UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): | March 14, 2018 |
HC2 Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware | 001-35201 | 54-1708481 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
450 Park Avenue, 30th Floor | 10022 | |
New York, NY | ||
(Address of principal executive offices) | (Zip Code) | |
Registrant’s telephone number, including area code: | (212) 235-2690 | |
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company | ☐ | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ☐ |
Item 2.02 Results of Operations and Financial Condition
On March 14, 2018, HC2 Holdings, Inc. (the “Company”) issued a press release setting forth its results for the three months and full year ended December 31, 2017 (the “Earnings Release”) and posted the HC2 Holdings, Inc. Fourth Quarter and Full Year 2017 Conference Call investor presentation to its Investor Relations section of the Company’s website at http://www.hc2.com. A copy of the Earnings Release and the investor presentation are attached hereto as Exhibits 99.1 and 99.2, respectively, and are incorporated herein by reference.
The information set forth in (and incorporated by reference into) this Item 2.02 and the exhibits referred to herein shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that Section. The information in this Item 2.02 shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 7.01 Regulation FD Disclosure
As previously announced, the Company will conduct a conference call today, Wednesday, March 14, 2018 at 5:00 p.m. The presentation slides to be used during the call will be available on the “Investor Relations” section of the Company’s website (http://www.hc2.com) immediately prior to the call. The conference call and the presentation slides will be simultaneously webcast on the “Investor Relations” section of the Company’s website beginning at 5:00 p.m. ET on Wednesday, March 14, 2018. The information contained in, or that can be accessed through, the Company’s website is not a part of this filing.
The information set forth in (and incorporated by reference into) this Item 7.01 and the exhibits referred to herein shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) or otherwise subject to the liabilities of that Section. The information in this Item 7.01 shall not be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits
(d) | Exhibits |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
HC2 Holdings, Inc. | ||
March 14, 2018 | By: | /s/ Michael J. Sena |
Name: Michael J. Sena | ||
Title: Chief Financial Officer | ||
Exhibit 99.1
FOR IMMEDIATE RELEASE
HC2 Holdings Reports Fourth Quarter and Full Year 2017 Results
Introduces 2018 Guidance for Two Largest Segments
New York, March 14, 2018 (GlobeNewswire) - HC2 Holdings, Inc. (“HC2”) (NYSE: HCHC), a diversified holding company, announced today its consolidated results for the fourth quarter and full year 2017, which ended on December 31, 2017.
“For HC2, 2017 ended much as it began, having met key milestones and realized accomplishments for the business across our portfolio,” said Philip Falcone, HC2's Chairman, President and Chief Executive Officer. “In the fourth quarter, our core businesses continued to execute and expand their capabilities through targeted acquisitions, including two tuck-in acquisitions by DBM Global - CanDraft VSI and Mountain States Steel - that position the company well in what we believe is an attractive bridge market segment. DBM has continued to win major contract awards, as evidenced by their record year-end backlog of $723 million. Global Marine also had a strong year, not only through its core operating business, but also its Huawei Marine joint venture. During the quarter, Global Marine completed its strategic acquisition of Fugro's trenching and cable laying business, creating an even more effective operating platform for delivering services to its offshore power and oil & gas customers. During 2017, Global Marine secured the renewal of the remaining two of its three long-term submarine cable maintenance contracts, confirming the company's leading position in this space, and finished the year with a near-record backlog of $445 million. We continue to take steps to help Global Marine remain a leader in all of its target markets, including the rapidly growing global offshore power market which we believe has tremendous long-term growth potential.”
Mr. Falcone continued, “During the fourth quarter, American Natural Gas signed its first renewable natural gas supply agreement, opened new fueling stations in Tennessee and New York, and completed the integration and upgrade of fueling stations throughout the U.S. to support an efficient, expedient and reliable customer experience. PTGi ICS continued to execute its global growth initiative with new account representatives in Latin America, Eastern Europe and Russia and paid its sixth consecutive cash dividend to HC2. Our Continental Insurance subsidiary announced its intent to acquire Humana's approximately $2.3 billion long-term care insurance business, KMG America Corporation, positioning the company for what we believe will be future growth as a credible counterparty for similar long-term care transactions. Additionally, as we continue to build out our nation-wide network of over-the-air broadcast television stations, we acquired the Spanish-language broadcast network Azteca America, in addition to numerous television broadcast licenses from Northstar Media, capitalizing on what we believe are significant opportunities created by the changing media landscape.”
Mr. Falcone concluded, “Our work and accomplishments during the past year position HC2 for an exciting 2018, in which our priorities will be to further optimize the HC2 capital structure, including a global refinancing of our 11% Senior Secured Notes, a monetization within the diverse HC2 portfolio and the continued expansion of our over-the-air broadcast television strategy. I could not be prouder of our entire team and feel more confident than ever in our long-term opportunities.”
Exhibit 99.1
Fourth Quarter & Full Year Financial Highlights
• | Net Revenue: For the fourth quarter of 2017, HC2 recorded consolidated total net revenue of $458.5 million, as compared to $454.0 million for the year-ago quarter and $1,634.1 million for the full year 2017, as compared to $1,558.1 million for the full year 2016. |
REVENUE by OPERATING SEGMENT | |||||||||||||||||||||||
(in thousands) | Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||
Construction | $ | 175,665 | $ | 129,694 | $ | 45,971 | $ | 578,989 | $ | 502,658 | $ | 76,331 | |||||||||||
Marine Services | 46,071 | 45,565 | 506 | 169,453 | 161,864 | 7,589 | |||||||||||||||||
Energy | 4,114 | 2,279 | 1,835 | 16,415 | 6,430 | 9,985 | |||||||||||||||||
Telecommunications | 181,683 | 226,795 | (45,112 | ) | 701,898 | 735,043 | (33,145 | ) | |||||||||||||||
Total Core Operating Subsidiaries | $ | 407,533 | $ | 404,333 | $ | 3,200 | $ | 1,466,755 | $ | 1,405,995 | $ | 60,760 | |||||||||||
Insurance | 39,545 | 42,610 | (3,065 | ) | 151,577 | 142,457 | 9,120 | ||||||||||||||||
Other | 11,417 | 7,060 | 4,357 | 15,791 | 9,674 | 6,117 | |||||||||||||||||
Consolidated HC2 | $ | 458,495 | $ | 454,003 | $ | 4,492 | $ | 1,634,123 | $ | 1,558,126 | $ | 75,997 | |||||||||||
• | Net Income (Loss): For the fourth quarter of 2017, HC2 reported a Net (Loss) attributable to common and participating preferred stockholders of $(9.2) million or $(0.21) per fully diluted share, as compared to Net (Loss) of $(67.3) million or $(1.62) per fully diluted share for the fourth quarter 2016. For the year ended December 31, 2017, HC2 reported a Net (Loss) attributable to common and participating preferred stockholders of $(49.7) million or $(1.16) per fully diluted share, as compared to a Net (Loss) of $(105.4) million or $(2.83) per fully diluted share for the full year 2016. |
• | Adjusted EBITDA: Adjusted EBITDA for “Core Operating Subsidiaries,” which includes HC2's Construction, Marine Services, Energy and Telecom segments, was a combined $32.4 million for the fourth quarter of 2017, as compared to $37.9 million for the year-ago quarter, due primarily to timing associated with several large scale projects in the Construction segment. For the full year ended December 31, 2017, Adjusted EBITDA for “Core Operating Subsidiaries” was $105.5 million, as compared to $109.1 million for the full year 2016, again due primarily to timing of projects in the Construction segment. |
For the fourth quarter of 2017, Total Adjusted EBITDA (excluding the Insurance segment), which includes results from Core Operating Subsidiaries, Life Sciences, Other, and Non-operating Corporate segments, was $19.7 million, as compared to $26.5 million for the year-ago quarter. For the full year ended December 31, 2017, Total Adjusted EBITDA (excluding the Insurance segment), was $50.8 million, as compared to $60.2 million for the full year 2016. Fourth quarter and full year 2017 Total Adjusted EBITDA was driven by timing of projects in the Construction segment and scaling of operations across the Life Sciences segment, offset primarily by a decrease in losses in the Other segment and an improvement in Marine Services, primarily attributable to its Huawei Marine joint venture.
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Exhibit 99.1
ADJUSTED EBITDA by OPERATING SEGMENT | |||||||||||||||||||||||
(in thousands) | Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||
Construction | $ | 15,112 | $ | 20,664 | $ | (5,552 | ) | $ | 51,588 | $ | 59,860 | $ | (8,272 | ) | |||||||||
Marine Services | 15,269 | 14,809 | 460 | 44,027 | 41,176 | 2,851 | |||||||||||||||||
Energy | 422 | 870 | (448 | ) | 2,911 | 2,543 | 368 | ||||||||||||||||
Telecommunications | 1,605 | 1,541 | 64 | 6,929 | 5,560 | 1,369 | |||||||||||||||||
Total Core Operating Subsidiaries | $ | 32,408 | $ | 37,884 | $ | (5,476 | ) | $ | 105,455 | $ | 109,139 | $ | (3,684 | ) | |||||||||
Life Sciences | (5,225 | ) | (3,792 | ) | (1,433 | ) | (22,366 | ) | (12,037 | ) | (10,329 | ) | |||||||||||
Other | 1,297 | 928 | 369 | (3,139 | ) | (11,221 | ) | 8,082 | |||||||||||||||
Non-operating Corporate | (8,732 | ) | (8,552 | ) | (180 | ) | (29,152 | ) | (25,718 | ) | (3,434 | ) | |||||||||||
Consolidated HC2 | $ | 19,748 | $ | 26,468 | $ | (6,720 | ) | $ | 50,798 | $ | 60,163 | $ | (9,365 | ) | |||||||||
• | Balance Sheet: As of December 31, 2017, HC2 had consolidated cash, cash equivalents and investments of $1.6 billion, which includes cash and investments associated with HC2's Insurance segment. Excluding the Insurance segment, consolidated cash was $72.7 million, of which $29.4 million was at the HC2 corporate level. |
Fourth Quarter & Full Year Segment Highlights
• | Construction - For the fourth quarter of 2017, HC2’s DBM Global Inc. (“DBMG”), reported Net Income of $9.2 million, as compared to $7.3 million for the year-ago quarter. For the full year ended December 31, 2017, Net Income was $23.6 million, as compared to $28.0 million for the full year 2016. |
Adjusted EBITDA was $15.1 million for the fourth quarter of 2017, as compared to $20.7 million for the year-ago quarter. For the full year ended December 31, 2017, DBMG’s Adjusted EBITDA was $51.6 million, as compared to $59.9 million for the full year 2016. The quarter and full year decreases were due primarily to timing associated with design changes on certain large scale projects in 2017 and better-than-bid performance on commercial projects in the year ago quarter.
Backlog at the end of the fourth quarter was a record $723 million, as compared to approximately $503 million in the prior year quarter. Taking into consideration awarded, but not yet signed contracts, backlog would have been approximately $772 million. DBMG continues to see a number of large opportunities in the commercial sector totaling approximately $300 million in potential new projects that could be awarded over the next several quarters.
