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Helix Reports Second Quarter 2023 Results

HOUSTON–(BUSINESS WIRE)–
Helix Energy Solutions Group, Inc. (“Helix”) (NYSE: HLX) reported net income of $7.1 million, or $0.05 per diluted share, for the second quarter 2023 compared to a net loss of $5.2 million, or $(0.03) per diluted share, for the first quarter 2023 and a net loss of $29.7 million, or $(0.20) per diluted share, for the second quarter 2022. Helix reported adjusted EBITDA¹ of $71.3 million for the second quarter 2023 compared to $35.1 million for the first quarter 2023 and $16.8 million for the second quarter 2022.

For the six months ended June 30, 2023, Helix reported net income of $1.9 million, or $0.01 per diluted share, compared to a net loss of $71.7 million, or $(0.47) per diluted share, for the six months ended June 30, 2022. Adjusted EBITDA for the six months ended June 30, 2023 was $106.4 million compared to $19.3 million for the six months ended June 30, 2022. The table below summarizes our results of operations:

Summary of Results ($ in thousands, except per share amounts, unaudited)
	Three Months Ended												Six Months Ended
	6/30/2023				6/30/2022				3/31/2023				6/30/2023				6/30/2022
Revenues	$	308,817			$	162,612			$	250,084			$	558,901			$	312,737
Gross Profit (Loss)	$	55,349			$	(1,354	)		$	15,184			$	70,533			$	(19,963	)
		18	%			(1	)%			6	%			13	%			(6	)%
Net Income (Loss)	$	7,100			$	(29,699	)		$	(5,165	)		$	1,935			$	(71,730	)
Diluted Earnings (Loss) Per Share	$	0.05			$	(0.20	)		$	(0.03	)		$	0.01			$	(0.47	)
Adjusted EBITDA1	$	71,292			$	16,759			$	35,094			$	106,386			$	19,285
Cash and Cash Equivalents2	$	182,651			$	260,595			$	166,674			$	182,651			$	260,595
Net Debt1	$	78,317			$	4,010			$	91,278			$	78,317			$	4,010
Cash Flows from Operating Activities	$	31,501			$	(5,841	)		$	(5,392	)		$	26,109			$	(23,254	)
Free Cash Flow1	$	30,246			$	(7,405	)		$	(11,692	)		$	18,554			$	(25,441	)
1 Adjusted EBITDA, Net Debt and Free Cash Flow are non-GAAP measures; see reconciliations below 2 Excludes restricted cash of $2.5 million as of 3/31/23 and 6/30/22

Owen Kratz, President and Chief Executive Officer of Helix, stated, “The offshore energy services markets continue to improve with the oil and gas and the renewables markets driving increased activity globally and across all our business segments. Our second quarter results improved sequentially, as we benefitted from the seasonal pick-up in activity in our Robotics and Shallow Water Abandonment segments and strong utilization in our Well Intervention segment with the Q7000 commencing operations in the Asia Pacific region. Our Robotics segment benefited from strong vessel and trenching activity, with trenching projects in the quarter performed in Europe, the U.S. east coast and Asia Pacific. With improved global activity, the Robotics segment achieved its highest quarterly revenues since 2015. In our Shallow Water Abandonment segment, Helix Alliance operations improved with the commencement of seasonal activity of the Epic Hedron heavy lift barge. Given our overall strong performance during the second quarter and the strength in our outlook for the second half of the year, we increased our guidance for 2023. Additionally, we amended our ABL facility, increasing our facility size by $20 million, and continued to buy back shares under our share repurchase program.”

Segment Information, Operational and Financial Highlights ($ in thousands, unaudited)
	Three Months Ended												Six Months Ended
	6/30/2023				6/30/2022				3/31/2023				6/30/2023				6/30/2022
Revenues:
Well Intervention	$	154,221			$	106,291			$	142,438			$	296,659			$	212,658
Robotics		70,050				49,850				49,222				119,272				87,201
Shallow Water Abandonment1		76,306				–				49,381				125,687				–
Production Facilities		23,128				17,678				20,905				44,033				35,972
Intercompany Eliminations		(14,888	)			(11,207	)			(11,862	)			(26,750	)			(23,094	)
Total	$	308,817			$	162,612			$	250,084			$	558,901			$	312,737
Income (Loss) from Operations:
Well Intervention	$	3,380			$	(22,548	)		$	(8,143	)		$	(4,763	)		$	(54,306	)
Robotics		17,467				9,666				5,094				22,561				11,146
Shallow Water Abandonment1		19,762				–				6,822				26,584				–
Production Facilities		7,774				6,045				5,157				12,931				11,896
Change in Fair Value of Contingent Consideration		(10,828	)			–				(3,992	)			(14,820	)			–
Corporate / Other / Eliminations		(17,350	)			(12,139	)			(13,241	)			(30,591	)			(20,689	)
Total	$	20,205			$	(18,976	)		$	(8,303	)		$	11,902			$	(51,953	)
1 Shallow Water Abandonment includes the results of Helix Alliance beginning July 1, 2022, the date of acquisition

Segment Results

Well Intervention

Well Intervention revenues increased $11.8 million, or 8%, during the second quarter 2023 compared to the prior quarter. Our second quarter 2023 revenues increased primarily due to higher revenue on the Q7000, as well as higher utilization on the Q5000 and the North Sea vessels following their completion of scheduled regulatory inspections and maintenance during the first quarter. The revenue increases were offset in part by lower utilization on the Q4000, which commenced its regulatory dry dock during the quarter. During the second quarter 2023, the Q7000 recognized revenues over approximately 27 days following its paid transit and mobilization to New Zealand. During the prior quarter, the Q7000 recognized no revenue as it had 53 days of dry dock and 37 days of paid transit and mobilization to New Zealand for which all revenues were deferred. Overall Well Intervention vessel utilization increased to 84% during the second quarter 2023 compared to 80% during the prior quarter. Well Intervention generated operating income of $3.4 million during the second quarter 2023 compared to operating losses of $8.1 million during the prior quarter. The improvement in operating results was primarily due to higher revenues during the second quarter.

