SOURCE: HC2 Holdings, Inc.

HC2 Holdings, Inc.

March 16, 2015 19:39 ET

HC2 Holdings Reports Fiscal Year 2014 Results

HERNDON, VA--(Marketwired - Mar 16, 2015) - HC2 Holdings, Inc. ("HC2" or the "Company") (NYSE MKT: HCHC), a diversified holding company that focuses on acquiring, investing in and operating businesses with attractive assets that it considers to be under or fairly valued and growing its acquired businesses, today announced its consolidated results for the fourth quarter of fiscal 2014 ended on December 31, 2014 as well as the results for the full fiscal year ended on December 31, 2014.

"Looking back at 2014, we accomplished a great deal at HC2, including the diversification of our company through the acquisition of highly attractive businesses and the listing of our stock on the NYSE MKT exchange," said Philip Falcone, HC2's Chairman, President and Chief Executive Officer. "In 2015, our goal remains the same: acquire and own cash flow positive businesses where we can build value over the long-term or acquire businesses that we believe offer significant growth potential. We believe that we have considerable flexibility in pursuing our vision and we continue to believe we are very well positioned for growth and value creation over the foreseeable future."

2014 Highlights:

  • Pro-forma Adjusted EBITDA for the fiscal year ending December 31, 2014 for our primary operating subsidiaries, Schuff International, Inc. ("Schuff") and Global Marine Systems Limited ("Global Marine") was a combined $88.8 million.

  • Total pro-forma net revenue for the fiscal year 2014 was $853.5 million, an increase of 6.5% over 2013 pro-forma net revenue.

  • Consolidated cash as of December 31, 2014 was $108.0 million.

  • Listed Company's common stock on the NYSE MKT LLC national securities exchange.

  • Completed the acquisition of an approximate 91% interest in Schuff, a leading structural steel fabricator in the United States, which comprises our Manufacturing segment.

  • Completed the acquisition of Bridgehouse Marine Limited, the parent holding company of Global Marine, a leading global offshore engineering company focused on subsea cable installation and maintenance, which comprises our Marine Services segment.

  • Equity investment comprised of common stock and warrants in Novatel Wireless, Inc. ("Novatel") which was acquired by HC2 at a cost of $14.2 million, and at December 31, 2014 had a market value of $35.9 million.

  • Completed the acquisition of an approximate 51% interest in American Natural Gas ("ANG"), a premier distributor of natural gas motor fuel headquartered in the Northeast that designs, builds, owns, acquires, operates and maintains compressed natural gas fueling stations for transportation, which comprises our Utilities segment.

  • Completed investments in NerVve Technologies, Inc., GemDerm Aesthetics, Inc., BeneVir Biopharm, Inc. and DMi, Inc. NerVve has developed a groundbreaking product, the NerVve Visual Search Solution, which is a very high speed visual search engine, capable of searching pixels just like they are text on web-pages. DMi, Inc. has exclusive licensing rights from NASCAR Team Properties to publish NASCAR interactive games for video game consoles, personal computers, tablets and smart phones, beginning in 2015.

Non-GAAP Financial Measures and Other Information

The calculation of Adjusted EBITDA, as defined by us on a pro forma basis, consists of Net income (loss) as adjusted for asset impairment expense; gain (loss) on sale or disposal of assets; amortization of debt discount; loss on early extinguishment or restructuring of debt; interest income and other income (expense), net; foreign currency transaction gain (loss); (gain) loss on sale of discontinued operations; gain (loss) from discontinued operations; income tax (benefit) expense; income (loss) from equity investees; acquisition and related charges; non-controlling interests; share-based compensation expense; and depreciation and amortization expense.

Management believes that Adjusted EBITDA is significant to 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, since interest, taxes, depreciation and amortization 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 the Company's US GAAP financial results.

The market value of the Novatel equity and warrants as of December 31, 2014 presented in this release has been calculated with the common stock valued at $2.95, the 20-day VWAP of the Novatel common stock for the period ended December 31, 2014, and with the warrants valued using a Black-Scholes model and closing price as of December 31, 2014.