• | Marine Services - For the fourth quarter of 2017, Global Marine reported Net Income of $6.2 million, as compared to $8.7 million for the year-ago quarter. For the full year ended December 31, 2017, Net Income was $15.2 million, as compared to $17.4 million for the full year 2016. |
Adjusted EBITDA was $15.3 million for the fourth quarter of 2017, as compared to $14.8 million for the year-ago quarter, due primarily to higher telecom maintenance, offset partially by lower joint venture income when compared to the year-ago fourth quarter. For the full year ended December 31, 2017, Global Marine's Adjusted EBITDA was $44.0 million, as compared to $41.2 million for the full year 2016, due primarily to an increase in the Huawei Marine joint venture net income and higher telecom maintenance, partially offset by recognized losses associated with two offshore power projects during the year.
3
Exhibit 99.1
• | Energy - For the fourth quarter of 2017, American Natural Gas (“ANG”) reported Net Income of $1.5 million as compared to Net (Loss) $(0.06) million for the year-ago quarter. For the full year ended December 31, 2017, Net (Loss) was $(0.5) million, as compared to Net Income of $0.01 million for the full year 2016. |
Adjusted EBITDA was $0.4 million for the fourth quarter of 2017, as compared to $0.9 million for the year-ago quarter, as the company completed the integration and upgrade of approximately 18 fueling stations across the company which should allow ANG to ramp volumes and increase capacity utilization across its nationwide network. For the full year ended December 31, 2017, Adjusted EBITDA was $2.9 million, as compared to $2.5 million for the full year 2016, due primarily to the increased number of stations owned and/or operated versus the prior year, offset by the non-renewal of certain alternative fuel tax credits in 2017 and incremental costs associated with integration of certain acquired stations. ANG currently owns and/or operates 44 natural gas fueling stations, including stations under development, in 15 states.
• | Telecommunications - For the fourth quarter of 2017, Net Income for PTGi-ICS was Net Income of $1.3 million, as compared to Net (Loss) of $(2.6) million for the year-ago quarter. For the full year ended December 31, 2017, Net Income was $6.2 million, as compared to $1.4 million for the full year 2016. |
Adjusted EBITDA was $1.6 million for the fourth quarter of 2017, essentially in line with $1.5 million in the year-ago quarter. For the full year ended December 31, 2017, Adjusted EBITDA was $6.9 million, as compared to $5.6 million for the full year 2016, as PTGi ICS continued to focus on higher margin wholesale telecom traffic.
• | Insurance - As of December 31, 2017, the Company's Insurance subsidiary had approximately $74.7 million of statutory surplus, $86.4 million of total adjusted capital and $2.1 billion in total GAAP assets. |
INSURANCE SEGMENT ADJUSTED OPERATING INCOME ("AOI") | |||||||||||||||||||||||
(in thousands) | Three Months Ended December 31, | Years Ended December 31, | |||||||||||||||||||||
2017 | 2016 | Change | 2017 | 2016 | Change | ||||||||||||||||||
Insurance | $ | 2,629 | $ | (6,901 | ) | $ | 9,530 | $ | 7,982 | $ | (15,933 | ) | $ | 23,915 | |||||||||
Adjusted Operating Income / (Loss) was Income of $2.6 million for the fourth quarter of 2017, as compared to a Loss of $(6.9) million in the year-ago quarter, due primarily to higher net investment income and a reduction in deferred tax expense as compared to the year-ago quarter. For the full year ended December 31, 2017, Adjusted Operating Income / (Loss) was Income of $8.0 million, as compared to a Loss of $(15.9) million for the year-ago period, due primarily to higher net investment income and reserve releases during 2017.
During the fourth quarter, Continental General Insurance Company (“CGI”) signed a definitive agreement to acquire Humana Inc.’s (NYSE: HUM) long-term care insurance business, KMG America Corporation (“KMG”). As of September 30, 2017, KMG’s subsidiary, Kanawha Insurance Company (“Kanawha”), had approximately $150 million of Statutory Capital and Surplus with approximately $2.3 billion of cash and invested assets. Once the proposed transaction is completed, CGI’s insurance platform will have approximately $3.5 billion in cash and invested assets. The transaction is expected to close by the third quarter of 2018 and is expected to be immediately accretive to CGI's risk-based and statutory capital.
4
Exhibit 99.1
• | Pansend Life Sciences - Companies in the Pansend Life Sciences, LLC portfolio continued to ramp operations and meet critical milestones during the fourth quarter and twelve month period, including R2 Dermatology, MediBeacon and BeneVir, all of which remain in discussions with various strategic parties. |
• | Other - The Company’s Other segment primarily includes over-the-air broadcast television assets, a console and mobile video game publisher and other investments. During the fourth quarter, the Company’s broadcasting subsidiary, HC2 Broadcasting Holdings Inc., entered into a $75 million bridge loan to primarily finance acquisitions in the over-the-air broadcast television distribution market. Subsequent to quarter end, the bridge loan was increased by $27 million. The Company filed the $75 million bridge loan credit agreement and the amendment to the credit agreement on a Form 8-K. |
As of February 23, 2018, through a series of transactions, HC2’s broadcasting subsidiary had acquired 135 operational stations, including 4 full-power stations, 34 Class A stations and 97 LPTV stations. In addition, HC2 Broadcasting has 476 silent licenses and construction permits. The total HC2 Broadcasting footprint, excluding construction permits, covers approximately 60 percent of the U.S. population, in over 100 U.S. markets, including nine of the top ten markets across the United States.
• | HC2 Corporate - The Company received a combined $11.5 million and $36.0 million of dividends and tax share from DBMG and PTGi-ICS for the fourth quarter and full year 2017, respectively. During 2017, the Company secured financing for new strategic acquisitions, including over-the-air broadcasting assets, invested strategically across the existing platform, including companies in the Pansend portfolio, where several key milestones and accomplishments were achieved in 2017 and reduced the cumulative outstanding preferred equity to $26.7 million as of December 31, 2017. |
Introduces 2018 Guidance for Construction and Marine Services Segments
In order to provide additional visibility into the Company’s two largest Adjusted EBITDA segment contributors, Construction and Marine Services, the Company initiated a guidance range reflecting its current expectations for full year 2018 Adjusted EBITDA, due in part to their strong backlog and opportunity pipelines at year end 2017. While the complex nature of certain large-scale DBM Global and Global Marine projects could cause quarterly variability in their financial results, the Company currently expects the following for the full year 2018:
• | Construction: $60 million and $65 million of Adjusted EBITDA |
• | Marine Services: $45 million and $50 million of Adjusted EBITDA |
The Company has provided 2018 guidance with regard to the non-GAAP measures of Adjusted EBITDA. These measures exclude from the corresponding GAAP financial measures the effect of special items as described below under "Non-GAAP Financial Measures." The Company has not provided a reconciliation of such non-GAAP guidance to the most directly comparable GAAP measure because it cannot predict and quantify with a reasonable degree of confidence all of the special items that may occur during 2018.
HC2 does not guarantee future results of any kind. The Company’s guidance is based on numerous assumptions about future events and conditions and, therefore, could vary materially from actual results, and is subject to risks and uncertainties, including, without
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Exhibit 99.1
limitation, those factors outlined in the “Forward Looking Statements” of this release and the “Risk Factors” section of the Company’s annual and quarterly reports filed with the Securities and Exchange Commission (“SEC”).
6
Exhibit 99.1
Conference Call
HC2 Holdings, Inc. will host a live conference call to discuss its fourth quarter and full year 2017 financial results and operations today, Wednesday, March 14, 2018, at 5:00 p.m. ET. The Company will post an earnings supplemental presentation in the Investor Relations section of the HC2 Website, www.hc2.com, to accompany the conference call.
Dial-in instructions for the conference call and the replay are as follows:
Live Call
Domestic Dial-In (Toll Free): 1-866-395-3893
International Dial-In: 1-678-509-7540
Participant Entry Number: 3278987
Alternatively, a live webcast of the conference call can be accessed by interested parties through the Investor Relations section of the HC2 Website, www.hc2.com.
Conference Replay*
Domestic Dial-In (Toll Free): 1-855-859-2056
International Dial-In: 1-404-537-3406
Conference Number: 3278987
*Available approximately two hours after the end of the conference call through April 14, 2018.
About HC2
HC2 Holdings, Inc. is a publicly traded (NYSE:HCHC) diversified holding company, which seeks opportunities to acquire and grow businesses that can generate long-term sustainable free cash flow and attractive returns in order to maximize value for all stakeholders. HC2 has a diverse array of operating subsidiaries across seven reportable segments, including Construction, Marine Services, Energy, Telecommunications, Life Sciences, Insurance and Other. HC2's largest operating subsidiaries include DBM Global Inc., a family of companies providing fully integrated structural and steel construction services, and Global Marine Systems Limited, a leading provider of engineering and underwater services on submarine cables. Founded in 1994, HC2 is headquartered in New York, New York. Learn more about HC2 and its portfolio companies at www.hc2.com.
For information on HC2 Holdings, Inc., please contact Andrew G. Backman - Managing Director - Investor Relations & Public Relations - abackman@hc2.com - 212-339-5836
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Exhibit 99.1
Non-GAAP Financial Measures
In this release, HC2 refers to certain financial measures that are not presented in accordance with U.S. generally accepted accounting principles (“GAAP”), including Core Operating Subsidiary Adjusted EBITDA, Total Adjusted EBITDA (excluding the Insurance segment) and Adjusted EBITDA for its operating segments and Adjusted Operating Income for the Insurance segment (“Insurance AOI”).
Adjusted EBITDA
Management believes that Adjusted EBITDA measures provide investors with meaningful information for gaining an understanding of the Company’s results as it is frequently used by the financial community to provide insight into an organization’s operating trends and facilitates comparisons between peer companies, because interest, taxes, depreciation, amortization and the other items for which adjustments are made as noted in the definition of Adjusted EBITDA below can differ greatly between organizations as a result of differing capital structures and tax strategies. In addition, management uses Adjusted EBITDA measures in evaluating certain of the Company’s segments' performance because they eliminate the effects of considerable amounts of non-cash depreciation and amortization and items not within the control of the Company’s operations managers. While management believes that these non-GAAP measurements are useful as supplemental information, such adjusted results are not intended to replace our GAAP financial results and should be read together with HC2’s results reported under GAAP.
Management defines Adjusted EBITDA as net income (loss), excluding the Insurance segment, adjusted to exclude the impact of depreciation and amortization; amortization of equity method fair value adjustments at acquisition; (gain) loss on sale or disposal of assets; lease termination costs; asset impairment expense; interest expense; net gain (loss) on contingent consideration; loss on early extinguishment or restructuring of debt; other (income) expense, net; foreign currency transaction (gain) loss included in cost of revenue; income tax (benefit) expense; (gain) loss from discontinued operations; noncontrolling interest; bonus to be settled in equity; share-based compensation expense; non-recurring items; and acquisition costs. A reconciliation of Adjusted EBITDA to Net Income (Loss) is included in the financial tables at the end of this release.
Management recognizes that using Adjusted EBITDA as a performance measure has inherent limitations as an analytical tool as compared to net income (loss) or other GAAP financial measures, as these non-GAAP measures exclude certain items, including items that are recurring in nature, which may be meaningful to investors.
As a result of the exclusions, Adjusted EBITDA should not be considered in isolation and do not purport to be alternatives to net income (loss) or other GAAP financial measures or a measure of our operating performance.
