Market Overview

HC2 Holdings Reports Third Quarter 2019 Results


- Third Quarter 2019 Consolidated Net Revenue of $475.7 Million -
- Marine Services Segment Announces Sale of Stake in HMN Joint Venture -
- Reaffirms 2019 Guidance for Construction Segment -

NEW YORK, Nov. 05, 2019 (GLOBE NEWSWIRE) -- HC2 Holdings, Inc. ("HC2" or the "Company") (NYSE:HCHC), a diversified holding company, announced today its consolidated results for the third quarter ended September 30, 2019.

Third Quarter 2019 Highlights

  • Consolidated net revenue of $475.7 million, compared to $501.4 million in the year-ago quarter.
  • Net loss attributable to common and participating preferred stockholders of $7.5 million, or $0.16 per fully diluted share, compared to net income of $152.8 million, or $2.97 per fully diluted share, in the year-ago quarter.  Third quarter 2018 net income benefited from approximately $171.0 million in pre-tax one-time gains related to an acquisition at the Insurance segment and from our investment in Inseego Corp.
  • Adjusted EBITDA for Core Operating Subsidiaries* increased 30% to $34.2 million, compared to $26.3 million in the year-ago quarter.
  • Total Adjusted EBITDA, excluding Insurance, increased 72% to $23.6 million, compared to $13.7 million in the year-ago quarter.
  • Pre-tax Adjusted Operating Income for Insurance segment of $13.5 million, compared to Pre-tax AOI loss of $11.3 million in the year-ago quarter.
    * "Core Operating Subsidiaries" consists of HC2's Construction, Marine Services, Energy and Telecommunications segments.

Subsequent to Quarter End

  • Marine Services ("Global Marine Group" or "GMG") agreed to a sale of its stake in Huawei Marine Networks Co., Limited ("HMN") to Hengtong Optic-Electric Co Ltd. ("Hengtong").
  • Broadcasting (HC2 Broadcasting Holdings, Inc. and certain of its operating subsidiaries (together, "HC2 Broadcasting")) completed the issuance of $78.7 million of new notes, which have a blended PIK coupon rate of 9.6% and mature in October 2020, to retire HC2 Broadcasting's existing notes due 2019, as well as fund pending acquisitions, working capital and general corporate purposes.

"We've made significant progress in recent weeks with respect to the sale of Global Marine and the refinancing of Broadcasting," stated Philip Falcone, HC2's Chairman, Chief Executive Officer and President. "With the sale agreement of Global Marine Group's stake in the HMN joint venture, we again prove the value creation inherent within our large portfolio of assets. The HMN sale provides us with further momentum in the ongoing sales process of our majority stake in GMG, which will position us to commence de-levering our balance sheet and offers an opportunity to reduce our cost of capital.  At Broadcasting, we recently completed a financing package which allows us to re-focus on our over-the-air strategy by completing the build-out of our broadcast distribution platform.  As we bring more stations online and make progress towards our goal of reaching 80% of U.S. household coverage, we expect additional networks will be attracted to our platform, which is key to our strategy of growing our Broadcasting revenue and profitability over the longer term."

"Operationally, our third quarter saw us perform strongly as we increased core Adjusted EBITDA by 30% from the prior-year period," continued Mr. Falcone.  "Not only did Construction benefit from consistently successful project execution and strong results at GrayWolf Industrial, on an adjusted basis, backlog reached a record $833 million, taking into consideration awarded, but not yet signed contracts.  Our Insurance segment produced another quarter of excellent results and has now generated over $75 million in Pre-Tax AOI thus far in 2019, an impressive performance considering we formed the platform just four years ago.  Furthermore, our Energy segment has seen a seamless integration of the recently acquired ampCNG stations with a near 100% uptime, and we're very pleased with the results we've seen so far.  Overall, we remain excited about the opportunities present throughout our platform - from the consistent and strong cash flows generated at our Construction and Insurance segments, to the longer-term growth opportunities at our Broadcasting and Energy segments, along with the potential to unlock considerable value at Life Sciences, HC2 is poised to build meaningful value as we move forward."