Well Intervention revenues increased $47.9 million, or 45%, during the second quarter 2023 compared to the second quarter 2022. The increase was primarily due to higher revenues in the North Sea, Brazil and on the Q7000, offset in part by lower utilization on the Q4000 during the second quarter 2023. North Sea revenues improved during the second quarter 2023 with stronger utilization and rates compared to the second quarter 2022, and revenues in Brazil increased primarily due to higher rates as both vessels commenced long-term contracts with improved day rates at the end of 2022. During the second quarter 2023, the Q7000 recognized revenues over approximately 27 days following its paid transit and mobilization to New Zealand, compared to the second quarter 2022 when the vessel had only 2 days of utilization before conducting scheduled regulatory maintenance during the remainder of the quarter. The second quarter 2023 revenue increases were offset in part by lower utilization on the Q4000, which commenced its regulatory dry dock during the second quarter 2023. Overall Well Intervention vessel utilization increased to 84% during the second quarter 2023 compared to 67% during the second quarter 2022. Well Intervention generated operating income of $3.4 million during the second quarter 2023 compared to operating losses of $22.5 million during the second quarter 2022. The improvement in operating results was primarily due to higher revenues during 2023.

Robotics

Robotics revenues increased $20.8 million, or 42%, during the second quarter 2023 compared to the prior quarter. The increase in revenues was due to higher utilization and rates on ROVs, trenchers and vessels during the second quarter 2023 compared to the prior quarter. Chartered vessel activity increased to 435 days compared to 295 days, and vessel utilization increased to 96% during the second quarter 2023 compared to 91% during the prior quarter. Vessel days included 113 spot vessel days during the second quarter 2023 compared to 13 spot vessel days during the prior quarter. ROV and trencher utilization increased to 58% during the second quarter 2023 compared to 56% during the prior quarter. Integrated vessel trenching days increased to 194 days during the second quarter 2023 compared to 66 days during the prior quarter. Trenching activity during the second quarter also included 58 days of utilization of the i-Plough as a stand-alone trencher performing site clearance on a third-party vessel compared to 90 days during the prior quarter. The IROV boulder grab, included in ROV utilization, had 83 days of utilization during the second quarter 2023 performing seabed clearance operations on the U.S. east coast compared to no utilization during the prior quarter. Robotics operating income increased $12.4 million during the second quarter 2023 compared to the prior quarter due to higher revenues.

Robotics revenues increased $20.2 million, or 41%, during the second quarter 2023 compared to the second quarter 2022. The increase in revenues was primarily due to higher utilization and rates on ROVs, trenchers and vessels during the second quarter 2023 compared to the second quarter 2022. Chartered vessel days and utilization increased to 435 days and 96%, respectively, during the second quarter 2023 compared to 370 days and 94%, respectively, during the second quarter 2022. Vessel days included 113 spot vessel days during the second quarter 2023 compared to 116 spot vessel days during the second quarter 2022. ROV and trencher utilization increased to 58% during the second quarter 2023 compared to 53% during the second quarter 2022. The second quarter 2023 included 194 days of integrated vessel trenching compared to 81 days of integrated vessel trenching during the second quarter 2022. The second quarter 2023 included 58 days of stand-alone trencher activities on the i-Plough trencher and 83 days of utilization on the IROV boulder grab, both of which were acquired subsequent to the second quarter 2022. Robotics operating income increased $7.8 million during the second quarter 2023 compared to the second quarter 2022 primarily due to higher revenues.

Shallow Water Abandonment

Shallow Water Abandonment revenues increased $26.9 million, or 55%, during the second quarter 2023 compared to the previous quarter. The increase in revenues reflected higher seasonal activity, with increases in vessel and system utilization including high utilization on the Epic Hedron. Overall vessel utilization was 78% during the second quarter 2023 compared to 58% during the prior quarter. Plug and Abandonment and Coiled Tubing systems achieved 1,554 days of utilization, or 81%, during the second quarter 2023 compared to 1,277 days of utilization, or 68%, during the prior quarter. The Epic Hedron heavy lift barge commenced seasonal operations and achieved 72 days of utilization, or 79%, during the second quarter 2023 compared to 13 days, or 14%, during the prior quarter. Shallow Water Abandonment operating income increased $12.9 million during the second quarter 2023 compared to the prior quarter primarily due to higher revenue during the second quarter.

Production Facilities

Production Facilities revenues increased $2.2 million, or 11%, during the second quarter 2023 compared to the prior quarter due to higher oil and gas production on the Thunder Hawk wells, which were shut-in for planned maintenance during the prior quarter. Production Facilities operating income increased $2.6 million during the second quarter 2023 compared to the prior quarter due to higher revenues.

Production Facilities revenues increased $5.5 million, or 31%, during the second quarter 2023 compared to the second quarter 2022 primarily due to higher oil and gas production with the contribution from our interest in the Thunder Hawk field, which was acquired during the third quarter 2022. The increase in revenue was offset in part by lower commodity prices realized on the Droshky wells during the second quarter 2023 compared to the second quarter 2022. Production Facilities operating income increased $1.7 million during the second quarter 2023 due primarily to higher revenues.

Selling, General and Administrative and Other

Share Repurchases

Cash flows during the second quarter 2023 included $5.1 million for repurchases of 750,000 Helix common shares pursuant to our share repurchase program, an average purchase price of $6.77 per share. Year-to-date cash flows include $10.1 million for repurchases of 1,410,000 Helix common shares, an average purchase price of $7.13 per share.

Selling, General and Administrative

Selling, general and administrative expenses were $24.0 million, or 7.8% of revenue, during the second quarter 2023 compared to $19.6 million, or 7.8% of revenue, during the prior quarter. The increase during the second quarter was primarily due to higher compensation costs compared to the prior quarter.