Adjusted Operating Income - Insurance
Adjusted Operating Income for the Insurance segment (“Insurance AOI”) is a non-U.S. GAAP financial measure frequently used throughout the insurance industry and is an economic measure the Insurance segment uses to evaluate its financial performance. Management believes that Insurance AOI measures provide investors with meaningful information for gaining an understanding of certain results and provides insight into an organization’s operating trends and facilitates comparisons between peer companies. However, Insurance AOI has certain limitations and the Company may not calculate it the same as other companies in our industry. It should therefore be read together with the Company's results calculated in accordance with U.S. GAAP.
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Exhibit 99.1
Similarly to Adjusted EBITDA, using Insurance AOI as a performance measure has inherent limitations as an analytical tool as compared to income (loss) from operations or other U.S. GAAP financial measures, as this non-U.S. GAAP measure excludes certain items, including items that are recurring in nature, which may be meaningful to investors. As a result of the exclusions, Insurance AOI should not be considered in isolation and does not purport to be an alternative to income (loss) from operations or other U.S. GAAP financial measures as a measure of our operating performance.
Management defines Insurance AOI as Net income (loss) for the Insurance segment adjusted to exclude the impact of net investment gains (losses), including OTTI losses recognized in operations, asset impairment, intercompany elimination, non-recurring items, and acquisition costs. Management believes that Insurance AOI provides a meaningful financial metric that helps investors understand certain results and profitability. While these adjustments are an integral part of the overall performance of the Insurance segment, market conditions impacting these items can overshadow the underlying performance of the business. Accordingly, the Company believes using a measure which excludes their impact is effective in analyzing the trends of our operations.
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Exhibit 99.1
Cautionary Statement Regarding Forward-Looking Statements
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This release contains, and certain oral statements made by our representatives from time to time may contain, forward-looking statements. Generally, forward-looking statements include information describing actions, events, results, strategies and expectations and are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans,” “seeks,” “estimates,” “projects,” “may,” “will,” “could,” “might,” or “continues” or similar expressions. The forward-looking statements in this press release include, without limitation, our 2018 guidance for the Construction and Marine Services segments and statements regarding our expectation regarding building shareholder value and future cash and invested assets. Such statements are based on the beliefs and assumptions of HC2's management and the management of HC2's subsidiaries and portfolio companies. The Company believes these judgments are reasonable, but you should understand that these statements are not guarantees of performance or results, and the Company’s actual results could differ materially from those expressed or implied in the forward-looking statements due to a variety of important factors, both positive and negative, that may be revised or supplemented in subsequent reports on Forms 10-K, 10-Q and 8-K. Such important factors include, without limitation, issues related to the restatement of our financial statements; the fact that HC2 has historically identified material weaknesses in our internal control over financial reporting, and any inability to remediate future material weaknesses; capital market conditions; the ability of HC2's subsidiaries and portfolio companies to generate sufficient net income and cash flows to make upstream cash distributions; volatility in the trading price of HC2 common stock; the ability of HC2 and its subsidiaries and portfolio companies to identify any suitable future acquisition opportunities; our ability to realize efficiencies, cost savings, income and margin improvements, growth, economies of scale and other anticipated benefits of strategic transactions; difficulties related to the integration of financial reporting of acquired or target businesses; difficulties completing pending and future acquisitions and dispositions; effects of litigation, indemnification claims, and other contingent liabilities; changes in regulations and tax laws; and risks that may affect the performance of the operating subsidiaries and portfolio companies of HC2. Although HC2 believes its expectations and assumptions regarding its future operating performance are reasonable, there can be no assurance that the expectations reflected herein will be achieved. These risks and other important factors discussed under the caption “Risk Factors” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), and our other reports filed with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release.
You should not place undue reliance on forward-looking statements. All forward-looking statements attributable to HC2 or persons acting on its behalf are expressly qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and unless legally required, HC2 undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
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HC2 HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Years Ended December 31, | ||||||||||||
2017 | 2016 | 2015 | ||||||||||
Revenue | $ | 1,482,546 | $ | 1,415,669 | $ | 1,117,941 | ||||||
Life, accident and health earned premiums, net | 80,524 | 79,406 | 1,578 | |||||||||
Net investment income | 66,070 | 58,032 | 1,031 | |||||||||
Net realized and unrealized gains on investments | 4,983 | 5,019 | 256 | |||||||||
Net revenue | 1,634,123 | 1,558,126 | 1,120,806 | |||||||||
Operating expenses | ||||||||||||
Cost of revenue | 1,313,069 | 1,254,041 | 982,623 | |||||||||
Policy benefits, changes in reserves, and commissions | 108,695 | 123,182 | 2,245 | |||||||||
Selling, general and administrative | 182,880 | 152,890 | 108,527 | |||||||||
Depreciation and amortization | 31,315 | 24,493 | 24,796 | |||||||||
Other operating (income) expenses | (704 | ) | 4,941 | 1,902 | ||||||||
Total operating expenses | 1,635,255 | 1,559,547 | 1,120,093 | |||||||||
Income (loss) from operations | (1,132 | ) | (1,421 | ) | 713 | |||||||
Interest expense | (55,098 | ) | (43,375 | ) | (39,017 | ) | ||||||
Gain (loss) on contingent consideration | 11,411 | (8,929 | ) | — | ||||||||
Income (loss) from equity investees | 17,840 | 10,768 | (1,499 | ) | ||||||||
Other expenses, net | (12,772 | ) | (2,836 | ) | (6,820 | ) | ||||||
Loss from continuing operations before income taxes | (39,751 | ) | (45,793 | ) | (46,623 | ) | ||||||
Income tax (expense) benefit | (10,740 | ) | (51,638 | ) | 10,882 | |||||||
Loss from continuing operations | (50,491 | ) | (97,431 | ) | (35,741 | ) | ||||||
Loss from discontinued operations | — | — | (21 | ) | ||||||||
Net loss | (50,491 | ) | (97,431 | ) | (35,762 | ) | ||||||
Less: Net loss attributable to noncontrolling interest and redeemable noncontrolling interest | 3,580 | 2,882 | 197 | |||||||||
Net loss attributable to HC2 Holdings, Inc. | (46,911 | ) | (94,549 | ) | (35,565 | ) | ||||||
Less: Preferred stock and deemed dividends from conversions | 2,767 | 10,849 | 4,285 | |||||||||
Net loss attributable to common stock and participating preferred stockholders | $ | (49,678 | ) | $ | (105,398 | ) | $ | (39,850 | ) | |||
Basic and diluted loss per common share | ||||||||||||
Loss from continuing operations | $ | (1.16 | ) | $ | (2.83 | ) | $ | (1.50 | ) | |||
Loss from discontinued operations | — | — | — | |||||||||
Basic and diluted loss per share | $ | (1.16 | ) | $ | (2.83 | ) | $ | (1.50 | ) | |||
Weighted average common shares outstanding: | ||||||||||||
Basic and diluted | 42,824 | 37,260 | 26,482 | |||||||||
11
HC2 HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
December 31, 2017 | December 31, 2016 | |||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturity securities, available-for-sale at fair value | $ | 1,340,626 | $ | 1,278,958 | ||||
Equity securities, available-for-sale at fair value | 47,500 | 51,519 | ||||||
Mortgage loans | 52,109 | 16,831 | ||||||
Policy loans | 17,944 | 18,247 | ||||||
Other invested assets | 85,419 | 62,363 | ||||||
Total investments | 1,543,598 | 1,427,918 | ||||||
Cash and cash equivalents | 97,885 | 115,371 | ||||||
Accounts receivable, net | 322,446 | 267,598 | ||||||
Recoverable from reinsurers | 526,337 | 524,201 | ||||||
Deferred tax asset | 1,661 | 1,108 | ||||||
Property, plant and equipment, net | 374,660 | 286,458 | ||||||
Goodwill | 131,741 | 98,086 | ||||||
Intangibles, net | 117,105 | 39,722 | ||||||
Other assets | 102,258 | 74,814 | ||||||
Total assets | $ | 3,217,691 | $ | 2,835,276 | ||||
Liabilities, temporary equity and stockholders’ equity | ||||||||
Life, accident and health reserves | $ | 1,693,961 | $ | 1,648,565 | ||||
Annuity reserves | 243,156 | 251,270 | ||||||
Value of business acquired | 42,969 | 47,613 | ||||||
Accounts payable and other current liabilities | 347,492 | 251,733 | ||||||
Deferred tax liability | 10,740 | 15,304 | ||||||
Debt obligations | 593,172 | 428,496 | ||||||
Other liabilities | 70,174 | 92,871 | ||||||
Total liabilities | 3,001,664 | 2,735,852 | ||||||
Commitments and contingencies | ||||||||
Temporary equity | ||||||||
Preferred stock | 26,296 | 29,459 | ||||||
Redeemable noncontrolling interest | 1,609 | 2,526 | ||||||
Total temporary equity | 27,905 | 31,985 | ||||||
Stockholders’ equity | ||||||||
Common stock, $.001 par value | 44 | 42 | ||||||
Shares authorized: 80,000,000 at December 31, 2017 and December 31, 2016; | ||||||||
Shares issued: 44,570,004 and 42,070,675 at December 31, 2017 and December 31, 2016; | ||||||||
Shares outstanding: 44,190,826 and 41,811,288 at December 31, 2017 and December 31, 2016, respectively | ||||||||
Additional paid-in capital | 254,685 | 241,485 | ||||||
Treasury stock, at cost; 379,178 and 259,387 shares at December 31, 2017 and December 31, 2016, respectively | (2,057 | ) | (1,387 | ) | ||||
Accumulated deficit | (221,189 | ) | (174,278 | ) | ||||
Accumulated other comprehensive income (loss) | 41,688 | (21,647 | ) | |||||
Total HC2 Holdings, Inc. stockholders’ equity | 73,171 | 44,215 | ||||||
Noncontrolling interest | 114,951 | 23,224 | ||||||
Total stockholders’ equity | 188,122 | 67,439 | ||||||
Total liabilities, temporary equity and stockholders’ equity | $ | 3,217,691 | $ | 2,835,276 | ||||
12
