Safeguard Scientifics, Inc. (NASDAQ:SFE) (“Safeguard” or the
“Company”) today announced financial results for the three and nine
months ended September 30, 2023.
THIRD QUARTER 2023 HIGHLIGHTS
- Financial Results
- Cash, cash equivalents and restricted cash totaled $15.7
million at September 30, 2023.
- The carrying value of the Company’s ownership interests totaled
$14.8 million at September 30, 2023. The total cost of the
Company’s ownership interests was $122.8 million.
- Net income for the three months ended September 30, 2023 was
$0.9 million, or $0.06 per basic and fully diluted share, as
compared with a net loss of $3.2 million, or $0.19 per basic and
fully diluted share, for the same period in 2022.
- Net loss for the nine months ended September 30, 2023 was $5.4
million, or $0.33 per basic and fully diluted share, as compared
with a net loss of $9.4 million, or $0.57 per basic and fully
diluted share, for the same period in 2022.
- Exits & Deployments
- Safeguard received $1.0 million of cash proceeds related to
various escrow amounts from prior transactions, primarily from the
Lumesis exit which occurred during the third quarter of 2022.
- There were no deployments during the three months ended
September 30, 2023. Safeguard’s year-to-date deployments totaled
$3.3 million, consisting primarily of the $3.0 million deployment
to Prognos as part of a financing round which included existing and
new investors during the second quarter of 2023.
- As previously disclosed, Trice Medical completed a
recapitalization transaction and capital raise in which Safeguard
declined to participate that resulted in Safeguard retaining a
small, subordinated debt position and a de minimis ownership
interest.
- InfoBionic completed a recapitalization transaction and capital
raise, in which Safeguard declined to participate, that reduced our
ownership position to approximately 5% and resulted in recording a
$1.7 million non-cash observable price change gain to reflect the
fair value of the ownership interest.
- Safeguard Company Performance
- The aggregate trailing twelve-month revenues ending June 30,
2023 for six of Safeguard’s companies, which excludes the Other
Ownership Interests, was $96 million, an increase of 10.3% from the
comparable prior period.
- Operating Costs
- General and administrative expenses totaled $1.3 million for
the quarter ended September 30, 2023 as compared to $1.4 million
for the comparable period of 2022, a 3.5% decrease. General and
administrative expenses were $3.7 million for the nine-month
periods ended September 30, 2023 and 2022.
- Safeguard’s corporate expenses1 totaled $0.9 million and $0.8
million for the quarters ended September 30, 2023 and 2022,
respectively, which represented an increase of 9.8% due to certain
professional and legal expenses. Corporate expenses were $2.4
million for the nine months ended September 30, 2023 as compared to
$2.5 million for the comparable period of 2022, a 3.2%
decrease.
- Outlook
- Safeguard filed a proxy statement related to a special meeting
of shareholders to consider approving a series of transactions
which would allow the Company to cease the registration of its
common stock with the SEC and delist its shares of common stock
from trading on The Nasdaq Stock Market LLC.
- Safeguard has determined that the costs of being a public
reporting company outweigh the benefits, and these steps are
designed to allow the Company to implement a variety of
cost-cutting measures in order to maximize the value to be returned
to shareholders upon any additional monetizations from the
remaining portfolio. Other strategic transactions could
still be considered by the Safeguard Board if and when they became
available.
- Consistent with its strategy to return value to shareholders,
Safeguard is considering declaring a dividend during the quarter
ended December 31, 2023, subject to Board
approval.
- Safeguard does not expect to make additional deployments to the
portfolio during 2023.
- Safeguard continues to estimate that the exit values from the
remaining portfolio companies, assuming normal conditions and
ordinary course exits, would range between $25 million and $45
million over the next two years.
- Safeguard will continue to closely manage corporate expenses
for the remainder of 2023. We expect corporate expenses for the
annual period of 2023 to be between $3.1 to $3.2 million, higher
than our estimate last quarter but within the range of what was
previously estimated for the year.
“We have made substantial progress preparing for the transaction
described in our proxy. As a result, we expect to achieve
substantially lower operating costs beginning in 2024 as we work to
monetize the remaining positions in our portfolio”, said Eric C.
Salzman, Chief Executive Officer.
