Q1 2020 Earnings Call

Amends change over the recent weeks, but first quarter has been difficult and tumultuous period for our country as a result of the Covance 19 outbreaks.

Revpor cautions to the world economy are a measurable.

We are of course focused on the safety and wellbeing of our safeguard family and the general public.

To date, we've had no cases of coded bank payments.

Safeguard and a limited number of cases at companies within our portfolio.

We'd like to take this opportunity to express our deep appreciation to all the healthcare workers or directly guiding and assisting us through this period.

We have had significant changes at safeguard recently.

Earlier this month, we announced the addition of Eric Saltzman to the newly created bowl of Chief restructuring Officer.

Eric will report to me in my new role as executive Chairman and the rest of the board.

Eric will be responsible for our value maximization strategies.

Eric prior experience and familiarity with our portfolio make him an excellent choice, especially considering the current situation.

Encouraged and excited about having Eric lead us through this next phase our strategy.

But I want you to hear that directly from him.

So let me hand off the call and again welcome Eric to the safeguard gene.

Thanks, Bob Let me start by saying I'm excited to joined safeguard and work with Bob the rest of the board and our team.

While I joined amidst a challenging environment I'm optimistic about our portfolio in our prospects, particularly once we emerge from the co good 19 environment.

Safeguard has ownership interests and companies, which are competing at the forefront of their respective industries.

Fee that tech enabled healthcare AD Tech E Commerce and Fintech.

That said the him.

Back to the Covidien 19 environment has created challenges for our companies as it has for nearly every sector.

Safety of their employees to help them take appropriate actions to weather the storm and to be in a position to take advantage of opportunities as the economy opens up.

As one would expect covert 19 has negatively impacted the pace of M&A activity across the economy and by extension has delayed exit assumptions and timelines we had for some of our companies.

We expect this will be temporary and as the country gets back to work and confidence returns deal activity will gradually resuming, albeit the pace of this return remains unclear.

While the current economic environment has made us more difficult. The company remains committed to the strategy had outlined in early 2018 to seek to maximize the monetize its holdings and return capital to shareholders as part of that goal. We have identified four strategic objectives, which we have begun.

On to implement.

The first is to review our fair market value.

Are you in future exit assumption.

Change for our ownership interests in light of the current environment and company performance to allow us.

Alternatives to accomplish this goal as long as that achieves fair value for our holdings.

Selling illiquid assets as we head into a global recession has rarely have value maximizing strategy.

And I saw this first hand in 2009, when I was working in a similar capacity in the Lehman bankruptcy estate. However, there may be specific opportunities to pursue on a name by name basis, and we will evaluate the full get an exit options.

The third third objective is to inch.

Okay.

Okay.

Our strategy and also so work to reduce our cash operating costs.

Well much progress has been made on the cost side, we will continue to pursue additional reductions as appropriate.

Fourth we're working to provide additional information to shareholders about our portfolio. So that you are been Baron form.

We are excited about our companies and their growth opportunities and we want you to have the necessary information to form your own opinions subject of course to provide.

Of our company.

Well I am construct.

Starting with me.

Any unknowns.

The state of the economy, we are focused on maximizing value and want to allow ourselves the ability to support our physicians when justified.

As such we may need to deploying more capital in the portfolio than was anticipated pre cobot 19.

We remain committed to returning value to our shareholders either via share repurchases and or dividends whenever we have cash resources that exceed what we believe is necessary to support our physicians and operation.

Thanks.

Before I turn the call over to Mark I want to provide some additional information on the ports.

Request that came back was a desire to hear more about our companies.

We are exploring a number of ways to balance this request with limitations relating to our companies regarding confidentiality competition et cetera.

We would ask for some patients.

As we explore the best way to accomplish this.

In the meantime, I will highlight a few of our companies and relate them to the current macro environment.

Keep in mind that to state the obvious with GDP down 5% in Q1 in some analysts are predicting it down 35% Q2, we have not seen anything like this in our lifetimes and we do not know the level of economic destruction that will be inflicted upon the economy and the pace of any recovery.

