Safeguard Scientifics Inc (SFE) 2021 Q1 法說會逐字稿

Ladies and gentlemen, thank you for dialing in to today's Safeguard Scientifics' First Quarter 2021 Financial Results Call. My name is Abby, and I'll be coordinating your call today. (Operator Instructions) I would now like to hand over to Matt Barnard, General Counsel, to begin. Matt, please go ahead.

Good afternoon, and thank you for joining us for this presentation of Safeguard Scientific's first quarter 2021 financial results. Joining me on today's call and webcast are Eric Salzman, Safeguard's Chief Executive Officer; and Mark Herndon, Safeguard's Chief Financial Officer. During today's call, Eric will provide some corporate and strategic updates, and Mark will discuss our results. Afterwards, we open the call to your questions.

Today's presentation includes forward-looking statements, and those statements are subject to risks and uncertainties. The risks and uncertainties that could cause actual results to differ materially include, among others, our ability to make the decisions about the monetization of our ownership interest for maximum value overall and the return of value to our shareholders; the ongoing support of our existing ownership interest; the fact that ownership interest may vary from period to period; challenges to achieving liquidity from our ownership interest; fluctuations in the market prices of any publicly traded ownership interest; competition; our ability to attract and retain qualified employees; market valuations in sectors in which our ownership companies operate; our inability to control our ownership interest; our need to manage assets to avoid registration under the Investment Company Act of 1940; and risks associated with our ownership interest, including the fact that most of our ownership interests have a limited history and history of operating losses, face intense competition and may never be profitable; the effective economic conditions in the business sectors in which our ownership interest operate, including impact of COVID-19; and other uncertainties described in our filings with the SEC. Many of these factors are beyond our ability to predict or control. As a result of these and other factors, our past financial performance should not be relied on as indication of future performance.

During the course of today's call, words such as expect, anticipate, believe and intend will be in our discussion of goals or events in the future. Management cannot provide any assurance that future results will be as described in our forward-looking statements. We encourage you to read Safeguard's filings with the SEC including our Form 10-K, 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.

I would now like to introduce Eric.

Thanks, Matt, and thanks for joining us this evening. As we discussed on prior calls, Safeguard's primary strategy is to maximize the exit values of our ownership interest and return capital to our shareholders. Since our last call, we have exited 3 companies: Zipnosis and T-REX, both of which closed in Q1; and Velano, which closed early in Q2. These 3 transactions generated $25 million in consideration to Safeguard, consisting of $9.7 million of cash and an equity stake in Bright Health, which we value at $15.3 million. Combined with our Sonobi exit in Q3 of last year and our WebLinc and QuanticMind exits in Q1 of this year, we have generated total consideration of $35 million, of which $20 million was cash proceeds.

We also continue to reduce Safeguard's cash corporate expenses and the follow-on capital needs of our remaining portfolio. Taken together, these efforts have allowed us to reduce our targeted liquidity threshold from $20 million to $18 million and announced a $6 million stock buyback via 10b5-1 plan. While modest in size, we view both the asset sales and the stock buyback as continued evidence of progress on our strategy. We expect additional asset sale activity in the second half of 2021 and will look to return cash as we exceed the $18 million liquidity threshold.

Our core portfolio now consists of 11 minority equity interests, plus our new stake in Bright Health. This is a substantial reduction from a couple of years ago, and we believe these core positions will drive attractive returns for our shareholders over the near and medium term. We continue to work closely with the management and Boards of these 11 companies to drive operational and financial performance and help position them for exits.

As you know, we try to provide Safeguard shareholders with as much visibility into portfolio developments and exit activities as is prudent without negatively impacting our companies or any processes underway. For example, Zipnosis was the unnamed company we highlighted on prior earnings calls that had commenced the sales process. As you saw from our press release last month, the sales process culminated in the sale of Zipnosis and our receipt of cash in an equity stake in Bright Health. We're excited to be a shareholder of Bright Health, a national integrated health care platform offering diversified health products and managed care services to customers. The company has a world-class management team, and we have high hopes for its continued growth and success.

