Q3 2021 Safeguard Scientifics Inc Earnings Call

What.

It is too soon to assess the probability of a deal but should one come together, we believe it would be a 2022 event.

The third company that was in varying degrees of strategic discussions did recently signed an LOI and is working through diligence.

Part of that transaction safeguard any other choice sure was converted their existing notes into the equity round.

For safeguards this was the $1 million, which we deployed in Q1 that was converted into the bio Ventas led round.

Three other portfolio companies have begun to explore capital raises to support their growth in 2022.

It is too soon to determine whether safeguard would be participating in these transactions also as of now we expect these to be primary capital raises so we would not expect an exit or partial exit opportunity for safeguards as part of these financings of course, there's no assurance in any of these capital raises will occur.

Moving onto portfolio highlights.

With the exit a flash talking safeguards portfolio consists of minority Stakes and seven private healthcare companies are 1.3 million share position and publicly traded bright help group.

One AD Tech company medium now when marketing to have company clutch and one Fintech company Lewis's.

As we've done in past quarters will provide a quick one bullet recap of two three highlights on each of these portfolio companies.

Note that this is not a comprehensive assessment of each company and specific risks apply to each name.

For a China Q3 represented if larges booking quarter ever.

Psyops entered into a research collaboration agreement with Merck.

Prognose continues to expand its health data marketplace, which is the largest real world data marketplace with Anonymised data on 350 million patients.

Moxie continued to sign up new provider sites Q3 was a record and is on track to meet or exceed it's 2021 goals.

Equilibrium is experiencing robust revenue growth growth, which was up over 50% year on year.

Info bionics saw double digit revenue growth in two three had positive EBITDA and accelerated its Mayo clinic deployments.

Twice as we mentioned closed a strategic equity round led by publicly traded by Aventis and is partnering with them on an international distribution agreement for choices products.

Please both quantitatively as part of our internal valuation methodology as well as qualitatively as we track company and industry developments.

We look at enterprise value to forward revenue multiples and projected revenue growth as the two most important metrics to follow.

Following staff are as of the end of October I'll start with revenue multiples.

For publicly traded healthcare comps.

The median enterprise value to revenue multiples on 2021, and 2022 were five three times and four one times respectively.

<unk> nine turns and 1.1 turns respectively from our August earnings call.

For publicly traded AD Tech comps the median AD tech enterprise value to revenue multiples on 2021, and 2022 were five four times and four four times, respectively down <unk> eight turns and <unk> three turns respectively from our August call.

For publicly traded marketing tech comps the meeting enterprise value revenue multiples on 2021, and 2022 were three seven times and three six times, respectively down <unk> three turns from August.

Now I will turn to revenue growth expectations.

For publicly traded health care comps the analyst consensus for median revenue growth was 35% for 2021 and 24% for 2022.

For publicly traded AD Tech comps the analysts' consensus for median revenue growth was 38% for 2021 and 25% for 2022.

For publicly traded marketing tech comps the analyst consensus for median revenue growth was 19% for 2021 and 15% for 2022.

For comparison purposes.

Revenue growth rate projected for safeguards portfolio, excluding brighthouse is over 20% for 2022.

So not every company is experiencing that growth rate, some higher and some lower.

Lastly, I want to comment on follow on deployments for the balance of the year.

As you read in our press release, we've deployed $2 7 million year to date in the portfolio, including $1 7 million tonne in Q3 and $1 million in price in Q1.

We don't expect further deployments in the portfolio for the balance of the year.

As a point of reference the $2 7 million compares to our 2021 guidance of five to 7 million. So we will come in meaningfully better than plan.

We had budgeted $2 million to $3 million of additional deployments in two companies in Q4, which if these were to happen would occur in 2022.

At this time I will hand, it over to our CFO Mark Herndon.

Thanks, Eric.

Our quarterly corporate expenses also continued to climb.

This quarter was about 8%.

We continue to expect this approximate level of corporate expenses for the remainder of 2021, which we indicated last quarter. So that our total corporate expenses for the calendar year will likely be below $4 million.

[noise] with respect to both general and administrative costs and the corporate extensive amounts will continue to reduce the cash based employee compensation costs professional fees office cough and insurance expenses.

The corporate expense measure continues to benefit from director fees being paid in equity and a significant portion of management's compensation being paid in equity.

This quarter slash talking transaction resulted in certain <unk> thresholds being that which resulted in $2.1 million of payment has been made during the fourth quarter.

We continue to view the Delta payments is fully funded by the proceeds of the exit transactions.

Since the since this claim was enacted in 2018 synchronous collect approximately $254 million of gross proceeds from asset sales and is paid an aggregate of $2.5 million under the <unk> plant.

With respect to our urgent interest at September 30th 2021, we have an aggregate carrying value of $36.3 million as compared to $54 million at December 31, 2020 last year and.

This decrease was the result of the application of the equity method of accounting.

The $2.5 million impairment last quarter.

As well as the exit the gnosis flashed talking T Rex one a vascular and webley.

All removed carrying value.

Those decreases were partially offset by increases do two or $2.7 million of aggregate department that trash and Q2 and a ton of this quarter.

The addition of the bright help position and dilution gains aggregating to $9.3 million from sites in Q1 and traced this quarter.

Both of these dilution gains of of $2 million from the third quarter and $9.3 million a year to date are reported as a component of the equity income lost mine either.

Other ownership interests. These disclosures also continued to excluding brighthouse.

Those notes in mind third party debt at this group of nine companies was approximately $123 million, which is unchanged as compared to last quarter.

On a comparative basis.

Cash at the same group of nine companies was also essentially unchanged at about $97 million.

Within this group the most notable changes relates to the conversion of insider notes the equity at <unk> as part of its recent equity capital raise.

So overall the net debt position did not change substantially across this group of companies.

Cash that did burn them.

In certain countries was sourced from their prior capital raises at those companies.

In terms of revenue performance, we reported an 11% decrease in our group of 10.

10 ownership interest for the trailing 12 months period ended June 32021, due to the one quarter lag.

And again just note that this excludes flash stocking due to their exit transactions and bright health as well as other other ownership interests.

Thanks and have a good evening.

Okay.

This concludes today's call. Thank you for joining you may now disconnect your lines.