Acquisition and Integration Costs

Acquisition and integration costs were $0.3 million during the second quarter 2023 compared to $0.2 million during the prior quarter and included primarily financial and operational integration costs related to our acquisition of the Alliance group of companies, which closed on July 1, 2022.

Change in Fair Value of Contingent Consideration

Change in fair value of contingent consideration related to our acquisition of Alliance was $10.8 million during the second quarter 2023 and reflects an increase in the fair value of the estimated earn-out payable in 2024.

Other Income and Expenses

Other expense, net was $5.7 million during the second quarter 2023 compared to other income of $3.4 million during the prior quarter. Other expense, net during the second quarter 2023 includes primarily foreign currency losses of $11.7 million related to the approximate 39% devaluation of the Nigerian naira on our naira cash holdings, which approximated $16.2 million at quarter end. The losses on the naira were offset in part by the approximate 3% strengthening of the British pound primarily on U.S. dollar denominated intercompany debt in our U.K. entities.

Cash Flows

Operating cash flows were $31.5 million during the second quarter 2023 compared to $(5.4) million during the prior quarter and $(5.8) million during the second quarter 2022. The increases in operating cash flows quarter over quarter and year over year were primarily due to higher earnings, offset in part by higher regulatory certification costs for our vessels and systems during the second quarter 2023 compared to the prior quarter and to the second quarter 2022. Cash paid for regulatory recertifications for our vessels and systems, which are included in operating cash flows, were $24.2 million during the second quarter 2023 compared to $17.2 million during the prior quarter and $9.3 million during the second quarter 2022.

Capital expenditures, which are included in investing cash flows, totaled $1.3 million during the second quarter 2023 compared to $6.7 million during the prior quarter and $1.6 million during the second quarter 2022.

Free Cash Flow was $30.2 million during the second quarter 2023 compared to $(11.7) million during the prior quarter and $(7.4) million during the second quarter 2022. The increase in Free Cash Flow quarter over quarter and year over year was due to higher operating cash flows and lower capital expenditures during the first quarter 2023. (Free Cash Flow is a non-GAAP measure. See reconciliation below.)

Financial Condition and Liquidity

Cash and cash equivalents were $182.7 million at June 30, 2023. Available capacity under our ABL facility at June 30, 2023 was $102.5 million, resulting in total liquidity of $285.2 million. At June 30, 2023 we had $261.0 million of long-term debt and Net Debt of $78.3 million. (Net Debt is a non-GAAP measure. See reconciliation below.)

Conference Call Information

Further details are provided in the presentation for Helix’s quarterly teleconference to review its second quarter 2023 results (see the “For the Investor” page of Helix’s website, www.helixesg.com). The teleconference, scheduled for Thursday, July 27, 2023, at 9:00 a.m. Central Time, will be audio webcast live from the “For the Investor” page of Helix’s website. Investors and other interested parties wishing to participate in the teleconference may join by dialing 1-877-224-1468 for participants in the United States and 1-312-546-6631 for international participants. The passcode is “Staffeldt.” A replay of the webcast will be available on the “For the Investor” page of Helix’s website by selecting the “Audio Archives” link beginning approximately two hours after the completion of the event.

About Helix

Helix Energy Solutions Group, Inc., headquartered in Houston, Texas, is an international offshore energy services company that provides specialty services to the offshore energy industry, with a focus on well intervention, robotics and full field decommissioning operations. Our services are centered on a three-legged business model well positioned for a global energy transition by maximizing production of existing oil and gas reserves, supporting renewable energy developments and decommissioning end-of-life oil and gas fields. For more information about Helix, please visit our website at www.helixesg.com.

Non-GAAP Financial Measures

Management evaluates operating performance and financial condition using certain non-GAAP measures, primarily EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt. We define EBITDA as earnings before income taxes, net interest expense, gains or losses on extinguishment of long-term debt, gains and losses on equity investments, net other income or expense, and depreciation and amortization expense. Non-cash impairment losses on goodwill and other long-lived assets are also added back if applicable. To arrive at our measure of Adjusted EBITDA, we exclude the gain or loss on disposition of assets, acquisition and integration costs, the change in fair value of the contingent consideration and the general provision (release) for current expected credit losses, if any. We define Free Cash Flow as cash flows from operating activities less capital expenditures, net of proceeds from sale of assets. Net Debt is calculated as long-term debt including current maturities of long-term debt less cash and cash equivalents and restricted cash.

We use EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt to monitor and facilitate internal evaluation of the performance of our business operations, to facilitate external comparison of our business results to those of others in our industry, to analyze and evaluate financial and strategic planning decisions regarding future investments and acquisitions, to plan and evaluate operating budgets, and in certain cases, to report our results to the holders of our debt as required by our debt covenants. We believe that our measures of EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt provide useful information to the public regarding our operating performance and ability to service debt and fund capital expenditures and may help our investors understand and compare our results to other companies that have different financing, capital and tax structures. Other companies may calculate their measures of EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt differently from the way we do, which may limit their usefulness as comparative measures. EBITDA, Adjusted EBITDA, Free Cash Flow and Net Debt should not be considered in isolation or as a substitute for, but instead are supplemental to, income from operations, net income, cash flows from operating activities, or other income or cash flow data prepared in accordance with GAAP. Users of this financial information should consider the types of events and transactions that are excluded from these measures. See reconciliation of the non-GAAP financial information presented in this press release to the most directly comparable financial information presented in accordance with GAAP.