We'd like to provide an update on other M&A activity in the portfolio, acknowledging the risks and uncertainty around any one situation. On our last call, we mentioned that one of our companies had launched the sales process. That process continues, and we are cautiously optimistic about its prospects. In addition, 3 of our other companies are in early discussions with investment bankers to explore strategic options. While none of them have launched a formal sales process, we will keep you updated as these situations develop.

Clearly, the macro backdrop of strong economic growth, robust M&A activity and record high stock market valuations create positive tailwinds for our companies, which mostly operate in high-growth markets. From a 60,000-foot level, you might conclude that given this backdrop, we should be forcing every company to immediately hire investment bankers and sell themselves. While we appreciate this point of view, every company has its own specific value creation road map and every situation is different.

For instance, one company may need to post a couple of quarters of strong post COVID-19 revenue growth before exploring exit. Another company may be in the midst of securing or renewing a credit facility. Another may have a new commercial relationship that has yet to ramp. Another may be looking to hit certain revenue or EBITDA levels in order to maximize exit multiples. Another may choose to raise a large growth equity round instead of selling as the investors believe it could become the category leader in its space. We are actively involved in every situation with the goal of driving operational execution and exploring the best strategic options. We are balancing speed to exit with value maximization.

As we've done in prior quarters, I'll now provide some brief Q1 highlights for our companies. I'll start with ad tech. Online advertising continues to enjoy strong post-pandemic tailwinds from growth in digital marketing and secular changes across the media landscape, especially related to Connected TV, e-commerce and data-driven marketing. Yet ad tech remains a complex industry and ecosystem as evidenced by recent developments relating to cookies, potential new regulations, legal challenges and emerging disruptive technologies.

Having said that, public and private markets have embraced leading players from a valuation perspective. In Q1, there were 7 ad tech deals valued at over $1 billion and public company valuations and multiples have continued to expand. So what does that mean for Safeguard's interest in MediaMath and Flashtalking? Both MediaMath and Flashtalking have scale in our major players in their areas.

For MediaMath, The company has significantly enhanced its product portfolio, its leadership team and improved its cost structure to best take advantage of its market position. The company is in the process of optimizing its debt facility to support this transformation. Flashtalking executed extremely well through the pandemic and continues to gain share and consolidate its leading position with Fortune 500 global brands in 2021.

Our single MarTech exposure company is Clutch. Clutch signed a partnership deal with Fiserv, launched this hospitality partnership with [MCR], and we expect growth in bookings throughout 2021 as its target markets, mostly retail and hospitality, recover from COVID-19.

Turning now to health care. Aktana had strong Q1 bookings, which points cautiously to a rebound as pharma reps begin returning to the field in a post COVID-19 world. Momentum is improving but has not yet returned to 2019 levels. Prognos is performing ahead of plan to establish an extended partnership with Datavant and rolled out new data partners and features on its platform. Syapse raised $68 million in new equity and expanded its strategic collaboration with Pfizer focusing on real-world evidence. Moxe is experiencing accelerated revenue and transaction growth and closed 2 new national payers. meQuilibrium had its second best booking quarter ever, up 5x year-on-year, driven in part by its first major health plan accounts serving insured members.

InfoBionic closed a $9 million debt financing, is ramping its Mayo Clinic partnership and signed up a second independent diagnostic testing facility, or IDTF, customer. Trice closed the financing consisting of existing investors and third-party debt to finance the acquisition of Tenex Health. This acquisition expands its total addressable market that adds management talent and grows Trice's revenue and path to profitability. Safeguard participated in the financing round.

On the fintech front, Lumesis muni market is slowly improving post COVID-19. The company closed a number of deals in the quarter, and it is a stable performer.

Taken together, we are seeing post COVID-19 improvements across the portfolio at varying degrees but must remind you that risks still exist given the size and nature of our companies.

With that, I'd like to turn the call over to Mark.