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. These statements are based on the beliefs and assumptions of HC2's management and the management of HC2's subsidiaries. Factors that could cause actual results, events and developments to differ include, without limitation, capital market conditions, the ability of HC2's subsidiaries to generate sufficient net income and cash flows to make upstream cash distributions, trading characteristics of the HC2 common stock, the ability of HC2 and its subsidiaries to identify any suitable future acquisition opportunities, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance, conditions to, and the timetable for, completing the integration of financial reporting of acquired or target businesses, completing future acquisitions and dispositions, litigation, potential and contingent liabilities, management's plans, changes in regulations, taxes and the risks that may affect the performance of the operating subsidiaries of HC2 and those factors listed under the caption "Risk Factors" in HC2's most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, filed with the SEC. All forward-looking statements described herein are qualified by these cautionary statements and there can be no assurance that the actual results, events or developments referenced herein will occur or be realized. HC2 does not undertake any obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operation results.

About HC2

HC2 Holdings, Inc. is a publicly traded (NYSE MKT: HCHC), diversified holding company, which seeks to acquire and grow attractive businesses that generate sustainable free cash flow. HC2 has a diverse array of operating subsidiaries, each with its own dedicated management team, across a broad set of industries, including, but not limited to, telecom/infrastructure, large-scale U.S. construction, energy, subsea services and life sciences. HC2 seeks opportunities that generate attractive returns and significant cash flow in order to maximize value for all stakeholders. Currently, HC2's largest operating subsidiaries are Schuff, a leading structural steel fabricator in the United States, and Global Marine, a leading global offshore engineering company focused on subsea cable installation and maintenance. Founded in 1994, HC2 is headquartered in Herndon, Virginia.

HC2 HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

       
    Years Ended December 31,  
    2014     2013     2012  
Services revenue   $ 193,044     $ 230,686     $ 302,959  
Sales revenue     350,158       -       -  
Net revenue     543,202       230,686       302,959  
Operating expenses:                        
  Cost of revenue - services     174,956       220,315       285,631  
  Cost of revenue - sales     296,530       -       -  
  Selling, general and administrative     81,396       34,692       45,202  
  Depreciation and amortization     4,617       12,032       3,204  
  (Gain) loss on sale or disposal of assets     (162 )     (8 )     520  
  Asset impairment expense     291       2,791       20,298  
    Total operating expenses     557,628       269,822       354,855  
    Loss from operations     (14,426 )     (39,136 )     (51,896 )
Interest expense     (10,754 )     (8 )     (27 )
Amortization of debt discount     (1,593 )     -       -  
Loss on early extinguishment or restructuring of debt     (11,969 )     -       -  
Gain from contingent value rights valuation     -       14,904       1,292  
Interest income and other expense, net     436       (226 )     90  
Foreign currency transaction gain (loss)     1,061       (588 )     2,538  
    Loss from continuing operations before income taxes and income (loss) from equity investees     (37,245 )     (25,054 )     (48,003 )
Income from equity investees     3,359       -       -  
Income tax (expense) benefit     24,484       7,442       3,132  
    Loss from continuing operations     (9,402 )     (17,612 )     (44,871 )
Loss from discontinued operations     (25 )     (19,621 )     (21,525 )
Gain (loss) from sale of discontinued operations     (121 )     148,839       94,265  
    Net income (loss)     (9,548 )     111,606       27,869  
Less: Net (income) loss attributable to noncontrolling interest     (2,559 )     -       18  
    Net income (loss) attributable to HC2 Holdings, Inc.     (12,107 )     111,606       27,887  
Less: Preferred stock dividends and accretion     2,049       -       -  
    Net income (loss) attributable to common stock and participating preferred stockholders   $ (14,156 )   $ 111,606     $ 27,887  
Basic income (loss) per common share:                        
  Loss from continuing operations attributable to HC2 Holdings, Inc.   $ (0.71 )   $ (1.25 )   $ (3.24 )
  Loss from discontinued operations     -       (1.40 )     (1.55 )
  Gain (loss) from sale of discontinued operations     (0.01 )     10.60       6.81  
    Net income (loss) attributable to HC2 Holdings, Inc.   $ (0.72 )   $ 7.95     $ 2.02  
Diluted income (loss) per common share:                        
Loss from continuing operations attributable to HC2 Holdings, Inc.   $ (0.71 )   $ (1.25 )   $ (3.24 )
Loss from discontinued operations     -       (1.40 )     (1.55 )
Gain (loss) from sale of discontinued operations     (0.01 )     10.60       6.81  
Net income (loss) attributable to HC2 Holdings, Inc.   $ (0.72 )   $ 7.95     $ 2.02  
Weighted average common shares outstanding:                        
  Basic     19,729       14,047       13,844  
  Diluted     19,729       14,047       13,844  
Dividends declared per basic weighted average common shares outstanding     -     $ 8.58     $ 4.09  
Amounts attributable to common shareholders of HC2 Holdings, Inc.                        
  Loss from continuing operations attributable to HC2 Holdings, Inc.   $ (14,010 )   $ (17,612 )   $ (44,853 )
  Loss from discontinued operations     (25 )     (19,621 )     (21,525 )
  Gain (loss) from sale of discontinued operations     (121 )     148,839       94,265  
    Net income (loss) attributable to HC2 Holdings, Inc.   $ (14,156 )   $ 111,606     $ 27,887  
                             