Forward-Looking Statements

This press release contains forward-looking statements that involve risks, uncertainties and assumptions that could cause our results to differ materially from those expressed or implied by such forward-looking statements. All statements, other than statements of historical fact, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, any statements regarding: our plans, strategies and objectives for future operations; visibility and future utilization; energy transition or energy security; any projections of financial items including projections as to guidance and other outlook information; our share repurchase authorization or program; our ability to identify, effect and integrate acquisitions, joint ventures or other transactions, including the integration of the Alliance acquisition; oil price volatility and its effects and results; our protocols and plans; our current work continuing; the spot market; our spending and cost management efforts and our ability to manage changes; future operations expenditures; our ability to enter into, renew and/or perform commercial contracts; developments; our environmental, social and governance (“ESG”) initiatives; future economic conditions or performance; any statements of expectation or belief; and any statements of assumptions underlying any of the foregoing. Forward-looking statements are subject to a number of known and unknown risks, uncertainties and other factors that could cause results to differ materially from those in the forward-looking statements, including but not limited to market conditions; results from acquired properties; demand for our services; the performance of contracts by suppliers, customers and partners; actions by governmental and regulatory authorities; operating hazards and delays, which include delays in delivery, chartering or customer acceptance of assets or terms of their acceptance; our ability to secure and realize backlog; the effectiveness of our ESG initiatives and disclosures; human capital management issues; complexities of global political and economic developments; geologic risks; volatility of oil and gas prices and other risks described from time to time in our filings with the Securities and Exchange Commission (“SEC”), including our most recently filed Annual Report on Form 10-K, which are available free of charge on the SEC’s website at www.sec.gov. We assume no obligation and do not intend to update these forward-looking statements, which speak only as of their respective dates, except as required by law.

HELIX ENERGY SOLUTIONS GROUP, INC.
Comparative Condensed Consolidated Statements of Operations
		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except per share data)		2023				2022				2023				2022
		(unaudited)								(unaudited)
Net revenues		$	308,817			$	162,612			$	558,901			$	312,737
Cost of sales			253,468				163,966				488,368				332,700
Gross profit (loss)			55,349				(1,354	)			70,533				(19,963	)
Gain on disposition of assets, net			–				–				367				–
Acquisition and integration costs			(309	)			(1,587	)			(540	)			(1,587	)
Change in fair value of contingent consideration			(10,828	)			–				(14,820	)			–
Selling, general and administrative expenses			(24,007	)			(16,035	)			(43,638	)			(30,403	)
Income (loss) from operations			20,205				(18,976	)			11,902				(51,953	)
Equity in earnings of investment			–				8,184				–				8,184
Net interest expense			(4,228	)			(4,799	)			(8,415	)			(9,973	)
Other expense, net			(5,740	)			(13,471	)			(2,296	)			(17,352	)
Royalty income and other			175				797				2,038				2,938
Income (loss) before income taxes			10,412				(28,265	)			3,229				(68,156	)
Income tax provision			3,312				1,434				1,294				3,574
Net income (loss)		$	7,100			$	(29,699	)		$	1,935			$	(71,730	)
Earnings (loss) per share of common stock:
Basic		$	0.05			$	(0.20	)		$	0.01			$	(0.47	)
Diluted		$	0.05			$	(0.20	)		$	0.01			$	(0.47	)
Weighted average common shares outstanding:
Basic			150,791				151,205				151,275				151,174
Diluted			153,404				151,205				153,873				151,174

Comparative Condensed Consolidated Balance Sheets
		June 30, 2023			Dec. 31, 2022
(in thousands)		(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents		$	182,651		$	186,604
Restricted cash			–			2,507
Accounts receivable, net			253,147			212,779
Other current assets			76,212			58,699
Total Current Assets			512,010			460,589
Property and equipment, net			1,608,988			1,641,615
Operating lease right-of-use assets			177,942			197,849
Deferred recertification and dry dock costs, net			77,243			38,778
Other assets, net			47,662			50,507
Total Assets		$	2,423,845		$	2,389,338
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable		$	145,937		$	135,267
Accrued liabilities			142,609			73,574
Current maturities of long-term debt			38,499			38,200
Current operating lease liabilities			55,667			50,914
Total Current Liabilities			382,712			297,955
Long-term debt			222,469			225,875
Operating lease liabilities			131,175			154,686
Deferred tax liabilities			99,864			98,883
Other non-current liabilities			55,697			95,230
Shareholders’ equity			1,531,928			1,516,709
Total Liabilities and Equity		$	2,423,845		$	2,389,338

Helix Energy Solutions Group, Inc.
Reconciliation of Non-GAAP Measures
		Three Months Ended												Six Months Ended
(in thousands, unaudited)		6/30/2023				6/30/2022				3/31/2023				6/30/2023				6/30/2022
Reconciliation from Net Income (Loss) to Adjusted EBITDA:
Net income (loss)		$	7,100			$	(29,699	)		$	(5,165	)		$	1,935			$	(71,730	)
Adjustments:
Income tax provision (benefit)			3,312				1,434				(2,018	)			1,294				3,574
Net interest expense			4,228				4,799				4,187				8,415				9,973
Other (income) expense, net			5,740				13,471				(3,444	)			2,296				17,352
Depreciation and amortization			39,227				33,158				37,537				76,764				66,646
Gain on equity investment			–				(8,184	)			–				–				(8,184	)
EBITDA			59,607				14,979				31,097				90,704				17,631
Adjustments:
Gain on disposition of assets, net			–				–				(367	)			(367	)			–
Acquisition and integration costs			309				1,587				231				540				1,587
Change in fair value of contingent consideration			10,828				–				3,992				14,820				–
General provision for current expected credit losses			548				193				141				689				67
Adjusted EBITDA		$	71,292			$	16,759			$	35,094			$	106,386			$	19,285
Free Cash Flow:
Cash flows from operating activities		$	31,501			$	(5,841	)		$	(5,392	)		$	26,109			$	(23,254	)
Less: Capital expenditures, net of proceeds from sale of assets			(1,255	)			(1,564	)			(6,300	)			(7,555	)			(2,187	)
Free Cash Flow		$	30,246			$	(7,405	)		$	(11,692	)		$	18,554			$	(25,441	)
Net Debt:
Long-term debt including current maturities		$	260,968			$	267,110			$	260,460			$	260,968			$	267,110
Less: Cash and cash equivalents and restricted cash			(182,651	)			(263,100	)			(169,182	)			(182,651	)			(263,100	)
Net Debt		$	78,317			$	4,010			$	91,278			$	78,317			$	4,010

 

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Erik Staffeldt, Executive Vice President and CFO

email: [email protected]

Ph: 281-618-0465

KEYWORDS: Texas United States North America

INDUSTRY KEYWORDS: Alternative Energy Energy Other Energy Oil/Gas

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HSBC Bank USA, N.A. and Affiliates Raise Prime and Reference Rate

NEW YORK–(BUSINESS WIRE)–
HSBC Bank USA, N.A., and its affiliates announced today that they have raised their prime and reference rate to 8.50% from 8.25%, effective tomorrow.

