HC2 Holdings, Inc. (“HC2” or “the Company”) (NYSE:HCHC), a
diversified holding company, announced today its consolidated
results for the first quarter 2018, which ended on March 31, 2018.
“During the first quarter, our portfolio of
diverse businesses continued to execute on their strategies,”
said Philip Falcone, HC2’s Chairman, President and Chief
Executive Officer. “DBM Global in particular performed well,
utilizing its competitive advantages to win targeted projects and
maintain near-record backlog, while continuing to diversify its
offering, including a focus on bridge and infrastructure
construction in the US. First quarter results at Global
Marine Group were lower than anticipated primarily due to the
timing of project work at the Huawei Marine joint venture, which is
expected to ramp up throughout the balance of the year. As
we’ve previously noted, the complex nature of certain large-scale
projects can cause quarterly variability in the financial results
of our core subsidiaries. Despite these expected timing
issues, we remain confident in the underlying performance of these
businesses and reaffirm our full year 2018 Adjusted EBITDA guidance
of $60 million to $65 million for DBM Global and $45 million to $50
million for Global Marine.”
Mr. Falcone added, “In addition, we recently
announced a transformational and extremely exciting transaction, in
which Janssen Biotech, Inc., one of the Janssen Pharmaceutical
Companies of Johnson & Johnson, will acquire BeneVir Biopharm,
a portfolio company within our Pansend Life Sciences segment, for
up to $1.04 billion. BeneVir has been doing remarkable work
developing oncolytic immunotherapies to help patients whose tumors
do not respond to current therapeutic options. This transaction
clearly demonstrates the value Pansend can create by identifying,
investing and strongly supporting life science companies with
excellent management whose assets and technologies provide unique
solutions for unmet medical needs.”
Mr. Falcone continued, “During the quarter, we
continued to pursue our over-the-air (“OTA”) broadcast television
strategy to build the country’s largest, most comprehensive,
flexible state-of-the art OTA distribution platform. Through
a series of acquisitions, we have expanded HC2 Broadcasting’s
network to 150 operational stations, with an additional ~500 silent
licenses and construction permits in over 130 U.S. markets,
including 9 of the top 10 markets, and we are capable of reaching
approximately 60% of the U.S. population. We also welcomed industry
veterans Kurt Hanson as Chief Technology Officer and Louis Libin as
Managing Director of Strategy to lead and accelerate the growth of
this business.”
Mr. Falcone concluded, “Subsequent to quarter
end, we completed the refinancing of our broadcasting bridge loans
that supported the expansion of our OTA strategy through a tack-on
of our 11% Senior Secured Notes. Optimizing our capital
structure has been and remains a priority for HC2.
First Quarter Financial Highlights
- Net Revenue: For the first quarter of 2018,
HC2 recorded consolidated total net revenue of $453.7 million, as
compared to $390.6 million for the year-ago quarter. The
$63.1 million or 16.2% year-over-year increase was driven primarily
by contributions in Construction, Broadcasting, Telecommunications,
and Insurance segments, offset by a decline in Marine
Services.
|
REVENUE by OPERATING SEGMENT |
|
|
|
|
|
|
|
(in thousands) |
|
Three Months Ended March 31, |
|
|
2018 |
|
2017 |
|
Increase / (Decrease) |
Construction |
|
$ |
158,941 |
|
|
$ |
112,721 |
|
|
$ |
46,220 |
|
Marine Services |
|
36,722 |
|
|
44,179 |
|
|
(7,457 |
) |
Energy |
|
4,502 |
|
|
4,287 |
|
|
215 |
|
Telecommunications |
|
202,303 |
|
|
191,749 |
|
|
10,554 |
|
Total Core Operating
Subsidiaries |
|
$ |
402,468 |
|
|
$ |
352,936 |
|
|
$ |
49,532 |
|
Insurance |
|
40,200 |
|
|
36,026 |
|
|
4,174 |
|
Life Sciences |
|
— |
|
|
— |
|
|
— |
|
Broadcasting |
|
10,656 |
|
|
— |
|
|
10,656 |
|
Other |
|
2,353 |
|
|
1,606 |
|
|
747 |
|
Eliminations (1) |
|
(1,987 |
) |
|
— |
|
|
(1,987 |
) |
Consolidated HC2 |
|
$ |
453,690 |
|
|
$ |
390,568 |
|
|
$ |
63,122 |
|
(1) The Insurance segment revenues are inclusive of
mark-to-market adjustments recorded on equity securities in
accordance with ASU 2016-01. Such adjustments related to
consolidated subsidiaries are eliminated in consolidation.
