Safeguard Scientifics Inc (SFE) 2012 Q4 法說會逐字稿

Good morning and welcome to the Safeguard Scientifics fourth quarter and full year 2012 financial results conference call. All participants will be in listen-only mode.

(Operator Instructions)

After today's presentation, there will be an opportunity to ask questions.

(Operator Instructions)

Please note, this event is being recorded. I would now like to turn the conference over to John Shave, please go ahead.

Good morning and thank you for joining us for the Safeguard Scientifics fourth quarter and full year 2012 conference call and update.

Joining me on today's call are Steve Zarrilli, Safeguard's President and Chief Executive Officer; Jeff McGroarty, Senior Vice President of Finance; and Jim Datin, Executive Vice President and Managing Director and Head of our Deal Team.

Results for the quarter and year ended December 31, 2012 were distributed earlier today. During today's call, Steve will highlight -- will review highlights of the fourth quarter and full year 2012, as well as other developments. Jeff will discuss Safeguard's financial results and strategies, then there is a new component to our quarterly calls, which includes having Jim Datin provide perspective on market opportunities and capital deployment initiatives in Safeguard's various targets. Today Jim will focus on growth stage diagnostics and healthcare IT companies. After that we will open the lines for your questions.

As always, 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 and the risks of acquisition or disposition of interest in partner companies, capital spending by customers, and the effective regulatory and economic conditions generally, as well as the development of the healthcare and technology markets, and other uncertainties that are described in our filings.

During the course of today's call words such as expect, anticipate, believe and intend will be used in our discussions of goals or events in the future. Management cannot be certain that final outcomes will be as described today. We encourage you to read Safeguard's filings with the SEC, including our form 10K, which describe in detail the risks and uncertainties associated with managing our Business. The company does not assume any obligation to update any forward-looking statements made today.

This conference call is the first call that Steve will lead as President and CEO of Safeguard since he succeeded Peter Boni on November 1, 2012. As background for any newcomers on today's call, Steve was CFO at Safeguard since June 2008 and served as interim CFO for six months during 2007.

Now I will turn the call over to Steve.

Thank you, John, and thank you all for joining us today for an update on Safeguard Scientifics and our partner Companies.

With an executive transition there is always the curiosity about the new person at the helm and where he or she will lead the Company. In addition to today's regular quarterly review, I'm going to outline how the Safeguard team intends to build upon the foundation already created. The stage is set in 2013 and beyond for increased activity on all of Safeguard strategic fronts.

We believe that we have the talent, resources and strategy to accelerate the growth of both Safeguard and our partner Companies. We are sharpening our focus on Safeguard's core business and intend to be more proactive in driving growth of our existing partner Companies.

In addition, we are targeting to deploy capital at a more aggressive and consistent pace in order to increase our roster of partner Companies to up to 25 by the end of 2013, and too realize solid risk-adjusted returns from partner Company exits at a more consistent pace, as well. Moreover, we believe that we can accomplish these goals without sacrificing Safeguard's exceptional financial strength and flexibility.

Through our disciplined approach, we expect to execute these strategies without meaningful increases in recurring operating cash flows. To achieve these goals, the Safeguard team will work to increase our stable of partner Companies and to deliver multiple exits in any given 12-month period. We anticipate that we will deploy an average of $50 million to $60 million in any given 12-month period on new opportunities, targeting cash on cash returns of a minimum of 2 times our cost.

The team and I believe that successful execution of these initiatives will drive Safeguard's deployed capital and net cash and our implied capital under management to a range of $550 million to $700 million by the end of 2015 from approximately $370 million at the beginning of this year. Those are the highlights of our core objectives going forward at Safeguard.

In 2013 we will continue to focus on our core business, to provide capital and operational support to high potential growth stage businesses in healthcare and technology. In healthcare, we target companies with lower technological and regulatory risk in medtech, which includes diagnostics and devices, health tech, also knows as healthcare IT, and specialty pharmaceuticals. In technology we pursue leading-edge companies with sustainable business models in digital media, financial technology, and enterprise 3.0, which includes mobile technology, cloud, the Internet of things, and big data.