About HSBC

HSBC USA Inc. (“HUSI”) is a Maryland corporation and its principal business is to act as a holding company for its subsidiaries including HSBC Bank USA, N.A. Through HSBC Bank USA, N.A. and its subsidiaries, HUSI offers a full range of traditional banking products and services to individuals, including high net worth individuals, small businesses, corporations, institutions and governments. HSBC USA Inc. is a wholly-owned subsidiary of HSBC North America Holdings Inc.

HSBC Holdings plc, the parent company of HSBC, is headquartered in London. HSBC serves customers worldwide from offices in 62 countries and territories in its geographical regions: Europe, Asia, North America, Latin America, and Middle East and North Africa. With assets of $2,990bn at 31 March 2023, HSBC is one of the world’s largest banking and financial services organisations.

View source version on businesswire.com: https://www.businesswire.com/news/home/20230726400028/en/

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Jack Mullin

External Communications

[email protected]

KEYWORDS: United States North America New York

INDUSTRY KEYWORDS: Banking Professional Services Finance

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Posted on July 27, 2023 3:14 am

LifeWallet Announces Fiscal Year and Fourth Quarter 2022 Financial Results

CORAL GABLES, Fla., July 26, 2023 (GLOBE NEWSWIRE) — MSP Recovery, Inc. d/b/a LifeWallet (NASDAQ: LIFW) (“LifeWallet,” or the “Company”), a Medicare, Medicaid, commercial, and secondary payer reimbursement recovery and technology leader, announced it has filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2022. As previously stated, such restatements relate to the reassessment of complex accounting matters based on non-cash adjustments and do not affect the Company’s cash position. The Company continues its strategy, daily operations, and mission to disrupt the antiquated healthcare reimbursement system with data-driven solutions for consumers and industries.

The Company is working expeditiously to file its Form 10-Q for the periods ending March 31, 2023 and June 30, 2023. Subsequently, the company looks forward to holding a conference call to discuss historical events, current status, and futuristic outlook.

As described in our Current Report on Form 8-K filed with the SEC on April 14, 2023, we identified errors in the accounting for the indemnification asset, various intangible assets and rights to cash flows, and consolidation of an entity in connection with our business combination. As a result of these errors, management and the audit committee of our board of directors concluded that our previously issued unaudited condensed consolidated financial statements for the periods ended June 30, 2022 and September 30, 2022 were materially misstated. Accordingly, our unaudited condensed consolidated financial statements for the foregoing periods require restatement and should no longer be relied upon. The financial information that was previously filed or otherwise reported as of and for the periods ended June 30, 2022 and September 30, 2022 is superseded by the information in the Annual Report on Form 10-K. See Note 18 to our consolidated financial statements in the Annual Report on Form 10-K for additional information on the restatement and the related financial information impacts.

In addition, on April 16, 2023, the board of directors of the Company established a special committee to review matters related to the preparation and filing of the Annual Report on Form 10-K, and to address any related issues. At that time, it was decided to postpone the filing of this Annual Report on Form 10-K pending the special committee’s review. On June 13, 2023, the special committee finalized its review. The findings and recommendations of the special committee are set forth in “Part II, Item 9A Controls and Procedures” of the Annual Report on Form 10-K.

Fiscal Year 2022 Major Highlights

• LifeWallet continued to execute and advance its business strategy as the Paid Value of Potentially Recoverable Claims (“PVPRC”) increased by about $3 billion by year-end for a total of $89.6 billion from inception to the end of 2022. Continued growth of PVPRC reflects strong demand for LifeWallet’s expertise and recovery services from health plans, providers, and self-insured entities. As a result of ongoing recovery efforts, a large portion of the newly acquired claims are incorporated into existing cases.
• During 2022, the Company recovered or settled $4.8 million in claims recovery income through consolidated and nonconsolidated entities. These recoveries include an accident-related case settlement for $1.75 million with a primary payer with very limited exposure where the average recovery on claims settled exceeded 2x the PVPRC. The Company also settled with a group health plan, recovering $1.15 million on claims that had never been calculated as potentially recoverable and were found through the exercise of due diligence.
• For the fiscal year 2022, LifeWallet had an operating loss of $331.5 million and an adjusted operating loss excluding non-cash items, of $44.5 million. The Company’s operating loss was driven by two large non-cash expenses, (i) claims amortization expense and (ii) interest expense, both combined represented 87% of our operating loss.
• Throughout 2022, LifeWallet furthered its litigation and data-matching strategies. The Company continues to make progress in its recovery efforts. Recoveries are dependent on the completion of litigation and the negotiation of settlements, the timing of which can be subject to the risk of delays associated with the litigation and settlement process. However, we continue to make progress in the data matching process associated with those settlement negotiations, whereby primary payer insurers reconcile what they owe as a result of detailed data exchanges.
• During 2022, the Company entered into a warrant agreement with Brickell Key Investments, LP (“Brickell Key”) that reduced debt by $63 million, resulting in a $40 million reduction in accrued interest annually. By exchanging debt for equity, the Brickell Key transaction demonstrated their continued confidence in the Company.
• During 2022, LifeWallet developed LifeChain blockchain technology, which is in the process of being implemented for several clients. LifeChain will give payers, providers, and patients the ability to confirm billing and payment integrity while reducing fraud and duplicate or improper payments. LifeChain will also offer healthcare providers invaluable data analysis tailored to their practice, including specialized healthcare analysis based on a provider’s specific needs and connection to different data sources, leading to improved patient care.

