Item 1. Business
Item 1. Business
Business Overview
Over the recent past, Safeguard has provided capital and relevant expertise to fuel the growth of technology-driven businesses in healthcare, financial services and digital media. Throughout this document, we use the term “partner company” to generally refer to those companies in which we have a significant equity interest. In many, but not all cases, we will also be actively involved, influencing development through board representation and management support, in addition to the influence we exert through our equity ownership. From time to time, in addition to these partner companies, we also hold relatively small equity interests in other enterprises where we do not exert significant influence and do not participate in management activities. In some cases, these interests relate to former partner companies.
In January 2018, Safeguard announced that we will not deploy any capital into new partner company opportunities and will focus on supporting our existing partner companies and maximizing monetization opportunities to return value to shareholders. In that context, we have, are and will consider initiatives including, among others: the sale of individual partner companies, the sale of certain or all partner company interests in secondary market transactions, or a combination thereof, as well as other opportunities to maximize shareholder value. We anticipate returning value to shareholders after satisfying our debt obligations and working capital needs.
Safeguard's existing group of partner companies consist principally of technology-driven businesses in healthcare, financial services and digital media that are capitalizing on the next wave of enabling technologies, including enhanced security and predictive analytics. We strive to create long-term value for our shareholders by helping our partner companies to increase their market penetration, grow revenue and improve cash flow. Safeguard typically deploys up to $25 million in a company.
In 2018 , our management team focused on the following objectives:
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Supporting our existing partner companies;
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Building value in partner companies by developing strong management teams, growing the companies organically and through acquisitions, and positioning the companies for liquidity at premium valuations;
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Realizing the value of partner companies through selective, well-timed exits to maximize risk-adjusted value;
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Right-sizing our operating structure in light of our new structure; and
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Addressing the liquidity needs of the Company.
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To meet our strategic objectives during 2019 , Safeguard will focus on:
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Supporting our existing partner companies;
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Helping our partner companies achieve additional market penetration, revenue growth, cash flow improvement and growth in long-term value; and
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Pursuing monetization opportunities for our partner company interests.
We incorporated in the Commonwealth of Pennsylvania in 1953. Our corporate headquarters are located at 170 North Radnor-Chester Road, Suite 200, Radnor, Pennsylvania 19087.
Our Strategy
Founded in 1953, Safeguard has a distinguished track record of building market leaders by providing capital and operational support to entrepreneurs across an evolving and innovative spectrum of industries. Over the recent past, Safeguard has provided capital and relevant expertise to fuel the growth of technology-driven businesses in healthcare, financial services and digital media. Safeguard's existing group of partner companies consist of companies that are capitalizing on the next wave of enabling technologies with a particular focus enhanced security and predictive analytics. Since January 2018, Safeguard began to implement a new business strategy designed to increase shareholder value. Under the new strategy, Safeguard ceased deploying capital into new partner companies. Safeguard remains focused on managing and financially supporting its existing partner companies, with the goal of pursuing monetization opportunities and maximizing the value returned to shareholders.
Helping Our Partner Companies Build Value
We offer operational and management support to each of our partner companies through our domain expertise from our management team's careers as entrepreneurs, board members, financiers and operators. We provide hands-on assistance to the management teams of our partner companies to support their growth.
Strategic Support. By helping our partner companies’ management teams remain focused on critical objectives through the provision of human, financial and strategic resources, we believe we are able to foster their development and success. We play an active role in developing the strategic direction of our partner companies, which include:
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defining short and long-term strategic goals;
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identifying and planning for the critical success factors to reach these goals;
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identifying and addressing the challenges and operational improvements required to achieve the critical success factors and, ultimately, the strategic goals;
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identifying and implementing the business measurements that we and others will apply to measure a company’s success; and
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identifying sources of and providing capital to drive growth.
Management and Operational Support. We provide management and operational support, as well as ongoing planning and development assessment. Our executives serve on the boards of directors of our partner companies, working with them to develop and implement strategic and operating plans. We measure and monitor achievement of these plans through regular review of operational and financial performance measurements. We believe these services provide our partner companies with significant competitive advantages within their respective markets.