HC2 HOLDINGS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(in thousands)
(in thousands): | Three months ended December 31, 2017 | |||||||||||||||||||||||||||||||
Core Operating Subsidiaries | Early Stage and Other | HC2 | ||||||||||||||||||||||||||||||
Construction | Marine Services | Energy | Telecom | Life Sciences | Other and Eliminations | Non-operating Corporate | ||||||||||||||||||||||||||
Net loss attributable to HC2 Holdings, Inc. | $ | (8,537 | ) | |||||||||||||||||||||||||||||
Less: Net Income attributable to HC2 Holdings Insurance Segment | 3,383 | |||||||||||||||||||||||||||||||
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment | $ | 9,160 | $ | 6,230 | $ | 1,485 | $ | 1,253 | $ | (3,822 | ) | $ | (8,218 | ) | $ | (18,008 | ) | (11,920 | ) | |||||||||||||
Adjustments to reconcile net income (loss) to Adjusted EBITDA: | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 1,389 | 6,337 | 1,195 | 86 | 57 | 575 | 21 | 9,660 | ||||||||||||||||||||||||
Depreciation and amortization (included in cost of revenue) | 1,419 | — | — | — | — | — | — | 1,419 | ||||||||||||||||||||||||
Amortization of equity method fair value adjustment at acquisition | — | (371 | ) | — | — | — | — | — | (371 | ) | ||||||||||||||||||||||
(Gain) loss on sale or disposal of assets | 199 | — | 208 | 181 | — | — | — | 588 | ||||||||||||||||||||||||
Lease termination costs | — | — | — | 2 | — | — | — | 2 | ||||||||||||||||||||||||
Interest expense | 357 | 1,029 | 629 | 4 | — | 1,965 | 11,704 | 15,688 | ||||||||||||||||||||||||
Net gain on contingent consideration | — | — | — | — | — | — | (5,410 | ) | (5,410 | ) | ||||||||||||||||||||||
Other (income) expense, net | 117 | 240 | (164 | ) | 72 | 8 | 3,741 | 368 | 4,382 | |||||||||||||||||||||||
Foreign currency gain (included in cost of revenue) | — | 52 | — | — | — | — | — | 52 | ||||||||||||||||||||||||
Income tax (benefit) expense | 887 | (36 | ) | (4,255 | ) | 7 | (820 | ) | (1,129 | ) | (1,073 | ) | (6,419 | ) | ||||||||||||||||||
Noncontrolling interest | 751 | (121 | ) | 1,321 | — | (728 | ) | 1,502 | — | 2,725 | ||||||||||||||||||||||
Bonus to be settled in equity | — | — | — | — | — | — | 2,780 | 2,780 | ||||||||||||||||||||||||
Share-based compensation expense | — | 394 | 3 | — | 80 | 213 | 547 | 1,237 | ||||||||||||||||||||||||
Acquisition costs | 833 | 1,515 | — | — | — | 2,648 | 339 | 5,335 | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 15,112 | $ | 15,269 | $ | 422 | $ | 1,605 | $ | (5,225 | ) | $ | 1,297 | $ | (8,732 | ) | $ | 19,748 | ||||||||||||||
Total Core Operating Subsidiaries | $ | 32,408 | ||||||||||||||||||||||||||||||
13
HC2 HOLDINGS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(in thousands)
(in thousands): | Three Months Ended December 31, 2016 | |||||||||||||||||||||||||||||||
Core Operating Subsidiaries | Early Stage and Other | HC2 | ||||||||||||||||||||||||||||||
Construction | Marine Services | Energy | Telecom | Life Sciences | Other and Eliminations | Non-operating Corporate | ||||||||||||||||||||||||||
Net loss attributable to HC2 Holdings, Inc. | $ | (61,464 | ) | |||||||||||||||||||||||||||||
Less: Net Income attributable to HC2 Holdings Insurance Segment | (2,050 | ) | ||||||||||||||||||||||||||||||
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment | $ | 7,292 | $ | 8,667 | $ | (61 | ) | $ | (2,572 | ) | $ | (4,655 | ) | $ | (3,536 | ) | $ | (64,549 | ) | (59,414 | ) | |||||||||||
Adjustments to reconcile net income (loss) to Adjusted EBITDA: | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 629 | 5,214 | 769 | 115 | 37 | 430 | 5 | 7,199 | ||||||||||||||||||||||||
Depreciation and amortization (included in cost of revenue) | 1,322 | — | — | — | — | — | — | 1,322 | ||||||||||||||||||||||||
Amortization of equity method fair value adjustment at acquisition | — | (325 | ) | — | — | — | — | — | (325 | ) | ||||||||||||||||||||||
(Gain) loss on sale or disposal of assets | 2,626 | 1 | — | 708 | — | — | — | 3,335 | ||||||||||||||||||||||||
Interest expense | 322 | 1,091 | 69 | — | — | 1,163 | 9,116 | 11,761 | ||||||||||||||||||||||||
Net loss (gain) on contingent consideration | — | (2,482 | ) | — | — | — | — | 11,411 | 8,929 | |||||||||||||||||||||||
Other (income) expense, net | (75 | ) | (1,234 | ) | 391 | 487 | 10 | 99 | (966 | ) | (1,288 | ) | ||||||||||||||||||||
Foreign currency gain (included in cost of revenue) | — | 864 | — | — | — | — | — | 864 | ||||||||||||||||||||||||
Income tax (benefit) expense | 6,086 | 2,150 | (535 | ) | 2,803 | 1,558 | 3,250 | 32,726 | 48,038 | |||||||||||||||||||||||
Noncontrolling interest | 594 | 464 | (253 | ) | — | (809 | ) | (513 | ) | — | (517 | ) | ||||||||||||||||||||
Bonus to be settled in equity | — | — | — | — | — | — | 2,503 | 2,503 | ||||||||||||||||||||||||
Share-based compensation expense | — | 375 | 490 | — | 67 | 35 | 712 | 1,679 | ||||||||||||||||||||||||
Non-recurring items | 1,868 | 24 | — | — | — | — | 490 | 2,382 | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 20,664 | $ | 14,809 | $ | 870 | $ | 1,541 | $ | (3,792 | ) | $ | 928 | $ | (8,552 | ) | $ | 26,468 | ||||||||||||||
Total Core Operating Subsidiaries | $ | 37,884 | ||||||||||||||||||||||||||||||
14
HC2 HOLDINGS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(in thousands)
(in thousands): | Year ended December 31, 2017 | |||||||||||||||||||||||||||||||
Core Operating Subsidiaries | Early Stage and Other | HC2 | ||||||||||||||||||||||||||||||
Construction | Marine Services | Energy | Telecom | Life Sciences | Other and Eliminations | Non-operating Corporate | ||||||||||||||||||||||||||
Net loss attributable to HC2 Holdings, Inc. | $ | (46,911 | ) | |||||||||||||||||||||||||||||
Less: Net Income attributable to HC2 Holdings Insurance Segment | 7,066 | |||||||||||||||||||||||||||||||
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment | $ | 23,624 | $ | 15,173 | $ | (516 | ) | $ | 6,163 | $ | (18,098 | ) | $ | (18,005 | ) | $ | (62,318 | ) | (53,977 | ) | ||||||||||||
Adjustments to reconcile net income (loss) to Adjusted EBITDA: | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 5,583 | 22,898 | 5,071 | 371 | 186 | 1,508 | 71 | 35,688 | ||||||||||||||||||||||||
Depreciation and amortization (included in cost of revenue) | 5,254 | — | — | — | — | — | — | 5,254 | ||||||||||||||||||||||||
Amortization of equity method fair value adjustment at acquisition | — | (1,594 | ) | — | — | — | — | — | (1,594 | ) | ||||||||||||||||||||||
Asset impairment expense | — | — | — | — | — | 1,810 | — | 1,810 | ||||||||||||||||||||||||
(Gain) loss on sale or disposal of assets | 292 | (3,500 | ) | 247 | 181 | — | — | — | (2,780 | ) | ||||||||||||||||||||||
Lease termination costs | — | 249 | — | 17 | — | — | — | 266 | ||||||||||||||||||||||||
Interest expense | 976 | 4,392 | 1,181 | 41 | — | 4,373 | 44,135 | 55,098 | ||||||||||||||||||||||||
Net gain on contingent consideration | — | — | — | — | — | — | (11,411 | ) | (11,411 | ) | ||||||||||||||||||||||
Other (income) expense, net | (41 | ) | 2,683 | 1,488 | 149 | (17 | ) | 6,541 | (92 | ) | 10,711 | |||||||||||||||||||||
Foreign currency gain (included in cost of revenue) | — | (79 | ) | — | — | — | — | — | (79 | ) | ||||||||||||||||||||||
Income tax (benefit) expense | 10,679 | 203 | (4,243 | ) | 7 | (820 | ) | (1,129 | ) | (10,185 | ) | (5,488 | ) | |||||||||||||||||||
Noncontrolling interest | 1,941 | 260 | (681 | ) | — | (3,936 | ) | (1,164 | ) | — | (3,580 | ) | ||||||||||||||||||||
Bonus to be settled in equity | — | — | — | — | — | — | 4,130 | 4,130 | ||||||||||||||||||||||||
Share-based compensation expense | — | 1,527 | 364 | — | 319 | 279 | 2,754 | 5,243 | ||||||||||||||||||||||||
Acquisition costs | 3,280 | 1,815 | — | — | — | 2,648 | 3,764 | 11,507 | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 51,588 | $ | 44,027 | $ | 2,911 | $ | 6,929 | $ | (22,366 | ) | $ | (3,139 | ) | $ | (29,152 | ) | $ | 50,798 | |||||||||||||
Total Core Operating Subsidiaries | $ | 105,455 | ||||||||||||||||||||||||||||||
15
HC2 HOLDINGS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED EBITDA
(in thousands)
(in thousands): | Year Ended December 31, 2016 | |||||||||||||||||||||||||||||||
Core Operating Subsidiaries | Early Stage and Other | HC2 | ||||||||||||||||||||||||||||||
Construction | Marine Services | Energy | Telecom | Life Sciences | Other and Eliminations | Non-operating Corporate | ||||||||||||||||||||||||||
Net loss attributable to HC2 Holdings, Inc. | $ | (94,549 | ) | |||||||||||||||||||||||||||||
Less: Net loss attributable to HC2 Holdings Insurance Segment | (14,028 | ) | ||||||||||||||||||||||||||||||
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment | $ | 28,002 | $ | 17,447 | $ | 7 | $ | 1,435 | $ | (7,646 | ) | $ | (24,800 | ) | $ | (94,966 | ) | (80,521 | ) | |||||||||||||
Adjustments to reconcile net income (loss) to Adjusted EBITDA: | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 1,892 | 22,007 | 2,248 | 504 | 124 | 1,480 | 9 | 28,264 | ||||||||||||||||||||||||
Depreciation and amortization (included in cost of revenue) | 4,370 | — | — | — | — | — | — | 4,370 | ||||||||||||||||||||||||
Amortization of equity method fair value adjustment at acquisition | — | (1,371 | ) | — | — | — | — | — | (1,371 | ) | ||||||||||||||||||||||
(Gain) loss on sale or disposal of assets | 1,663 | (9 | ) | — | 708 | — | — | — | 2,362 | |||||||||||||||||||||||
Lease termination costs | — | — | — | 179 | — | — | — | 179 | ||||||||||||||||||||||||
Interest expense | 1,239 | 4,774 | 211 | — | — | 1,164 | 35,987 | 43,375 | ||||||||||||||||||||||||
Net loss (gain) on contingent consideration | — | (2,482 | ) | — | — | — | — | 11,411 | 8,929 | |||||||||||||||||||||||
Other (income) expense, net | (163 | ) | (2,424 | ) | (8 | ) | (87 | ) | (3,213 | ) | 9,987 | (1,277 | ) | 2,815 | ||||||||||||||||||
Foreign currency gain (included in cost of revenue) | — | (1,106 | ) | — | — | — | — | — | (1,106 | ) | ||||||||||||||||||||||
Income tax (benefit) expense | 18,727 | 1,394 | (535 | ) | 2,803 | 1,558 | 3,250 | 11,245 | 38,442 | |||||||||||||||||||||||
Noncontrolling interest | 1,834 | 974 | (4 | ) | — | (3,111 | ) | (2,575 | ) | — | (2,882 | ) | ||||||||||||||||||||
Bonus to be settled in equity | — | — | — | — | — | — | 2,503 | 2,503 | ||||||||||||||||||||||||
Share-based compensation expense | — | 1,682 | 597 | — | 251 | 273 | 5,545 | 8,348 | ||||||||||||||||||||||||
Non-recurring items | — | — | — | — | — | — | 1,513 | 1,513 | ||||||||||||||||||||||||
Acquisition costs | 2,296 | 290 | 27 | 18 | — | — | 2,312 | 4,943 | ||||||||||||||||||||||||
Adjusted EBITDA | $ | 59,860 | $ | 41,176 | $ | 2,543 | $ | 5,560 | $ | (12,037 | ) | $ | (11,221 | ) | $ | (25,718 | ) | $ | 60,163 | |||||||||||||
Total Core Operating Subsidiaries | $ | 109,139 | ||||||||||||||||||||||||||||||
16
HC2 HOLDINGS, INC.
