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Signature Group Holdings, Inc. Reports Fourth Quarter and Full Year 2013 Results

Returns to Profitability in the Fourth Quarter

SHERMAN OAKS, Calif., March 13, 2014 /PRNewswire/ -- Signature Group Holdings, Inc. (OTCQX: SGGH) today reported  financial results for the fourth quarter and full year ended December 31, 2013.  The Company also announced that its Annual Meeting of Stockholders will be held on April 29, 2014. 

The Company's net earnings for the fourth quarter of 2013 was $0.5 million, or $0.04 per share, an increase of $6.4 million from the $5.9 million net loss, or $0.49 per share, reported for the third quarter of 2013.  Fourth quarter of 2013 was also an improvement of $0.2 million from the $0.3 million net income, or $0.02 per share, reported for the fourth quarter of 2012.

The Company's net loss for the full year 2013 was $10.0 million, or $0.85 per share. The loss was largely driven by a $6.9 million noncash expense related to the increase in the fair value of our common stock warrant liability caused by the 162% appreciation in our common stock price during the year.  Excluding the impact of the warrant liability, the net loss in 2013 was $3.1 million, compared to a $6.6 million net loss (similarly adjusted) in 2012.

The overall improvement in results for 2013 was due to a reduction of certain corporate expenses, increased earnings in Industrial Supply, one-time gains generated in Special Situations, and the resolution of legacy litigation matters in discontinued operations.

"I am pleased to report a profitable fourth quarter," stated Signature's Chairman and CEO Craig Bouchard.  "The Company achieved many milestones in 2013, which will have a meaningful impact in 2014.  Particularly noteworthy are the cost cutting efforts at the corporate holding company, which include the reduction of eight full-time employees, and the interest expense savings from the payoff of the 9.0% Notes Payable, as well as our new foundation as a Delaware holding company that provides a stronger organizational structure for future acquisitions and management of existing operations. The Company will also relocate to a smaller headquarters space this month.  I am very much looking forward to addressing our stockholders on April 29, 2014 at our Annual Meeting." 

Fourth Quarter 2013 Results

Loss from continuing operations was $0.4 million in the fourth quarter of 2013, compared to earnings of $0.7 million in the fourth quarter of 2012.  Excluding the impact of the change in our warrant liability, the loss from continuing operations in the fourth quarter of 2013 was $1.9 million, compared to $0.8 million in earnings in 2012.  The reduction in earnings from continuing operations was driven by lower interest income in Special Situations after the sale of the residential mortgage portfolio and increased operating costs, largely due to increased professional costs associated with the various corporate initiatives undertaken during the period including the registration statement filing, the reverse stock split, the reincorporation and our Sarbanes-Oxley compliance efforts, many of which are nonrecurring.

Earnings from discontinued operations was $0.9 million in the fourth quarter a $1.3 million improvement over the prior year, driving net earnings of $0.5 million in the fourth quarter of 2013, compared to $0.3 million in the fourth quarter of 2012. 

EBITDA and Adjusted EBITDA from continuing operations were $1.1 million and $(37) thousand, respectively, for the fourth quarter of 2013, compared to $2.9 million in both instances for the fourth quarter of 2012. (See Non-GAAP Financial Measures below for more information about EBITDA and Adjusted EBITDA, and a reconciliation to the most comparable GAAP measures.)

As of December 31, 2013, the Company had $48.0 million in cash and cash equivalents, and $55.7 million of working capital. Total debt was $17.7 million, down from $48.1 million as of December 31, 2012.

Full Year 2013 Results

Loss from continuing operations was $10.1 million in 2013, compared to $4.0 million in 2012.  Excluding the impact of the change in our warrant liability, the loss from continuing operations in 2013 was $3.2 million, compared to $3.0 million in 2012.  Earnings from discontinued operations of $0.1 million during the year improved by $3.6 million over the prior year.

EBITDA and Adjusted EBITDA from continuing operations were $(4.3) million and $2.1 million, respectively, in 2013, compared to $3.2 million and $4.6 million, respectively, in 2012.

Key Segment Developments

  • Industrial Supply's operations expanded with the opening of four new warehouse distribution locations to provide overnight ground delivery to more of its customers.
  • Four asset classes in Special Situations were monetized during the year as part of management's decision to focus on acquisition opportunities and growing Industrial Supply, which, in the aggregate, resulted in more than $30.0 million of cash proceeds in 2013.
  • In December 2013, the Company redeemed the 9.0% Notes Payable at par, which will reduce interest expense by $3.4 million annually.
  • Management continued to wind down the legacy discontinued operation, successfully resolving numerous  outstanding litigation cases and reducing professional fees by $2.5 million in 2013.

