Safeguard Scientifics, Inc. (NASDAQ:SFE) (“Safeguard” or the
“Company”) today announced financial results for the three and six
months ended June 30, 2023.
SECOND QUARTER 2023 HIGHLIGHTS
- Financial Results
- Cash, cash equivalents and restricted cash totaled $15.1
million at June 30, 2023.
- The carrying value of the Company’s ownership interests totaled
$13.0 million at June 30, 2023. The total cost of the Company’s
ownership interests was $138.4 million.
- Net loss for the three months ended June 30, 2023 was $2.9
million, or $0.18 per share, as compared with a net income of $0.5
million, or $0.03 per share, for the same period in 2022.
- Net loss for the six months ended June 30, 2023 was $6.3
million, or $0.39 per share, as compared with a net loss of $6.2
million, or $0.38 per share, for the same period in 2022.
- Exits & Deployments
- Safeguard deployed $3.0 million to Prognos as part of a
financing round consisting of existing and new investors.
- Safeguard received $0.4 million of cash proceeds from the
secondary sale of a subordinated promissory note issued by Aktana.
In a separate transaction, Aktana completed a recapitalization
transaction in which Safeguard declined to participate resulting in
Safeguard having no remaining material ownership position in
Aktana.
- Subsequent to the quarter, Trice Medical completed a
recapitalization transaction in which Safeguard declined to
participate that resulted in Safeguard retaining a small,
subordinated debt position and a di minimis ownership
interest.
- Safeguard Company Performance
- The aggregate trailing twelve-month revenues ending March 31,
2023 for six of Safeguard’s companies, which excludes the Other
Ownership Interests, was $95 million, an increase of 12.8% from the
comparable prior period.
- Operating Costs
- General and administrative expenses totaled $1.2 million for
the quarter ended June 30, 2023 as compared to $1.1 million for the
comparable period of 2022, a 3.5% increase. General and
administrative expenses were $2.4 million for the six-month periods
ended June 30, 2023 and 2022.
- Safeguard also continued to lower its corporate expenses,1
which totaled $0.7 million for the quarter ended June 30, 2023, as
compared to $0.8 million for the comparable period of 2022, a
decrease of 12.2%. Corporate expenses were $1.5 million for the six
months ended June 30, 2023 as compared to $1.7 million for the
comparable period of 2022.
- Outlook
- Safeguard is no longer in discussions regarding a potential
strategic transaction with the counterparty it disclosed last
quarter due to, among other things, certain valuation, tax and
structural issues that were fundamental to the transaction. While
other strategic transactions could still be considered, Safeguard
is currently planning to return excess cash to shareholders in Q4
2023.
- Excess cash represents cash on hand less the amounts required
to be retained to support the operations of the Company, satisfy
its liabilities and pay one-time costs incurred as a result of
pursuing this strategy. While subject to change, and assuming a
substantial reduction in operational costs as noted below, the
excess cash is currently estimated to be approximately half of our
cash balance in Q4 2023.
- In addition, in order to substantially reduce its ongoing
operating costs, Safeguard is exploring delisting from Nasdaq and
becoming a non-reporting company, which would be subject to
shareholder approval.
- Safeguard estimates 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’s year to date follow on deployments in the
portfolio totals $3.3 million and we do not expect to make
additional deployments to the portfolio.
- Safeguard will continue to closely manage corporate expenses
for the remainder of 2023. We expect to be below $3.0 million, the
low end of the range previously estimated for the year.
“While we are disappointed that our strategic process did not
result in a transaction, we are working diligently on a plan to
return excess cash to our shareholders in Q4 2023, materially
reduce our ongoing operating costs, and allow the remaining
portfolio companies to exit over the next two years,” said Eric C.
Salzman, Chief Executive Officer.
__________________1 Corporate expenses are 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 JUNE 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% |
18.0% |
|
5.8 |
|
|
7.5 |
Revenue of $10 million to $20 million |
|
|
|
|
|
|
|
|
Clutch Holdings, Inc. |
Digital Media |
2013 |
41.7% |
33.3% |
|
1.5 |
|
|
18.3 |
InfoBionic, Inc. |
Healthcare |
2014 |
25.2% |
22.1% |
|
- |
|
|
22.0 |
Syapse, Inc. |
Healthcare |
2014 |
11.0% |
8.8% |
|
- |
|
|
26.6 |
Prognos Health, Inc. + |
Healthcare |
2011 |
19.4% |
17.8% |
|
4.5 |
|
|
17.6 |
Revenue of $20 million to $30 million |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
meQuilibrium ++ |
Healthcare |
2015 |
31.3% |
21.1% |
|
- |
|
|
14.5 |
Trice Medical, Inc. * |
Healthcare |
2014 |
11.6% |
8.7% |
|
- |
|
|
12.2 |
Other Ownership Interests |
|
|
|
|
|
|
|
|
All others |
Various |
|
|
|
|
1.2 |
|
|
19.7 |
|
|
|
|
TOTAL: |
$ |
13.0 |
|
$ |
138.4 |
* Subsequent to the quarter, Trice Medical completed a
recapitalization transaction resulting in Safeguard retaining a
small subordinated debt position and a di minimis ownership
interest.
