Safeguard Scientifics Announces Third Quarter 2021 Financial Results

Rhea-AI Summary

Safeguard Scientifics (NYSE:SFE) completed a $39 million self-tender offer, repurchasing 4.3 million shares at $9.00 each. The company reported a net income of $18.3 million ($0.88 per share) for Q3 2021, a significant turnaround from a net loss of $4.3 million in Q3 2020. However, trailing twelve-month revenues decreased by 11% to $245 million. Cash and equivalents stood at $64.2 million, while the carrying value of ownership interests was $36.3 million. Looking forward, Safeguard has deployed $2.7 million year-to-date and expects no significant deployments for the remainder of 2021.

Positive

• Net income of $18.3 million for Q3 2021 compared to a net loss of $4.3 million in Q3 2020.
• Successfully completed a self-tender offer, returning capital to shareholders.

Negative

• Trailing twelve-month revenues decreased by 11% to $245 million.
• Unrealized decline of $11.9 million in fair value of Bright Health common stock.

Successful Completion of $39mm Self-tender Offer

Conference call and webcast on November 4, 2021 at 5 p.m. ET

RADNOR, Pa., Nov. 04, 2021 (GLOBE NEWSWIRE) -- Safeguard Scientifics, Inc. (NYSE:SFE) (“Safeguard” or the “Company”) today announced financial results for the three and nine months ended September 30, 2021.

HIGHLIGHTS

• Capital Return
  • On October 7, 2021, Safeguard completed a modified Dutch auction self-tender that resulted in the repurchase of 4.3 million shares of its common stock at a cost of $9.00 per share or a total of $38.7 million.

• Exits & Deployments
  • Flashtalking was acquired by Mediaocean resulting in $44.8 million of cash proceeds upon the closing. As a result of this exit, Safeguard reported a gain of $32.3 million.
  • Safeguard funded $1.7 million to Aktana as part of a larger financing.

• Safeguard Company Performance
  
  • During the third quarter, Safeguard’s 1.3 million shares of Bright Health common stock experienced an unrealized decline in their fair value of $11.9 million. Based on the closing price as of September 30, 2021, the fair value of Safeguard’s Bright Health common stock was $10.8 million.
  • Trice Medical raised growth equity capital from a strategic investor, Bioventus, and all outstanding stockholder convertible loans and interest were converted into equity. As a result of this transaction, Safeguard’s primary ownership interest in Trice was reduced to 12.6% and a $2.0 million dilution gain was recorded.
  • The aggregate trailing twelve-month revenues ending June 30, 2021 for Safeguard’s ten companies, which excludes Flashtalking, Bright Health and Other Ownership Interests, was $245 million, down 11% from the comparable prior period.

• Financial Results
  • Cash, cash equivalents and restricted cash totaled $64.2 million at September 30, 2021.
  • The carrying value of the Company’s ownership interests totaled $36.3 million at September 30, 2021, which includes the Bright Health common stock noted above. The total cost of the ownership interests was $155.8 million.
  • Net income for the three months ended September 30, 2021 was $18.3 million, or $0.88 per share, as compared with a net loss of $4.3 million, or $0.21 per share, for the same period in 2020.

• Operating Costs
  • Safeguard continued to reduce its operating costs in 2021.   General and administrative expenses totaled $1.6 million for the third quarter of 2021 as compared to $2.3 million for the comparable period of 2020.
  • Safeguard also continued to lower its corporate expenses,¹ which totaled $0.9 million for the third quarter of 2021, as compared to $1.3 million for the comparable period of 2020, a 32% decline.
    
    
• Outlook
  
  • Year to date, Safeguard has deployed $2.7 million to our companies. We do not expect material deployments for the remainder of 2021.

“The completion of our self-tender was a milestone event for Safeguard and represented a substantial return of capital to our shareholders,” said Eric C. Salzman, Chief Executive Officer. “We remain optimistic about our remaining portfolio of companies and continue to work with our management teams to create value and drive additional monetization opportunities.”

