EX-99.2 3 exh992-nonxgaapfinancialme.htm EXHIBIT 99.2 Exhibit



Exhibit 99.2

NON-GAAP FINANCIAL MEASURES

Adjusted EBITDA is a “non-GAAP financial measure” as defined under the rules of the SEC.
 Adjusted EBITDA represents EBITDA net income (loss) attributable to HC2 Holdings, Inc., adjusted for depreciation and amortization, interest expense and income tax (benefit) expense), adjusted to exclude our Insurance segment and add back or deduct certain items that management believes are non-recurring in nature or not comparable from period to period. See below for the definition of Adjusted EBITDA employed by HC2.
 Our management uses Adjusted EBITDA as a supplemental financial measure to assess:
l
the financial performance of our assets without regard to our Insurance segment, financing methods, capital structure, taxes, historical cost basis or non-recurring expenses;
 
 
l
our liquidity and operating performance over time in relation to other companies that own similar assets and calculate Adjusted EBITDA in a similar manner; and
 
 
l
the ability of our assets to generate cash sufficient to pay potential interest cost.
We use Adjusted EBITDA as presented in this offering memorandum as a supplemental measure of our performance. Adjusted EBITDA is not defined under generally accepted accounting principles in the United States (“GAAP” or “US GAAP”) and is not a measure of operating income, operating performance or liquidity presented in accordance with GAAP.
Adjusted EBITDA has limitations as an analytical tool and when assessing our operating performance or liquidity, investors and others should not consider this data in isolation or as a substitute for net income (loss) attributable to HC2 Holdings, Inc., cash flow from operating activities or other cash flow data calculated in accordance with GAAP.
Further, the results presented by Adjusted EBITDA cannot be achieved without incurring the costs that the measure excludes: interest, taxes, depreciation and amortization. Please see the audited and unaudited financial statements and the notes thereto of HC2 incorporated by reference into this offering memorandum.
 Adjusted EBITDA Reconciliations

The calculation of Adjusted EBITDA, as defined by us, consists of net income (loss) attributable to HC2, excluding our Insurance segment, as adjusted for 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 is not a measurement recognized under U.S. GAAP. In addition, other companies may define Adjusted EBITDA differently than we do, which could limit its usefulness. 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-U.S. GAAP measurements are useful supplemental information, such adjusted results are not intended to replace our U.S. GAAP financial results. Using Adjusted EBITDA as a performance measure has inherent limitations as an analytical tool as compared to net income (loss) or other U.S. GAAP financial measures, as this non-GAAP measure excludes 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 does not purport to be an alternative to net income (loss) or other U.S. GAAP financial measures as a measure of our operating performance. Adjusted EBITDA excludes the results of operations of our Insurance segment.




The following table provides the reconciliation of Adjusted EBITDA to net income (loss), the most directly comparable GAAP measure:
(in thousands):
 
December 31, 2017
 
 
Core Operating Subsidiaries
 
Early Stage and Other
 
 
 
HC2
 
Construction
Marine Services
 
Energy
 
Telecom
 
Life Sciences
Other and Eliminations
Non-operating Corporate
 
Net loss attributable to HC2 Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(46,911
)
Less: Net Income attributable to HC2 Holdings Insurance Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
7,066

Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment
 
$
23,624

 
$
15,173

 
$
(516
)
 
$
6,163

 
$
(18,098
)
 
$
(18,005
)
 
$
(62,318
)
 
$
(53,977
)
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
5,583

 
22,898

 
5,071

 
371

 
186

 
1,508

 
71

 
35,688

Depreciation and amortization (included in cost of revenue)
 
5,254

 
—

 
—

 
—

 
—

 
—

 
—

 
5,254

Amortization of equity method fair value adjustment at acquisition
 
—

 
(1,594
)
 