_____________________1 Corporate expenses is a non-GAAP
financial measure, which we defined as general and administrative
expenses excluding depreciation, severance, stock-based
compensation and other non-recurring items. See full reconciliation
in the financial section of this statement.
OWNERSHIP INTERESTS AT SEPTEMBER 30, 2023
Companies |
Category |
Acquisition Year |
Primary Ownership% |
Fully Diluted Ownership%** |
Carrying Value(in millions) |
|
Cost(in millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue of $5 million to $10 million |
|
|
|
|
|
|
|
|
Moxe |
Healthcare |
2016 |
19.3% |
17.9% |
|
5.3 |
|
|
7.5 |
Revenue of $10 million to $20 million |
|
|
|
|
|
|
|
|
Clutch Holdings, Inc. |
Digital Media |
2013 |
41.7% |
33.4% |
|
1.4 |
|
|
18.3 |
InfoBionic, Inc. |
Healthcare |
2014 |
5.5% |
5.2% |
|
1.7 |
|
|
22.0 |
Syapse, Inc. |
Healthcare |
2014 |
11.0% |
9.1% |
|
- |
|
|
26.6 |
Prognos Health, Inc. |
Healthcare |
2011 |
19.4% |
17.8% |
|
5.3 |
|
|
17.6 |
Revenue of $20 million to $30 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
meQuilibrium |
Healthcare |
2015 |
30.2% |
21.1% |
|
- |
|
|
14.5 |
Other Ownership Interests |
|
|
|
|
|
|
|
|
All others |
Various |
|
|
|
|
1.1 |
|
|
16.3 |
|
|
|
|
TOTAL: |
$ |
14.8 |
|
$ |
122.8 |
** Based on information provided by each respective company.
Assumes the conversion or exercise of all currently outstanding
securities including the issuance of all shares available under
authorized employee equity programs. Does not reflect liquidation
preferences, priority payments, proceeds from option and/or warrant
exercises or other company-specific transaction-related obligations
in a liquidation or exit transaction.
CONFERENCE CALL AND WEBCAST
DETAILS
Please call 10-15 minutes prior to the call to register.
Date:
November 2, 2023
Time:
5:00 p.m. ET
Webcast:
https://www.webcast-eqs.com/register/safeguard110223/en
Live
Number: 877-407-0989
Speakers: Chief Executive Officer,
Eric C. Salzman; and Senior Vice President and Chief Financial
Officer, Mark A. Herndon
Format:
Discussion of the third quarter’s financial results followed by
Q&A
The replay will be available at Safeguard.com’s investor
relations site under “Past events”. For more information please
contact IR@safeguard.com.
About Safeguard Scientifics Historically,
Safeguard Scientifics has provided capital and relevant expertise
to fuel the growth of technology-driven businesses. Safeguard has a
distinguished track record of fostering innovation and building
market leaders that spans more than six decades. Safeguard is
currently pursuing a focused strategy to value-maximize and
monetize its ownership interests over a multi-year time frame to
drive shareholder value. For more information, please visit
www.safeguard.com.
Forward-Looking StatementsExcept for the
historical information and discussions contained herein, statements
contained in this release may constitute “forward-looking
statements” within the meaning of the federal securities laws. Our
forward-looking statements are subject to risks and uncertainties.