Realizing Value
In January 2018, Safeguard began to implement a new business strategy designed to increase shareholder value. Under the new strategy, Safeguard ceased deploying capital into new partner companies. Safeguard remains focused on managing and financially supporting its existing partner companies, with the goal of pursuing monetization opportunities and maximizing the value returned to shareholders. We have, are and will consider initiatives including, among others: the sale of individual partner companies, the sale of certain or all partner company interests in secondary market transactions, or a combination thereof, as well as other opportunities to maximize shareholder value. We anticipate returning value to shareholders after satisfying our debt obligations and working capital needs.
From time to time, we engage in discussions with other companies interested in our partner companies, either in response to inquiries or as part of a process we initiate. To the extent we believe that a partner company’s further growth and development can best be supported by a different ownership structure or if we otherwise believe it is in our shareholders’ best interests, we will seek to sell some or all of our position in the partner company. These sales may take the form of privately negotiated sales of stock or assets, mergers and acquisitions, public offerings of the partner company’s securities and, in the case of publicly traded partner companies, sales of their securities in the open market. In the past, we have taken partner companies public through rights offerings and directed share subscription programs. We will continue to consider these (or
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similar) programs and the sale of certain partner company interests in secondary market transactions to maximize value for our shareholders.
Given our recent change in strategy, the value of Safeguard is now virtually wholly dependent upon the value of our existing partner companies and our ability to translate that value into cash as efficiently as possible and to return that capital, net of our debt obligations and operating cash needs, to our shareholders in the form of stock repurchases and/or distributions to shareholders. As we have in the past, we will utilize the service of professional advisers from time to time to explore the various alternatives for returning capital to our balance sheet and ultimately to our shareholders.
Our Partner Companies
An understanding of our partner companies is important to understanding Safeguard and its value-building strategy. Following are descriptions of our partner companies in which we own interests at February 25, 2019.
We categorize our partner companies into four stages based upon revenue generation—Initial Revenue Stage, Expansion Stage, Traction Stage and High Traction Stage. The Initial Revenue Stage is made up of businesses that have revenues of $1 million or less. The Expansion Stage is made up of companies that have revenue in the range of $1 million to $5 million. The Traction Stage is made up of companies that have revenue in the range of $5 million to $10 million. The High Traction Stage is made up of companies that have revenue in excess of $10 million per year.
The ownership percentages indicated below are presented as of December 31, 2018 for partner companies in which we owned interests at February 25, 2019 and reflect the percentage of the vote we were entitled to cast at that date based on issued and outstanding voting securities (on a common stock equivalent basis), excluding the effect of options, warrants and convertible debt (primary ownership).
Aktana, Inc.
Traction
(Safeguard Ownership: 18.9%)
Headquartered in San Francisco, California, Aktana is a pioneer in decision support for global life science sales teams. Aktana helps its customers improve their commercial effectiveness by delivering data-driven insights and suggestions directly to sales reps, coordinating multi-channel actions and providing insight regarding which strategies work best for which customers under which conditions. www.aktana.com
Clutch Holdings, Inc.
High Traction
(Safeguard Ownership: 41.2%)
Headquartered in Ambler, Pennsylvania, Clutch has revolutionized how marketing teams for premier brands develop and foster relationships with their customers. Clutch’s advanced marketing platform serves as a customer hub, delivering deep intelligence derived from real-time behaviors and transactions across in-store, online, mobile and social channels. www.clutch.com
Flashtalking, Inc.
High Traction
(Safeguard Ownership: 10.1%)
Headquartered in New York, New York, Flashtalking is a data-driven ad management and analytics technology company that uses data to personalize advertising in real-time, analyze its effectiveness and enable optimization that drives better engagement and ROI for sophisticated global brands. Our former partner company, Spongecell, Inc. merged into Flashtalking in January 2018. www.flashtalking.com
Hoopla Software, Inc.
Expansion
(Safeguard Ownership: 25.5%)
Headquartered in San Jose, California, Hoopla provides cloud-based software that helps sales organizations inspire and motivate sales team performance. Hoopla's Sales Motivation Platform combines modern game mechanics, data analytics and broadcast-quality video in a cloud application that makes it easy for managers to motivate team performance and score more wins. www.hoopla.net
InfoBionic, Inc.