                             

HC2 HOLDINGS, INC.
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)

       
    December 31,  
2014     2013  
Assets                
Current assets:                
  Cash and cash equivalents   $ 107,978     $ 8,997  
  Short-term investments     4,867       -  
  Accounts receivable (net of allowance for doubtful accounts receivable of $2,760 and $2,476 at December 31, 2014 and 2013, respectively)     151,558       18,980  
  Costs and recognized earnings in excess of billings on uncompleted contracts     28,098       -  
  Deferred tax asset - current     1,701       -  
  Inventories     14,975       -  
  Prepaid expenses and other current assets     18,590       40,594  
  Assets held for sale     3,865       6,329  
    Total current assets     331,632       74,900  
Restricted cash     6,467       -  
Long-term investments     48,674       -  
Property, plant and equipment, net     239,851       2,962  
Goodwill     27,990       3,378  
Other intangible assets, net     31,144       -  
Deferred tax asset - long-term     15,811       -  
Other assets     22,479       6,440  
    Total assets   $ 724,048     $ 87,680  
Liabilities, temporary equity and stockholders' equity                
Current liabilities:                
  Accounts payable   $ 79,794     $ 6,964  
  Accrued interconnection costs     9,717       12,456  
  Accrued payroll and employee benefits     20,023       1,854  
  Accrued expenses and other current liabilities     34,042       5,550  
  Billings in excess of costs and recognized earnings on uncompleted contracts     41,959       -  
  Accrued income taxes     512       53  
  Accrued interest     3,125       -  
  Current portion of long-term debt     10,444       -  
  Current portion of pension liability     5,966       -  
  Liabilities held for sale     -       4,823  
    Total current liabilities     205,582       31,700  
Long-term debt     332,927       -  
Pension liability     31,244       -  
Other liabilities     1,617       1,571  
    Total liabilities     571,370       33,271  
Commitments and contingencies                
Temporary equity                
  Preferred stock, $0.001 par value - 20,000,000 shares authorized; Series A - 30,000 and 0 shares issued and outstanding at December 31, 2014 and 2013, respectively; Series A-1 - 11,000 and 0 shares issued and outstanding at December 31, 2014 and 2013, respectively     39,845       -  
Stockholders' equity:                
  Common stock, $0.001 par value - 80,000,000 shares authorized; 23,844,711 and 14,257,545 shares issued and 23,813,085 and 14,225,919 shares outstanding at December 31, 2014 and 2013, respectively     24       14  
  Additional paid-in capital     147,081       98,598  
  Accumulated deficit     (41,880 )     (29,773 )
  Treasury stock, at cost - 31,626 shares at December 31, 2014 and 2013, respectively     (378 )     (378 )
  Accumulated other comprehensive loss     (15,178 )     (14,052 )
    Total HC2 Holdings, Inc. stockholders' equity before noncontrolling interest     89,669       54,409  
  Noncontrolling interest     23,164       -  
    Total stockholders' equity     112,833       54,409  
Total liabilities, temporary equity and stockholders' equity   $ 724,048     $ 87,680  
                 
                 