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED OPERATING INCOME ("INSURANCE AOI")
(in thousands)
The table below shows the adjustments made to the reported Net income (loss) of the Insurance segment to calculate Insurance AOI for the three months ended December 31, 2017 and 2016 respectively:
Three months ended December 31, | ||||||||||||
2017 | 2016 | Increase / (Decrease) | ||||||||||
Net income (loss) - Insurance segment | $ | 3,381 | $ | (2,050 | ) | $ | 5,431 | |||||
Net realized and unrealized gains on investments | (2,129 | ) | (7,696 | ) | 5,567 | |||||||
Asset impairment | — | 2,400 | (2,400 | ) | ||||||||
Acquisition costs | 1,377 | 445 | 932 | |||||||||
Insurance AOI | $ | 2,629 | $ | (6,901 | ) | $ | 9,530 | |||||
The table below shows the adjustments made to the reported Net income (loss) of the Insurance segment to calculate Insurance AOI for the years ended December 31, 2017 and 2016, respectively:
Years Ended December 31, | ||||||||||||
2017 | 2016 | Increase / (Decrease) | ||||||||||
Net income (loss) - Insurance segment | $ | 7,066 | $ | (14,028 | ) | $ | 21,094 | |||||
Net realized and unrealized gains on investments | (4,983 | ) | (5,019 | ) | 36 | |||||||
Asset impairment | 3,364 | 2,400 | 964 | |||||||||
Acquisition costs | 2,535 | 714 | 1,821 | |||||||||
Insurance AOI | $ | 7,982 | $ | (15,933 | ) | $ | 23,915 | |||||
17
HC2 HOLDINGS, INC.
© HC2 Holdings, Inc. 2018
Fourth Quarter & Year End 2017
Conference Call
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Special Note Regarding Forward-Looking Statements
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This presentation contains, and certain oral statements made by our representatives
from time to time may contain, forward-looking statements. Generally, forward-looking statements include information describing actions, events, results, strategies and
expectations and are generally identifiable by use of the words “believes,” “expects,” “intends,” “anticipates,” “plans,” “seeks,” “estimates,” “projects,” “may,” “will,”
“could,” “might,” or “continues” or similar expressions. The forward-looking statements in this press release include without limitation our 2018 guidance for the
Construction and Marine Services segments and statements regarding our expectation regarding building shareholder value and future cash and invested assets. Such
statements are based on the beliefs and assumptions of HC2's management and the management of HC2's subsidiaries and portfolio companies. The Company
believes these judgments are reasonable, but you should understand that these statements are not guarantees of performance or results, and the Company’s actual
results could differ materially from those expressed or implied in the forward-looking statements due to a variety of important factors, both positive and negative, that
may be revised or supplemented in subsequent reports on Forms 10-K, 10-Q and 8-K. Such important factors include, without limitation, issues related to the restatement
of our financial statements; the fact that we have historically identified material weaknesses in our internal control over financial reporting, and any inability to
remediate future material weaknesses; capital market conditions; the ability of HC2's subsidiaries and portfolio companies to generate sufficient net income and cash
flows to make upstream cash distributions; volatility in the trading price of HC2 common stock; the ability of HC2 and its subsidiaries and portfolio companies to identify
any suitable future acquisition opportunities; our ability to realize efficiencies, cost savings, income and margin improvements, growth, economies of scale and other
anticipated benefits of strategic transactions; difficulties related to the integration of financial reporting of acquired or target businesses; difficulties completing pending
and future acquisitions and dispositions; effects of litigation, indemnification claims, and other contingent liabilities; changes in regulations and tax laws; and risks that
may affect the performance of the operating subsidiaries and portfolio companies of HC2. Although HC2 believes its expectations and assumptions regarding its future
operating performance are reasonable, there can be no assurance that the expectations reflected herein will be achieved. These risks and other important factors
discussed under the caption “Risk Factors” in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”), and our other
reports filed with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release.
You should not place undue reliance on forward-looking statements. All forward-looking statements attributable to HC2 or persons acting on its behalf are expressly
qualified in their entirety by the foregoing cautionary statements. All such statements speak only as of the date made, and unless legally required, HC2 undertakes no
obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Safe Harbor Disclaimers
1
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Non-GAAP Financial Measures
Adjusted EBITDA
In this presentation, HC2 refers to certain financial measures that are not presented in accordance with U.S. generally accepted accounting principles (“GAAP”),
including Core Operating Subsidiary Adjusted EBITDA, Total Adjusted EBITDA (excluding the Insurance segment) and Adjusted EBITDA for its operating segments.
Management believes that Adjusted EBITDA measures provide investors with meaningful information for gaining an understanding of the Company’s results as it is
frequently used by the financial community to provide insight into an organization’s operating trends and facilitates comparisons between peer companies, because
interest, taxes, depreciation, amortization and the other items for which adjustments are made as noted in the definition of Adjusted EBITDA below can differ greatly
between organizations as a result of differing capital structures and tax strategies. In addition, management uses Adjusted EBITDA measures in evaluating certain of the
Company’s segments performance because they eliminate the effects of considerable amounts of non-cash depreciation and amortization and items not within the
control of the Company’s operations managers. While management believes that these non-GAAP measurements are useful as supplemental information, such
adjusted results are not intended to replace our GAAP financial results and should be read together with HC2’s results reported under GAAP.
Management defines Adjusted EBITDA as net income (loss) adjusted to exclude the impact of depreciation and amortization; amortization of equity method fair value
adjustments at acquisition; (gain) loss on sale or disposal of assets; lease termination costs; asset impairment expense; interest expense; net gain (loss) on contingent
consideration; loss on early extinguishment or restructuring of debt; other (income) expense, net; foreign currency transaction (gain) loss included in cost of revenue;
income tax (benefit) expense; (gain) loss from discontinued operations; noncontrolling interest; bonus to be settled in equity; share-based compensation expense; non-
recurring items; and acquisition costs. A reconciliation of Adjusted EBITDA to Net Income (Loss) is included in the financial tables at the end of this presentation.
Management recognizes that using Adjusted EBITDA as a performance measure has inherent limitations as an analytical tool as compared to net income (loss) or other
GAAP financial measures, as these non-GAAP measures exclude certain items, including items that are recurring in nature, which may be meaningful to investors. As a
result of the exclusions, Adjusted EBITDA should not be considered in isolation and do not purport to be alternatives to net income (loss) or other GAAP financial
measures or a measure of our operating performance.
Adjusted Operating Income
Insurance Adjusted Operating Income for the Insurance segment ("Insurance AOI") is a non-U.S. GAAP financial measure frequently used throughout the insurance
industry and is an economic measure the Insurance segment uses to evaluate its financial performance. Management believes that Insurance AOI measures provide
investors with meaningful information for gaining an understanding of certain results and provides insight into an organization’s operating trends and facilitates
comparisons between peer companies. However, Insurance AOI has certain limitations and we may not calculate it the same as other companies in our industry. It
should therefore be read together with the Company's results calculated in accordance with U.S. GAAP. Similarly to Adjusted EBITDA, using Insurance AOI as a
performance measure has inherent limitations as an analytical tool as compared to income (loss) from operations or other U.S. GAAP financial measures, as this non-U.S.
GAAP measure excludes certain items, including items that are recurring in nature, which may be meaningful to investors. As a result of the exclusions, Insurance AOI
should not be considered in isolation and does not purport to be an alternative to income (loss) from operations or other U.S. GAAP financial measures as a measure of
our operating performance. Management defines Insurance AOI as Net income (loss) for the Insurance segment adjusted to exclude the impact of net investment
gains (losses), including OTTI losses recognized in operations; asset impairment; intercompany elimination; non-recurring items; and acquisition costs. Management
believes that Insurance AOI provides a meaningful financial metric that helps investors understand certain results and profitability. While these adjustments are an
integral part of the overall performance of the Insurance segment, market conditions impacting these items can overshadow the underlying performance of the
business. Accordingly, we believe using a measure which excludes their impact is effective in analyzing the trends of our operations.
By accepting this document, each recipient agrees to and acknowledges the foregoing terms and conditions.
Safe Harbor Disclaimers
2
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Agenda
3
OVERVIEW AND
FINANCIAL HIGHLIGHTS
Philip Falcone Chairman, President and CEO
Q AND A
Philip A. Falcone
Michael J. Sena
Andrew G. Backman
Chairman, President and CEO
Chief Financial Officer
Managing Director
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
($m) FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 FY 2016
Adjusted
EBITDA
Core Operating Subsidiaries
Construction $51.6 $15.1 $16.8 $11.1 $8.6 $59.9
Marine Services 44.0 15.3 8.8 3.6 16.3 41.2
Energy 2.9 0.4 0.3 1.0 1.2 2.5
Telecom 6.9 1.6 1.5 2.2 1.7 5.6
Total Core Operating $105.5 $32.4 $27.3 $17.9 $27.8 $109.1
Early Stage and Other Holdings
Life Sciences ($22.4) ($5.2) ($8.2) ($4.9) ($4.1) ($12.0)
Other (3.1) 1.3 (1.1) (2.2) (1.2) (11.2)
Total Early Stage and Other ($25.5) ($3.9) ($9.3) ($7.1) ($5.2) ($23.2)
Non-Operating Corporate ($29.2) ($8.7) ($8.3) ($6.3) ($5.9) ($25.7)
Total HC2 (excluding Insurance) $50.8 $19.7 $9.8 $4.6 $16.7 $60.2
Adjusted
Operating
Income
Core Financial Services
Insurance $8.0 $2.6 $3.7 $2.6 ($1.0) ($15.9)
Segment Financial Summary
4
All data as of December 31, 2017
Construction formerly Manufacturing; Energy formerly Utilities.
Note: Reconciliations of Adjusted EBITDA and Adjusted Operating Income to U.S. GAAP Net Income in appendix. Table may not foot due to rounding. Adjusted Operating Income for Q1 2016 was adjusted to
exclude certain intercompany eliminations to better reflect the results of the Insurance segment, and remain consistent with internally reported metrics. Additional details in appendix.
