Safeguard Scientifics' (SFE) CEO Stephen Zarrilli on Q2 2014 Results - Earnings Call Transcript

| About: Safeguard Scientifics, (SFE)

Safeguard Scientifics, Inc. (NYSE:SFE)

Q2 2014 Earnings Conference Call

July 24, 2014, 09:00 AM ET

Executives

John Shave - Vice President, Business Development and Corporate Communications

Stephen Zarrilli - President and Chief Executive Officer

Jeffrey McGroarty - Senior Vice President & Chief Financial Officer

Analysts

Arnie Ursaner - CJS Securities

Greg Mason - KBW

Paul Knight - Janney Capital Markets

Bill Sutherland - Emerging Growth Equities

Ed Woo - Ascendiant Capital

Operator

Good morning, and welcome to Safeguard Scientifics' second quarter 2014 financial results conference call. (Operator Instructions) I would now like to turn the conference over to John Shave, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead.

John Shave

Good morning, and thank you for joining us for Safeguard Scientifics' second quarter 2014 conference call and webcast. On today's call are Steve Zarrilli, Safeguard's President and CEO; and Jeff McGroarty, Safeguard's Senior Vice President and Chief Financial Officer.

During today's call, Steve will review highlights of the second quarter and year-to-date 2014 as well as other developments at Safeguard and our partner companies. Jeff will then discuss Safeguard's financial results and strategies. After that, we'll open up the lines to take 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, the risks associated with our acquisition or disposition of interest in partner companies, risks associated with our decisions about the deployment of capital, and the effect of regulatory and economic conditions generally, as well as the development of the healthcare and technology markets and other uncertainties that are described in our SEC filings.

During the course of today's call, words such as except, anticipate, believe and intend will be used in our discussion of goals or events in the future. Management cannot be certain as final outcomes will be as described today. 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.

Now, here is Safeguard's President and CEO, Steve Zarrilli.

Stephen Zarrilli

Thank you, John, and thank you all for joining us for today's update on Safeguard Scientifics and our partner companies. Since the beginning of 2014, Safeguard has deployed $4 million, $5.8 million and $1.3 million into new partner companies, InfoBionic, Syapse, and Trice Medical respectively, which totals $11.1 million.

In the cases of InfoBionic and Trice, Safeguard tranched its capital deployments, and expects to deploy an additional $4 million and $3.8 million respectively, by the end of 2014, contingent upon their respective FDA approvals. In total, for 2014, we expect to deploy between $40 million to $55 million into new partner companies, and believe we are on track to achieve this goal.

Since the beginning of 2014, Safeguard has also deployed $23.1 million in follow-on financings into current partner companies. We expect to deploy a total of approximately $40 million in follow-on funding during 2014. We realized $81.3 million in cash proceeds from our interest in formal partner companies: Alverix, Crescendo and NuPathe and Sotera.

We facilitated the merger of partner company Bridgevine with Acceller, which is expected to improve operating margins. The combined company is expected to generate more than $50 million in annual revenue, and we repurchased 1.2 million shares of our common stock for $25 million.

We are encourage by the solid performance and continued growth of Safeguard's partner companies. Our momentum remains strong and opportunities are bound for additional M&A and value creation in the future.

Thanks to our strategic focus and disciplined execution, Safeguard's deal pipeline remains strong. We continue to remain focused on deploying capital into healthcare and technology companies. Thus far this year, we have reviewed and evaluated more than 400 new deal opportunities and have closed three, bringing our partner company roster to 21.

Evaluation parameters continue to be driven up by aggressive competition with an abundance of capital, particularly in our healthcare IT vertical. With those sectors in mind, we expect to add a total of five to six new partner companies in 2014.

We have remained disciplined in our approach and methods of deploying capital and realizing solid cash-on-cash returns. Our commitment to this focus remains the cornerstone in Safeguard's value-creation methodologies and a key driver to serving all of our mutual interest going forward.

As we stated previously, a Safeguard partner company could be involved in a strategic or financial exit transaction at any time in its development. We've categorized Safeguard's partner companies in four stages, based on revenue generation and operational, financial and organizational maturity.

A quick review for those of you who are new to our call, development stages for pre-revenue businesses that are improving their technology through prototype development or beta product versions. Today, we have two development-stage companies InfoBionic and Trice Medical. Initial revenue stage is made up of businesses that are building corporate infrastructure and management teams. They are beginning to penetrate target markets and have revenues of $5 million or less. Currently, there are nine partner companies in this category.