HC2 HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

       
    Years Ended December 31,  
    2014     2013     2012  
Cash flows from operating activities:                        
  Net income (loss)   $ (9,548 )   $ 111,606     $ 27,869  
  Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:                        
    Provision for doubtful accounts receivable     403       1,507       4,819  
    Share-based compensation expense     11,487       2,286       5,194  
    Depreciation and amortization     8,967       23,964       43,239  
    Amortization of deferred financing costs     240       -       -  
    (Gain) loss on sale or disposal of assets     816       (148,848 )     (93,175 )
    (Gain) loss on sale of investments     (434 )     -       -  
    Equity investment (income)/loss     (3,359 )     -       -  
    Impairment of goodwill and long-lived assets     291       3,123       20,298  
    Amortization of debt discount     1,593       86       201  
    Loss on early extinguishment or restructuring of debt     11,969       21,124       21,682  
    Gain on bargain purchase     (1,417 )     -       -  
    Realized loss on marketable securities     1,608       -       -  
    Change in fair value of Contingent Value Rights     -       (14,904 )     (1,292 )
    Deferred income taxes     (31,838 )     (522 )     119  
    Unrealized foreign currency transaction (gain) loss on intercompany and foreign debt     225       (764 )     (324 )
    Changes in assets and liabilities, net of acquisitions:                        
      (Increase) decrease in accounts receivable     23,306       (2,892 )     16,372  
      (Increase) decrease in costs and recognized earnings in excess of billings on uncompleted contracts     (1,139 )     -       -  
      (Increase) decrease in inventories     6,616       644       662  
      (Increase) decrease in prepaid expenses and other current assets     28,044       (5,346 )     (2,059 )
      (Increase) decrease in other assets     1,870       3,221       5,933  
      Increase (decrease) in accounts payable     23,956       (2,014 )     (8,393 )
      Increase (decrease) in accrued interconnection costs     (2,790 )     4,418       (3,397 )
      Increase (decrease) in accrued payroll and employee benefits     6,825       (5,287 )     -  
      Increase (decrease) in accrued expenses and other current liabilities     (14,451 )     (829 )     (8,203 )
      Increase (decrease) in billings in excess of costs and recognized earnings on uncompleted contracts     (23,793 )     -       -  
      Increase (decrease) in accrued income taxes     (1,091 )     (7,432 )     (942 )
      Increase (decrease) in accrued interest     3,049       (1,715 )     (3,870 )
      Increase (decrease) in other liabilities     (1,951 )     (1,741 )     (1,164 )
      Increase (decrease) in pension liability     (6,641 )     -       -  
        Net cash provided by (used in) operating activities     32,813       (20,315 )     23,569  
Cash flows from investing activities:                        
  Purchases of property, plant and equipment     (5,819 )     (12,577 )     (31,747 )
  Sale of property and equipment and other assets     3,706       9       25  
  Purchases of equity investments     (22,909 )     -       -  
  Purchases of available-for-sale securities     (9,875 )     -       -  
  Investment in debt securities     (250 )     -       -  
  Sale of available-for-sale securities     2,411       -       -  
  Cash from disposition of business, net of cash disposed     2,495       270,634       183,101  
  Cash paid for business acquisitions, net of cash acquired     (146,026 )     (397 )     (1,707 )
  Purchase of noncontrolling interest     (38,403 )     -       -  
  (Increase) decrease in restricted cash     (1,785 )     475       66  
        Net cash (used in) provided by investing activities     (216,455 )     258,144       149,738  
Cash flows from financing activities:                        
  Proceeds from long-term obligations     915,896       -       -  
  Principal payments on long-term obligations     (689,745 )     (128,036 )     (120,763 )
  Payment of fees on restructuring of debt     (12,333 )     (1,201 )     (13,455 )
  Proceeds from sale of common stock, net     6,000       1,158       124  
  Proceeds from sale of preferred stock, net     40,050       -       -  
  Proceeds from the exercise of warrants and stock options     24,348       -       -  
  Payment of dividend equivalents     -       (1,235 )     (125 )
  Payment of dividends     (1,626 )     (119,788 )     (55,265 )
  Receipt of dividends     2,081       -       -  
  Taxes paid in lieu of shares issued for share-based compensation     (47 )     (1,000 )     (1,653 )
        Net cash provided by (used) in financing activities     284,624       (250,102 )     (191,137 )
Effects of exchange rate changes on cash and cash equivalents     (2,001 )     (1,927 )     (25 )
Net change in cash and cash equivalents     98,981       (14,200 )     (17,855 )
Cash and cash equivalents, beginning of period     8,997       23,197       41,052  
Cash and cash equivalents, end of period   $ 107,978     $ 8,997     $ 23,197  
                         