Safeguard targets initial capital deployments between $5 million and $15 million and follow-on financings of between $5 million and $10 million, with a total size not to exceed $25 million over the lifecycle of our partnership. We are generally one of, if not the only, primary institutional shareholder in each partner company and have a strong network of syndication partners that we work with along the way.

The Safeguard deal team will continue to run hard evaluating partner company prospects. We continue to screen for opportunities where we can add value and drive growth with the goal of achieving risk-adjusted cash on cash returns at a minimum of 2 times cost over a three- to five-year period. The team funnels more than 1000 leads through a process that we believe can result in the closure on average of four to eight deals in any given 12-month period.

While focus on the core business will be paramount over the next three years, platform expansion remains an important component in Safeguard's strategy. Brian Sisko, Safeguard's Executive Vice President and Managing Director, is heading the initiative to explore ways to expand our assets under management, to augment Safeguard's capital with third-party funds raised and to partner with other alternative asset managers.

Through these efforts we seek to leverage the capital deployment and operational capabilities we have built over the years. In addition we remain an active partner with Penn Mezzanine. This separately managed platform drives asset diversification and is a solid source of interest and fee income for Safeguard.

A key gauge of Safeguard's progress is its partner companies aggregate revenue growth. In 2012, aggregate revenue for our partner companies as of December 31, 2012 was $197.3 million, up from $142.7 million in 2011. This represents a 38% increase year-over-year. We are encouraged by our partner companies steady growth and optimistic about their continued growth in 2013. As a result, our guidance for 2013 aggregate partner Company revenue for the same companies is increased to a range of $250 million to $270 million. This represents an increase of 27% to 37% between 2012 and 2013. And as a reminder, partner company revenue is reported on a one quarter lag basis.

We deployed $28.7 million, which was below our 2012 target, into for new promising partner companies in 2012, despite a sputtering economy, volatile capital markets and domestic and international and political turbulence. Our four new partner companies include digital media company Spongecell, fintech company Lumesis, enterprise software company AppFirst, and molecular diagnostics company Crescendo Bioscience. You will hear more about Crescendo later in this call from Jim Datin. Follow-on deployments in existing partner companies totaled $26.4 million.

During the fourth quarter we completed the repurchase of $47 million of our 10.125% convertible debentures due March in 2014 primarily with the proceeds from the issuance of a $55 million convertible debt issuance of 5.25% convertible debentures due May of 2018. The new instrument matures more than six years from now and carries a lower interest rate reducing corporate interest expense. The 2008 debenture is also convertible into common equity at a higher price than the 2014 debentures and also has features that preserve Safeguard 's flexibility and ability to use cash to meet the obligations instead of diluting shareholders.

With that I'll going to turn the call over to Jeff McGroarty, our Senior VP of Finance to provide us with an update on Safeguard 's financial strategies and performance.

Thanks, Steve. I'd like to review some key financial metrics for the quarter and year ended December 31, 2012.

At year-end we had $206 million in cash, cash equivalents, and marketable securities. This amount does not include $6.4 million of cash held in escrow. The total carrying value of outstanding debt was $49 million, resulting in net cash of $157 million. During the quarter, primary uses of cash were deployments of $16.5 million in new partner companies, AppFirst and Crescendo Bioscience; follow-on deployments in three existing partner companies in the quarter totaled $8.2 million; we repurchased essentially all of our 2014 convertible debentures for $58.7 million in cash, primarily using proceeds from the issuance of $55 million of 2018 convertible debentures.

For the year, in addition to the net cash outflow associated with the convertible debentures refinancing, Safeguard's primary uses of cash were -- $28.7 million deployed into four new partner companies; $26.4 million in follow-on deployments into seven existing partner companies; and $4.2 million into Penn Mezzanine loan participation. Cash used in operations was $16.5 million versus $17.7 million in 2011. For 2012 and 2011, this amount was net of $1.1 million and $0.5 million respectively in cash interest and fees related to our Penn Mezzanine loan participations. For 2012 this also included $800,000 cash paid for interest in conjunction with the repurchase of the 2014 debentures.