Forward-looking statements include, but are not limited to,
statements regarding Safeguard’s ability to maximize the value of
monetization opportunities of its ownership interests and drive
total shareholder returns, Safeguard’s initiatives, including,
without limitation, taken or contemplated to enhance and unlock
value for all of its shareholders, Safeguard’s efforts to execute
on and implement its strategy to streamline its organizational
structure, reduce its operating costs, pursue monetization
opportunities for ownership interests and maximize the return of
value to its shareholders, Safeguard’s efforts to execute on and
implement reverse and forward splits of its common stock so that
Safeguard can cease the registration of its common stock under the
Securities Exchange Act of 1934, as amended (the “Exchange Act”),
and delist its shares of common stock from trading on The Nasdaq
Stock Market LLC (collectively, the “Going Dark Transaction”),
Safeguard’s ability to create, unlock, enhance and maximize
shareholder value, the effect of Safeguard’s expected management
changes related to the Going Dark Transaction , Safeguard’s
potential declaration and payment of a dividend, the ability of the
management team to execute Safeguard’s strategy, the availability
of, the timing of, and the proceeds that may ultimately be derived
from the monetization of ownership interests, Safeguard’s
projections regarding the reduction in its ongoing operating
expenses, Safeguard’s projections regarding annualized operating
expenses and expected severance expenses, monetization
opportunities for ownership interests, and the amount of net
proceeds from the monetization of ownership interests that will
enable the return of value to Safeguard shareholders after
satisfying working capital needs and the timing of such return of
value. Such forward-looking statements are not guarantees of future
operational or financial performance and are based on current
expectations that involve a number of uncertainties, risks and
assumptions that are difficult to predict. Therefore, actual
outcomes and/or results may differ materially from those expressed
or implied by such forward-looking statements. The risks and
uncertainties that could cause actual results to differ materially
include, among others, our ability to make good decisions about the
monetization of our ownership interests for maximum value or at all
and the return of value to our shareholders, our ability to
successfully execute on our strategy to undertake the Going Dark
Transaction, the occurrence of any event, change, or other
circumstances that could give rise to the abandonment of the stock
splits or the Going Dark Transaction, the commencement of any legal
proceedings relating to the stock splits or the Going Dark
Transaction, and the outcome of any such proceedings that may be
instituted, the occurrence of any event, change, or other
circumstance that could prevent or delay Safeguard from terminating
the registration of its common stock under the Exchange Act, the
amount of the costs, fees, expenses, and charges that Safeguard may
incur in connection with the Going Dark Transaction, including as a
result of the stock splits, Safeguard’s inability to realize the
cost savings and operational benefits its expects to achieve as a
result of the Going Dark Transaction, whether our strategy will
better position us to focus our resources on the highest-return
opportunities and deliver enhanced shareholder value, the ongoing
support of our existing ownership interests, the fact that our
companies may vary from period to period, challenges to achieving
liquidity from our ownership interests, fluctuations in the market
prices of our publicly traded holdings, if any, competition, our
inability to obtain maximum value for our ownership interests, our
ability to obtain and retain management services from employees
and/or third party service providers, market valuations in sectors
in which our ownership interests operate, our inability to control
our ownership interests, our need to manage our assets to avoid
registration under the Investment Company Act of 1940, risks,
disruption, costs and uncertainty caused by or related to the
actions of activist shareholders, including that if individuals are
elected to our Board with a specific agenda, it may adversely
affect our ability to effectively implement our business strategy
and create value for our shareholders and perceived uncertainties
as to our future direction as a result of potential changes to the
composition of our Board may lead to the perception of a change in
the direction of our business, instability or a lack of continuity
that may adversely affect our business, and risks associated with
our ownership interests, including the fact that most of our
ownership interests have a limited operating history and a history
of operating losses, face intense competition and may never be
profitable, the effect of economic conditions in the business
sectors in which our companies operate, and other uncertainties
described in our filings with the Securities and Exchange
Commission. Many of these factors are beyond our ability to predict
or control. As a result of these and other factors, the Company’s
past operational and financial performance should not be relied on
as an indication of future performance. Further information on the
above risk factors and other potential factors that could affect
our future business, operating results and financial condition is
included in our Annual Report on Form 10-K for the year ended
December 31, 2022 and other periodic filings with the
Securities and Exchange Commission, including risks under the
heading “Risk Factors.” The Company does not assume any obligation
to update any forward-looking statements or other information
contained in this press release.