Adjusted EBITDA for “Core Operating Subsidiaries” $105.5m for FY 2017
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Fourth Quarter and Full Year 2017 Highlights
5
Construction
$723 million record backlog provides significant visibility [~18 – 24 months]
$772 million backlog taking into consideration awarded, but not yet signed contracts
Continue to see opportunities in commercial sector totaling approximately $300m
Completed acquisitions of CanDraft VSI and Mountain States Steel to address compelling bridge market
Recently awarded first bridge infrastructure project following Mountain States acquisition
Distributed $9.5 million of dividend and tax share to HC2 in 4Q17; $28 million for FY17
Marine
Services
$445 million near record backlog
Strong FY17 joint venture and telecom maintenance
Completed acquisition of Fugro’s trenching and cable-laying business
Positioned well for tremendous long-term opportunities in rapidly growing global offshore power market
Continued to maintain three of six global contracted maintenance zone agreements (ACMA / SEAIOCMA / NAZ)
Upgraded fleet - C.S. Recorder (Telecom Install & Oil & Gas); C.S. Symphony (Offshore Power & Oil & Gas)
Energy
Signed first renewable natural gas supply agreement in 4Q17
Alternative Fuel Energy Tax Credit (“AFETC”) credit renewed for 2017; $3.0 million credit for FY17 to be
received in 2Q18
Completed integration & upgrade of 18 fueling stations; 44 stations owned or operated nationwide
HC2 equity ownership in ANG increased to 68% following conversion of a promissory note
Telecom
Continue focus on increasing margin, diversifying global customer base, delivering consistent EBITDA
New account representatives in Latin America, Eastern Europe and Russia
Distributed $2.0 million of dividend to HC2 in 4Q17; $8 million for FY17
Insurance
$7.1 million Net Income for FY17; $8.0 million Adjusted Operating Income for FY17
Announced acquisition of Humana’s ~$2.3 billion long-term care insurance business; Will increase
insurance investment platform to ~$3.5 billion of cash / invested assets once completed (~3Q18)
Pansend Very active discussions continue with strategic parties for multiple Pansend companies
Other
Primarily includes over-the-air broadcast television assets (HC2 Broadcasting Holdings), a console and
mobile video game publisher and other investments
HC2 Broadcasting Holdings Inc., entered into a $75 million bridge loan to primarily finance acquisitions in
the low power broadcast television distribution market; Subsequent to quarter end, increased bridge
loan by $27 million
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
HC2 Broadcasting Holdings Inc.
6
Operational Stations: 135
– Full-Power Stations: 4
– Class A Stations: 34
– LPTV Stations: 97
Silent Licenses & Construction Permits: 476
U.S. Markets: >110
Total Footprint, Excluding Construction
Permits, Covers Approximately 60% of the
U.S. Population**
Broadcast Television Stations: Key Metrics*
HC2 Broadcasting Holdings Inc., a subsidiary of HC2 Holdings, has
strategically acquired broadcast assets across the United States
HC2’s broadcast vision is to capitalize on the opportunities to bring
valuable content to more viewers over-the-air and position the company
for a changing media landscape
Business Description:
Select Management:
Kurt Hanson – Chief Technology Officer,
HC2 Broadcasting Holdings
Louis Libin – Managing Director, Strategy,
HC2 Broadcasting Holdings
Les Levi – Business Development,
HC2 Broadcasting Holdings
Manuel Abud – President and CEO,
Azteca America
*As of 2/23/2018 (includes transactions pending approval at the US FCC)
** Based on 2010 population data
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Looking Ahead - 2018 Focus and Priorities
7
Optimization of HC2 Capital Structure
– Global refinancing of 11% Secured Notes to reduce cost of debt capital
– Continue to reduce cumulative outstanding of preferred equity
– Explore alternative financing structures at subsidiary level
– Explore alternative financing structures for broadcasting assets
Monetization / Value Creation Within Diverse HC2 Portfolio
Continued Focused Expansion of Over-The-Air Broadcast Television Strategy
– Expand market reach of nationwide network
– Valuable alternative distribution channel for content providers
– Improve and add content across acquired assets through strategic relationships
with content providers
Initiated 2018 Guidance for Construction & Marine Services
– DBM Global: Currently expect $60 million - $65 million of FY18 Adjusted EBITDA
– Global Marine: Currently expect $45 million - $50 million of FY18 Adjusted EBITDA
HC2 does not guarantee future results of any kind. Guidance is subject to risks and uncertainties, including, without limitation, those factors outlined in the “Forward Looking
Statements” of this presentation and the “Risk Factors” section of the company’s annual and quarterly reports filed with the Securities and Exchange Commission (SEC).
Questions and Answers
Appendix:
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
HC2’s Diversified Portfolio
10
Early Stage and Other Holdings
Life Sciences: PANSEND
MediBeacon: Completed “Pilot Two” Clinical Study at Washington University in St. Louis (1Q17)
R2 Dermatology: Received FDA Approval for second generation R2 Dermal Cooling System (2Q17)
BeneVir: Granted additional patent protecting oncolytic immunotherapy Stealth-1H & other assets (2Q17)
Genovel: Novel, Patented, “Mini Knee” and “Anatomical Knee” replacements
Triple Ring Technologies: R&D engineering company specializing in medical devices,
homeland security , imaging, sensors, optics, fluidics, robotics & mobile healthcare
All data as of December 31, 2017 unless otherwise noted
Construction formerly Manufacturing; Energy formerly Utilities
HC2 Broadcasting Holdings
Capitalizing on Over-The-Air
broadcast opportunities
704Games (Formerly DMR)
released NASCAR® Heat 2
September 12, 2017
Other:
Core Financial
Services Subsidiaries
~$74.7m of statutory surplus
~$86.4m total adjusted
capital
~$2.1b total GAAP assets
~$1.5b cash & invested
assets
Platform for growth through
additional M&A including
pending acquisition of
Humana’s
~$2.3b long-term care
portfolio
Insurance:
CIG
Core Operating Subsidiaries
FY17 Revenue: $579.0m
FY17 Adj. EBITDA: $51.6m
Backlog $723m; ~$772m
with contracts awarded,
but not yet signed; ~$300m
additional opportunities
Solid long-term pipeline
Awarded major contract for
new Los Angeles Rams and
Los Angeles Chargers
stadium
Construction:
DBM GLOBAL (SCHUFF)
FY17 Revenue: $169.5m
FY17 Adj. EBITDA: $44.0m
Strong full-year joint venture
performance, in particular
Huawei Marine
Solid long term telecom and
offshore power
maintenance & install
opportunities
Awarded 5-year SEAIOCMA
maintenance renewal
Marine Services:
GMSL
FY17 Revenue: $16.4m
FY17 Adj. EBITDA: $2.9m
Delivered 11,095,000
Gasoline Gallon Equivalents
(GGEs) in FY17 vs. 3,912,000
GGEs in FY16
44 stations currently owned
or operated vs. two stations
at time of HC2’s initial
investment in 3Q14
Energy:
ANG
Telecom:
PTGI ICS
FY17 Revenue: $701.9m
FY17Adj. EBITDA: $6.9m
Continued focus on higher
margin wholesale traffic mix
and improved operating
efficiencies
Sixth consecutive cash
dividend paid to HC2 in
4Q17; $8m paid for FY17
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Consolidated Financial Summary
11
($m) Q4 2017 Q4 2016 FY 2017 FY 2016
Statement of
Operations
(Selected Financial Data)
Total Net Revenue $458.5 $454.0 $1,634.1 $1,558.1
Total Operating Expenses $460.0 $449.0 $1,635.3 $1,559.5
Income Loss From Operations ($1.5) $5.0 ($1.1) ($1.4)
Interest Expense ($15.7) ($11.8) ($55.1) ($43.4)
Income From Equity Investees $5.2 $7.6 $17.8 $10.8
Income (loss) Before Taxes ($11.2) ($6.7) ($39.8) ($45.8)
Net Loss attributable to common
and participating preferred
($9.2) ($67.3) ($49.7) ($105.4)
Non-GAAP
Measures
Core Operating Adjusted EBITDA $32.4 $37.9 $105.5 $109.1
Total Adjusted EBITDA $19.7 $26.5 $50.8 $60.2
Insurance AOI $2.6 ($6.9) $8.0 ($15.9)
All data as of December 31, 2017 unless otherwise noted
Construction formerly Manufacturing; Energy formerly Utilities
Note: Reconciliations of Adjusted EBITDA and Adjusted Operating Income to U.S. GAAP Net Income in appendix. Table may not foot due to rounding. Adjusted Operating Income for Q1 2016 was adjusted to
exclude certain intercompany eliminations to better reflect the results of the Insurance segment, and remain consistent with internally reported metrics. Additional details in appendix.
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Construction: DBM Global Inc.
12
4Q17 Net Income: $9.2m; FY17 Net Income: $23.6m versus $28.0m in FY16
4Q17 Adjusted EBITDA: $15.1m; FY17 Adjusted EBITDA: $51.6m versus $59.9m in FY16
Record backlog of $723m at end of 4Q17, an increase of over 44% vs. $503m in year-ago quarter
– ~$772m taking into consideration awarded, but not yet signed contracts
– ~$300m incremental opportunities that could be awarded over next several quarters
Awarded major stadium construction contract for new Los Angeles Sports and Entertainment District – New home of the Los
Angeles Rams and Los Angeles Chargers
Recently completed “tuck-in” acquisitions of North American Operations of Candraft VSI and Mountain States Steel
to address compelling bridge market
Recently awarded first bridge infrastructure project post Mountain States acquisition
Distributed $9.5m and $28.0m of dividend and tax share to HC2 in 4Q17 and full year 2017, respectively
Fourth Quarter and Full Year Update
Continue to select profitable, strategic and “core competency” jobs, not all jobs
Solid long-term pipeline of prospective projects; No shortage of transactions to evaluate
Commercial / Stadium / Healthcare sectors remain strong, primarily in West region
Opportunities to add higher margin, value added services to overall product offering (e.g. BDS VirCon/PDC/Candraft)
Strategic Initiatives
Loma Linda Hospital
$45.8
$52.0
$59.9
$51.6
$526.1 $513.8 $502.7
$579.0
2014PF 2015A 2016A 2017A
Historical Performance
Adjusted EBITDA Revenue
All data as of December 31, 2017 unless otherwise noted
Construction formerly Manufacturing
10.1%
11.9%
8.7%
Los Angeles Rams Stadium
8.9%
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Marine Services: Global Marine Group
13
Joint Venture established in 1995 with China Telecom
China’s leading provider of submarine cable installation
Located in Shanghai and possesses a fleet of advanced purpose-built
cable ships
Currency Exchange: CNY:USD 1:0.129
All data as of December 31, 2017 unless otherwise noted
4Q17 Net Income: $6.2m; FY17 Net Income: $15.2m versus $17.4m in FY16
4Q17 Adjusted EBITDA: $15.3m; FY17 Adjusted EBITDA: $44.0m versus $41.2m in FY16
Near record Global Marine backlog of $445m at year-end 2017
Completed acquisition of Fugro’s trenching and cable laying business; Positioned well for tremendous long-term
opportunities in rapidly growing global offshore power market
Secured renewal of remaining two of its three long-term cable maintenance contracts; Continue to have three of six
global contracted maintenance zone agreements (ACMA / SEAIOCMA / NAZ)
Upgraded and revitalized fleet:
– C.S. Recorder (Telecom Installation for HMN and O&G); C.S. Symphony (Offshore Power and O&G)
Fourth Quarter and Full Year Update
Strategic Initiatives
Total HMN* 2017 2016 2015 2014
Revenue NA ~$207m ~$203m ~$88m
Profit NA ~$25m ~$14m ~$2m
Cash / Equivalents NA ~$48m ~$27m ~$16m
$50.0
$42.1 $41.2
$44.0
$163.6
$134.9
$161.9 $169.5
2014PF 2015A 2016A 2017A
Historical Performance
Adjusted EBITDA Revenue
Note: 2014 PF Adj. EBITDA inclusive of approx. $10m offshore power installation vs. minimal contribution in 2015 & 1H16 as a result of Prysmian agreement which expired in 4Q15
29.8%
31.2% 25.4%
49% ownership 49% ownership
26.0 %
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
4Q17 Net Income: $1.5m; FY17 Net (Loss): ($0.5)m versus Net Income $0.01m in FY16
4Q17 Adjusted EBITDA: $0.4m; FY17 Adjusted EBITDA: $2.9m versus $2.5m in FY16
Signed first renewable natural gas supply agreement in 4Q17
Alternative Fuel Energy Tax Credit (“AFETC”) credit renewed for 2017 - ~$3.0m credit for FY2017 to be recognized in 2Q18
Completed the integration & upgrade of 18 fueling stations throughout the U.S.