Based on capital deployments in 2012 and the goals that Steve outlined for 2013 and beyond, Safeguard's priorities for uses of cash remain unchanged. Capital deployment to new partner companies; follow-on funding for current partner companies and Penn Mezzanine loan participations; corporate expenses; and expansion of our platform. Our partner companies continue to execute aggressively, use their cash to grow, and make strategic and opportunistic acquisitions.

Partner company revenue growth in 2012 certainly bears this out. We worked 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 processes allows Safeguard to assist partner company management teams in unique ways to drive value creation and maturity.

Thanks, Jeff, and with that I'd like to turn the call over to Jim Datin who leads our deals teams to elaborate on developments at three of our promising partner companies within our healthcare group, Good Start Genetics, Medivo and Crescendo Bioscience. Jim.

Thanks, Steve.

As Steve mentioned, my remarks today will be on deploying growth capital into diagnostic and health tech companies. Although diagnostic testing comprises less than 10% of the total US healthcare spend, this sector drives more than 75% of healthcare decisions. As a result tremendous interest has been and continues to be focused on developing and delivering high-value diagnostic test to personalize the delivery of care and treatment, improve the efficacy and decrease the cost of medical interventions.

Safeguard has written its way through two prominent former partner companies -- Clarion, which was acquired by GE Healthcare in 2010 for $587 million, and generated the largest cash on cash return in Safeguard's history, along with Abbott Radiopharmaceuticals, which was acquired by Eli Lily in 2010 for a 3X cash-on-cash return for Safeguard, which could approach an 8X return based on achieving certain difficult revenue milestones. We see the potential for similar growth in value creating successes with our diagnostic and health tech partner companies Good Start Genetics, Medivo, and Crescendo Bioscience.

Good Start Genetics is harnessing the power and potential of next generation DNA sequencing technology through its carrier screen offering, Good Start Select, which delivers the most accurate panel to detect parents at risk for having a child with one of 23 genetic disorders recommended for screening by the American College of Obstetrics and Gynecology. Physicians can order a test encompassing the full menu of disorders or pick and choose from among the 23.

Good Start Genetics has a strong team, led by CEO Don Hardison and a differentiated product in a large addressable market. Good Start Genetics launched its test in the second quarter of 2012, which brought in approximately $6 million in net revenue and ended the year at an annualized revenue rate of nearly $14 million. The Company anticipates triple digit revenue growth and profitability in 2013. In addition, the Company is currently evaluating plans for expanding the market for Good Start Select, as well as additional product opportunities. Safeguard has a 30% primary ownership in Good Start Genetics.

Crescendo Bioscience is commercializing the first and only quantifiable multi- biomarker blood test, Vectra DA, which we believe is the most accurate way to assess disease activity in patients with rheumatoid arthritis, also known as RA. More than 1.5 million US patients and 4 million people worldwide suffer from RA with 100,000 new US patents diagnosed annually. Crescendo Sciences Vectra DA helps rheumatologists, the specialists who treat patients with RA, make more informed treatment decisions. The drugs used to treat RA are among the most costly and are associated with significant potential side effects. We believe Vectra DA will help the healthcare system manage costs, while providing better outcomes to patients. Safeguard deployed $10 million for a 13% primary ownership position.

While there continues to be rapid adoption of diagnostic test to manage disease, we still need to improve the way testing is performed. That is, we can do a better job making sure the right individuals get the right test at the right time. Medivo is as fast growing, data analytics and care management platform, facilitating interactions between patients and their physicians around diagnostic testing. Medivo's proprietary platform identifies patients who are both at risk for disease and candidates for testing. Medivo then facilitates the testing, delivers the results back to the physicians and explains the results to patients in a clear, comprehensible way.

One of the goals is to insure that patients show up for their appointment with the appropriate test results in order to increase the value of the patient physician interaction. Over time Medivo's unique position and the information flow between patient and physician will allow the Company to create value for the four Ps in the healthcare ecosystem, patient, provider, payor, and pharma. Safeguard has a 30% primary ownership stake in Medivo.