Thanks, Eric. For the quarter ended March 31, 2021, Safeguard's net income was $17.6 million or $0.84 per share compared with a net loss of $16 million or $0.77 per share for the same period of 2020. This quarter's net income was positively impacted by the Zipnosis transaction that Eric addressed, which resulted in a gain of $17 million, as well as the $7.3 million dilution gain at Syapse that we also referenced in our year-end call.

As you may recall, 2020 is a net loss, including a variety of impairments totaling $11.3 million and a severance charge of $1.7 million. Safeguard's cash, cash equivalents and restricted cash at March 31, 2021 totaled $21.8 million, and we have no debt obligations. Subsequent to the quarter, we also received an additional $3.4 million of cash resulting from the completion of Velano Vascular's acquisition. Taken together with the reduction of our liquidity threshold from $20 million to $18 million, this allowed us to announce a $6 million stock buyback.

Our general and administrative expenses were $2.5 million for the 3 months ended March 31, 2021, which was lower than the $3.5 million reported in the comparable first quarter of 2020 due primarily to the lower severance expenses of $0.8 million as compared to 2020. Corporate expenses for the first quarter, which represent general and administrative expenses, excluding stock-based compensation, severance expenses and other nonrecurring and other items, were $1.2 million as compared to $1.5 million in the comparable quarter of 2020, an 18% decline. On a sequential basis, our quarterly corporate expenses were essentially flat at $1.2 million. However, we expect their downward trend to continue during the remainder of 2021.

With respect to both general and administrative costs and the corporate expense amounts, we have continued to reduce the cash-based employee compensation costs, professional fees and office costs, partially offset by higher insurance expenses. The corporate expense measure continues to benefit from director fees being paid in equity, a significant portion of management's compensation being paid in equity and this quarter's additional severance actions that have further reduced our base payroll level expected for the remainder of 2021.

I'd also like to note that the corporate expense measure excludes an accrual which is set aside for the transaction bonus plan, commonly referred to as the LTIP, which is included as a component of general and administrative expenses. There have been no payments made under the LTIP since we began accruing in 2019. However, we expect that will change as we have exceeded an initial threshold in this first quarter. which will result in a $0.4 million payment in the second quarter. We have also estimated that additional layers will be met over the next year and have accordingly presented the aggregate liability of $2 million to the current liability. The LTIP payments will continue to be expected to be funded by the proceeds of exit transactions.

At our 2021 corporate expenses, we expect that they will continue to decline and will be at or below our initial target of $4.4 million to $4.9 million as compared to the $5.2 million we reported for 2020.

With respect to our ownership interest at March 31, 2021. We have an aggregate carrying value of $62.6 million as compared to $50.4 million at December 31, 2020 last year. The increase this quarter is the result of the additional Bright Health position, initially valued at 5 -- $15.3 million, as well as the $7.3 million dilution gain recorded at Syapse. These increases were offset by the typical decreases that we've discussed before, resulting from the application of equity method accounting as well as the exit of Zipnosis, T-REX and WebLinc that removed caring value.

And as a reminder, our carrying value of ownership interest, where we apply the equity method of accounting, is a GAAP term, where we typically reduce the carrying value for our share of the losses in the underlying company, and it generally does not represent the fair value or an expected exit value of those same ownership interests. If the fair value of any one of our ownership interest declines below our carrying value, we would consider making a downward adjustment to the carrying value by recording an impairment.

We also have a few ownership interests that are accounted for under the other method, including our new position in Bright Health, which can have upward or downward adjustments from time to time resulting from observable price changes if there are transactions in their securities. These observable price changes are recorded as gains or losses and other income loss net.

The first quarter of 2021's other income included a gain resulting from the secondary sale of our ownership interest in T-REX Group, which resulted in $3 million of cash proceeds, and the resulting gain was $0.7 million as compared to the prior year's first quarter, which included a variety of noncash impairments totaling $5.1 million and the $1.5 million noncash gain for an observable price change at Flashtalking. The gain reported with respect to the Zipnosis transaction this quarter is a result of the combined benefit from the $3.3 million of cash received, our estimate of the fair value of Bright Health securities received of $15.3 million, less our carrying value at the transaction date. Note that as is the case -- as is typical in M&A transactions, we may receive additional modest amounts of cash over the next year as various escrow amounts are resolved.