Our expansion stages comprise of companies that have characteristics of commercial grade solutions, growing market penetration, complete infrastructure and management teams, and revenue in the range of $5 million to $20 million. Currently there are four partner companies in this category.

And then, finally, high-traction stage companies are characterized by rapid growth, significant commercial success and revenue in excess of $20 million per year. Currently, there are six partner companies in this category. We believe this composition of assets within these stages, as defined, represents a balanced approach to asset diversification.

We are also fairly evenly balanced with respect to the blend of healthcare and technology companies. As of June 30, 2014, we had 11 technology companies, representing $105.4 million of capital deployed; and nine healthcare companies, comprising $95.7 of capital deployed.

During the second quarter of 2014, one of the more significant developments amongst our high-traction partner companies was Bridgevine's merger with Acceller. Both companies are strong competitors in the customer acquisition and retention sector with a solid roster of enterprise customers, including Comcast, AT&T, Time Warner Cable, Constellation Energy and DIRECTV. We believe this transaction works well on several levels.

Financially, the new Bridgevine is expected to generate annual revenue in excess of $50 million. Before the merger, Bridgevine was expecting revenue of $30 million in 2014.

Strategically, this deal represents an important step forward for the merged companies. Bridgevine is combining its advanced technology platform with Acceller's growing base of enterprise customers.

This not only diversifies the customer base, but is also expected to improve operating margins by $5 million to $6 million in the first year, through a combination of operating efficiencies and revenue synergies. In addition, Bridgevine will increase its residential offerings with energy, home security and warranty services.

Next is MediaMath. The largest of Safeguard's partner companies by several measures in MediaMath, and this New York City-based digital marketing technology pioneer continues to merit our attention.

During the second quarter, MediaMath was very active in the capital markets. The company completed a $73.5 million Series C equity financing and with Safeguard deployed $7 million. In addition, MediaMath increased its debt facility to $105 million with Silicon Valley Bank.

Proceeds from these transactions will be used to accelerate the company's international growth and to enhance its product portfolio, particularly mobile offerings, which comprise 10% to 20% of MediaMath's revenue. Workflow applications and data management enhancements also are planned. Ultimately, MediaMath intends to allow third parties to build products on top of this platform.

Since 2009, Safeguard has deployed $25.5 million of capital in MediaMath. In conjunction with the most recent financing, Safeguard's ownership in MediaMath decreased from 22.5% to 20.6%. As a result of the decrease in our proportionate ownership, Safeguard recognized an unrealized book gain of $7 million.

During the second quarter, MediaMath acquired Tactads, a French firm that has developed cookieless and cross-device targeting technology. This move recognizes the rapid migration to mobile media from a fixed desktop device.

In fact, mobile subscribers worldwide are expected to increase to 3.9 billion by 2017. With nearly half of that total concentrated in the Asia-Pacific region, according to a recent data collected by GSMA, the international association of mobile operators.

These usage trends are driving MediaMath's focus on international expansion, which was illustrated during the quarter by the recent opening of Singapore office; and its new partnership with South Korea's Cheil Worldwide, the world's 16th largest ad agency.

MediaMath and Cheil launched Korea's first agency trading desk featuring a Terminal One user interface and training modules in the local language and currency. The company's robust growth, financial transactions and sector-leading technology are also attracting attention from Wall Street.

It is indisputable that MediaMath continues to execute well and is growing rapidly. Its future is bright as is Safeguard's outlook for the value creation from a strong group of growth-stage partner companies.

With that, I'm going to stop now and give it over to Jeff, who will focus on our financial performance and ongoing goals.

Jeffrey McGroarty

Thanks, Steve. Let's begin with the review of key financial metrics for the second quarter. At June 30, 2014, Safeguard's cash, cash equivalents and marketable securities totaled $198.4 million. The total carrying value of our outstanding debt was $50 million, resulting in net cash, cash equivalents and marketable securities of $148.4 million.

During the second quarter, primary uses of cash were: capital deployment of $5.8 million in new partner company Syapse; follow-on deployments of $21.2 million in eight partner companies; cash used in operations of $5 million, including interest payments of $1.4 million and repurchases of company common stock of $17 million.

In February 2014, Safeguard's Board of Directors approved an increase in the company's share repurchase program bringing the total authorizations to $25 million.