Our goals in identifying opportunities in the diagnostic space begin with finding the best technologies to fit a particular testing need. Next we build or augment the best teams to navigate any operational sales, marketing and reimbursement issues. Then we deliver the technology to the market. What begins with a single patient, a single physician, and a single effective and efficient test spreads across the healthcare ecosystem to larger patient populations.

As Safeguard identifies and supports the right partner companies, then patients, providers, payors and pharma, as well as our shareholders benefit and realize value. Safeguard's motivation in the diagnostic space remains finding opportunities to deliver value to all of these stakeholders.

Now I'll turn the call back over to Steve to lead us through the Q&A segment of the call.

Thanks, Jim, and thanks, Jeff. Operator, could you please open the phone line for questions?

(Operator Instructions)

Bob Labick, CJS Securities.

Steve, first, I wanted to say congratulations again on a well-deserved promotion.

Thank you.

I wanted to start with capital allocation. You highlighted today in the release you expect two exits in 2013. You already have a rock-solid cash-laden balance sheet. You mentioned deploying $50 million to $60 million in new opportunities plus some add-ons, but presumably after the exits or subsequent exits, you're going to reach a point of excess capital. Can you discuss your thoughts about returning capital to shareholders via share repurchase or dividends, or what your broad thinking is on that?

Sure, and Bob, you are nothing but consistent with your inquiry, there. As I've mentioned in the past, and as I continue to remain focused, I believe that one of the things that Safeguard has to initially do is demonstrate to ourselves and to our shareholders that we can be consistent with regard to the pace of capital deployed and capital retrieved. And in 2013, we have a specific set of objectives that are guiding the team in a way that will allow us to determine and to more importantly demonstrate that we are able to consistently put capital to work and retrieve capital.

As we get into that process, and convince ourselves that we are able to consistently do that, I think at that point we will have the opportunity to go back to our Board to look at our capital and liquidity, and determine ways in which we can most enhance the value to our shareholders with respect to not only operating our Business, but also looking for ways in which we may be able to provide other forms of return to those shareholders. But until we get to that point, I am very much steadfast in wanting to stay focused on execution, and keeping our balance sheet strong, so that we can be a very credible and legitimate capital provider in the marketplace.

Great, thank you very much. I have plenty of questions, but I'll hop back in queue and let others ask, and ask in a minute. Thank you.

Thank you.

Matt Dolan, ROTH Capital Partners.

Steve, two things that stuck out to us in the press release that seems new to the strategy. One is your ability to be more involved in the revenue build within your portfolio companies, and the second is the ability to tangibly predict two exits this year. Can you walk through what that involves, and why you are confident in putting that in writing?

Well, for those who have been following Safeguard for a number of years, and Matt, I know you have been one of those, you know that we have been very diligently working to develop a number of our partner companies, and many of them have started to evolve very nicely and in somewhat of a very predictable way, quite honestly. And when I look at the family of companies that we currently have today, there are a few that are getting to a point in their evolution where we are beginning to see real signs of opportunity for them to be legitimate targets of well-heeled strategic buyers looking to augment their growth objectives with tuck-in acquisitions that I think many of our partner companies would serve to, as an example of. So, when I think about those elements, I begin to get more comfortable in seeing a very distinct pattern that I think is going to be materializing over the next 12 to 36 months, not only in the deployment of capital, but also in the retrieval of capital.

Secondly, you may have heard us mention that we want to increase the number of partner companies that we manage at any given time. Those relationships are important to us. We also believe that having a greater number, somewhere in that 25 range, will add greater diversification, thus having more things in play at any given time and, therefore, being able to lend to a balance or foundation of consistency. So, as I think about exits, and I think about monetizations, that is some of the specific thoughts that go into that.

From a revenue-build perspective, it also plays on the same theme. We have companies who are maturing, and with that maturation comes a much greater level of confidence around how they will build their revenues, and how we can measure revenue growth within any given 12-month period of time.

Okay, that's great. And then secondly, did you provide any cash usage guidance this year, either deployment or -- I guess, both deployment and usage within your operations?