So on that uplifting note, let me provide some color on some of our portfolio names.

ZIP notice for virtual tier Tele health company, where our cost basis is 10 million in where we own 31% of the company has outperformed in the current environment.

No says provides a white label technology platform to allow health systems, the ability to offer tele health to their patient populations.

The growth the company was experiencing pre covert 19 has accelerated even more so in the current environment.

With patient interactions increasing dramatically from 37000 February to 460000 in March.

Furthermore, 21 are there 51 health system customers are using their covert 19 virtual screening test.

We believe that the tele health adoption spurred by the Cobot 19 pandemic will continue post crisis, and we're working closely with a company to best take advantage of this accelerating secular trend.

Our other tech enabled healthcare companies do face exposure to economic headwinds, but should be more immune to their impact than other sectors of the economy.

One example is act Tana, where cost patients is 12 million, we own 15% of the company China provides AI solutions to pharma companies to optimize their go to market strategies. The company continues to see strong demand for its products with particular strength coming from expansion opportunities and then.

Existing large pharma customers.

Another company uniquely positioned to address the employee challenges of work from home environment is mequilibrium.

Equilibrium, where our cost basis is $14 million and where we owned 25% of accompany cells SaaS solutions to fortune 500 companies to build employee resiliency and organization agility.

Equilibrium is seeing strong interest in its product offerings.

Other tech enabled healthcare companies in food prognosis, Syapse, who each use technology and data to help their pharma payer and health system customers achieve better clinical outcomes.

We believe their value proposition should be more resilient to a general economic downtime downturn.

Our cost basis its ownership in prognosis is $13 million in 26%.

And in Syapse, It is 21 million in 17%.

Our AD tech companies are facing more general economic headwinds, while pre covert 19 secular trends supporting digital AD adoption remain intact.

Spending is expected to be down across the board in Q2, and even more so in those sectors, where business has virtually ground to halt such as restaurants retail and hospitality.

This slowdown has impacted all participants in the AD tech value chain, including Mediamath slash talking quantify not quantify mined and sonobi.

These companies have all responded aggressively to the pullback in AD spend and are working closely with their customers to tap into pockets.

Spending strength.

I will add that recent commentary from Facebook that indicated that their advertising business has stabilized.

In April is encouraging but remains to be seen if it is reflective of all market participants.

I'll stop there for now and turn the call over to Mark for review of the quarter's financial results and then we can jump into the QNX.

Okay. Thank you for the quarter ended March 30, Onest 2020, safeguards net loss was $16 million or 77 cents per share compared with net income of 21.7 million dollar for dollar five cents per share for the same period of 2019.

Our financial results for the quarter were negatively impacted as compared to prior period.

Certain impairments bursa vendors and a severance charge, resulting from our executive changes.

Safeguards cash cash equivalents restricted cash and securities at March 31, 2020 totaled $21 million and we have no debt obligations.

As we've discussed on prior calls we believe we have sufficient resources to fund our corporate structure for the remainder of 2020 as well as differ on follow on the foreigners to support our existing owners of interest.

However, the current environment means that we may have a higher level of expected deployments for 2020, which is causing us to keep a kenai on cash resources.

Quarter's results included partial impairments aggregating to $11.3 million related to several companies, including Weblinc credit line T. Rex and other smaller holding.

These impairments are noncash adjustment, which reflects a reduction from an estimated fair value for those specific ownership interest below our carrier by which was deemed other than temporary.

The declines in fair value and our outlook were impacted by our outlook for the near term exit expectations for each of these companies, which as mentioned has been significantly negatively impacted by the current M&A environment.

In addition, our quarterly results also included a one of the happening the million dollar noncash other income gain related to an observable price change that's left talking.

I recognize that the financial reporting in this area can sometimes be complex.

Let's take a moment here to provide you with a brief plain English overview of accounting followed with respect to our ownership interest.

The majority of our ownership bankers, where we have significant influence through our ownership followed the historical cost model of equity accounting.