+ Company dropped into a lower revenue category this
quarter.
++ Company progressed into a higher revenue category this
quarter.
** 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:
August 10, 2023
Time:
5:00 p.m. ET
Webcast:
https://www.webcast-eqs.com/register/safeguardscientific081023/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 second 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 ability to create, unlock,
enhance and maximize shareholder value, the effect of Safeguard’s
management succession plan on driving increased organizational
effectiveness and efficiencies, 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 streamline our organizational structure and align our
cost structure to increase shareholder value, 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 attract and retain qualified
employees, 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 CONTACT: Mark HerndonChief Financial
Officer(610) 975-4913mherndon@safeguard.com
|
Safeguard Scientifics, Inc.Condensed
Consolidated Balance Sheets(in
thousands) |
|
|
|
June 30, 2023 |
|
|
December 31, 2022 |
|
Assets |
|
|
|
|
|
|
|
|
Cash, cash equivalents,
restricted cash and marketable securities |
|
$ |
15,112 |
|
|
$ |
19,312 |
|
Ownership interests |
|
|
— |
|
|
|
860 |
|
Other current assets |
|
|
1,615 |
|
|
|
1,251 |
|
Total current assets |
|
|
16,727 |
|
|
|
21,423 |
|
Ownership interests in and
advances |
|
|
12,972 |
|
|
|
14,545 |
|
Other assets |
|
|
1,383 |
|
|
|
1,724 |
|
Total
Assets |
|
$ |
31,082 |
|
|
$ |
37,692 |
|
|
|
|
|
|
|
|
|
|
Liabilities and
Equity |
|
|
|
|
|
|
|
|
Other current liabilities |
|
$ |
1,256 |
|
|
$ |
1,817 |
|
Total current liabilities |
|
|
1,256 |
|
|
|
1,817 |
|
Lease liability -
non-current |
|
|
1,013 |
|
|
|
1,249 |
|
Other long-term
liabilities |
|
|
50 |
|
|
|
50 |
|
Total equity |
|
|
28,763 |
|
|
|
34,576 |
|
Total Liabilities and
Equity |
|
$ |
31,082 |
|
|
$ |
37,692 |
|
|
Safeguard Scientifics, Inc.Condensed
Consolidated Statements of Operations(in
thousands, except per share amounts) |
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Operating expenses |
|
$ |
1,186 |
|
|
$ |
1,146 |
|
|
$ |
2,371 |
|
|
$ |
2,380 |
|
Operating loss |
|
|
(1,186 |
) |
|
|
(1,146 |
) |
|
|
(2,371 |
) |
|
|
(2,380 |
) |
Other income (loss), net |
|
|
(166 |
) |
|
|
30 |
|
|
|
(175 |
) |
|
|
(1,967 |
) |
Interest, net |
|
|
249 |
|
|
|
145 |
|
|
|
523 |
|
|
|
246 |
|
Equity income (loss), net |
|
|
(1,759 |
) |
|
|
1,454 |
|
|
|
(4,323 |
) |
|
|
(2,125 |
) |
Net income (loss) before
income taxes |
|
|
(2,862 |
) |
|
|
483 |
|
|
|
(6,346 |
) |
|
|
(6,226 |
) |
Income tax benefit
(expense) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net income (loss) |
|
$ |
(2,862 |
) |
|
$ |
483 |
|
|
$ |
(6,346 |
) |
|
$ |
(6,226 |
) |
Net income (loss) per
share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.18 |
) |
|
$ |
0.03 |
|
|
$ |
(0.39 |
) |
|
$ |
(0.38 |
) |
Diluted |
|
$ |
(0.18 |
) |
|
$ |
0.03 |
|
|
$ |
(0.39 |
) |
|
$ |
(0.38 |
) |
Weighted average shares used
in computing income (loss) per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
16,143 |
|
|
|
16,356 |
|
|
|
16,108 |
|
|
|
16,468 |
|
Diluted |
|
|
16,143 |
|
|
|
16,356 |
|
|
|
16,108 |
|
|
|
16,468 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
|
Six Months Ended |
|
|
|
June 30, |
|
|
June 30, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
Corporate expenses |
|
$ |
730 |
|
|
$ |
831 |
|
|
$ |
1,521 |
|
|
$ |
1,676 |
|
Stock based compensation |
|
|
278 |
|
|
|
262 |
|
|
|
570 |
|
|
|
576 |
|
Non-recurring items and
other |
|
|
178 |
|
|
|
53 |
|
|
|
280 |
|
|
|
128 |
|
General and administrative
expenses |
|
$ |
1,186 |
|
|
$ |
1,146 |
|
|
$ |
2,371 |
|
|
$ |
2,380 |
|
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