I will let Jeff speak to that.

We did not provide any guidance overall, other than to say that we think we will put $50 million to $60 million to work in new deployments. I think you will see the other uses of capital remain consistent with what we've done over the past year or so.

Okay. And then finally, the long-term goals targeting net cash plus deployed capital by 2015, is that a purely self-funded program, or what are your expectations in terms of capital needs in that three-year timeframe?

Yes, that number is solely self-funded, and has no -- is not impacted in any way through some of our other capital augmentation strategies.

Jim MacDonald, First Analysis.

To follow up on that last question, so then to get to $550 million to $700 million, you're expecting returns to get there, but maybe you could also comment on what size of fund you're hoping to raise, separately?

So, the answer to your first question is -- yes, we ultimately see our pathway to getting to that number through the retention of profits, as well as achieving those cash-on-cash goals that we've stated.

Jim, with respect to the second question, we are still in the process of determining, A, the source of that capital, and B, the quantity of potential LPs that may participate. What I am at liberty to say today without specifying a number is that much of our activity is actually focused on targets that are not located here in the US, but elsewhere in the world, principally in Europe.

Okay. I think maybe I'm wrong here, but your goal of a 2 times return -- is that slightly lower than before, and if so, why?

Well, it is not lower, it is a minimum of a 2 times cash-on-cash return. We look at ranges. If you look at the historic track record of this team since 2006 on an aggregate basis, all winners and losers combined, so to speak, 2 times was the number that we achieved. We target that as our minimum. We obviously look for amounts that are greater than that.

We are not necessarily, though, trying to swing for the fences on every opportunity we have. We would love to have a couple of more ABHs in the world, and for those that are new to the call, that was one where we had an outsized return at something north of 13 times. But generally speaking, if we can be realistically on a consistent basis between 2 and 5 times within three to five years, that is a really solid return, and that allows us to achieve the goals that we've outlined for ourselves.

In the quarter, you had, it looked like gains in the healthcare segment, which is compared to losses in previous quarters. Could you explain that?

Sure, and I'll let Jeff answer that question.

Sure, that relates to our holdings in NuPathe. During the quarter, we deployed $5 million in a transaction -- a private placement that NuPathe did. Our accounting method for NuPathe changed because of that. Mark-to-market on gains and losses in NuPathe stock used to go through equity, as an available-for-sale security. It is now classified as a fair value method holding for us. So, the gains and losses, and in this quarter gains, go through the P&L each period.

Okay, thanks very much. And could you tell the amount of the gain in the quarter?

Yes, it was $11 million.

Ed Woo, Ascendiant Capital.

My question in terms of your goals for two exits this year. How do you feel that, given the stock market is at relatively high levels, do you think that that is going to impact whether you would want to accelerate more exits this year?

Hi, Ed, good morning. I'm not sure if -- it would accelerate more exits, and we will always be opportunistic as it relates to monetizations in any given period of time. We obviously have a target of two this year to begin with. What we are seeing, and even though the stock market may be hitting new highs, most of the companies that would be targeting the companies that we have ownership in today are very well-heeled, multi-national type players who are most likely going to be using cash to facilitate any kind of transaction. And we actually prefer a monetization to occur with a strategic, rather than having one of our companies pursue an IPO.

Though, having said that, I don't necessarily rule out that one or two or three of our companies at some point in their evolution may use the public offering process to serve as an exit for us. But as we look at the landscape, we think it is actually very fertile for potential strategic parties to look at some of the companies that we currently have, which are out of state of maturation, and will serve for not only an interesting target from a product or services perspective, but will also augment particular revenue or growth goals that those companies may have.

Great, thank you, and good luck.

[Ryan Lynch], KBW.

Given your expectation of two exits during 2013, I was hoping you guys could give us an update on your high traction companies, how those are performing and what you expect out of them?

Yes, the companies that fall into high traction for us today are AHS, Beyond, Bridgevine and MediaMath. All of those companies are growing very nicely. They have solid management teams in place that are able to execute against the goals that they've established for themselves. These companies are, on average, expecting growth that exceeds at least 20% at the top line, with very solid EBITDA performance at the bottom line. These are the companies that you might immediately look to, to see whether or not they will pursue an activity during 2013 that may lead to a monetization opportunity.