This results in our balance sheet carrying value, reflecting our original cost which is then adjusted each period for our share her loss or earnings of the underlying company.

To the extent of the fair value of these ownership interest increases as a result of their performance net unrealized depreciation is generally not recognized in our financial statements.

We do recognize unrealized dilution gain from time to time when investment around occurs at a higher price and our participation is less than our existing ownership share.

We also have other ownership interest that follow the other accounting method.

As we do not have significant influence over the management of those companies.

This method, we began with our historical cost then make adjustments historically that those of the upward for observable price changes.

When there is an equity transaction at the underlying company in a substantially similar security.

Both of these accounting methods also requires to evaluate quarterly if a fair value of our interest is below the carrying value.

If that circumstance exists and we believe that decline is other than temporary we would be required to reduce our fair value to that fair value.

Measurement of fair value is inherently a subjective process with respect to securities of privately held company and can result in volatile movement based on broad market conditions.

We have experienced some of that impact this quarter, resulting in the impairments recorded.

Future estimates, a fair value could be higher or lower for the accounting model does not record upward adjustments to that estimate.

It only requires us to record downward adjustments that are judged to be other than temporary.

So thank you for allowing me that the version we can clarify these comments more specifically for you and accumulate portion of the call.

Our general and administrative expenses were 3.5 million for the three months ended March 31, 2020, as compared to 3.1 million for the first quarter of 2019.

This increase was the result of the 1.7 million dollar severance charge recorded during the quarter, excluding that charge, our DNA expenses were 41% lower than the first quarter 2019, due to our scale now and level of staffing in the impact of the office move to lower cost facility.

Corporate expenses for the quarter, which represent general administrative expenses, excluding depreciation stock based compensation severance retirement costs and other nonrecurring other items were 1.5 million compared to 2.1 million in 2019, a 32% reduction.

In addition to the DNA reductions mentioned, we had a quarter over quarter reduction in compensation costs professional fees and the reflection of director fees as a stock based compensation items.

We still have more to do on the cost side and we will continue to look for ways to continue cost reductions.

With respect to our ownership interest at March 30, Onest 2040 live in aggregate carrying value of $66.8 million.

During the first quarter, we limited deployments to 2.2 million to five existing company.

Second we will make additional deployment and into 2020 at the high end or higher than our previously established for him to the we can continue to support our ownership interest in the aggregate. We now expect 2020 deployments to be between eight and $12 million.

Our share of the losses of our equity method ownership interest for the three months ended March 30, Onest 2020 was $2.8 million as compared to 7.3 million for comparable period in 2019.

The decrease is the result of fewer companies being counted for under the equity method due to exit changes in bases of accounting at two companies move from the equity method to the other method as well as lower losses net basis.

From our equity method ownership interest.

I'd also like to remind everyone here that we report our share of the losses from the equity method companies on a one quarter lag.

So this quarter share of the losses reflected the calendar fourth quarter for those companies.

And we consider the impact of.

And as we consider the impact of covered 19, some of the impact to the operations of our company has occurred and the calendar Q1, which we will report in our second quarter.

There could be larger impact in calendar Q2.

A period, where many companies are dealing with this economic slowdown, which we will report in our Q3.

We will try to make this is clear as possible for you, but I wanted to make sure that.

So that is understood that impact of these recent events is likely to impact our reported results throughout this calendar year.

Now I'd like to return the call back over to Bob.

Thank you Mark and I believe it would be appropriate for us to move to the QNX.

At this time I'd like to remind everyone in order to ask a question. Please press star and the number one on your telephone keypad will cause for gentlemen.

Mr.

Again does good question. Please press star and the number one on your telephone keypad.

Okay.

There are no questions at this time of turn call back over to the presenters.

Okay.

Okay, well I want to thank.

All of you for filing today and listening thank you for joining us.

Thank you for your continued interest in support of safeguard and please reach out to US. If you have any questions. Your follow up thank you very much.

This concludes today's conference call you may now disconnect.

[music].