###
|
Safeguard Scientifics, Inc.Condensed
Consolidated Balance Sheets(in
thousands) |
|
|
|
September 30, 2023 |
|
|
December 31, 2022 |
|
Assets |
|
|
|
|
|
|
|
|
Cash, cash equivalents,
restricted cash and marketable securities |
|
$ |
15,685 |
|
|
$ |
19,312 |
|
Ownership interests |
|
|
— |
|
|
|
860 |
|
Other current assets |
|
|
593 |
|
|
|
1,251 |
|
Total current assets |
|
|
16,278 |
|
|
|
21,423 |
|
Ownership interests in and
advances |
|
|
14,839 |
|
|
|
14,545 |
|
Other assets |
|
|
1,310 |
|
|
|
1,724 |
|
Total
Assets |
|
$ |
32,427 |
|
|
$ |
37,692 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
Equity |
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
1,563 |
|
|
$ |
1,817 |
|
Total current liabilities |
|
|
1,563 |
|
|
|
1,817 |
|
Lease liability -
non-current |
|
|
888 |
|
|
|
1,249 |
|
Other long-term
liabilities |
|
|
50 |
|
|
|
50 |
|
Total equity |
|
|
29,926 |
|
|
|
34,576 |
|
Total Liabilities and
Equity |
|
$ |
32,427 |
|
|
$ |
37,692 |
|
|
Safeguard Scientifics, Inc.Condensed
Consolidated Statements of Operations(in
thousands, except per share amounts) |
|
|
|
Three Months EndedSeptember 30, |
|
|
Nine Months EndedSeptember 30, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Operating expenses |
|
$ |
1,313 |
|
|
$ |
1,360 |
|
|
$ |
3,684 |
|
|
$ |
3,740 |
|
Operating loss |
|
|
(1,313 |
) |
|
|
(1,360 |
) |
|
|
(3,684 |
) |
|
|
(3,740 |
) |
Other income (loss), net |
|
|
1,661 |
|
|
|
(1,012 |
) |
|
|
1,486 |
|
|
|
(2,979 |
) |
Interest, net |
|
|
198 |
|
|
|
230 |
|
|
|
721 |
|
|
|
476 |
|
Equity income (loss), net |
|
|
386 |
|
|
|
(1,022 |
) |
|
|
(3,937 |
) |
|
|
(3,147 |
) |
Net income (loss) before
income taxes |
|
|
932 |
|
|
|
(3,164 |
) |
|
|
(5,414 |
) |
|
|
(9,390 |
) |
Income tax benefit
(expense) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income (loss) |
|
$ |
932 |
|
|
$ |
(3,164 |
) |
|
$ |
(5,414 |
) |
|
$ |
(9,390 |
) |
Net income (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.06 |
|
|
$ |
(0.19 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.57 |
) |
Diluted |
|
$ |
0.06 |
|
|
$ |
(0.19 |
) |
|
$ |
(0.33 |
) |
|
$ |
(0.57 |
) |
Weighted average shares used
in computing income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
16,285 |
|
|
|
16,281 |
|
|
|
16,167 |
|
|
|
16,405 |
|
Diluted |
|
|
16,285 |
|
|
|
16,281 |
|
|
|
16,167 |
|
|
|
16,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Safeguard Scientifics,
Inc.
Financial Data(in
thousands)
Additional Financial Information
Non-GAAP Measures
In discussing financial results and guidance,
the Company refers to the measure "corporate expenses" which is not
in accordance with Generally Accepted Accounting Principles (GAAP).
We use this non-GAAP financial measure internally to make operating
and strategic decisions, including evaluating our overall
performance and as a factor in determining compensation for certain
employees. We have defined corporate expenses as general and
administrative costs excluding stock based compensation, severance
costs, and non-recurring items and other. Non-recurring items
and other includes accruals related to the Company's LTIP plan that
will not be paid until reaching a specified threshold within that
plan as well as costs incurred for exploring strategic
alternatives. We believe presenting this non-GAAP financial
measure provides additional information to facilitate comparison of
our historical operating costs and their trends, and provides
additional transparency on how we evaluate our cost structure. We
also believe presenting this measure allows investors to view our
performance using the same measure that we use in evaluating our
performance and trends.
Corporate expenses reconciliation:
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Corporate expenses |
|
$ |
850 |
|
|
$ |
774 |
|
|
$ |
2,371 |
|
|
$ |
2,450 |
|
Stock based compensation |
|
|
238 |
|
|
|
560 |
|
|
|
808 |
|
|
|
1,136 |
|
Non-recurring items and
other |
|
|
225 |
|
|
|
26 |
|
|
|
505 |
|
|
|
154 |
|
General and administrative
expenses |
|
$ |
1,313 |
|
|
$ |
1,360 |
|
|
$ |
3,684 |
|
|
$ |
3,740 |
|
SAFEGUARD CONTACT: Mark HerndonChief Financial
Officer(610) 975-4913mherndon@safeguard.com
Safeguard Scientifics (NASDAQ:SFE)
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