But, as we've said in the past, and I think it is important to remind the listeners today, companies within our family can be -- find themselves the target of a strategic acquirer at any stage of their evolution. We are fond of reminding our shareholders of a company called Avid Radiopharmaceuticals, who never actually got out of the development stage, and had a phenomenal exit for us.

So, when you look across the spectrum of the companies that we currently have an interest in, yes, it is proper to probably look at some of the high-traction companies and begin to think about what their path of near-term monetization could look like. But there is also companies that are moving their way through the development stage from initial revenue or expansion stage that also present some interesting opportunities in the marketplace.

But going back to the high-traction companies, very exciting businesses in very meaningful sectors of the economy with growth rates that are continuing to provide real opportunity for them to create a multitude of alternatives for their paths going forward in the future.

Okay, thanks. And then more of a broad question -- can you describe where you guys are seeing the market opportunities in 2013? Is it more in the life sciences or technology or kind of a balance?

Jim?

It is a balance. Right now, particularly in the healthcare sector, capital has become tight. Longer regulatory timelines and a lot of the other capital providers have not had enough capital to support that. So, for Safeguard, it puts us in a great opportunity to put capital to work at attractive entry points.

That being said, strategics need to continue to fund growth, and that is going to happen primarily by M&A. They are sitting on record levels of cash. It's made it -- the buy-ins in the technology sector have been a little frothy depending on the segment. But we continue to be disciplined, getting in at the right time and the right price.

Okay, thanks. Can you guys maybe just give a little description of what you guys saw in your two new portfolio company investments you guys made in 2013?

I will start, and I'm going to let Jim provide some color commentary. One of the themes that you will see playing out for us is that there is a real opportunity to, in technology, look at both applications and infrastructure around areas of the cloud and big data. But more importantly, I also like to draw your attention to the fact that, with technology opportunities, we are finding really interesting opportunities to put capital to work in a series of tranches as a company works its way through achieving certain critical milestones.

So, albeit, we may be putting a little bit less money to work initially, one of the themes that we would really like you to stay focused on is that we are probably going to continue to fund these companies, and principally be the sole funding source for these companies, as they continue to mature over their anticipated life cycle over the next 36 to 48 months. That creates great opportunity for us to get in earlier, to help management create the pathway for growth and opportunity, and obviously, gives us a meaningful ownership position that allows us to have influence without control, and to be a real working partner with the management teams of these companies. So, that is one theme.

On the other side, with regard to healthcare, Crescendo was an opportunity where you create a company that is not only focused on providing a very important solution to the market, with regard to RA patients, but what is not necessarily evident when you look at the Crescendo business model is -- and I hate to say it in this fashion because it really means that the disease state is a chronic disease state -- but there is a recurring revenue model that is almost implied within their business methodology and business model. And that is an important element to looking at, with regard to that particular opportunity.

But with regard to healthcare, and I want to do turn it over to Jim for a few additional comments, we are seeing opportunity in a number of different ways. And one of the things that we are trying to stay focused on is what we call the plumbing, if you will -- the underlying infrastructure around healthcare IT, the way information is being gathered and disseminated, the way technology is being used in both the diagnostic processes, as well as the creation of personalized solutions for each of those patients.

And Jim?

Sure, thank you, Steve. You had asked about our new deployments in 2013. Year to date, we have two deployments we have made, Pneuron, where we put $5 million of capital to work. And consistent with Steve's comments, we believe that there will be an opportunity as they achieve milestones and grow, that we will be putting further capital to work there.

And secondly, Sotera Wireless, the healthcare company based in San Diego that can remotely monitor patient vital signs, a huge marketplace in the United States, and an unmet need. Interesting fact about Sotera, we had deployed $2.6 million of capital, but we have an opportunity with the term sheet to get that ownership up to 20%. So, there will be an opportunity to put more capital to work based on milestones and performance being met by the company.