Expansion
(Safeguard Ownership: 25.4%)
Headquartered in Massachusetts, InfoBionic is an emerging digital health company focused on creating patient monitoring solutions for chronic disease management with an initial market focus on cardiac arrhythmias. InfoBionic’s MoMe ® Kardia cloud-based, remote patient monitoring platform delivers on-demand, actionable monitoring data and analytics directly to the physicians themselves. www.infobionic.com
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Lumesis, Inc.
Traction
(Safeguard Ownership: 43.7%)
Headquartered in Stamford, Connecticut, Lumesis is a financial technology company focused on providing business efficiency, data and regulatory solutions to the municipal bond marketplace. Lumesis’ DIVER platform helps more than 500 firms with more than 43,000 users efficiently meet credit, regulatory and risk needs. www.lumesis.com
MediaMath, Inc.
High Traction
(Safeguard Ownership: 13.4%)
Headquartered in New York, New York, MediaMath is a global technology company that is leading the movement to revolutionize traditional marketing and drive transformative results for marketers through its TerminalOne Marketing Operating System ® . MediaMath empowers marketers with an extensible, open platform that activates data, automates execution and optimizes interactions across all addressable media, delivering superior performance, transparency and control to all marketers and better, more individualized experiences for consumers. www.mediamath.com
meQuilibrium
Expansion
(Safeguard Ownership: 33.1%)
Headquartered in Boston, Massachusetts, meQuilibrium is a digital coaching platform that delivers clinically validated and highly personalized resilience solutions to employers, health plans, wellness providers and consumers increasing engagement, productivity and performance. www.mequilibrium.com
Moxe Health Corporation
Initial Revenue
(Safeguard Ownership: 32.4%)
Headquartered in Madison, Wisconsin, Moxe Health was founded with a vision to enable bi-directional data exchange through its key products, Substrate and Convergence, directly linking payers and their provider networks. By integrating insurer data using industry standard processes, Moxe Health allows providers to incorporate claims, risk and other payer data into their own analytic efforts, allowing clinicians to better understand patient risks and deliver value-based care. www.moxehealth.com
NovaSom, Inc.
High Traction
(Safeguard Ownership: 31.7%)
Headquartered in Glen Burnie, Maryland, NovaSom is a medical device company that markets an FDA-cleared wireless home sleep test for Obstructive Sleep Apnea (“OSA”) called AccuSom ® Home Sleep Test. The NovaSom home sleep test provides an in-home, clinically equivalent diagnosis of OSA at a significantly reduced cost compared to in-facility testing for uncomplicated adult OSA. www.novasom.com
Prognos Health Inc.
High Traction
(Safeguard Ownership: 28.7%)
Headquartered in New York, New York, Prognos is a healthcare AI company that’s striving to improve health by tracking and predicting disease earlier in partnership with Life Sciences brands, payers, and clinical diagnostics organizations. Prognos’ innovations enhance the value of laboratory results and clinical diagnostic data through advanced analytics and artificial intelligence techniques. www.prognos.ai
QuanticMind, Inc.
Traction
(Safeguard Ownership: 24.2%)
Headquartered in Redwood City, California, QuanticMind provides enterprise-level, predictive advertising management software for paid search, social and mobile. QuanticMind brings together machine learning, distributed cloud and in-memory processing technologies to provide the most intelligent, most scalable and fastest platform available. www.quanticmind.com
Sonobi, Inc.
Traction
(Safeguard Ownership: 21.6%)
Headquartered in New York, New York, Sonobi is an advertising technology developer that creates data-driven tools and solutions to meet the evolving needs of demand- and sell-side organizations within the digital media marketplace. Sonobi helps its clients and strategic partners to forecast new market opportunities, enhance value delivery to clients, and create more profitable businesses through integration of progressive data procurement and user-centric sales management technologies. www.sonobi.com
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Syapse, Inc.
High Traction
(Safeguard Ownership: 20.0%)
Headquartered in Palo Alto, California, Syapse is on a mission to deliver the best care for every cancer patient through precision medicine. Syapse’s platform, data sharing network, and industry partnerships enable healthcare providers to bring precision cancer care to every patient who needs it. www.syapse.com
T-REX Group, Inc.