Year-to-date, Safeguard has repurchased 1,194,313 shares for a total cost of $25 million and has exhausted our share repurchase authorization. We continually assess our cash position and consider opportunities to repurchase shares or debt, when we have excess cash based on parameters established with our Board. We do not expect to have significant excess cash until we have additional successful access of partner companies.

As of June 30, 2014, our roster of partner companies is totaled 20. The aggregate cost of our interest in these companies was $201.1 million. The carrying value of those partner companies was $131.5 million.

Safeguard's financial strength, flexibility and liquidity are evidenced on this slide showing the company's balance sheet at June 30, 2014.

Safeguard Scientifics reiterates that partner company aggregate revenue in 2014 is projected to be between $345 million and $365 million. Aggregate revenue guidance for the same partner companies in 2013 and 2012 was $284 million and $201million, respectively.

Now, here is Steve to lead us through the question-and-answer segment of the call.

Stephen Zarrilli

Operator, let's open the phones for any questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Robert Labick from CJS Securities.

Arnie Ursaner - CJS Securities

It's actually going to be Arnie Ursaner backing up Bob. A quick question on NovaSom. It was recently written up in The New York Times showing a better sleep-test. Can you update us on that company? Perhaps refresh the business model for us and plans you may have for that in the future on how they kind of make money and how it can add to your portfolio value?

Stephen Zarrilli

The business strategy for NovaSom hasn't really changed all that dramatically over the course of the last three years that we've had an ownership interest in NovaSom. We did bring in a new management team about some time a year ago, maybe a little longer than that. And they have been working very diligently to stay focus in getting the adoption rate of NovaSom's device in the market to increase.

So the revenue model is consistent with the original thesis. What we're working really hard to do is to see whether or not we can get insurers to further encourage doctors to use an as-effective or even more effective device than home sleep-labs at a price that is argued to be at least a third of that cost of home, of a sleep-lab cost and work to get market penetration.

The thesis is quite simple. We want to grow revenue, and ultimately to position the company for a potential transaction, where a strategic acquirer would find real value, both in its revenue and its product offering.

Arnie Ursaner - CJS Securities

My final question is on MediaMath. You obviously covered a lot of the growth initiatives and what they're doing, but more specifically they indicated they plan to add 1,000 employees, taking 105,000 square feet at 4 World Trade Center. They opened an office in Paris this morning. Do you care to comment on any of those observations?

Stephen Zarrilli

No. I mean they have been very open with some of their growth initiatives. Actually in recent conversations with Joe, just to put the employee headcount matter in perspective, he actually has hired 100 people just since the beginning of the year. So you're right, they are on a growth trajectory. It's very exciting. We're proud to be a part of it. We're supporting them both with capital and expertise. We have a phenomenal partnership with Joe, and are an active participant in helping him and his team thinks we're the future of MediaMath.

Operator

Our next question comes from the line of Greg Mason from KBW.

Greg Mason - KBW

First on the MediaMath. Can you kind of walk through why you record a $7 million unrealized gain with this equity raise, capital raise?

Stephen Zarrilli

I would love to. But I'm going to like Jeff fill this question.

Jeffrey McGroarty

Sure. These types of gains have existed in the past that used to be referred to as gains under Staff Accounting Bulletin 84. We used to have this with [ph] Clarium in the old days when they were a public company and our ownership interest in them could change. And at the time, we used to make an election to take those gains directly to equity rather than through earnings.

But the accounting requirements changed in 2008 with an EITF number 0-86 that came out and said for those types of change in interest gains and losses that might arise on equity method investments, there is no longer option to take it either to equity or to income, it has to go through the income statement.

So we have been doing that since last EITF became effective. And as it results from the fact that we were diluted, so the accounting is treated as if we effectively sold a portion of our share in the company. And the math works in that, the value per share at which MediaMath issued their new shares is far in excess of what at the time carrying value per share in MediaMath was, so that's what generated the $7 million unrealized book gain.

Greg Mason - KBW

So is there way you can kind of triangulate this gain and to an implied sale value of the equity raise of MediaMath?

Jeffrey McGroarty

I don't know if there is a way I can do that for you, but I think with the results the MediaMath has put out there, they publicly announced that the valuation of their most recent raise is at about $600 million.

Operator

Our next question comes from the line Paul Knight from Janney Capital Markets.

Paul Knight - Janney Capital Markets

Could you talk about the investment climate for your life science investments? I mean if our valuation is kind of prohibitive or do you see the window being so wide open as you have a little more lead way in that market right now?