Global Marine Strategic Alternatives Update

As previously disclosed, Global Marine Group, HC2's Marine Services segment, agreed to a sale of its stake in HMN, its 49% joint venture with Huawei Technologies Co., Ltd. ("Huawei"), to Hengtong.  The sale of GMG's interest values HMN at $285 million, and GMG's 49% stake at approximately $140 million.

Under the agreement, GMG is selling 30% ownership of HMN to Hengtong at closing and will retain a 19% interest under a two-year put option agreement, which it will be able to exercise in 2022 at the greater of the current $285 million equity valuation or fair market value at that time.  Hengtong is also purchasing Huawei's full 51% stake and will own 81% of the joint venture upon the closing of both sales, and 100% upon the exercise of GMG's put option.  Completion of the sale is expected by the first quarter of 2020, subject to customary closing conditions, with proceeds delivered to GMG at that time.  After satisfaction of any pending obligations and in concert with any sale of Global Marine Systems Limited ("GMSL"), HC2's share of the net proceeds from the HMN sale will be utilized to reduce debt at the HC2 holding company level.

HC2 continues to make progress with respect to a potential sale for its majority stake in GMG, including, without limitation, its operating subsidiary GMSL.   As previously mentioned, HC2 intends to use the net proceeds from a potential sale to reduce its overall debt.  There can be no assurance that the HMN transaction will be completed as proposed or at all, or that the exploration of any other strategic alternative, including a potential sale of GMG, will result in a consummated transaction or other alternative.  Neither HC2 nor GMG has set a timetable for completion of the process, and neither intends to comment further regarding the process unless a specific transaction or other alternative is approved by their respective Boards of Directors, the process is concluded or it is otherwise determined that further disclosure is appropriate or required by law.

Third Quarter Financial Highlights

  • Net Revenue: For the third quarter of 2019, HC2 consolidated net revenue was $475.7 million, compared to $501.4 million for the year-ago quarter.  Lower revenue in Construction, Telecommunications and Broadcasting segments were partially offset by increases in revenue from the Insurance segment, net of eliminations, as well as from the Energy and Marine Services segments.
(in millions) Three Months Ended September 30,   Nine Months Ended September 30,
          Increase /           Increase /
  2019   2018   (Decrease)   2019   2018   (Decrease)
Construction $ 168.4     $ 195.3     $ (26.9 )   $ 556.2     $ 531.2     $ 25.0  
Marine Services 48.2     44.8     3.4     130.0     149.9     (19.9 )
Energy 8.7     4.6     4.1     19.3     16.2     3.1  
Telecommunications 162.2     187.8     (25.6 )   507.0     580.6     (73.6 )
Total Core Operating Subsidiaries $ 387.5     $ 432.5     $ (45.0 )   $ 1,212.5     $ 1,277.9     $ (65.4 )
Insurance 80.4     77.2     3.2     251.3     161.1     90.2  
Broadcasting 10.0     12.0     (2.0 )   29.8     33.7     (3.9 )
Other     0.3     (0.3 )       3.7     (3.7 )
Eliminations (1) (2.2 )   (20.6 )   18.4     (7.9 )   (24.6 )   16.7  
Consolidated HC2 $ 475.7     $ 501.4     $ (25.7 )   $ 1,485.7     $ 1,451.8     $ 33.9  
(1)  The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three and nine months ended September 30, 2019 and 2018, which are related to transactions between entities under common control which are eliminated or are reclassified in consolidation.
  • Net Income / (Loss):  For the third quarter of 2019, HC2 reported a Net Loss attributable to common stock and participating preferred stockholders of $7.5 million, or $0.16 per fully diluted share, compared to Net Income of $152.8 million, or $2.97 per fully diluted share, in the year-ago quarter.  Net Income for the prior-year period included a bargain purchase gain of $109.1 million related to the acquisition of Humana Inc.'s long-term care ("LTC") business, a $44.2 million gain from our investment in Inseego Corp. and a $17.7 million gain on the recapture of a reinsurance treaty.
(in millions) Three Months Ended September 30,   Nine Months Ended September 30,
          Increase /           Increase /
  2019  <
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