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Cautionary Statement Regarding Forward-Looking Statements

 

 

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HC2 Holdings Reports Fourth Quarter and Fiscal Year 2015 Results

Net revenue of $360.6 million for the fourth quarter 2015 and $1.1 billion for fiscal 2015

Adjusted EBITDA of $26.7 million and $96.9 million in Q4 and FY15, respectively, from our Core Operating Subsidiaries

New York, NY — (GlobeNewswire) — 3/15/2016 — HC2 Holdings, Inc. (“HC2”) (NYSE MKT: HCHC), a diversified holding company that focuses on acquiring and operating businesses that it considers to be under or fairly valued and growing its acquired businesses, today announced its consolidated results for the fourth quarter and fiscal year 2015, which ended on December 31, 2015.

 

Fourth Quarter and Fiscal Year 2015 Financial Highlights:

•

Net revenue: HC2 recorded consolidated total net revenues of $360.6 million for the fourth quarter of 2015, an increase of $136.6 million, or 61%, as compared to the fourth quarter of 2014, primarily driven by the expansion in scale and number of customer relationships in our Telecommunications segment.

HC2 recorded consolidated total net revenue of $1,120.8 million for the fiscal year ended December 31, 2015, an increase of $573.4 million, or 105%, as compared to fiscal 2014 as reported due to the full year impact of acquisitions made in 2014 and expansion in scale and customer relationships in our Telecommunications segment.

•

Operating Profit/(Loss): HC2 reported a loss of $3.2 million from operations for the fourth quarter compared to a loss of $6.8 million during the fourth quarter of 2014, primarily driven by a reduction in corporate share-based payment expense due to equity awards granted in the fourth quarter of 2014.

Operating profit for fiscal year 2015 was $2.2 million compared to a loss of $13.6 million during fiscal year 2014.  The increase in operating profit was largely the result of the full year impact of the acquisitions made in 2014 and improved profitability in our Manufacturing and Telecommunications segments.  The increase was offset in part by an increase in acquisition and overhead costs in our Non-operating Corporate segment and decreases in our Life Sciences and Other segments (“Early-Stage and Other”).

•

Adjusted EBITDA: Adjusted EBITDA for our Manufacturing, Marine Services, Telecommunications, Utilities, and Insurance segments (our “Core Operating Subsidiaries”), was a combined $26.7 million for the fourth quarter of 2015 and $96.9 million for fiscal year 2015. This compares to a combined Adjusted EBITDA of $94.3 million during fiscal year 2014.

Adjusted EBITDA for our Core Operating Subsidiaries benefitted from strong growth in our Manufacturing segment due largely to margin expansion, growth in scale and customer relationships in the Telecommunications segment, and an increase in the number of natural gas fueling stations in our Utilities segment.  This was offset by the impact of fewer installation projects in the Marine Services segment when compared to 2014 on a pro-forma basis.

HC2 recorded total Adjusted EBITDA of $12.5 million during the fourth quarter of 2015 and $51.9 million for fiscal year 2015 after considering results from Early-Stage and Other (including a $5.0 million and $12.0 million Novatel Wireless non-cash charge in the fourth quarter and fiscal year 2015, respectively) and our Non-Operating Corporate segment.

•

Balance sheet: As of December 31, 2015, HC2 had consolidated cash, cash equivalents and investments of $1.5 billion, which includes the addition of our Insurance segment during the fourth quarter.  At the corporate level, HC2 had $41.2 million in cash, cash equivalents and short-term investments at the end of the year.

 

Additional Fourth Quarter Highlights and Recent Developments:

•

On December 24, 2015, HC2 completed the acquisition of long-term care and life insurance businesses, United Teacher Associates Insurance Company (“UTAIC”) and Continental General Insurance Company (“CGIC”). UTAIC and CGIC had approximately $80.0 million of statutory surplus and $1.9 billion in total GAAP assets as of December 31, 2015.