Our share of the losses of our equity method ownership interest for the 3 months ended March 31, 2021 was $4.5 million as compared to $2.8 million for the comparable period in 2020. The quarter's increase in loss is primarily the result of a nonrecurring income item at one of our companies that occurred in the prior year. For the remainder of the equity entities, our share of their results was relatively consistent.

The first quarter's overall equity income or loss also included the $7.3 million dilution gain related to Syapse raising equity during the quarter, which we discussed earlier and in our year-end call. I'd also like to remind everyone that we report our share of the losses from the equity method companies on a 1 quarter lag. So this quarter's share of losses reflect the fourth quarter calendar period. Many of our companies saw the initial impact from COVID-19 during the later stages of the first quarter of 2020. Their results for the remainder of the year reflected full quarters of operations in that environment. We've also seen and expect to see again in later quarters from time to time benefits to our companies resulting from the PPP loan programs.

Also with respect to our ownership interest, we can update you to the total third-party debt at those 11 companies that we discussed previously. That amount has increased to about $345 million since our year-end disclosure of about $325 million. This is the result of a few companies obtaining additional financing to fund their growth, principally InfoBionic and Trice, which Eric mentioned earlier.

For cash, the amount held by these companies increased from nearly $95 million to about $140 million, driven by the debt raises in the Syapse equity raise and the collective -- net of the collective cash burn across the group. Note that we have excluded from the year-end values previously disclosed [the amounts related] to Zipnosis, which is now excluded from the group due to the exit. And they did not have a meaningful effect on the net debt total.

In terms of revenue performance. We had mentioned our expectation for an aggregate of 15% to 20% for the calendar 2021 year in terms of growth. As I'm sure many of you noticed, in our release, we reported an 8% decrease in our trailing 12-month disclosure for revenue. However, I should note that the trailing 12 months amount in the release is on a 1-quarter lag. And accordingly, that, that disclosure was for the calendar 2020 year. That decline was a result of a few different events, including COVID headwinds throughout 2020 for companies with retail or elective medical customers, company-specific issues, company-specific revenue increase in the fourth quarter of 2019 that did not recur in the fourth quarter of 2020.

So as a result, you may continue to see that weakness in the trailing 12-month disclosure in upcoming quarters. However, we continue to expect that our calendar 2021 results for this group of companies will result in 15% to 20% revenue growth. I can also say that 10 out of 11 companies that have already preliminarily reported to us a higher Q1 2021 revenue than in Q1 2020.

I'll pause here now. It's time for us to turn to the Q&A segment of the call. So operator, if you could open up the -- provide the instructions for answering -- or for asking questions.

(Operator Instructions)

And as she's lining up those questions, I'll also just mention, too, we hope this shift to an afternoon announcement has helped us reach more of our shareholders on a live basis. We have received some feedback that this timing might be more conducive to our West Coast shareholders. So we're going to give that a shot. As always, we want to continue to look for additional ways to provide you with information and interact with you and just support you in your evaluation of Safeguard's investment opportunity.

So our first question comes from [Ross Delom] from (inaudible).

So quickly on MediaMath. Clearly, we sold the peak of our interest a few years ago. Since that time, has that company gone through a bit of a turnaround? And would you describe it as coming out the other side at this point?

Ross, thanks for the question. So we did sell a piece of our stake, it was almost half of our stake, back to the company back in -- I think it was the summer of 2018 as part of capital raise that MediaMath had done at that time. The company -- you are correct. The company has been going through a transformation over, let's say, the last 18 months or so. That includes new senior management team. You may have seen some announcements even as recent as this quarter as they continue to add senior talent. They also addressed certain product asset they felt they had in the marketplace. And they've rolled those out or are in the process of rolling those out.