Delivered 11,095,000 Gasoline Gallon Equivalents (GGEs) for full year 2017 vs. 3,912,000 GGEs in 2016
44 stations currently owned or operated or under development vs. two stations at time of initial investments (3Q14)
HC2 equity ownership in ANG increased to 68% following conversion of a promissory note
Fourth Quarter and Full Year Update
-$0.4
$0.9
$2.5
$2.9
$1.8
$6.8 $6.4
$16.4
2014A 2015A 2016A 2017A
Historical Performance
Adjusted EBITDA
Revenue
Energy: American Natural Gas (ANG)
14
All data as of December 31, 2017 unless otherwise noted
Energy formerly Utilities
39.6%
12.8%
(14.1%)
17.7%
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Steady quarterly results again due to continued focus on higher margin wholesale traffic mix, smaller global
accounts, and improved operational efficiencies
– 4Q17 Net Income: $1.3m; FY17 Net Income: $6.2m versus $1.4m in FY16
– 4Q17 Adjusted EBITDA: $1.6m; FY17 Adjusted EBITDA: $6.9m versus $5.6m in FY16
– Sixth consecutive quarter of cash dividend to HC2
– $8.0m dividends distributed for the year-ended 2017
– New account representatives in Latin America, Eastern Europe and Russia
– Continued focus on increasing margin, diversifying global customer base, delivering consistent EBITDA
One of the key objectives: leverage the infrastructure and management expertise within PTGi-ICS
– Over 800+ wholesale interconnections globally provides HC2 the opportunity to leverage the existing cost effective
infrastructure by bolting on higher margin products and M&A opportunities
– A focused strategic initiative has been launched within PTGi-ICS to identify potential M&A opportunities
Fourth Quarter and Full Year Update
Telecommunications: PTGi-ICS
15
$(1.2)
$2.0
$5.6
$6.9
$162.0
$460.4
$735.0 $701.9
2014A 2015A 2016A 2017A
Historical Performance
Adjusted EBITDA
Revenue
All data as of December 31, 2017 unless otherwise noted
0.8%
0.4%
(0.1%)
1.0%
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Insurance: Continental Insurance Group
16
Note: Reconciliation of Adjusted Operating Income to U.S. GAAP Net Income in
appendix. All data as of December 31, 2017 unless otherwise noted
Continental Insurance Group serves as a platform for run-off Long Term Care (“LTC”) books of business
and for acquiring additional run-off LTC businesses
– 4Q17 Net Income: $3.4m; FY17 Net Income: $7.1m versus Net (Loss) $14.0m in FY16
– 4Q17 Adjusted Operating Income: $2.6m; FY17 Adjusted Operating Income $8.0m versus ($15.9m) in FY16
– ~$74.7m statutory surplus at end of fourth quarter
– ~$86.4m total adjusted capital at end of fourth quarter
– ~$2.1b in total GAAP assets at December 31, 2017
– ~$1.5b in cash and invested assets at December 31, 2017
Signed Definitive Agreement to Acquire Humana’s ~$2.3 Billion Long-Term Care Insurance Business
– Will significantly expand and leverage Continental’s insurance platform in Austin, Texas
– Once completed, Continental will have approximately $3.5 billion portfolio of cash and investable assets
– Immediately accretive to Continental’s RBC Ratio and Statutory Capital
– Opportunity to meaningfully increase investment portfolio yield
– Validates and endorses HC2’s insurance platform and strategy
– Expected to close by third quarter 2018
Fourth Quarter and Full Year Update
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Pansend
17
All data as of December 31, 2017 unless otherwise noted
HC2’s Pansend Life Sciences Segment Is Focused on the
Development of Innovative Healthcare Technologies and Products
80% equity ownership of company focused on immunotherapy; Oncolytic virotherapy for treatment of solid
cancer tumors
Founded by Dr. Matthew Mulvey & Dr. Ian Mohr (who co-developed T-Vec); Biovex (owner of T-Vec) acquired
by Amgen for ~$1billion
Benevir’s T-Stealth is a second generation oncolytic virus with new features and new intellectual property
BeneVir holds exclusive worldwide license to develop BV-2711 (T-Stealth)
Granted new patent entitled “Oncolytic Herpes Simplex Virus and Therapeutic Uses Thereof”, covering the composition of
matter for Stealth-1H, BeneVir’s lead oncolytic immunotherapy, as well as other platform assets (2Q17)
74% equity ownership of dermatology company focused on lightening and brightening skin
Founded by Pansend in partnership with Mass. General Hospital and inventors Dr. Rox Anderson,
Dieter Manstein and Dr. Henry Chan
Over $20 billion global market
Received Food and Drug Administration approval for the R2 Dermal Cooling System (4Q16)
Received Food and Drug Administration approval for second generation R2 Dermal Cooling System (2Q17)
80% equity ownership in company with unique knee replacements based on technology from Dr. Peter Walker, NYU Dept.
of Orthopedic Surgery and one of the pioneers of the original Total Knee.
“Mini-Knee” for early osteoarthritis of the knee; “Anatomical Knee” – A Novel Total Knee Replacement
Strong patent portfolio
50% equity ownership in company with unique technology and device for monitoring of real-time kidney function
Current standard diagnostic tests measure kidney function are often inaccurate and not real-time
MediBeacon’s Optical Renal Function Monitor will be first and only, non-invasive system to enable real-time, direct monitoring
of renal function at point-of-care
$3.5 billion potential market
Successfully completed a key clinical study of its unique, real-time kidney monitoring system on subjects with impaired kidney
function at Washington University in St. Louis. (1Q17)
Profitable technology and product development company
Areas of expertise include medical devices, homeland security, imaging systems, sensors, optics, fluidics, robotics and mobile
healthcare
Located in Silicon Valley and Boston area with over 90,000 square feet of working laboratory and incubator space
Contract R&D market growing rapidly
Customers include Fortune 500 companies and start-ups
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Notable Financial and Other Updates
18
Collateral Coverage Ratio Exceeded 2.0x at Quarter End (4Q17)
$72.7 million in Consolidated Cash (excluding Insurance segment)
– $29.4 million Corporate Cash
$11.5 million Received in Dividends and Tax Share from DBM Global and PTGi ICS in 4Q17
$36.0 million Received in Dividends and Tax Share from DBM Global and PTGi ICS Full Year 2017
HC2 Broadcasting Holdings Inc., Entered into a $75 million Bridge Loan to Primarily Finance Acquisitions
Broadcast Television Distribution Market
Subsequent to quarter end, increased bridge loan by $27 million
2018 Key Priorities:
– Optimize HC2 capital structure
– Monetization / value creation within diverse HC2 portfolio
– Continued focused expansion of over-the-air television broadcast strategy
Initiated 2018 Guidance for Construction & Marine Services
– DBM Global: Currently expect $60 million - $65 million of FY18 Adjusted EBITDA
– Global Marine: Currently expect $45 million - $50 million of FY18 Adjusted EBITDA
All data as of December 31, 2017 unless otherwise noted
(1) Market capitalization on a fully diluted basis, excluding preferred equity, using a common stock price per share of $5.16 on March 13, 2018
(2) Cash and cash equivalents
(3) Enterprise Value is calculated by adding market capitalization, total preferred equity and total debt amounts, less Corporate cash
($m) Balance Sheet (at December 31, 2017)
Market Cap(1) $228.0
Preferred Equity $26.7
Total Debt $400.0
Corporate Cash(2) $29.4
Enterprise Value(3) $625.3
HC2 does not guarantee future results of any kind. Guidance is subject to risks and uncertainties, including, without limitation, those factors outlined in the “Forward Looking
Statements” of this presentation and the “Risk Factors” section of the company’s annual and quarterly reports filed with the Securities and Exchange Commission (SEC).