—

 
—

 
—

 
—

 
—

 
(1,594
)
Asset impairment expense
 
—

 
—

 
—

 
—

 
—

 
1,810

 
—

 
1,810

(Gain) loss on sale or disposal of assets
 
292

 
(3,500
)
 
247

 
181

 
—

 
—

 
—

 
(2,780
)
Lease termination costs
 
—

 
249

 
—

 
17

 
—

 
—

 
—

 
266

Interest expense
 
976

 
4,392

 
1,181

 
41

 
—

 
4,373

 
44,135

 
55,098

Net gain on contingent consideration
 
—

 
—

 
—

 
—

 
—

 
—

 
(11,411
)
 
(11,411
)
Other (income) expense, net
 
(41
)
 
2,683

 
1,488

 
149

 
(17
)
 
6,541

 
(92
)
 
10,711

Foreign currency gain (included in cost of revenue)
 
—

 
(79
)
 
—

 
—

 
—

 
—

 
—

 
(79
)
Income tax (benefit) expense
 
10,679

 
203

 
(4,243
)
 
7

 
(820
)
 
(1,129
)
 
(10,185
)
 
(5,488
)
Noncontrolling interest
 
1,941

 
260

 
(681
)
 
—

 
(3,936
)
 
(1,164
)
 
—

 
(3,580
)
Bonus to be settled in equity
 
—

 
—

 
—

 
—

 
—

 
—

 
4,130

 
4,130

Share-based compensation expense
 
—

 
1,527

 
364

 
—

 
319

 
279

 
2,754

 
5,243

Non-recurring items
 
—

 
—

 
—

 
—

 
—

 
—

 
—

 
—

Acquisition costs
 
3,280

 
1,815

 
—

 
—

 
—

 
2,648

 
3,764

 
11,507

Adjusted EBITDA
 
$
51,588

 
$
44,027

 
$
2,911

 
$
6,929

 
$
(22,366
)
 
$
(3,139
)
 
$
(29,152
)
 
$
50,798

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Core Operating Subsidiaries
 
$
105,455

 
 
 
 
 
 
 
 
 
 
 
 
 
 





(in thousands):
 
December 31, 2016
 
 
Core Operating Subsidiaries
 
Early Stage and Other
 
 
 
HC2
 
Construction
Marine Services
 
Energy
 
Telecom
 
Life Sciences
Other and Eliminations
Non-operating Corporate
 
Net loss attributable to HC2 Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(94,549
)
Less: Net loss attributable to HC2 Holdings Insurance Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(14,028
)
Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment
 
$
28,002

 
$
17,447

 
$
7

 
$
1,435

 
$
(7,646
)
 
$
(24,800
)
 
$
(94,966
)
 
$
(80,521
)
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation and amortization
 
1,892

 
22,007

 
2,248

 
504

 
124

 
1,480

 
9

 
28,264

Depreciation and amortization (included in cost of revenue)
 
4,370

 
—

 
—

 
—

 
—

 
—

 
—

 
4,370

Amortization of equity method fair value adjustment at acquisition
 
—

 
(1,371
)
 
—

 
—

 
—

 
—

 
—

 
(1,371
)
(Gain) loss on sale or disposal of assets
 
1,663

 
(9
)
 
—

 
708

 
—

 
—

 
—

 
2,362

Lease termination costs
 
—

 
—

 
—

 
179

 
—

 
—

 
—

 
179

Interest expense
 
1,239

 
4,774

 
211

 
—

 
—

 
1,164

 
35,987

 
43,375

Net loss (gain) on contingent consideration
 
—

 
(2,482
)
 
—

 
—

 
—

 
—

 
11,411

 
8,929

Other (income) expense, net
 
(163
)
 
(2,424
)
 
(8
)
 
(87
)
 
(3,213
)
 
9,987

 
(1,277
)
 
2,815

Foreign currency gain (included in cost of revenue)
 
—

 
(1,106
)
 
—

 
—

 
—

 
—

 
—

 
(1,106
)
Income tax (benefit) expense
 
18,727

 
1,394

 
(535
)
 