Bob Labick, CJS Securities.

I just wanted to ask -- obviously things are going really well. You can see it in the revenue growth from last year, and the expectations for 2013. But obviously, you can't always have all winners all the time, so I was hoping you could talk about a few names that haven't gone to your initial plan? Where they stand now, and what you've done to fix and improve them, and how you really go about working with managements when things aren't exactly as you had hoped in the beginning?

Yes, thanks, Bob, for the question, and you're right, things aren't always rosy and fun at every moment of the day for us. We do have situations where a company doesn't necessarily perform as planned, and obviously, we pride ourselves on being able to bring the right type of advice and guidance, and even resources to help those companies get back on track. We also are not immune to a potential loss occasionally, where we've made the wrong decision about a company, and the company is not able to ultimately achieve the goals that it set out for itself, and we've had a few of those in our history as well.

When I look at the current group of partner companies today, there's a few that actually have -- have actually been somewhat challenged more recently, and have now begun to get back on track. And I think the one that probably comes to mind for most, and it's our largest partner company, and something that is actually somewhat outside of the direct focus that we currently have in the market, but that is PixelOptics. If you look back a year ago, Pixel had to cease some of its commercialization because they wanted to get a new product into the marketplace. The original product had some elements that didn't necessarily provide for the consistency that they thought in the market.

I'm happy to report 12 months later, the company is back on track, with generation two of the product expecting to launch in a commercialization phase in the spring of 2013. They have been actively working through an alpha and beta stage during the course of the winter, and they are very much enthusiastic about getting back into the market, both here in the US, as well as in Europe. So, Pixel is slowly but surely getting back to where we would hope it would be, and they are about 24 months behind schedule in relationship to where we had originally anticipated Pixel being.

Another one that got off to a slow start, but we think is going to gain momentum is Lumesis. And Lumesis is working through a variety of opportunities in the market. It is an exciting company, providing analytics in the municipal bond space. But probably growing a little bit slower in 2012 that we had expected. But with the right amount of emphasis by the management team, and with some Safeguard resources, Lumesis is expecting a year in 2013 that should put them back on track.

NuPathe. NuPathe was a company that if you had asked us six months ago, we were a little bit concerned here. Obviously, NuPathe had not received FDA approval. Now, we were trying to figure out how to best capitalize the company. As you may recall, NuPathe received that FDA approval in January, and is now looking to figure out what is the next chapter in its evolution, and we are excited to be a part of that.

And then if I look across the spectrum, the other company that we are -- believe will begin to regain momentum is NovaSom. And NovaSom probably disappointed itself over the last 12 to 18 months with regard to some of its revenue growth at one level. But on the other level, I think the management team is energized about the market opportunity, its opportunity in 2013. We're excited about what we can see in the market for those types of services with regard to wireless diagnostic capability in the home with regard to sleep apnea. And there is one that we continue to work with management to see how we can best help them position for enhanced revenue growth as they go forward.

Jim MacDonald, First Analysis.

I wanted to ask a couple of follow-ups on specific partner companies. I noticed that AdvantEdge has made a couple acquisitions lately. Can you talk to what their revenue run rate might be?

AHS has indicated that they should do approximately $50 million in 2013.

And I think Jim mentioned something about the Avid escrow revenue targets being difficult to achieve; any comments on that?

There were certain milestones that were attached to the Avid transaction that could vest us further capital. We don't have any further updates at this point.

Okay. And just one housekeeping issue. Did you include Crescendo's revenue in your 2012 numbers? I noticed that it is an expansion stage company, right?

Yes, we did include it. Anytime we acquire a new company, we adjust our historical revenue record and the revenue guidance so that we are comparing apples to apples. So, all periods in the guidance include Crescendo.

Okay. Thanks very much.

This concludes our question-and-answer session. I would like to turn the conference back over to Steve Zarrilli for any closing remarks.

No, we just wanted to thank everyone for joining us today. We are very excited about 2013. It is all about execution. The team and I are focused on delivering the results that we've outlined for you, and we appreciate your support, and look forward to having further dialogue as we continue the year.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.