- Net Income / (Loss): For the first quarter of
2018, HC2 reported a Net (Loss) attributable to common and
participating preferred stockholders of $(35.7) million or $(0.81)
per fully diluted share, as compared to Net (Loss) of $(15.1)
million or $(0.36) per fully diluted share for the first quarter
2017.
- Adjusted EBITDA: Adjusted EBITDA for “Core
Operating Subsidiaries,” which includes HC2's Construction, Marine
Services, Energy and Telecommunications segments, was a combined
$9.3 million for the first quarter of 2018, as compared to $27.8
million for the year-ago quarter, due primarily to timing
associated with large scale projects in our Marine Services
segment, in particular its Huawei Marine joint venture, in addition
to a strong year-ago quarter.For the first quarter of 2018, Total
Adjusted EBITDA (excluding the Insurance segment), which includes
results from Core Operating Subsidiaries, Life Sciences,
Broadcasting, Other, and Non-operating Corporate segments, was an
EBITDA loss of $(6.9) million, as compared to $16.7 million for the
year-ago quarter. First quarter 2018, Total Adjusted EBITDA
loss was driven by timing of projects in the Marine Services
segment, in particular its Huawei Marine joint venture, as well as
the addition of the new Broadcasting segment, which includes the
Company’s OTA broadcasting assets.
|
ADJUSTED EBITDA by OPERATING SEGMENT |
|
|
|
|
|
|
(in thousands) |
Three Months Ended March 31, |
|
2018 |
|
2017 |
|
Increase / (Decrease) |
Construction |
$ |
9,974 |
|
|
$ |
8,608 |
|
|
$ |
1,366 |
|
Marine Services |
(2,443 |
) |
|
16,346 |
|
|
(18,789 |
) |
Energy |
670 |
|
|
1,160 |
|
|
(490 |
) |
Telecommunications |
1,108 |
|
|
1,682 |
|
|
(574 |
) |
Total Core Operating
Subsidiaries |
$ |
9,309 |
|
|
$ |
27,796 |
|
|
$ |
(18,487 |
) |
Life Sciences |
(4,350 |
) |
|
(4,075 |
) |
|
(275 |
) |
Broadcasting |
(5,051 |
) |
|
— |
|
|
(5,051 |
) |
Other and
Eliminations |
(156 |
) |
|
(1,170 |
) |
|
1,014 |
|
Non-operating
Corporate |
(6,656 |
) |
|
(5,862 |
) |
|
(794 |
) |
Consolidated HC2 |
$ |
(6,904 |
) |
|
$ |
16,689 |
|
|
$ |
(23,593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
- Balance Sheet: As of March 31, 2018, 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 $69.1 million, of which $32.4 million was at
the HC2 corporate level.
First Quarter Segment
Highlights
- Construction - For the first quarter of 2018,
HC2’s DBM Global Inc. (“DBM”), reported Net Income of $3.5 million,
as compared to $3.2 million for the year-ago quarter.Adjusted
EBITDA was $10.0 million for the first quarter, as compared to $8.6
million for the year-ago quarter, primarily due to the continued
ramp up of several large scale commercial projects.Backlog at the
end of the first quarter was a near-record $718 million, up 44% as
compared to approximately $498 million for the year ago
quarter. Taking into consideration awarded, but not yet
signed contracts, backlog would have been approximately $759
million. DBM 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 first quarter of
2018, Global Marine Systems (“Global Marine”) reported a Net (Loss)
of $(6.3) million, as compared to Net Income of $11.2 million for
the year-ago quarter.Adjusted EBITDA was a loss of $(2.4) million
for the first quarter, as compared to income of $16.3 million for
the year-ago quarter, primarily due to timing associated with large
scale projects in the Huawei Marine joint venture which had a
strong year-ago quarter, lower offshore power contribution versus
the comparable period, as well as increased unutilized vessel costs
as installation vessels were mobilized in the quarter for scheduled
telecom and offshore power project work.