Fiscal Year 2022 Financial Highlights

• Revenue: Total revenue for 2022 was $23.4 million, up 60% from 2021.
• Operating loss: Operating loss for 2022 was $331 million, compared with $7.1 million for 2021. Adjusted operating loss for 2022 was $44.5 million, excluding non-cash claims amortization expense of $266.9 million and share compensation of $20.1 million.¹
• Net loss: Net loss for 2022 was $402 million and $7.4 million to controlling members, or net loss per share of $0.12 per share, based on 61.8 million weighted average shares outstanding. Adjusted net loss for 2022 was $44.8 million, excluding the non-cash item noted above, add back for non-cash gain on debt extinguishment of $63.4 million, change in fair value of warrant and derivative liabilities of $12.5 million and $121 million of non-cash expenses related to paid in kind interest.¹
• Liquidity: As of December 31, 2022, cash and cash equivalents were $3.7 million. In addition, we announced on March 29, 2023, the Company entered into the Working Capital Credit Agreement consisting of a commitment to fund up to $48 million in proceeds. The Company has potential additional capital resources, which include the Company Common Stock Purchase Agreement, the Investment Capacity Agreement, by and among MSP Recovery and Virage Capital Management, LP., and up to an additional $250 million from the Prudent Sale. While the Investment Capacity Agreement and Prudent Sale are still in effect as of this date, its uncertain if or when the Company would transact on the agreements.

^{(1) Additional information regarding the non-GAAP financial measures discussed in this release, including an explanation of these measures and how each is calculated, is included below under the heading “Non-GAAP Financial Measures.” A reconciliation of GAAP to non-GAAP financial measures has also been provided in the financial tables included below.}

Recent Updates:

• LifeWallet also recently announced it successfully renegotiated two material obligations. The Company has extended its payment obligations to Virage Recovery Master LP, an entity managed by Virage Capital Management LP and Nomura Securities International, Inc. The new agreements with Virage and Nomura extended the payment dates for each to September 30, 2024.
• The Company also entered into three separate transactions, Hazel Holdings I, LLC and Hazel Partners Holdings LLC. The Company secured a credit agreement providing the Company with $48 million worth of working capital, the funding of which is subject to certain milestones. Detailed financials relating to the transactions will be reflected in the Company’s first fiscal quarter 2023 financial statements.

Assigned Recovery Rights Claims Paid and Billed Value

The table below outlines the Company’s growth in claims data received in the most recent periods. The amounts represent data received from current and new assignors:

Select Portfolio Metrics
As of	Year Ended December 31			Nine Months Ended September 30,			Six Months Ended June 30,			Three Months Ended March 31,			Year Ended December 31			Year Ended December 31
(in billions)	2022			2022			2022			2022			2021			2020
Total Paid Amount	$	374.8		$	373.3		$	370.2		$	366.9		$	364.4		$	58.4
Paid Value of Potentially Recoverable Claims (PVPRC)		89.6			89.2			88.3			87.3			86.6			14.7
Billed Value of Potentially Recoverable Claims (BVPRC)		377.8			376.1			371.3			367.8			363.2			52.3

• Total Paid Amount of owned claims has increased to $374.8 billion, as of December 31, 2022, up $10.4 billion or 3% from $364.4 billion as of December 31, 2021. This figure represents the amounts our clients/assignors have paid for in medical bills (including capitation payments).
• Paid Value of Potential Recoverable Claims grew to $89.6 billion, as of December 31, 2022, up $3 billion or 3% from $86.6 billion as of December 31, 2021. This figure represents the amounts LifeWallet estimates are potentially recoverable as identified by LifeWallet algorithms.
• On August 10, 2022, the United States Court of Appeals, Eleventh Circuit held that four-year statute of limitations period for civil actions arising under an Act of Congress enacted after December 1, 1990 applies to certain claims brought under the Medicare Secondary Payer private cause of action, and that the limitations period begins to run on the date that the cause of action accrued. This opinion may render certain Claims held by the Company unrecoverable and may substantially reduce PVPRC and BVPRC as calculated. As our cases were filed at different times and in various jurisdictions, and prior to data matching with a defendant we are not able to accurately calculate the entirety of damages specific to a given defendant, we cannot calculate with certainty the impact of this ruling at this time. Although this opinion is binding only on courts in the Eleventh Circuit, if the application of this statute of limitations as determined by the Eleventh Circuit was applied to all Claims assigned to us, we estimate that the effect would be a reduction of PVPRC by approximately $8.86 billion. As set forth in our Risk Factors, PVPRC is based on a variety of factors. As such, this estimate is subject to change based on the variety of legal claims being litigated and statute of limitations tolling theories that apply.

Recoveries Being Sought by Category:

During 2022, LifeWallet announced a strategy whereby the Company is sending out individual demand letters on identified recoverable claims to responsible payers for prompt payment. The table below outlines specific dollar amounts identified by the Company, broken down by litigation and demand letter type, that it plans to pursue against different responsible parties:

Recoveries Being Sought By Category
	Paid Amount ($ in millions)		Billed Amounts Sought ($ in millions)		2022 Recovery ($ in millions)		Recovery Multiple
ACCIDENT RELATED:
Data Matching(1)	$	5,046.5	$	20,361.4	$	1.9	2.1x
Demand Letters(2)
1stParty Demands	$	117.6	$	682.3	$	0.3	1.8x
3rdParty Demands	$	227.4	$	1,631.2	$	0.1	4.4x
Case and Lien Recoveries	$	18.7	$	75.9	$	2.2	1.9x
FRAUD & MISCONDUCT CASES:
Private Lien Resolution Program(3)	$	2.5	$	12.9	$	2.4	Un-funneled Recovery
Big Pharma/Product Liability(4)	$	6,219.8	$	19,434.9	$	0.5	Un-funneled Recovery
Group Health Plan Recovery(4)	$	2.1	$	10.9	$	1.2	Un-funneled Recovery

<sup>(1) Data Matching represents potential recovery opportunities the Company has identified via court orders or agreements with primary payers. These represent potential recoveries that LIFW could receive from our settlement discussions or data matching with auto insurance carriers that represent approximately 28% combined market share of the auto industry. 