And of probably significant note, they took the opportunity during COVID to take significant fixed costs out of their business, mostly comp and benefits. So they brought down their revenue breakeven level significantly. And as ad spend growth returns and as their revenues grow, there will not be a sort of corresponding addback of that head count. So they brought there sort of -- a much more attractive operating leverage and margin profile for that company. So as I indicated earlier, and I think on last quarter's call, we view sort of the second half of 2021 being a critical period for MediaMath to post that accelerating revenue growth and margin expansions.

Okay. That's helpful. And then for this new Bright Health holding, that actually looks like a pretty big gain, a pretty good deal. But how do you value the $15 million that we're carrying it at? Is that a -- what's that sort of based on? And how might that change over time?

Sure. I'll answer that. First off, let's talk about the valuation methodology. So we go through a pretty detailed process to evaluate using a number of different factors. That would include evaluating past rounds that other investors have invested in the company. We look at comparable market company projections of their results and projections of, of course, what we think eventually will happen with it. And we use, I'll call it, traditional valuation techniques in terms of discounting and weighting these different methods together. So -- and obviously, we'll go over that. We follow the regulatory guidelines about how to value the companies, and we would go over that in detail internally.

So it's a comprehensive process. Once we came up with that point specific amount that we recorded this quarter, it essentially stays put. We're not -- this is not something that we would expect that would change period to period, except for a few circumstances. Those circumstances would be like the other items that we talked about that are subject to the other -- the observable price change, right? So if the company...

Is there anything publicly announced around when they might do something with that company that would shine a sort of a market light on what that actual value might be?

Yes. We've heard rumors and we've seen press reports, but that's something that we don't have specific information about.

Okay. And then lastly, just -- lastly, just on the buyback of $6 million. Is that something you would anticipate growing over the course of '21 as more cash comes in? Or do you have a view on that?

Yes. I mean our model there really hasn't changed much, right? So we have this targeted liquidity threshold, right? That's $18 million. And so anytime that we have exits and cash that are going to be over that amount, we need to make a decision about what to do with that cash, right? And then that's going to be -- the model is to evaluate the opportunity for a buyback or providing that cash directly back to shareholders via dividend.

I'll add just one more. Yes, [Ross], I'll just add one more on the stock buyback. I think we called it out. So in Q3, we reduced the liquidity threshold from -- of 25 to 20 and then this quarter, we reduced it to 18. And that sort of is our, if you will, mass cash, if you think about it from the standpoint of -- that we'll carry. And then cash above that, we will aggressively look to return to shareholders, whether that, as Mark said, through stock buybacks, tender offers or dividends, and we'll evaluate that. So we're -- we are focused and committed to generating additional cash (inaudible) so we can return cash to shareholders.

Our next question is from Jason Stankowski from Clayton Partners.

Can you hear me?

Yes.

Yes. So maybe I'll just walk down and walk down the press release a little bit and maybe relatively quickly. I could get back in the queue if I get too long in the tooth. But the buyback and the 10b5, I'd just say thanks a lot, and I think it's a great idea and happy to see you guys proactively do that here in a time where we have a window of opportunity to do it.

On the -- you already explained the mechanics of the $15.3 million on the Bright Health. Can you maybe just give more context to it? Like as you go through your process, is that the number that you thought you were getting in value in the deal? Is it slightly less? Is it a lot less? Just conceptually, how do you think about -- understanding you have to go through these mechanics of the valuation and all those things. But if that's all you get in the end, are you happy with that? That's sort of the benefit of the bargain? Or was it, in your mind's eye, higher and this is an appropriate discount given the minority nature you hold and you're expecting more? Some context around that would be helpful.