 

•

Schuff’s backlog was $380.8 million as of December 31, 2015 consistent with the third quarter 2015 backlog.  Notable ongoing projects include the Wilshire Grand Center in Los Angeles, the new Apple headquarters in Cupertino, CA, the new Volvo facility in South Carolina, the Anaheim Convention Center, and the Loma Linda Hospital in Los Angeles.

 

•

Global Marine announced the acquisition of a majority interest in CWind Limited, a leading offshore renewables specialist, highlighting the continued commitment to the offshore renewable sector.  Global Marine also completed operations and installed a fiber optic cable between the Japanese island of Okinawa and an existing branching unit (BU) in the Asia Submarine-cable Express (ASE) system.  In addition, Global Marine secured a sub-contract to install an optic cable between the Indonesian islands of Bali and Lombok and a contract win from Ocean Networks Canada, to upgrade the fibre optic cables serving the NEPTUNE observatory off the west coast of Canada.

Global Marine recently announced the award of  the extension of the North America Maintenance Zone (NAZ) submarine cable maintenance contract up to December 31, 2024.  This long-term extension demonstrates Global Marine’s capability to deliver highly responsive and well-executed maintenance provisions to its customers.

 

•	On November 4, 2015, HC2 announced the pricing of an underwritten public offering of 8,452,500 newly issued shares of HC2’s common stock. The net proceeds to HC2 from the offering, after deducting underwriting discounts and commissions and offering expenses, were approximately $54.7 million.

 

The pro forma basis gives effect to the impact from our 2014 acquisitions of Schuff and Global Marine as if they had occurred on January 1, 2014.

Management believes that Adjusted EBITDA provides investors with meaningful information for gaining an understanding of our 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, since interest, taxes, depreciation, amortization and the other items listed in the definition of Adjusted EBITDA below can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA can also be a useful measure of a company’s ability to service debt. While management believes that non-US GAAP measurements are useful supplemental information, such adjusted results are not intended to replace our US GAAP financial results.

In 2015, we adjusted our definition of Adjusted EBITDA to exclude the adjustment for income (loss) from equity investees. We believe that the income generated by the equity investees of our Marine Services segment is an integral part of the segment's operating results. For consistency purposes we applied the same treatment to the equity investees within our Other segment. For the year ended December 31, 2014, this change resulted in an increase in Adjusted EBITDA of $4.7 million and $6.3 million on an as reported and pro forma basis, respectively.

The calculation of Adjusted EBITDA, as defined by us, consists of Net income (loss) as adjusted for depreciation and amortization; asset impairment expense; gain (loss) on sale or disposal of assets; lease termination costs; interest expense; loss on early extinguishment or restructuring of debt; other income (expense), net; foreign currency transaction gain (loss); income tax (benefit) expense; gain (loss) from discontinued operations; noncontrolling interest; share-based compensation expense; acquisition related costs; and other costs. See below for a reconciliation of Adjusted EBITDA to net income.

 

Conference Call

A telephonic replay of the call will be available through midnight March 22, 2016 by dialing 1.855.859.2056 (domestic) or 1.404.537.3406 (international) and entering passcode 67881436.

Cautionary Statement Regarding Forward-Looking Statements

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 HC2 undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

About HC2

HC2 Holdings, Inc. is a publicly traded (NYSE MKT: 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 Manufacturing, Marine Services, Utilities, Telecommunications, Life Sciences, Insurance and Other. HC2’s largest operating subsidiaries include Schuff International, Inc., a leading structural steel fabricator and erector in the United States, and Global Marine Systems Limited, a leading provider of engineering and underwater services on submarine cables. Founded in 1994, HC2 is headquartered in Herndon, Virginia.