(2) As previously announced June 13th and 27th 2022, MSP initiated billing amounts to primary payers (i.e., property and casualty insurers), giving these parties the opportunity to pay without the need for litigation or extended litigation. 

(3) PLRPs are established to resolve health care liens asserted by private health insurance providers in mass tort settlements. MSPR is actively working with various lien resolution administrators to recover on those owned claims for which manufacturers have already settled other lawsuits and established PLRPs. 

(4) Un-funnel recovery represents a recovery that was not identified in the PVPRC. The majority of the amount recovered in the Private Lien Resolution Program represents recoveries that are un-funneled recoveries.</sup>

Data Matching: Data Matching represents potential recovery opportunities the Company has identified via court orders or agreements with primary payers. These represent potential recoveries that LifeWallet could receive from a portion of our settlement discussions with approximately 28% of Auto Insurance industry or via demand letters.

Demand Letters: As previously announced June 13th and 27th 2022, LifeWallet initiated billing amounts to primary payers (i.e., property and casualty insurers) and big pharma, giving these parties the opportunity to pay without the need for litigation or extended litigation. For 2022, our recovery multiple on 1^st party & 3^rd party demand letters, was 1.8x and 4.4x, respectively.

Private Lien Resolution Programs (“PLRP”): PLRPs are established to resolve health care liens asserted by private health insurance providers in mass tort settlements. LifeWallet is actively working with various lien resolution administrators to recover on those owned claims for which manufacturers have already settled other lawsuits and established PLRPs.

Financial Outlook

Recoveries Guidance: The Company continues to make progress in its recovery efforts, and management continues to believe previously projected recoveries are ultimately collectible.   Recoveries are dependent on the completion of litigation and the negotiation of settlements, which are inherently uncertain and are subject to risk of delay and litigation outcomes.  As a result, the Company will not provide future guidance on recoveries that are dependent on litigation or subrogation process.  

Additional information regarding the non-GAAP financial measures discussed in this release, including an explanation of these measures and how each is calculated, is included below under the heading “Non-GAAP Financial Measures.” A reconciliation of GAAP to non-GAAP financial measures has also been provided in the financial tables included below.

Quarterly Conference Call

The Company will not host a conference call to review the fourth quarter results for investors and analysts. Instead, the Company will host a call after the Company reports its second quarter results, at which time the Company will review both the 2022 and 2023 first and second quarter results. The date and time will be provided at a later date.

About MSP Recovery

In January 2023 MSP Recovery announced its rebranding to its nationally recognized brand, LifeWallet. The Company will not change its core strategy, and its core business remains the same–-secondary payer reimbursement recoveries. Utilizing the name LifeWallet reflects the diverse recovery opportunities presented by the company’s growing technological innovations and consolidates the Company’s lines of business under the same name, while positioning itself to generate additional revenues that were not predicted at the time of its business combination.

Founded in 2014, LifeWallet has become a Medicare, Medicaid, commercial, and secondary payer reimbursement recovery leader, disrupting the antiquated healthcare reimbursement system with data-driven solutions to secure recoveries against responsible parties. The Company provides the healthcare industry with comprehensive compliance solutions, while innovating technologies to help save lives. For more information, visit:

www.lifewallet.com

Forward Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “plan” and “will” or, in each case, their negative, or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts, including for example guidance for 2022 portfolio recovery and total gross recoverables. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. As a result, these statements are not guarantees of future performance or results and actual events may differ materially from those expressed in or suggested by the forward-looking statements. Any forward-looking statement made by MSP Recovery herein speaks only as of the date made. New risks and uncertainties come up from time to time, and it is impossible for MSPR to predict or identify all such events or how they may affect it. MSPR has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws. Factors that could cause these differences include, but are not limited to, MSPR’s ability to capitalize on its assignment agreements and recover monies that were paid by the assignors; the inherent uncertainty surrounding settlement negotiations and/or litigation, including with respect to both the amount and timing of any such results; the validity of the assignments of claims to MSPR; the ability to successfully expand the scope of MSPR’s claims or obtain new data and claims from MSPR’s existing assignor base or otherwise; MSPR’s ability to innovate and develop new solutions, and whether those solutions will be adopted by MSPR’s existing and potential assignors; negative publicity concerning healthcare data analytics and payment accuracy; and those other factors included in MSPR’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other reports filed by it with the SEC. These statements constitute the Company’s cautionary statements under the Private Securities Litigation Reform Act of 1995.

MSP RECOVERY, INC. and Subsidiaries

Consolidated Balance Sheets

		December 31,				December 31,
(In thousands except per share amounts)		2022				2021
ASSETS
Current assets:
Cash and cash equivalents		$	3,661			$	1,664
Restricted cash			11,420				–
Accounts receivable			6,195				–
Affiliate receivable (1)			2,425				4,070
Prepaid expenses and other current assets (1)			27,656				13,304
Total current assets			51,357				19,038
Property, plant and equipment, net			3,432				750
Intangible assets, net (2)			3,363,156				84,218
Total assets		$	3,417,945			$	104,006
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	8,422			$	4,609
Affiliate payable (1)			19,822				45,252
Commission payable			545				465
Deferred service fee income			–				249
Derivative liability			9,613				–
Warrant liability			5,311				–
Other current liabilities			72,002				3,489
Total current liabilities			115,715				54,064
Guaranty obligation			787,945				–
Claims financing obligation and notes payable (1)			198,489				106,805
Loan from related parties (1)			125,759				–
Interest payable (1)			2,765				94,545
Total liabilities		$	1,230,673			$	255,414
Commitments and contingencies (Note 13)
Class A common stock subject to possible redemption, 1,129,589 shares at redemption value as of December 31, 2022.			1,807				–
Stockholders’ Equity (Deficit):
Class A common stock, $0.0001 par value; 5,500,000,000 shares authorized; 74,605,284 issued and outstanding as of December 31, 2022		$	7			$	–
Class V common stock, $0.0001 par value; 3,250,000,000 shares authorized; 3,147,979,494 issued and outstanding as of December 31, 2022			315				–
Additional paid-in capital			136,760				–
Members’ equity			–				(155,756	)
Accumulated deficit			(29,203	)			–
Total Stockholders’ Equity (Deficit)		$	107,879			$	(155,756	)
Non-controlling interest			2,077,586				4,348
Total equity		$	2,185,465			$	(151,408	)
Total liabilities and equity		$	3,417,945			$	104,006