                         

HC2 HOLDINGS, INC.
PRO FORMA NET REVENUE
(in thousands)

             
    Years Ended     Year-over-Year  
    2014     2013        
    Net   % of     Net   % of              
(in thousands)   Revenue   Total     Revenue   Total     Variance     Variance %  
  Telecommunications   161,953   19.0 %   230,686   28.8 %   (68,733 )   -29.8 %
  Manufacturing   526,141   61.6 %   416,142   51.9 %   109,999     26.4 %
  Marine Services   163,595   19.2 %   154,862   19.3 %   8,733     5.6 %
  Utilities   1,839   0.2 %   -   0.0 %   1,839     100.0 %
  Total Net Revenue   853,528   100.0 %   801,690   100.0 %   51,838     6.5 %
                                 
                                 
                                 

HC2 HOLDINGS, INC.
PRO FORMA ADJUSTED EBITDA
(in thousands)

             
    As Reported     Pro Forma  
                                     
    HC2 Holdings, Inc.     Schuff     GMSL     ICS     Other     HC2 Holdings, Inc.  
    Year Ended     Year Ended     Year Ended     Year Ended     Year Ended     Year Ended  
    December 31, 2014     December 31, 2014 (1)     December 31, 2014 (2)     December 31, 2014 (3)     December 31, 2014 (4)     December 31, 2014  
                                                 
Net income (loss)   $ (12,107 )   $ 19,278     $ 27,796     $ (1,342 )   $ (32,977 )   $ 12,755  
Adjustments to reconcile net income (loss) to Adjusted EBIT:                                                
  Asset impairment expense     291       -       -       291       -       291  
  (Gain) loss on sale or disposal of assets     (162 )     (2 )     104       (160 )     -       (58 )
  Interest expense     10,754       1,627       4,708       1       9,127       15,463  
  Amortization of debt discount     1,593       -       -       -       1,593       1,593  
  Loss on early extinguishment of debt     11,969       -       -       -       11,969       11,969  
  Gain from contingent rights valuation     -       -       -       -       -       -  
  Interest income and other expense, net     (436 )     (476 )     (3,174 )     (85 )     174       (3,561 )
  Foreign currency (gain) loss     (1,061 )     -       764       (414 )     222       572  
  (Gain) loss from sale of discontinued operations     121       -       -       -       121       121  
  Gain (loss) from discontinued operations     25       35       3,007       -       36       3,078  
  Income tax (benefit) expense     (24,484 )     13,318       1,069       -       (34,245 )     (19,858 )
  (Income) from equity investees     (3,359 )     -       (7,201 )     -       886       (6,315 )
  Acquisition and related charges     13,044       -       -       -       13,044       13,044  
  Noncontrolling interest     2,559       3,569       2,821       -       (570 )     5,820  
  Share-based payment expense     11,487       -       -       -       11,487       11,487  
    Adjusted EBIT     10,235       37,349       29,894       (1,709 )     (19,133 )     46,401  
  Depreciation and amortization     4,617       4,139       13,059       528       485       18,211  
  Depreciation and amortization (included in cost of revenue)     4,338       4,338       -       -       -       4,338  
    Adjusted EBITDA   $ 19,190     $ 45,826     $ 42,953     $ (1,181 )   $ (18,648 )   $ 68,950  
                                                     
    (1)   Schuff includes activity for the 5 months ended May 26, 2014, prior to our acquisition of a controlling interest.
    (2)   Bridgehouse Marine includes activity for the period ended September 22, 2014, prior to our acquisition of a controlling interest
    (3)   ICS activity does not include any pro forma adjustments
    (4)   Other includes activity for the 7 months ended July 31, 2014 for ANG, prior to our acquisition of a controlling interest.
     
     

Contact Information

  • For More Information on HC2 Holdings, Inc., Please Contact:
    ir@HC2.com