- Energy - For the first quarter of 2018,
American Natural Gas (“ANG”) reported a Net (Loss) of $(0.7)
million, as compared to $(0.7) million for the year-ago
quarter.Adjusted EBITDA was $0.7 million for the first quarter, as
compared to $1.2 million for the year-ago quarter. Slightly
higher revenues were offset by higher utility and station operation
costs, as well as incremental expenses, as the company continues to
ramp up operations across the platform. ANG currently owns and/or
operates 44 natural gas fueling stations, including stations under
development, in 15 states.
- Telecommunications - For the first quarter of
2018, PTGi-ICS reported Net Income of $1.1 million, as compared to
$1.5 million for the year-ago quarter.Adjusted EBITDA was $1.1
million for the first quarter, as compared to $1.7 million for the
year-ago quarter. The decrease was due primarily to
fluctuations in the mix of wholesale traffic volumes, resulting in
lower call termination margin contribution.
- Insurance - As of March 31, 2018, the
Company's Insurance subsidiary had approximately $68.9 million of
statutory surplus, $82.9 million of total adjusted capital and $2.1
billion in total GAAP assets.
|
INSURANCE SEGMENT ADJUSTED OPERATING INCOME
("AOI") |
|
|
|
|
|
|
(in thousands) |
Three Months Ended March 31, |
|
2018 |
|
2017 |
|
Increase / (Decrease) |
Insurance |
$ |
(962 |
) |
|
$ |
(1,020 |
) |
|
$ |
58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Operating Income / (Loss) was Loss of $(1.0) million
for the first quarter of 2018 was essentially in line with the
year-ago quarter Loss of $(1.0) million.
CGI continues to believe that its acquisition of Humana Inc.’s
(NYSE:HUM) long-term care insurance business, KMG America
Corporation (“KMG”), will close in the third quarter of 2018.
The transaction is expected to be immediately accretive to CGI’s
risk-based and statutory capital. As of December 31, 2017, KMG’s
subsidiary, Kanawha Insurance Company, had approximately $150
million of Statutory Capital and Surplus with approximately $2.6
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.
- Pansend Life Sciences - During the first
quarter, companies in the Pansend Life Sciences, LLC portfolio
continued to ramp operations and meet critical milestones,
including R2 Dermatology, MediBeacon and BeneVir, all of which
remained in discussions with various strategic parties.Subsequent
to quarter end, as announced on May 2, 2018, BeneVir, who’s focused
on developing oncolytic immunotherapies for the treatment of
cancer, entered into a definitive agreement to be acquired by
Janssen Biotech, Inc. (“Janssen”), one of the Janssen
Pharmaceutical Companies of Johnson & Johnson.Under the terms
of the agreement, Janssen will make an upfront cash payment of $140
million at closing of the transaction, plus additional contingent
payments of up to $900 million based on achievement of certain
predetermined milestones. The total amount of all payments
could exceed $1.04 billion if all milestones are met. Of the
$140 million upfront cash payment, HC2 expects to receive
approximately $75 million at closing, excluding approximately $10
million being held in escrow. The closing of the transaction
is subject to customary closing conditions, including clearance
under the Hart-Scott-Rodino Antitrust Improvements Act. The
transaction is expected to close in the second quarter of
2018.
- Broadcasting - For the first quarter of 2018,
the newly created Broadcasting segment reported Net (Loss) of
$(12.7) million and Adjusted EBITDA loss of $(5.1) million.
There was no comparable period for the Broadcasting segment as the
OTA broadcasting assets were acquired in the previous
quarter. As the result of a series of current and pending
transactions, HC2’s broadcasting subsidiary has approximately 150
operational stations, including 10 full-power stations, 42 Class A
stations and 98 LPTV stations. In addition, Broadcasting had
an additional ~500 silent licenses and construction permits.
The total Broadcasting footprint covers approximately 60 percent of
the U.S. population, in over 130 U.S. markets, including 9 of the
top 10 markets across the United States.
- HC2 Corporate - The Company received a
combined $5.8 million in the first quarter of tax share and
dividends from DBMG and PTGi-ICS, respectively.Subsequent to
quarter end, HC2 refinanced its Broadcasting Bridge Loans that
supported the expansion of its OTA television broadcasting strategy
through the completion of a $110 million tack-on offering of its
11% Senior Secured Notes. The Notes were issued at an issue
price of 102.0% plus accrued interest from December 1, 2017.
The offering closed on May 7, 2018.
Reaffirms 2018 Guidance for Construction
and Marine Services Segments
Earlier this year, 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 continues to expect 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 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”).