1. As of December 31, 2022 and 2021, the total affiliate receivable, affiliate payable, guaranty obligation and loan from related parties balances are with related parties. In addition, the prepaid expenses and other current assets, Claims financing obligation and notes payable and interest payable includes balances with related parties. See Note 14, Related Party, for further details.
2. As of December 31, 2022, intangible assets, net included $2.3 billion related to a consolidated VIE. See Note 10, Variable Interest Entities, for further details.

                 The accompanying notes are an integral part of these consolidated financial statements.

MSP RECOVERY, INC. and Subsidiaries

Consolidated Statements of Operations

		Year ended December 31,
(In thousands except per share amounts)		2022				2021				2020
Claims recovery income		$	4,878			$	126			$	255
Claims recovery service income (1)			18,542				14,500				13,632
Total Claims Recovery		$	23,420			$	14,626			$	13,887
Operating expenses
Cost of claim recoveries (2)			2,054				26				47
Claims amortization expense			266,929				164				125
General and administrative (3)			23,959				12,633				14,130
Professional fees			18,497				8,502				2,211
Professional fees – legal (4)			43,035				128				468
Depreciation and amortization			424				343				235
Total operating expenses			354,898				21,796				17,216
Operating Loss		$	(331,478	)		$	(7,170	)		$	(3,329	)
Interest expense			(121,011	)			(27,046	)			(20,886	)
Other income (expense), net			63,067				1,139				(51	)
Change in fair value of warrant and derivative liabilities			(12,483	)			—				—
Net loss before provision for income taxes		$	(401,905	)		$	(33,077	)		$	(24,266	)
Provision for income tax expense			—				—				—
Net loss		$	(401,905	)		$	(33,077	)		$	(24,266	)
Less: Net (income) loss attributable to non-controlling members			394,488				(16	)			18
Net loss attributable to controlling members		$	(7,417	)		$	(33,093	)		$	(24,248	)
Basic and diluted weighted average shares outstanding, Class A Common Stock (5)			61,825,105			N/A				N/A
Basic and diluted net income per share, Class A Common Stock (5)		$	(0.12	)		N/A				N/A

1. For the years ended December 31, 2022, 2021 and 2020, Claims recovery service income included $10.6 million, $11.5 million, and $13.1 million, respectively, of Claims recovery service income from VRM MSP. See Note 14, Related Party, for further details.
2. For the year ended December 31, 2022, cost of Claim recoveries included $405 thousand of related party expenses. This relates to contingent legal expenses earned from Claims recovery income pursuant to legal service agreements with the La Ley con John H. Ruiz P.A., d/b/a MSP Recovery Law Firm (the “Law Firm”). See Note 14, Related Party, for further details. For the years ended December 31, 2021 and 2020, the expenses related to contingent legal expenses were de minimis.
3. For the year ended December 31, 2022, general and administrative expenses included $400 thousand of related party expenses. For the years ended December 31, 2021 and 2020, the amounts were de minimis. See Note 14, Related Party, for further details.
4. For the year ended December 31, 2022, professional fees – legal included $29.7 million of related party expenses related to the Law Firm. For the year ended December 31, 2021 and 2020, the amounts were de minimis, respectively, of related party expenses related to the Law Firm. See Note 14, Related Party, for further details.
5. Earnings per share information has not been presented for periods prior to the Business Combination (as defined in Note 1, Description of Business), as it resulted in values that would not be meaningful to the users of these consolidated financial statements. Refer to Note 16, Net Loss Per Common Share for further information.

        The accompanying notes are an integral part of these consolidated financial statements.

Non-GAAP Financial Measures

MSP RECOVERY, INC. and Subsidiaries

Non-GAAP Reconciliation

(In thousands)	December 31, 2022
GAAP Operating Loss	$	(331,478	)
Share based compensation		20,055
Claims amortization expense		266,929
Adjusted operating loss	$	(44,494	)
GAAP Net Loss	$	(401,905	)
Share based compensation		20,055
Claims amortization expense		266,929
Gain on debt extinguishment		(63,367	)
Paid-in-kind Interest		121,011
Change in fair value of warrant and derivative liabilities		12,483
Adjusted net loss	$	(44,794	)

In addition to the financial measures prepared in accordance with GAAP, this press release also contains Non-GAAP financial measures. We consider “Net loss excluding non-cash and one-time expenses” and “Operating loss excluding non-cash or one-time items” as non-GAAP financial measures and important indicators of performance and useful metrics for management and investors to evaluate our business’s ongoing operating performance on a consistent basis across reporting periods. Net loss excluding non-cash and one-time expenses represents Net loss adjusted for certain non-cash and non-recurring expenses, and Operating loss excluding non-cash or one-time items represents Operating loss adjusted for certain non-cash and non-recurring expenses. These measures provide useful information to investors, and a reconciliation of these measures to the most directly comparable GAAP measures and other information relating to these Non-GAAP measures will be included in Management’s Discussion and Analysis in the Form 10-K.

For Investors:

ICR, Inc.
Marc Griffin
[email protected]

For Media:

ICR, Inc.
[email protected]