Yes. I can maybe start, Jason. So as Mark alluded to, the valuation that we came up with factors in both kind of loss around value, roll forward, public comps and some present value of what we think we'll exit at in some sort of combination and methodology. So I think, as shareholders, first of all, we were very supportive of the transaction, which resulted in us getting the $3.3 million of cash in the Bright Health stock. So we are definitionally constructive and bullish on the company or we wouldn't have supported taking equity in Bright House. I think the valuation -- to try to more directly answer your question, the valuation reflects our own internal valuation methodology that we've developed internally. We share with our auditors, Grant Thornton, and it reflects a combination of, let's call it, last round public comps at a discount, discounted exit value.

So it's hard to say that if -- we're constructive on the company, we believe that they're playing a -- they're in a very disruptive space as the insurtech industry, and we'll see how they develop. We believe they have a top-tier management team, we're bullish on their prospects. I think that's as far as I would sort of -- the context I would put. And frankly, I know there are -- I know that there's interest in the secondary market for equity in Bright Health. We've heard that from different -- from different places. So I think it is a company that has great prospects, and as an equity holder, we're supportive of the business and its trajectory.

I don't know, Mark, if there's anything you want to add to that.

Yes. I mean I think one other just sort of fundamental thing that we would always think about is when you think about whatever value we've ascribed to it now versus -- think about it, it's just the same as you would any other investment, right? It's what we -- it's our view of the fair value. So -- and if we were making an investment on this day, we obviously have an expectation that it would go up.

I mean we've talked about our model being -- exit values are typically higher. Our expected exit value is typically higher than what we think fair value is because there's a risk and time to get there to that point. This is one of the investments that is -- certainly is subject to change and a lot of judgment that goes into it. But fundamentally, yes, we continue to be optimistic about the company and are happy to be shareholders in that large organization.

Right. You're happy enough to be -- to have $15 million in stock and a little -- I guess, I think that, that has been some more upside relative to just taking $18.6 million in cash, if you could have done that.

Okay. On the T-REX and WebLinc, the kind of the mixture of those two in the next bullet point. You had already talked about the WebLinc exit, right? So basically, T-REX is -- was not talked about before, and that's new data point with $3 million associated with that because WebLinc was [$6.2 million], right?

Yes, that's right. That's right. WebLinc, we call that at the year-end as a subsequent event. So it gets a little confusing when we talk about the quarter cutoff versus what we know about in the call. So it's the same thing with Velano right? So Velano is excluded from our results this quarter, but we've included it here because we thought it was meaningful enough to tell everybody that we got another $3 million of cash.

Yes, yes. No, I got it. Just wanted to make sure I was just aggregating the WebLinc and T-REX thing correctly based on what had already been disclosed. That's helpful.

Yes, you are.

And I think you went into a little bit the 10 out of 11 being -- companies being up. When you get into the company performance, will we be able to see some of the -- you kind of go through some median and averages because just saying the total is down 8 doesn't really help us that much. But the context of the 10 of 11 being up quarter -- year-over-year in the quarter was -- is super helpful. And just because you have such a couple of big guys moving the numbers around it, it doesn't help us really understand the path of the rest of the other 9 or so.

Yes. I get that. I'll give you a little extra because it's hit a couple of different pieces over the course of the year. And let me separate 2 topics for you. So one the 8% decline is that trailing 12-month measurement. So it's calendar 2020 compared to calendar 2019, right? So during that time period, you had the -- this impact of 2020, right, the year that everyone will remember, right? And so that hit some companies harder than others, right? So the companies that are retail focusing with elective medical procedures, so some of those hit pretty well.

We've talked about for multiple quarters some of the company-specific performance in the ad tech space has been negative. So that definitely is an impact there. And then with the other piece and the one company that had the kind of the onetime positive [event] back in 2019, Q4 2019, that impact is just kind of rolling through that 12-month comparison. So it just makes it for -- they had a big benefit at that point in time, so it makes the comparables harder. So that's a bit of an impact, and that's in the health care space.

So now the 2021 quarter, the 10 out of 11 is just this first quarter. So we've gotten some preliminary reports of, the 10 out of 11 across the board, they're up. And so there's more to happen and the comparables will be probably beneficial and easier on a go-forward basis. But I mean a lot more of the year to see how it plays out. But that's where we're starting. So that's right, encouraging.