Stephen Zarrilli

I don't think it's gotten anymore challenging. I think there is competition. Valuations, Paul, are firm. I mean there are some real interesting perspectives on value. Obviously, it benefits us from our current holdings and probably make sure we have to be very diligent in the deployment of new capital.

I will point out that for the first three companies that we have deployed capital in this year, referred as a new partner companies, all three of them are healthcare related companies. We've also tranched capital into those companies as a way to ensure that we're managing our risk. But we looked at over 400 opportunities in the first six months of the year and that's pretty evenly weighted between healthcare and technology.

It is competitive. We pursued six other opportunities during the year and lost. And we pulled out of those primarily because we couldn't get comfortable with either valuation or governance and I just think that that goes to show that discipline is core to our thesis here.

We believe that we're going to be well on track to put the capital to work that we spoke about a few minutes ago with the number of companies that we've spoken about as well.

So it's a competitive marketplace, valuations are firm. I don't think that they are overly nutty, I think the pullback in the market recently or at least some of the turbulence that we've seen in the market has actually kind of leveled the playing field again. Any strong movement in trying to rise quickly upward I think has been pulled back a little bit, both in with respect to healthcare and technology.

So I'm not nervous about it. I think the team is doing a phenomenal job in getting to the heart of what we think we can do and what we can't. We do believe that as you would expect, our success in the future is all about the value that we get into a company today and we're very diligent about how we go about that process.

Paul Knight - Janney Capital Markets

And then, Steve, lastly, any update on Putney.

Stephen Zarrilli

Yes. Putney continues to growth. They are on track to reflect some solid growth in 2014. Their pipeline of opportunity of products that can be brought to the market continues to not only gain strength, but continues to actually grow in number. Jean Hoffman is very focused on not only generating revenue for the business, but she recognizes that the value of that company is going to be two-fold; one, on revenue growth and the sustainability of that revenue growth; and two, on the quality of the pipeline that she and her team are putting together.

So we expect some good things as we near the end of the year with regard to some product launches, which will set the stage for even a stronger 2015, and 2014 is going to be strong, so I don't want them in anyway to finish what they're accomplishing this year. And we're very bullish about Putney. I think the discipline that they've been focused on with regard to getting products through the review by the FDA, I think its part of their secret sauce and I think they are doing a phenomenal job with it.

Operator

Our next question comes from the line of Bill Sutherland from Emerging Growth Equities.

Bill Sutherland - Emerging Growth Equities

Steve, I'm curious, based on Good Start's planning, if there appears to be a likelihood of additional financing in near future, in immediate future.

Stephen Zarrilli

Good Start is thinking about a number of different things. They clearly want to stay ahead of the competition with regard to the product offerings. At our most recent board meeting, they did talk about what the capital needs of the company would look like and how could that potentially be solved. If they chose to do something outside of an IPO, we would seriously give consideration to participating.

I think our exposure in Good Start is reasonable and measured. We think the world of the team, both the CEO and CFO have had their finger on the pulse on this business in a substantial way and we're very encouraged in the way that they are managing the business, not only from a revenue development perspective, but also from a cost management perspective.

Don Hardison is very aware of needing to stay a step ahead of the competition. They're looking at ancillary markets where they can also be an early leader in certain areas of the marketplace. So I think you'll see greater clarity, Bill, as we get through the next quarter or two as to what Don and his team are going to want to do as it relates to capital and growth initiatives.

And as they're doing that, the company continues to grow, grows nicely, and is not burning cash on an unusual level. In fact, I think from an EBITDA perspective, they're close to being breakeven.

Bill Sutherland - Emerging Growth Equities

And then just doing a few back-of-the-envelope calcs, it looks like you're sitting on some potentially big exits. Obviously that could generate aggregate gains well in excess of your current NOLs. So I'm just thinking as you guys look out on the horizon, how you're thinking about tax planning as the NOLs begin to get utilized fully?

Stephen Zarrilli

Let Jeff address that.

Jeffrey McGroarty

Sure, Bill. Just to give you some background, our tax NOLs at the end of 2013 were $224 million. We've had some excess since then. But our pro forma balance at the end of this year, assuming no further excess, would still be in excess of $200 million. Our average NOL balance for the past five years has been about $243 million. So the good news is we're trending in the right direction. We're utilizing some of those NOLs, but we still have a fairly substantial amount of NOLs.