Conference Call
HC2 Holdings, Inc. will host a live conference call to discuss
its first quarter 2018 financial results and operations today,
Thursday, May 10, 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: 4989606
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: 4989606
*Available approximately two hours after the end of the
conference call through June 9, 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 eight reportable segments,
including Construction, Marine Services, Energy,
Telecommunications, Life Sciences, Broadcasting, 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
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. Adjusted
EBITDA excludes the results of operations and any consolidating
eliminations of our Insurance segment. 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.
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.
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 statements regarding our expectations 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 the Company to complete its proposed bridge loan;
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 and disposition
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. 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 HC2
undertakes no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information,
future events or otherwise.
|
HC2 HOLDINGS, INC. |
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS |
(in thousands, except per share
amounts) |
(Unaudited) |
|
|
|
Three Months Ended March 31, |
|
|
2018 |
|
2017 |
Revenue |
|
$ |
415,477 |
|
|
$ |
354,542 |
|
Life, accident and
health earned premiums, net |
|
20,040 |
|
|
19,941 |
|
Net investment
income |
|
17,724 |
|
|
15,304 |
|
Net realized and
unrealized gains on investments |
|
449 |
|
|
781 |
|
Net
revenue |
|
453,690 |
|
|
390,568 |
|
Operating expenses |
|
|
|
|
Cost of
revenue |
|
375,674 |
|
|
314,414 |
|
Policy
benefits, changes in reserves, and commissions |
|
32,283 |
|
|
31,487 |
|
Selling,
general and administrative |
|
52,088 |
|
|
39,856 |
|
Depreciation and amortization |
|
9,656 |
|
|
7,397 |
|
Other
operating (income) expenses |
|
(2,252 |
) |
|
(3,558 |
) |
Total
operating expenses |
|
467,449 |
|
|
389,596 |
|
Income
(loss) from operations |
|
(13,759 |
) |
|
972 |
|
Interest expense |
|
(19,325 |
) |
|
(14,115 |
) |
Loss on contingent
consideration |
|
— |
|
|
(231 |
) |
Income (loss) from
equity investees |
|
(5,231 |
) |
|
7,693 |
|
Other income
(expenses), net |
|
1,092 |
|
|
(4,910 |
) |
Loss from
continuing operations before income taxes |
|
(37,223 |
) |
|
(10,591 |
) |
Income tax expense |
|
(1,631 |
) |
|
(5,291 |
) |
Net
loss |
|
(38,854 |
) |
|
(15,882 |
) |
Less: Net loss
attributable to noncontrolling interest and redeemable
noncontrolling interest |
|
3,858 |
|
|
1,386 |
|
Net loss
attributable to HC2 Holdings, Inc. |
|
(34,996 |
) |
|
(14,496 |
) |
Less: Preferred stock
and deemed dividends from conversions |
|
703 |
|
|
583 |
|
Net loss
attributable to common stock and participating preferred
stockholders |
|
$ |
(35,699 |
) |
|
$ |
(15,079 |
) |
|
|
|
|
|
Loss per Common
Share |
|
|
|
|
Basic |
|
$ |
(0.81 |
) |
|
$ |
(0.36 |
) |
Diluted |
|
$ |
(0.81 |
) |
|
$ |
(0.36 |
) |
|
|
|
|
|
Weighted average common
shares outstanding: |
|
|
|
|
Basic |
|
44,281 |
|
|
41,948 |
|
Diluted |
|
44,281 |
|
|
41,948 |
|
|
HC2 HOLDINGS, INC. |
CONDENSED CONSOLIDATED BALANCE
SHEETS |
(in thousands, except share and per share
amounts) |
(Unaudited) |
|
|
|
March 31, 2018 |
|
December 31, 2017 |
Assets |
|
|
|
|
Investments: |
|
|
|
|
Fixed