Okay. That's helpful. And the Q and the presentation should be out end of the day tomorrow is your thinking?

Yes, that would be the expectation, yes.

Okay. And then great job on the operating costs. It's great to see that continue to come in. Appreciate the guidance on it continuing to trend lower. And then I guess, the last one, plus a little one. The Syapse going backwards in the year, is that a function of kind of the onetime medical thing look back? Or I know they changed the business model. And clearly, someone decided to put $68 million, so they're not expecting a negative path going forward. But it's just surprising to see that size of an investment with -- I wouldn't have expected that investment to be one of the ones that's going -- slipping backwards for us. Is there any context you can put on that? Is it the revamping of the business model? Or...

Yes. Yes. It's -- I would characterize that as the onetime event that we talked about in 2018.

Okay. Okay. So they had a regular kind of plus in the '19 quarter so...

Yes. Blip, yes.

Yes, blip. Okay. Positive blip. All right. And then lastly, can you -- just wondering who you guys are using for the buyback.

Yes, we'll be using Stifel.

Stifel. Great. Okay. Good job. Keep up the good work. Oh, and then last, I'll leave you with this. You guys have been -- and I missed the first couple of minutes of the call for -- I had a wrong number. But did you talk at all about -- you obviously had 1 of the 2 exits that you thought were imminent at least in the near term. Is the second one still on track? And any thoughts around timing, third quarter, fourth quarter?

Yes. So we -- so on our last call, you're right, we said there was one company that we were cautiously optimistic about where it was, and that was the Zipnosis deal. And then we mentioned in the last quarter that there was another company that had just begun a process. So that was 2 months ago, that call. The company is progressing in its sales process, as you would expect. And I wouldn't give a timing guidance on when that could close or would close. But we remain optimistic of that process, but it is early because it's only been probably less than 60 days.

Okay. So do you get insight into that process that would make you less or more encouraged along the way? Or are you just going to kind of wake up and find out what happened like the rest of us?

No, no. We -- yes, we're on -- we get regular updates. We know what's happening. We speak to management team. We speak to the different advisers involved. I think, as you know, even in this robust M&A environment, deals are -- deals can be precarious. Nothing is done until it's done. And this is at the beginning of the process. So we don't want to get ahead of our skis on it. We will update you kind of as appropriate as it relates to where this -- where the process is at our quarterly calls. So...

Okay. And nothing to update on any new companies entering the process at this point in time?

What we mentioned -- we mentioned that there were 3 other companies that we're having preliminary conversations with investment bankers about strategic options. We said that none of them have formally launched the process but they're having those conversations now. That is -- again, we're very active in those discussions at a Board level with the management teams.

Our next question comes from [Lee Yao Perth] from [Hammock Investments].

I may have missed this. But on Bright Health, will you be locked in at all once they go public?

Yes. It's a good question. Mark, do you want to [kick off] -- go ahead.

Yes, either way. Yes, so we hold a preferred interest and what is typical in those arrangements and -- is that if they were to have some type of event, liquidity event, we could be locked in for a period of time. So that would be, I would call it, the normal course.

Have you already -- I'm not asking you to disclose it, but have you already worked out those terms with them? Or is it to be worked out?

So the preferred security has standard kind of lockup provisions that we're a party to that agreement. So we would live by whatever provisions are in that. But a lot of times, things change between that point in time and if there were to be a transaction. But I think you can assume that we would be treated -- if there were to be an IPO of that company, we would be treated like any other kind of institutional preferred investors from that perspective.

(Operator Instructions) It looks like we don't have any further questions. So if I hand back over to the management team for any closing remarks.

Sure. Thank you. Thanks for joining us on the call today. Thank you for your continued interest in Safeguard. And we'll be following up for kind of one-on-one calls over the next week or so. So if you're interested, please reach out to us, and we look forward to continuing the dialogue with you. Have a good evening.

This concludes today's call. Thank you for joining. You may now disconnect your lines.