For More Information on HC2 Holdings, Inc., Please Contact:

Ashleigh Douglas

ir@HC2.com

212-339-5875

 

HC2 HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEET

(in thousands, except share and per share amounts)

 

HC2 HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

 

HC2 HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

		Years Ended December 31,
		2015				2014				2013
Cash flows from operating activities:
Net income (loss)		$	(35,762	)		$	(11,832	)		$	111,606
Adjustments to reconcile net income (loss) to operating cash flows:
Provision for doubtful accounts receivable			99				403				1,507
Share-based compensation expense			11,102				11,028				2,286
Depreciation and amortization			30,939				10,684				23,964
Amortization of deferred financing costs			1,420				240				—
Lease termination costs			1,185				—				—
(Gain) loss on sale or disposal of assets			170				816				(148,848	)
(Gain) loss on sale of investments			—				(434	)			—
Equity investment (income)/loss			3,015				(2,665	)			—
Asset impairment expense			547				291				3,123
Amortization of debt discount			301				1,593				86
Loss on early extinguishment or restructuring of debt			—				11,969				21,124
(Gain) on bargain purchase			—				(1,417	)			—
Unrealized loss on equity securities			2,878				—				—
Realized (gains) losses on investments			3,175				1,608				—
Change in fair value of Contingent Value Rights			—				—				(14,904	)
Deferred income taxes			(13,102	)			(30,223	)			(522	)
Unrealized foreign currency transaction (gain) loss on intercompany and foreign debt			182				1,352				(764	)
Other			5,269				—				—
Changes in assets and liabilities, net of acquisitions:
(Increase) decrease in accounts receivable			(60,720	)			18,349				(2,892	)
(Increase) decrease in costs and recognized earnings in excess of billings on uncompleted contracts			(11,579	)			(1,139	)			—
(Increase) decrease in inventory			2,610				6,616				644
(Increase) decrease in other assets			17,032				764				(2,125	)
Increase (decrease) in life, accident and health reserves			608				—				—
Increase (decrease) in accounts payable and other current liabilities			36,216				18,968				(12,859	)
Increase (decrease) in billings in excess of costs and recognized earnings on uncompleted contracts			(20,767	)			(23,793	)			—
Increase (decrease) in other liabilities			3,259				(1,951	)			(1,741	)
Increase (decrease) in pension liability			(10,638	)			(7,564	)			—
Net change in cash due to operating activities			(32,561	)			3,663				(20,315	)
Cash flows from investing activities:
Purchases of property, plant and equipment			(21,324	)			(5,819	)			(12,577	)
Sale of property and equipment and other assets			5,034				3,706				9
Purchases of investments			(54,598	)			(33,034	)			—
Sale of investments			12,248				2,411				—
Cash from disposition of business, net of cash disposed			—				31,645				270,634
Cash paid for business acquisitions, net of cash acquired			39,726				(146,026	)			(397	)
Purchase of noncontrolling interest			(475	)			(38,403	)			—
Receipt of dividends from equity investees			4,647				2,081				—
(Increase) decrease in restricted cash			—				(1,785	)			475
Net change in cash due to investing activities			(14,742	)			(185,224	)			258,144
Cash flows from financing activities:
Annuity receipts			78				—				—
Proceeds from long-term obligations			564,857				915,896				—
Principal payments on long-term obligations			(528,679	)			(689,745	)			(128,036	)
Payment of fees on restructuring of debt			—				(12,333	)			(1,201	)
Proceeds from sale of common stock, net			53,975				6,000				1,158
Proceeds from sale of preferred stock, net			14,033				40,050				—
Proceeds from the exercise of warrants and stock options			—				24,348				—
(Increase) decrease in restricted cash			6,014				—				—
Payment of deferred financing costs			(1,423	)			—				—
Payment of dividend equivalents			—				—				(1,235	)
Payment of dividends			(5,687	)			(1,626	)			(119,788	)
Taxes paid in lieu of shares issued for share-based compensation			—				(47	)			(1,000	)
Net change in cash due to financing activities			103,168				282,543				(250,102	)
Effects of exchange rate changes on cash and cash equivalents			(5,219	)			(2,001	)			(1,927	)
Net change in cash and cash equivalents			50,646				98,981				(14,200	)
Cash and cash equivalents, beginning of period			107,978				8,997				23,197
Cash and cash equivalents, end of period		$	158,624			$	107,978			$	8,997
Supplemental cash flow information:
Cash paid for interest		$	39,451			$	7,527			$	10,372
Cash paid for taxes		$	1,134			$	8,792			$	616
Preferred stock accreting dividends and accretion		$	206			$	487			$	—
Non-cash investing and financing activities:
Capital lease additions		$	—			$	—			$	148
Purchases of property, plant and equipment under financing arrangements		$	1,808			$	4,400			$	—
Property, plant and equipment included in accounts payable		$	911			$	2,544			$	—
Non-cash investing activity on the reacquisition of shares from a noncontrolling interest		$	—			$	1,700			$	—
Conversion of preferred stock to common stock		$	1,839			$	—			$	—
Business acquisition through the issuance of common stock, long-term debt and warrants		$	11,591			$	—			$	—
Non-cash financing activity on issuance of long-term debt		$	5,000			$	—			$	—