maturity securities, available-for-sale at fair value |
|
$ |
1,302,556 |
|
|
$ |
1,340,626 |
|
Equity
securities |
|
80,210 |
|
|
47,500 |
|
Mortgage
loans |
|
61,084 |
|
|
52,109 |
|
Policy
loans |
|
17,807 |
|
|
17,944 |
|
Other
invested assets |
|
81,726 |
|
|
85,419 |
|
Total
investments |
|
1,543,383 |
|
|
1,543,598 |
|
Cash and
cash equivalents |
|
92,074 |
|
|
97,885 |
|
Accounts
receivable, net |
|
327,513 |
|
|
322,446 |
|
Recoverable from reinsurers |
|
529,427 |
|
|
526,337 |
|
Deferred
tax asset |
|
951 |
|
|
1,661 |
|
Property,
plant and equipment, net |
|
372,425 |
|
|
374,660 |
|
Goodwill |
|
132,466 |
|
|
131,741 |
|
Intangibles, net |
|
119,385 |
|
|
117,105 |
|
Other
assets |
|
109,699 |
|
|
102,258 |
|
Total assets |
|
$ |
3,227,323 |
|
|
$ |
3,217,691 |
|
|
|
|
|
|
Liabilities,
temporary equity and stockholders’ equity |
|
|
|
|
Life,
accident and health reserves |
|
$ |
1,708,680 |
|
|
$ |
1,693,961 |
|
Annuity
reserves |
|
240,186 |
|
|
243,156 |
|
Value of
business acquired |
|
41,924 |
|
|
42,969 |
|
Accounts
payable and other current liabilities |
|
339,381 |
|
|
347,492 |
|
Deferred
tax liability |
|
10,910 |
|
|
10,740 |
|
Debt
obligations |
|
655,423 |
|
|
593,172 |
|
Other
liabilities |
|
75,015 |
|
|
70,174 |
|
Total liabilities |
|
3,071,519 |
|
|
3,001,664 |
|
Commitments and
contingencies |
|
|
|
|
Temporary equity |
|
|
|
|
Preferred
stock |
|
26,310 |
|
|
26,296 |
|
Redeemable noncontrolling interest |
|
3,192 |
|
|
1,609 |
|
Total temporary
equity |
|
29,502 |
|
|
27,905 |
|
Stockholders’
equity |
|
|
|
|
Common
stock, $.001 par value |
|
45 |
|
|
44 |
|
Shares
authorized: 80,000,000 at March 31, 2018 and December 31,
2017; |
|
|
|
|
Shares
issued: 44,973,592 and 44,570,004 at March 31, 2018 and December
31, 2017; |
|
|
|
|
Shares
outstanding: 44,528,938 and 44,190,826 at March 31, 2018 and
December 31, 2017, respectively |
|
|
|
|
Additional paid-in capital |
|
253,089 |
|
|
254,685 |
|
Treasury
stock, at cost; 444,654 and 379,178 shares at March 31, 2018
and December 31, 2017, respectively |
|
(2,433 |
) |
|
(2,057 |
) |
Accumulated deficit |
|
(252,223 |
) |
|
(221,189 |
) |
Accumulated other comprehensive income |
|
15,871 |
|
|
41,688 |
|
Total HC2 Holdings,
Inc. stockholders’ equity |
|
14,349 |
|
|
73,171 |
|
Noncontrolling interest |
|
111,953 |
|
|
114,951 |
|
Total stockholders’
equity |
|
126,302 |
|
|
188,122 |
|
Total liabilities,
temporary equity and stockholders’ equity |
|
$ |
3,227,323 |
|
|
$ |
3,217,691 |
|
|
|
|
|
|
|
|
|
|
|
HC2 HOLDINGS, INC. |
RECONCILIATION OF NET INCOME (LOSS) TO
ADJUSTED EBITDA |
(in thousands) |
(Unaudited) |
|
|
Three Months Ended March 31, 2018 |
|
Core Operating Subsidiaries |
|
Early Stage & Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
Marine Services |
|
Energy |
|
Telecom |
|
Life Sciences |
|
Broadcasting |
|
Other and Eliminations |
|
Non-operating Corporate |
|
|
HC2 |
|
Net (loss) attributable
to HC2 Holdings, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(34,996 |
) |
Less: Net Income
attributable to HC2 Holdings Insurance segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,245 |
|
Less: Consolidating
eliminations attributable to HC2 Holdings Insurance segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,987 |
) |
Net Income (loss)
attributable to HC2 Holdings, Inc., excluding Insurance
Segment |
$ |
3,467 |
|
|
$ |
(6,253 |
) |
|
$ |
(698 |
) |
|
$ |
1,053 |
|
|
$ |
(3,936 |
) |
|
$ |
(12,736 |
) |
|
$ |
(156 |
) |
|
$ |
(14,995 |
) |
|
(34,254 |
) |
Adjustments to
reconcile net income (loss) to Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
1,527 |
|
|