2,803

 
1,558

 
3,250

 
11,245

 
38,442

Noncontrolling interest
 
1,834

 
974

 
(4
)
 
—

 
(3,111
)
 
(2,575
)
 
—

 
(2,882
)
Bonus to be settled in equity
 
—

 
—

 
—

 
—

 
—

 
—

 
2,503

 
2,503

Share-based compensation expense
 
—

 
1,682

 
597

 
—

 
251

 
273

 
5,545

 
8,348

Non-recurring items
 
—

 
—

 
—

 
—

 
—

 
—

 
1,513

 
1,513

Acquisition costs
 
2,296

 
290

 
27

 
18

 
—

 
—

 
2,312

 
4,943

Adjusted EBITDA
 
$
59,860

 
$
41,176

 
$
2,543

 
$
5,560

 
$
(12,037
)
 
$
(11,221
)
 
$
(25,718
)
 
$
60,163

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Core Operating Subsidiaries
 
$
109,139

 
 
 
 
 
 
 
 
 
 
 
 
 
 





(in thousands):
 
December 31, 2015
 
 
Construction
 
Marine Services
 
Telecom
 
Energy
 
Life Sciences
 
Other and Eliminations
 
Non-operating Corporate
 
HC2
Net Income (loss) attributable to HC2 Holdings, Inc.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
(35,565
)
Less: Net Income (loss) attributable to HC2 Holdings Insurance Segment
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,327

Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment
 
$
24,451

 
$
20,855

 
$
2,779

 
$
(274
)
 
$
(4,575
)
 
$
(18,276
)
 
$
(61,852
)
 
$
(36,892
)
Adjustments to reconcile net income (loss) to Adjusted EBITDA:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Depreciation and amortization
 
2,016

 
18,772

 
417

 
1,635

 
20

 
1,934

 
—

 
24,794

Depreciation and amortization (included in cost of revenue)
 
7,659

 
—

 
—

 
—

 
—

 
—

 
—

 
7,659

Amortization of equity method fair value adjustments at acquisition
 
—

 
(1,516
)
 
—

 
—

 
—

 
—

 
—

 
(1,516
)
(Gain) loss on sale or disposal of assets
 
257

 
(138
)
 
50

 
—

 
—

 
1

 
—

 
170

Lease termination costs
 
—

 
—

 
1,184

 
—

 
—

 
1

 
—

 
1,185

Asset impairment expense
 
—

 
547

 
—

 
—

 
—

 
—

 
—

 
547

Interest expense
 
1,379

 
3,803

 
—

 
42

 
—

 
—

 
33,793

 
39,017

Other (income) expense, net
 
(443
)
 
(1,340
)
 
(2,304
)
 
(42
)
 
(1
)
 
5,764

 
5,242

 
6,876

Foreign currency (gain) loss (included in cost of revenue)
 
—

 
(2,039
)
 
—

 
—

 
—

 
—

 
—

 
(2,039
)
Income tax (benefit) expense
 
15,572

 
400

 
(237
)
 
(347
)
 
(1,037
)
 
(7,733
)
 
(16,052
)
 
(9,434
)
Loss from discontinued operations
 
20

 
—

 
—

 
—

 
—

 
1

 
—

 
21

Noncontrolling interest
 
1,136

 
616

 
—

 
(267
)
 
(1,681
)
 
(1
)
 
—

 
(197
)
Share-based payment expense
 
—

 
—

 
—

 
49

 
71

 
—

 
10,982

 
11,102

Acquisition and nonrecurring items
 
—

 
2,181

 
121

 
70

 
23

 
—

 
8,362

 
10,757

Adjusted EBITDA
 
$
52,047

 
$
42,141

 
$
2,010

 
$
866

 
$
(7,180
)
 
$
(18,309
)
 
$
(19,525
)
 
$
52,050