HC2 HOLDINGS, INC.

ADJUSTED EBITDA

(in thousands)

		Twelve Months Ended December 31, 2015
		Core Operating																								Early Stage and Other												Non-operating Corporate				HC2 Holdings, Inc.
		Manufacturing				Marine Services				Insurance				Telecommunications				Utilities				Total				Life Sciences				Other				Total
Net income (loss)			24,451				20,855				1,327				2,779				(274	)			49,139				(4,575	)			(18,276	)			(22,851	)			(61,852	)			(35,565	)
Adjustments to reconcile net income (loss) to Adjusted EBITDA:																																			-
Depreciation and amortization			2,016				17,256				2				417				1,635				21,325				20				1,934				1,954				-				23,280
Depreciation and amortization (included in cost of revenue)			7,659				-				-				-				-				7,659				-				-				-				-				7,659
Asset impairment expense			-				547				-				-				-				547				-				-				-				-				547
(Gain) loss on sale or disposal of assets			257				(138	)			-				50				-				170				-				1				1				-				170
Lease termination costs			-				-				-				1,184				-				1,184				-				1				1				-				1,185
Interest expense			1,379				3,803				-				-				42				5,224				-				-				-				33,793				39,017
Other (income) expense, net			(443	)			(1,340	)			(56	)			(2,304	)			(42	)			(4,185	)			(1	)			5,764				5,763				5,242				6,820
Foreign currency (gain) loss (included in cost of revenue)			-				(2,039	)			-				-				-				(2,039	)			-				-				-				-				(2,039	)
Income tax (benefit) expense			15,572				400				(1,448	)			(237	)			(347	)			13,941				(1,037	)			(7,733	)			(8,770	)			(16,052	)			(10,882	)
Loss from discontinued operations			20				-				-				-				-				20				-				1				1				-				21
Noncontrolling interest			1,136				616				-				-				(267	)			1,485				(1,681	)			(1	)			(1,682	)			-				(197	)
Share-based payment expense			-				-				-				-				49				49				71				-				71				10,982				11,102
Acquisition related costs			-				-				-				-				70				70				23				-				23				8,362				8,455
Other costs			-				2,181				-				121				-				2,302				-				-				-				-				2,302
Adjusted EBITDA		$	52,047			$	42,141			$	(175	)		$	2,010			$	866			$	96,889			$	(7,180	)		$	(18,309	)		$	(25,489	)		$	(19,525	)		$	51,875