Initial Revenue
(Safeguard Ownership: 21.1%)
Headquartered in New York, New York, T-REX is an enterprise solutions provider for the complex financing of esoteric asset backed securities (“ABS”) and energy project finance. T-REX’s SaaS platform supplants manually-generated financial models, driving transparency, standardization, collaboration, efficiency and access in energy project finance and asset backed securitization. www.trexgroup.com
Transactis, Inc.
High Traction
(Safeguard Ownership: 23.7%)
Headquartered in New York, New York, Transactis transforms traditional paper billing and payment processing by enabling businesses of all sizes to replace paper bills, statements, invoices, payments and documents with efficient and cost effective digital alternatives. Transactis goes to market exclusively with resellers - financial institutions, technology companies, printers and business process outsourcers - to provide their customers with secure, configurable, white-label, industry-leading SaaS solutions. www.transactis.com
Trice Medical, Inc.
Expansion
(Safeguard Ownership: 17.4%)
Headquartered in Malvern, Pennsylvania, Trice Medical was founded to fundamentally improve orthopedic diagnostics for the patient, physician and payor by providing instant, eyes-on, answers. Trice has pioneered fully integrated camera-enabled technologies that provide a clinical solution that is optimized for the physician's office. Trice's mission is to provide more immediate and definitive patient care, eliminating the false reads associated with current indirect modalities and significantly reduce the overall cost to the healthcare system. www.tricemedical.com
WebLinc, Inc.
High Traction
(Safeguard Ownership: 38.5%)
Headquartered in Philadelphia, Pennsylvania, WebLinc is a commerce platform and services provider for fast growing online retailers. WebLinc's modern, agile technologies and strategic expertise empower companies running global, omnichannel commerce operations, and enable retailers to consistently outpace the competition. www.weblinc.com
Zipnosis, Inc.
Expansion
(Safeguard Ownership: 34.7%)
Headquartered in Minneapolis, Minnesota, Zipnosis provides health systems with a white-labeled, fully integrated virtual care platform. Through Zipnosis’ tech-enabled treatment and triage tools, clients can offer convenient access to care while improving clinician efficiency. Currently, patients may be treated for more than 90 conditions via such treatment and triage tools. www.zipnosis.com
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS
We operate as one operating segment based upon the similar nature of our technology-driven partner companies, the functional alignment of the organizational structure and the reports that are regularly reviewed by the chief operating decision maker for the purpose of assessing performance and allocating resources.
OTHER INFORMATION
The operations of Safeguard and its partner companies are subject to environmental laws and regulations. Safeguard does not believe that expenditures relating to those laws and regulations will have a material adverse effect on the business, financial condition or results of operations of Safeguard.
AVAILABLE INFORMATION
Safeguard is subject to the informational requirements of the Securities Exchange Act of 1934, as amended. Therefore, we file our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and proxy statements
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and other information with, and furnish other reports to, the Securities and Exchange Commission (“SEC”). You can read and copy such documents at the SEC’s public reference facilities in Washington, D.C., New York, New York and Chicago, Illinois. You may obtain information on the operation of the SEC’s public reference facilities by calling the SEC at 1-800-SEC-0330. Such material may also be accessed electronically by means of the SEC’s home page on the Internet at www.sec.gov or through Safeguard’s website at www.safeguard.com. Such documents are available as soon as reasonably practicable after electronic filing of the material with the SEC. Copies of these reports (excluding exhibits) also may be obtained free of charge, upon written request to: Investor Relations, Safeguard Scientifics, Inc., 170 North Radnor-Chester Road, Suite 200, Radnor, Pennsylvania 19087.
The Internet website addresses for Safeguard and its partner companies are included in this report for identification purposes. The information contained therein or connected thereto is not intended to be incorporated into this Annual Report on Form 10-K.
The following corporate governance documents are available free of charge on Safeguard’s website: the charters of our Audit, Compensation and Nominating & Corporate Governance Committees, our Corporate Governance Guidelines and our Code of Business Conduct and Ethics. We also will post on our website any amendments to or waivers of our Code of Business Conduct and Ethics that relate to our directors and executive officers.
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