In addition to the NOLs, we have additional tax assets, which have been written-off for book purposes, but not for tax, which approximates $50 million. So that will also be available to offset future gains. But if we are successful, capital gains on the sale of our existing partner companies could utilize the existing NOLs, but operating losses would continue to occur during that period. But we are exploring alternative strategies and structures that fit with our business model, with the goal of maximizing after-tax returns to shareholders and ultimately maximizing shareholder value.

Bill Sutherland - Emerging Growth Equities

Is there any details at this point that you can discuss publicly or is it still too premature?

Jeffrey McGroarty

I'd say it is too early to say anything more detailed in this setting.

Bill Sutherland - Emerging Growth Equities

Jeff, well I had just a housekeeping question on MediaMath. So with the additional investment you've just made, what's the carrying value roughly at this point?

Jeffrey McGroarty

The carrying value is $21.9 million, and is reflective of not only the cash in, but that $7 million book gain.

Operator

Our next question comes from the line of Ed Woo from Ascendiant Capital.

Ed Woo - Ascendiant Capital

I just had a quick housekeeping question. You said that five to six new companies in 2014, does that include the investments you already made?

Stephen Zarrilli

Yes. And it's so five to six including the three that have closed thus far this year.

Ed Woo - Ascendiant Capital

And do you have any guidance for how many potential exists you may have this year?

Stephen Zarrilli

Well, we've had three thus far. Actually technically, four, if you count Alverix, so depending on where you view Alverix and that mix, you could either look at it as a late '13 or an early '14, but we've had three thus far, and that's Crescendo, NuPathe and Sotera. I don't expect quite honestly any exits between now and the end of December.

But that doesn't mean that there might not be something that pops. We have an interesting collection of partner companies and they're all gaining or garnishing attention in a variety of different ways. So I'll never say, never. But I think we are well-prepared to set an interesting stage for 2015.

Ed Woo - Ascendiant Capital

And my last question is you just mentioned about current value-ish markets out there for healthcare companies. What about for technology companies?

Stephen Zarrilli

Yes. Technology, again, I'll speak to the earnings that we focused on. Obviously, enterprise applications and infrastructure, some of the digital media assets and advertising technologies and e-commerce place that we're looking at, as well as financial services IT.

We're seeing great opportunity. Valuations are not scaring us away from these opportunities, where we do find values a little bit on the high-end. Keep in mind, our structures of these deals incorporate the use, where appropriate of participating preferred instruments that allow us to manage through any valuation, new launches that may creep into the conversations. We've been disciplined, both on the healthcare and technology side. And some of those companies that we turned away from were technology companies this year, where we couldn't get comfortable with the valuations.

We are, as you can see, on occasion doing a couple of earlier-stage opportunities, where we could be viewed as kind of the Series A player. But that's done intentionally, because we do believe that we are running into opportunities, where we can get in early, maintain an ownership position that's meaningful, and ultimately see a very attractive asset within that period of time that we target, which is generally in that four to five year period of time.

Operator

Our next question is a follow-up from Greg Mason from KBW.

Greg Mason - KBW

Jeff, one follow-up question on the tax losses. You talked about you generate additional [just] net operating losses from the portfolio each year. Kind of just rough ballpark, what would that be on an annualized basis?

Jeffrey McGroarty

It's not actually from the partner companies. The operating losses that I referred to, means the corporate operating expenses that we generate. For tax purposes, we do not recognize the benefit of the equity losses that we pick up for book purposes. So the amounts I was referring to are more the corporate expenses that range $16 million to $17 million a year.

Greg Mason - KBW

And then, to follow-up also on NovaSom, you added $1 million in a debt piece. Can you talk about why you went the debt investment route versus additional equity?

Jeffrey McGroarty

It was just the structure that we thought would work appropriately at this given time. If there is a future equity raise at some point, we'll convert that debt into equity, if the terms are appropriate. So it's all about managing risk and preserving capital.

Greg Mason - KBW

And on Lumesis, you talk about that the advisors have increased to 3,000 since the new SEC time of approval trade disclosure, if I remember right, that happened in early March. So am I thinking about that right, you went essentially from 5,000 advisors to 30,000 advisors since the beginning of March? And can you talk about what that means for the business?

Jeffrey McGroarty

You are thinking about those numbers correctly. And I think what you should take from that data is that they are starting to get the traction that we were anticipating, and we're expecting growth to continue to be strong and potentially even accelerate, as they move forward.