		Three Months Ended December 31, 2015
		Core Operating																								Early Stage and Other												Non-operating Corporate				HC2 Holdings, Inc.
		Manufacturing				Marine Services				Insurance				Telecommunications				Utilities				Total				Life Sciences				Other				Total
Net income (loss)			8,269				2,891				1,618				3,078				55				15,911				(545	)			(24,044	)			(24,589	)			(2,762	)			(11,440	)
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization			526				4,279				2				123				429				5,358				12				1,292				1,305				-				6,663
Depreciation and amortization (included in cost of revenue)			1,924				-				-				-				-				1,924				-				-				-				-				1,924
Asset impairment expense			-				547				-				-				-				547				-				(0	)			(0	)			-				547
(Gain) loss on sale or disposal of assets			326				(21	)			-				-				-				305				-				1				1				-				305
Lease termination costs			-				-				-				60				-				60				-				1				1				-				61
Interest expense			315				914				-				-				10				1,239				-				(0	)			(0	)			8,570				9,809
Other (income) expense, net			(279	)			(1,090	)			(56	)			(2,299	)			(10	)			(3,733	)			(0	)			6,774				6,774				251				3,292
Foreign currency (gain) loss (included in cost of revenue)			-				608				-				309				-				916				-				(1	)			(1	)			-				915
Income tax (benefit) expense			3,384				222				(1,448	)			(237	)			(347	)			1,575				(1,037	)			8,616				7,579				(18,203	)			(9,048	)
Loss from discontinued operations			0				-				-				-				-				0				-				(23	)			(23	)			-				(23	)
Noncontrolling interest			169				52				-				-				43				265				(468	)			(1	)			(469	)			-				(205	)
Share-based payment expense			-				-				0				-				26				26				71				(0	)			71				3,602				3,700
Acquisition related costs			-				-				-				-				70				70				23				0				23				3,660				3,754
Other costs			-				2,181				-				12				-				2,193				-				-				-				-				2,193
Adjusted EBITDA		$	14,634			$	10,585			$	116			$	1,046			$	274			$	26,655			$	(1,944	)		$	(7,383	)		$	(9,327	)		$	(4,882	)		$	12,446

 

		As Reported				Pro Forma
		Twelve Months Ended December 31, 2014
		HC2 Holdings, Inc.				Core Operating																								Early Stage and Other												Non-operating Corporate				HC2 Holdings, Inc.
						Manufacturing				Marine Services				Insurance				Telecommunications				Utilities				Total				Life Sciences				Other				Total
Net income (loss)			(14,391	)			19,278				17,718				-				(1,068	)			236				36,164				(3,759	)			29,219				25,460				(51,410	)			10,214
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization			6,334				4,139				14,776				-				528				484				19,927				1				-				1				-				19,928
Depreciation and amortization (included in cost of revenue)			4,350				4,350				-				-				-				-				4,350				-				-				-				-				4,350
Asset impairment expense			291				-				-				-				291				-				291				-				-				-				-				291
(Gain) loss on sale or disposal of assets			(162	)			(2	)			104				-				(160	)			-				(58	)			-				-				-				-				(58	)
Lease termination costs			-				-				-				-				-				-				-				-				-				-				-				-
Interest expense			12,347				1,627				4,708				-				1				20				6,356				-				-				-				10,700				17,056
Loss on early extinguishment of debt			11,969				-				-								-				-				-				-				-								11,969				11,969
Other (income) expense, net			(702	)			(476	)			(2,410	)			-				(831	)			(1,431	)			(5,148	)			-				1,610				1,610				217				(3,321	)
Foreign currency (gain) loss (included in cost of revenue)			-				-				-				-				-				-				-				-				-				-				-				-
Income tax (benefit) expense			(22,869	)			13,318				1,069				-				58				103				14,548				-				(31,828	)			(31,828	)			(963	)			(18,243	)
Loss from discontinued operations			146				35				3,007				-				-				-				3,042				-				157				157								3,199
Noncontrolling interest			2,559				3,569				3,059				-				-				229				6,857				(1,038	)			1				(1,037	)			-				5,820
Share-based payment expense			11,028				-				-				-				-				-				-				-				-				-				11,028				11,028
Acquisition related costs			13,044				-				7,966				-				-				-				7,966				-				-				-				5,078				13,044
Other costs			-				-				-				-				-				-				-				-				-				-				-				-
Adjusted EBITDA			23,944			$	45,838			$	49,997			$	-			$	(1,181	)		$	(359	)		$	94,295			$	(4,796	)		$	(841	)		$	(5,637	)		$	(13,381	)		$	75,277

 

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