OWNERSHIP INTERESTS AT SEPTEMBER 30, 2021

Companies		Category	Acquisition Year	Primary Ownership%		Fully Diluted Ownership%**		Carrying Value (in millions)			Cost (in millions)
	Initial Revenue Stage: Up to $1 million
None
	Revenue of $1 million to $5 million
Moxe Health Corporation		Healthcare	2016	27.6	%	25.8	%	$	4.3		$	7.5
	Revenue of $5 million to $10 million
Lumesis, Inc.		Financial Services	2012	43.2	%	43.4	%		1.4			5.6
	Revenue of $10 million to $20 million
Clutch Holdings, Inc.+		Digital Media	2013	41.7	%	33.0	%		4.4			16.9
InfoBionic, Inc.		Healthcare	2014	25.2	%	22.1	%		-			22.0
meQuilibrium		Healthcare	2015	31.9	%	23.1	%		2.5			14.0
Syapse, Inc.++		Healthcare	2014	11.1	%	8.9	%		5.6			25.0
Trice Medical, Inc.+		Healthcare	2014	12.6	%	10.7	%		2.5			11.8
	Revenue of $20 million to $50 million
Aktana, Inc.		Healthcare	2016	15.0	%	11.6	%		0.8			15.9
Prognos Health, Inc.		Healthcare	2011	28.5	%	24.5	%		3.1			12.6
	Greater than $50 million in revenue
MediaMath, Inc.		Digital Media	2009	13.2	%	10.1	%		-			15.5
	Other Ownership Interests
Bright Health Group		Healthcare	2021						10.8			-
All others		Various							0.9			9.0
						TOTAL:		$	36.3		$	155.8

+ Company progressed into higher revenue stage this quarter.
++ Company dropped into a lower revenue stage 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:		November 4, 2021
Time:		5 p.m. ET
Webcast:		https://events.q4inc.com/attendee/688077299
Live Number:		844-200-6205
Access Code:		552674
Speakers:		Chief Executive Officer, Eric C. Salzman; and Senior Vice President and Chief Financial Officer, Mark A. Herndon
Format:		Discussion of the quarter’s financial results followed by Q&A

The replay will be available by telephone (866-813-9403; access code 457186) through November 11, 2021. The webcast replay will be available for 90 days 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 Statements
Except for the historical information and discussions contained herein, statements contained in this release may constitute “forward-looking statements.” 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 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, 2020 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 Herndon
Chief Financial Officer
(610) 975-4913
mherndon@safeguard.com 

Safeguard Scientifics, Inc.
Condensed Consolidated Balance Sheets
(in thousands)

	September 30, 2021				December 31, 2020
Assets
Cash, cash equivalents and restricted cash	$	64,236			$	15,601
Ownership interests		10,792				—
Other current assets		1,343				462
Total current assets		76,371				16,063
Ownership interests in and advances		25,492				50,398
Other assets		1,855				2,574
Total Assets	$	103,718			$	69,035
Liabilities and Equity
Other current liabilities	$	3,899			$	3,470
Total current liabilities		3,899				3,470
Lease liability - non-current		1,776				2,053
Other long-term liabilities		50				637
Total equity		97,993				62,875
Total Liabilities and Equity	$	103,718			$	69,035

Safeguard Scientifics, Inc.
Condensed Consolidated Statements of Operations
(in thousands, except per share amounts)

	Three Months Ended								Nine Months Ended
	September 30,								September 30,
	2021				2020				2021				2020
Operating expenses	$	1,564			$	2,275			$	6,018			$	7,835
Operating loss		(1,564	)			(2,275	)			(6,018	)			(7,835	)
Other income (loss), net		20,588				(820	)			28,027				(7,045	)
Interest, net		70				52				197				209
Equity income (loss), net		(761	)			(1,300	)			13,432				(15,591	)
Net income (loss) before income taxes		18,333				(4,343	)			35,638				(30,262	)
Income tax benefit (expense)		—				—				—				—
Net income (loss)	$	18,333			$	(4,343	)		$	35,638			$	(30,262	)
Net income (loss) per share:
Basic	$	0.88			$	(0.21	)		$	1.71			$	(1.46	)
Diluted	$	0.88			$	(0.21	)		$	1.71			$	(1.46	)
Weighted average shares used in computing income (loss) per share:
Basic		20,786				20,786				20,847				20,731
Diluted		20,786				20,786				20,847				20,731

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. 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,
	2021				2020				2021				2020
Corporate expenses	$	885			$	1,302			$	3,040			$	3,997
Stock based compensation		484				452				1,469				979
Severance costs		—				108				774				1,873
Non-recurring items and other		195				413				735				986
General and administrative expenses	$	1,564			$	2,275			$	6,018			$	7,835

 

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.

FAQ

What were Safeguard Scientifics' financial results for Q3 2021?

In Q3 2021, Safeguard reported a net income of $18.3 million, or $0.88 per share.

What is the current stock value of Safeguard Scientifics after the self-tender offer?

The self-tender offer repurchased shares at $9.00 each, representing a total cost of $38.7 million.

How much revenue did Safeguard generate in the trailing twelve months ending June 30, 2021?

Safeguard's trailing twelve-month revenues were $245 million, down 11% from the previous period.

What financial actions has Safeguard Scientifics taken in 2021?

Safeguard completed a self-tender offer and deployed $2.7 million to its companies.

What is the outlook for Safeguard Scientifics for the rest of 2021?

The company does not expect material deployments for the remainder of 2021.