Greg Mason - KBW

And then, one last question, can you just give us some more detail on your new portfolio, Trice Medical, just kind of what the business is? Why did you like it? What the kind of origination process was like for that investment?

Stephen Zarrilli

So Trice is actually something that is similar in some of its dynamics to InfoBionic. If you remember with InfoBionic, here is a company which is InfoBionic like Trice, both companies are seeking to get approval for a device that will provide doctors with the ability to perform certain procedures or provide certain diagnostic capability without having to involve a third party, which then reduces the revenue that the doctor can keep.

So in InfoBionic's case, the focus is around heart arrhythmia; and in Trice's case, the focus is on being able to take this device and scope a knee or a shoulder, initially to determine extent of injury; sometimes avoiding the entire MRI process, which is outside of the doctor's revenue flow, and therefore providing greater enhancements to their own financial ability. So both of those models from that perspective are very interesting to us, and we think it's actually the beginning of a trend in a number of areas of medical devices that we think we're going to see, as the market continues to evolve.

Trice was sourced locally. Actually, a former advisor to Safeguard and a successful entrepreneur and CEO, Jeff O'Donnell, brought Trice to us, over the last three years, since selling a company called Embrella, prior to a commercialization, successful transaction, Jeff joined a health-tech oriented fund called BioStar.

BioStar had invested in Trice. They also participated in this recent mount, but Jeff really felt compelled about Trice's future and really wanted to step-out of the role of a partner of a small fund into an operating role again, and we're thrilled to know that he is going to be leading the charge here for Trice. So Trice is a local company in the Philadelphia area, and we think it has great opportunity.

Operator

Our next question is another follow-up from the line of Robert Labick from CJS Securities.

Arnie Ursaner - CJS Securities

It's actually Arnie Ursaner, again, for Bob. Going back to your hit ratio, you mentioned you hope to close five or six deals after looking at 400 this year. Maybe you could spend an extra minute or so discussing the diligence process, the pipeline, how many of those 400 are dismissed almost immediately, and how many of them go through an extensive diligence process? And when it doesn't move forward, what are the reasons that it tends to not move forward?

Stephen Zarrilli

Arnie, it appears, as we sit right now, we're seeing somewhere between a 150 to 200 opportunities every quarter. And you're right, a lot of those come in and we can quickly determine, if they meet our criteria for deployment, either they're not in the right segment, they're too early or too late, valuation, expectations we recognize early on are not going to be bridged.

One of the things as a footnote to that comment, one of the things that we've working really hard on accomplishing is not following something down the raffle, as I'm fond of saying, so that we don't spend months chasing an opportunity and then come up empty handed. So we've gotten much better as a team in assessing quickly, whether or not we think we've got something that we're going to want to pursue.

So when you take those numbers and you extend them out for a course of the year, you're looking at somewhere between 600 to 800 opportunities. And we think that that's right from the standpoint, we're going to close on 1% to 1.5% of those opportunities a year.

So valuation gets discussed early on; governance gets discussed early on; the ability to penetrate the market quickly and the amount of future capital, is part of the equation that we look at. So we're going through a number of different things each quarter. But on average we're probably spending time on 20 to 25 per quarter in a really deep dive kind of scenario. So you take that 150 to 200, and you quickly whittle it down to 20, 25, maybe 30 on the high-end each quarter.

And then the teams are doing diligent. We're spending a little bit of time, energy and effort, going a little bit deeper. Spending more time with the management teams, maybe even using some outside advisors or experts to help us frame the marketplace and ensure that our thesis is in-line with what the realities of the market are. And then you whittle that down and we're trying to execute two or three term sheets a quarter.

Some times we get a little more than that and some times a few less, but that's on average of what we're seeing in the pace of our activity. That model will over time increase, right. So as we get more capital, as we retain some of these profits and build the platform out a bit more, we maybe seeing 200 to 250 a quarter. We'll have a few extra investment professionals to help us evaluate those opportunities, and then the numbers just scale along that ladder that I described.

Operator

There are no further questions in the queue, at this time. I will turn the call back over to the presenters.

Stephen Zarrilli

Thank you. And before we close, I just wanted to remind everyone that we have our Annual Investor Day, which will take place on Wednesday, October 15, at the New York Stock Exchange, starting at 8:00 AM. We issued an advisory press release earlier this week, which I encourage you to read for more event details, along with the registration information.

So with that, I'd like to say, thank you. And thanks for your interest in Safeguard. Have a great day.

Operator

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect.

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