6,828 |
|
|
1,344 |
|
|
86 |
|
|
58 |
|
|
705 |
|
|
21 |
|
|
21 |
|
|
10,590 |
|
Depreciation and amortization (included in cost of revenue) |
1,593 |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
1,593 |
|
Amortization of equity method fair value adjustment at
acquisition |
— |
|
|
(371 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(371 |
) |
(Gain)
loss on sale or disposal of assets |
415 |
|
|
(2,636 |
) |
|
(31 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(2,252 |
) |
Interest
expense |
410 |
|
|
1,163 |
|
|
320 |
|
|
— |
|
|
— |
|
|
5,706 |
|
|
2 |
|
|
11,724 |
|
|
19,325 |
|
Net loss
on contingent consideration |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Other
(income) expense, net |
89 |
|
|
948 |
|
|
66 |
|
|
(59 |
) |
|
28 |
|
|
(75 |
) |
|
52 |
|
|
(722 |
) |
|
327 |
|
Foreign
currency (gain) loss (included in cost of revenue) |
— |
|
|
(102 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(102 |
) |
Income
tax (benefit) expense |
1,832 |
|
|
(66 |
) |
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(3,315 |
) |
|
(1,549 |
) |
Noncontrolling interest |
282 |
|
|
(2,364 |
) |
|
(333 |
) |
|
— |
|
|
(747 |
) |
|
(610 |
) |
|
(86 |
) |
|
— |
|
|
(3,858 |
) |
Bonus to
be settled in equity |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
175 |
|
|
175 |
|
Share-based payment expense |
— |
|
|
410 |
|
|
2 |
|
|
— |
|
|
74 |
|
|
313 |
|
|
11 |
|
|
278 |
|
|
1,088 |
|
Non-recurring items |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Acquisition costs |
359 |
|
|
— |
|
|
— |
|
|
28 |
|
|
173 |
|
|
1,646 |
|
|
— |
|
|
178 |
|
|
2,384 |
|
Adjusted
EBITDA |
$ |
9,974 |
|
|
$ |
(2,443 |
) |
|
$ |
670 |
|
|
$ |
1,108 |
|
|
$ |
(4,350 |
) |
|
$ |
(5,051 |
) |
|
$ |
(156 |
) |
|
$ |
(6,656 |
) |
|
$ |
(6,904 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Core Operating Subsidiaries |
$ |
9,309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HC2 HOLDINGS, INC. |
RECONCILIATION OF NET INCOME (LOSS) TO
ADJUSTED EBITDA |
(in thousands) |
(Unaudited) |
|
|
Three Months Ended March 31, 2017 |
|
Core Operating Subsidiaries |
|
Early Stage & Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Construction |
|
Marine Services |
|
Energy |
|
Telecom |
|
Life Sciences |
|
Broadcasting |
|
Other and Eliminations |
|
Non-operating Corporate |
|
|
HC2 |
|
Net (loss) attributable
to HC2 Holdings, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(14,496 |
) |
Less: Net (loss)
attributable to HC2 Holdings Insurance Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
Loss 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 |
) |
Share-based payment 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HC2 HOLDINGS,
INC.RECONCILIATION OF NET INCOME (LOSS) TO
ADJUSTED OPERATING INCOME ("INSURANCE AOI")(in
thousands)(Unaudited)
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 March 31, 2018 and 2017,
respectively:
|
|
|
|
|
Three Months Ended March 31, |
|
|
2018 |
|
2017 |
|
Increase / (Decrease) |
Net Income (loss) -
Insurance segment |
|
$ |
1,245 |
|
|
$ |
(761 |
) |
|
$ |
2,006 |
|
Effect of investment
(gains) (1) |
|
(2,510 |
) |
|
(781 |
) |
|
(1,729 |
) |
Asset impairment
expense |
|
— |
|
|
522 |
|
|
(522 |
) |
Acquisition costs |
|
303 |
|
|
— |
|
|
303 |
|
Insurance
AOI |
|
$ |
(962 |
) |
|
$ |
(1,020 |
) |
|
$ |
58 |
|
(1) The Insurance segment revenues are inclusive of
mark-to-market adjustments recorded on equity securities in
accordance with ASU 2016-01. Such adjustments related to
consolidated subsidiaries are eliminated in consolidation.
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