Thanks, Tyrone. Well, we continue to execute our game plan, building value in our companies, realizing some valuable exits, replenishing our holdings with winners and then expanding the platform. Why own Safeguard? That value realized for developing growth stage businesses through active ownership is significant. We have a healthy group of well-positioned partner companies. There's been major improvements in our financial strength, our flexibility and our liquidity. We have initiatives underway to increase capital under management and my management team has a strong alignment of their interest with shareholder interests. So we continue to execute boldly to realize the value and look forward to continually keeping you up-to-date. Thanks for your interest.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect and have a wonderful day.