Reconciliations
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA
Full Year Ended December 31, 2017
20
(in thousands)
Construction Marine Energy Telecom
Life
Sciences
Other &
Elimination
Net loss attributable to HC2 Holdings, Inc. (46,911)$
Less: Net Incom e attributable to HC2 Holdings Insurance segm ent 7,066
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance
Segment
23,624$ 15,173$ (516)$ 6,163$ (18,098)$ (18,005)$ (62,318)$ (53,977)$
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization 5,583 22,898 5,071 371 186 1,508 71 35,688
Depreciation and amortization (included in cost of revenue) 5,254 - - - - - - 5,254
Amortization of equity method fair value adjustment at acquisition - (1,594) - - - - - (1,594)
Asset impairment expense - - - - - 1,810 - 1,810
(Gain) loss on sale or disposal of assets 292 (3,500) 247 181 - - - (2,780)
Lease termination costs - 249 - 17 - - - 266
Interest expense 976 4,392 1,181 41 - 4,373 44,135 55,098
Net loss (gain) on contingent consideration - - - - - - (11,411) (11,411)
Other (income) expense, net (41) 2,683 1,488 149 (17) 6,541 (92) 10,711
Foreign currency (gain) loss (included in cost of revenue) - (79) - - - - - (79)
Income tax (benefit) expense 10,679 203 (4,243) 7 (820) (1,129) (10,185) (5,488)
Noncontrolling interest 1,941 260 (681) - (3,936) (1,164) - (3,580)
Bonus to be settled in equity - - - - - - 4,130 4,130
Share-base compensation expense - 1,527 364 - 319 279 2,754 5,243
Non-recurring items - - - - - - - -
Acquisition costs 3,280 1,815 - - - 2,648 3,764 11,507
Adjusted EBITDA 51,588$ 44,027$ 2,911$ 6,929$ (22,366)$ (3,139)$ (29,152)$ 50,798$
Total Core Operating Subsidiaries 105,455$
Non-
operating
Corporate
Total HC2
Year Ended December 31, 2017
Core Operating Subsidiaries Early Stage & Other
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA
Full Year Ended December 31, 2016
21
(in thousands)
Year Ended December 31, 2016
Construction Marine Energy Telecom
Life
Sciences
Other &
Elimination
Net loss attributable to HC2 Holdings, Inc. (94,549)$
Less: Net loss attributable to HC2 Holdings Insurance segm ent (14,028)
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance
Segment
28,002$ 17,447$ 7$ 1,435$ (7,646)$ (24,800)$ (94,966)$ (80,521)$
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization 1,892 22,007 2,248 504 124 1,480 9 28,264
Depreciation and amortization (included in cost of revenue) 4,370 - - - - - - 4,370
Amortization of equity method fair value adjustment at acquisition - (1,371) - - - - - (1,371)
(Gain) loss on sale or disposal of assets 1,663 (9) - 708 - - - 2,362
Lease termination costs - - - 179 - - - 179
Interest expense 1,239 4,774 211 - - 1,164 35,987 43,375
Net loss (gain) on contingent consideration - (2,482) - - - - 11,411 8,929
Other (income) expense, net (163) (2,424) (8) (87) (3,213) 9,987 (1,277) 2,815
Foreign currency (gain) loss (included in cost of revenue) - (1,106) - - - - - (1,106)
Income tax (benefit) expense 18,727 1,394 (535) 2,803 1,558 3,250 11,245 38,442
Noncontrolling interest 1,834 974 (4) - (3,111) (2,575) - (2,882)
Bonus to be settled in equity - - - - - - 2,503 2,503
Share-base compensation expense - 1,682 597 - 251 273 5,545 8,348
Non-recurring items - - - - - - 1,513 1,513
Acquisition Costs 2,296 290 27 18 - - 2,312 4,943
Adjusted EBITDA 59,860$ 41,176$ 2,543$ 5,560$ (12,037)$ (11,221)$ (25,718)$ 60,163$
Total Core Operating Subsidiaries 109,139$
Core Operating Subsidiaries Early Stage & Other Non-
operating
Corporate
Total HC2
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA
Three Months Ended December 31, 2017
22
(in thousands)
Construction Marine Energy Telecom
Life
Sciences
Other &
Elimination
Net loss attributable to HC2 Holdings, Inc. (8,537)$
Less: Net Incom e attributable to HC2 Holdings Insurance segm ent 3,383
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance
Segment
9,160$ 6,230$ 1,485$ 1,253$ (3,822)$ (8,218)$ (18,008)$ (11,920)$
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization 1,389 6,337 1,195 86 57 575 21 9,660
Depreciation and amortization (included in cost of revenue) 1,419 - - - - - - 1,419
Amortization of equity method fair value adjustment at acquisition - (371) - - - - - (371)
Asset impairment expense - - - - - - - -
(Gain) loss on sale or disposal of assets 199 - 208 181 - - - 588
Lease termination costs - - - 2 - - - 2
Interest expense 357 1,029 629 4 - 1,965 11,704 15,688
Net loss (gain) on contingent consideration - - - - - - (5,410) (5,410)
Other (income) expense, net 117 240 (164) 72 8 3,741 368 4,382
Foreign currency (gain) loss (included in cost of revenue) - 52 - - - - - 52
Income tax (benefit) expense 887 (36) (4,255) 7 (820) (1,129) (1,073) (6,419)
Noncontrolling interest 751 (121) 1,321 - (728) 1,502 - 2,725
Bonus to be settled in equity - - - - - - 2,780 2,780
Share-base compensation expense - 394 3 - 80 213 547 1,237
Non-recurring items - - - - - - - -
Acquisition costs 833 1,515 - - - 2,648 339 5,335
Adjusted EBITDA 15,112$ 15,269$ 422$ 1,605$ (5,225)$ 1,297$ (8,732)$ 19,748$
Total Core Operating Subsidiaries 32,408$
Three Months Ended December 31, 2017
Core Operating Subsidiaries Early Stage & Other Non-
operating
Corporate
Total HC2
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA
Three Months Ended September 30, 2017
23
(in thousands)
Construction Marine Energy Telecom
Life
Sciences
Other &
Elimination
Net loss attributable to HC2 Holdings, Inc. (5,967)$
Less: Net Incom e attributable to HC2 Holdings Insurance segm ent 4,280
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance
Segment
7,082$ 844$ (939)$ 1,348$ (6,760)$ (600)$ (11,222)$ (10,247)$
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization 1,314 6,221 1,247 94 50 272 17 9,215
Depreciation and amortization (included in cost of revenue) 1,293 - - - - - - 1,293
Amortization of equity method fair value adjustment at acquisition - (573) - - - - - (573)
Asset impairment expense - - - - - - - -
(Gain) loss on sale or disposal of assets 486 - 25 - - - - 511
Lease termination costs - - - 15 - - - 15
Interest expense 238 1,021 262 14 - 1 11,686 13,222
Net loss (gain) on contingent consideration - - - - - - (6,320) (6,320)
Other (income) expense, net (165) 888 277 12 (10) (118) (718) 166
Foreign currency (gain) loss (included in cost of revenue) - (238) - - - - - (238)
Income tax (benefit) expense 4,481 (137) - - - - (4,746) (402)
Noncontrolling interest 558 43 (763) - (1,506) (689) - (2,357)
Bonus to be settled in equity - - - - - - 765 765
Share-base compensation expense - 394 179 - 71 19 718 1,381
Non-recurring items - - - - - - - -
Acquisition costs 1,501 300 - - - - 1,564 3,365
Adjusted EBITDA 16,788$ 8,763$ 288$ 1,483$ (8,155)$ (1,115)$ (8,256)$ 9,796$
Total Core Operating Subsidiaries 27,322$
Three Months Ended September 30, 2017
Core Operating Subsidiaries Early Stage & Other Non-
operating
Corporate
Total HC2
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA
Three Months Ended June 30, 2017
24
(in thousands)
Construction Marine Energy Telecom
Life
Sciences
Other &
Elimination
Net loss attributable to HC2 Holdings, Inc. (17,911)$
Less: Net Incom e attributable to HC2 Holdings Insurance segm ent 164
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance
Segment
4,179$ (3,053)$ (365)$ 2,060$ (4,106)$ (3,757)$ (13,033)$ (18,075)$
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization 1,240 5,255 1,381 94 41 331 16 8,358
Depreciation and amortization (included in cost of revenue) 1,302 - - - - - - 1,302
Amortization of equity method fair value adjustment at acquisition - (325) - - - - - (325)
Asset impairment expense - - - - - 1,810 - 1,810
(Gain) loss on sale or disposal of assets (145) - 18 - - - - (127)
Lease termination costs - 55 - - - - - 55
Interest expense 174 1,040 154 14 - 16 10,675 12,073
Net loss (gain) on contingent consideration - - - - - - 88 88
Other (income) expense, net 28 490 255 (9) (11) 803 214 1,770
Foreign currency (gain) loss (included in cost of revenue) - 83 - - - - - 83
Income tax (benefit) expense 3,232 (134) (1) - - - (6,543) (3,446)
Noncontrolling interest 369 (156) (492) - (911) (1,372) - (2,562)
Bonus to be settled in equity - - - - - - 585 585
Share-base compensation expense - 394 91 - 76 18 527 1,106
Non-recurring items - - - - - - - -
Acquisition costs 701 - - - - - 1,168 1,869
Adjusted EBITDA 11,080$ 3,649$ 1,041$ 2,159$ (4,911)$ (2,151)$ (6,303)$ 4,564$
Total Core Operating Subsidiaries 17,929$
Three Months Ended June 30, 2017
Core Operating Subsidiaries Early Stage & Other Non-
operating
Corporate
Total HC2
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA
Three Months Ended March 31, 2017
25
(in thousands)
Construction Marine Energy Telecom
Life
Sciences
Other &
Elimination
Net loss attributable to HC2 Holdings, Inc. (14,496)$
Less: Net loss attributable to HC2 Holdings Insurance segm ent (761)
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance
Segment
3,203$ 11,152$ (697)$ 1,502$ (3,410)$ (5,430)$ (20,055)$ (13,735)$
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization 1,640 5,085 1,248 97 38 330 16 8,454
Depreciation and amortization (included in cost of revenue) 1,240 - - - - - - 1,240
Amortization of equity method fair value adjustment at acquisition - (325) - - - - - (325)
Asset impairment expense - - - - - - - -
(Gain) loss on sale or disposal of assets (248) (3,500) (4) - - - - (3,752)
Lease termination costs - 194 - - - - - 194
Interest expense 207 1,302 136 9 - 2,391 10,070 14,115
Net loss (gain) on contingent consideration - - - - - - 231 231
Other (income) expense, net (21) 1,065 1,120 74 (4) 2,115 44 4,393
Foreign currency (gain) loss (included in cost of revenue) - 24 - - - - - 24
Income tax (benefit) expense 2,079 510 13 - - - 2,177 4,779
Noncontrolling interest 263 494 (747) - (791) (605) - (1,386)
Bonus to be settled in equity - - - - - - - -
Share-base compensation expense - 345 91 - 92 29 962 1,519
Non-recurring items - - - - - - - -
Acquisition costs 245 - - - - - 693 938
Adjusted EBITDA 8,608$ 16,346$ 1,160$ 1,682$ (4,075)$ (1,170)$ (5,862)$ 16,689$
Total Core Operating Subsidiaries 27,796$
Three Months Ended March 31, 2017
Core Operating Subsidiaries Early Stage & Other Non-
operating
Corporate
Total HC2
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Reconciliation of U.S. GAAP Net Income (Loss) to Adjusted EBITDA
Three Months Ended December 31, 2016
26
(in thousands)
Construction Marine Energy Telecom
Life
Sciences
Other &
Elimination
Net loss attributable to HC2 Holdings, Inc. (61,464)$
Less: Net loss attributable to HC2 Holdings Insurance segm ent (2,050)
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance
Segment
7,292$ 8,667$ (61)$ (2,572)$ (4,655)$ (3,536)$ (64,549)$ (59,414)$
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization 629 5,214 769 115 37 430 5 7,199
Depreciation and amortization (included in cost of revenue) 1,322 - - - - - - 1,322
Amortization of equity method fair value adjustment at acquisition - (325) - - - - - (325)
(Gain) loss on sale or disposal of assets 2,626 1 - 708 - - - 3,335
Lease termination costs - - - - - - - -
Interest expense 322 1,091 69 - - 1,163 9,116 11,761
Net loss (gain) on contingent consideration - (2,482) - - - - 11,411 8,929
Other (income) expense, net (75) (1,234) 391 487 10 99 (966) (1,288)
Foreign currency (gain) loss (included in cost of revenue) - 864 - - - - - 864
Income tax (benefit) expense 6,086 2,150 (535) 2,803 1,558 3,250 32,726 48,038
Noncontrolling interest 594 464 (253) - (809) (513) - (517)
Bonus to be settled in equity - - - - - - 2,503 2,503
Share-base compensation expense - 375 490 - 67 35 712 1,679
Non-recurring items - - - - - - - -
Acquisition Costs 1,868 24 - - - - 490 2,382
Adjusted EBITDA 20,664$ 14,809$ 870$ 1,541$ (3,792)$ 928$ (8,552)$ 26,468$
Total Core Operating Subsidiaries 37,884$
Core Operating Subsidiaries Non-
operating
Corporate
Total HC2
Three Months Ended December 31, 2016
Early Stage & Other
© 2 0 1 8 H C 2 H O L D I N G S , I N C .
Reconciliation of U.S. GAAP Net Income (Loss) to Insurance
Adjusted Operating Income
27
(in thousands)
Adjusted Op rating Income - Insurance ("Insurance AOI")
FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017 FY 2016 Q4 2016
Net Income (loss) - Insurance segment 7,066 3,381 4,282 164$ (761)$ (14,028)$ (2,050)$
Net realized and unrealized gains on inv estments (4,983) (2,129) (978) (1,095) (781) (5,019) (7,696)
Asset impairment 3,364 - - 2,842 522 2,400 2,400
Acquisition costs 2,535 1,377 422 736 - 714 445
Insurance AOI 7,982$ 2,629$ 3,726$ 2,647$ (1,020)$ (15,933)$ (6,901)$
HC2 HOLDINGS, INC.
© HC2 Holdings, Inc. 2018
A n d r e w G . B a c k m a n • i r @ h c 2 . c o m • 2 1 2 . 2 3 5 . 2 6 9 1 • 4 5 0 P a r k A v e n u e , 3 0 t h F l o o r , N e w Y o r k ,
N Y 1 0 0 2 2 March 2018