About Signature Group Holdings, Inc.

Signature is a public company seeking to invest its capital in large, well-managed and consistently profitable businesses concentrated primarily in the United States industrial and commercial marketplace. The Company has significant capital resources, and federal net operating loss tax carryforwards of approximately $890.5 million. For more information about Signature, visit its corporate website at www.signaturegroupholdings.com.

Cautionary Statement Regarding Forward-Looking Statements

This earnings release contains forward-looking statements, which are based on our current expectations, estimates, and projections about the Company's business and prospects, as well as management's beliefs, and certain assumptions made by management. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "may," "should," "will," and variations of these words are intended to identify forward-looking statements. Such statements speak only as of the date hereof and are subject to change. The Company undertakes no obligation to revise or update publicly any forward-looking statements for any reason. These statements include, but are not limited to, statements about the Company's expansion and business strategies and anticipated growth opportunities and the amount of fundraising necessary to achieve it, as well as future performance, growth, operating results, financial condition and prospects.  Such statements are not guarantees of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict. Accordingly, actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors.  Important factors that may cause such a difference include, but are not limited to the demand for Industrial Supply's products; the Company's ability to successfully identify, consummate and integrate the acquisitions of other businesses; the Company's ability to open warehouses in additional geographic regions; changes in business or other market conditions; the difficulty of keeping expense growth at modest levels while increasing revenues; the Company's ability to successfully defend against current and new litigation matters as well as demands by investment banks for defense, indemnity, and contribution; obtaining the expected benefits of the reincorporation; and other risks detailed from time to time in the Company's Securities and Exchange Commission filings, including but not limited to the most recently filed Annual Report on Form 10-K and subsequent reports on Forms 10-Q and 8-K.

(Tables follow)

 

Signature Group Holdings, Inc.




Consolidated Statements of Operations




(Unaudited)





Three Months Ended December 31,

(Dollars in thousands, except per share amounts)

2013


2012

Operating revenues:




  Industrial Supply

$              8,843


$              9,134

  Signature Special Situations

526


2,059

  Corporate and Other

-


-

    Total operating revenues

9,369


11,193

Operating costs:




  Cost of goods sold

5,758


5,845

  Selling, general and administrative

4,084


2,826

  Interest expense

951


999

  Amortization of intangibles

397


586

    Total operating costs

11,190


10,256

      Operating profit (loss)

(1,821)


937

Other income (expense):




  Change in fair value of common stock warrant liability

1,500


500

  Other, net

13


(162)

    Total other income (expense)

1,513


338

Earnings (loss) from continuing operations before income taxes

(308)


1,275

Income tax expense

75


557

Earnings (loss) from continuing operations

(383)


718

Earnings (loss) from discontinued operations, net of income taxes

900


(422)

Net earnings

517


296

Earnings attributable to noncontrolling interest

-


-

Net earnings attributable to Signature Group Holdings, Inc.

$                 517


$                 296





EARNINGS PER SHARE:




Basic earnings per share:




  Earnings (loss) from continuing operations

$             (0.03)


$                0.06

  Earnings (loss) from discontinued operations, net of income taxes

0.07


$             (0.04)

    Net earnings attributable to Signature Group Holdings, Inc.

$                0.04


$                0.02





EARNINGS PER SHARE:




Diluted earnings per share:




  Earnings (loss) from continuing operations

$             (0.03)


$                0.06

  Earnings (loss) from discontinued operations, net of income taxes

0.07


(0.04)

    Net earnings attributable to Signature Group Holdings, Inc.

$                0.04


$                0.02





 


Signature Group Holdings, Inc.




Consolidated Statements of Operations









Year Ended December 31,

(Dollars in thousands, except per share amounts)

2013


2012

Operating revenues:




  Industrial Supply

$            36,897


$            36,242

  Signature Special Situations

6,691


7,691

  Corporate and Other

-


-

    Total operating revenues

43,588


43,933

Operating costs:




  Cost of goods sold

23,427


22,713

  Selling, general and administrative

17,736


17,209

  Interest expense

3,943


4,164

  Amortization of intangibles

1,588


2,346

    Total operating costs

46,694


46,432

      Operating loss

(3,106)


(2,499)

Other income (expense):




  Change in fair value of common stock warrant liability

(6,950)


(947)

  Gain on extinguishment of long-term debt

-


396

  Other, net

113


(337)

    Total other income (expense)

(6,837)


(888)

Loss from continuing operations before income taxes

(9,943)


(3,387)

Income tax expense

163


580

Loss from continuing operations

(10,106)


(3,967)

Earnings (loss) from discontinued operations, net of income taxes

72


(3,501)

Net loss

(10,034)


(7,468)

Loss attributable to noncontrolling interest

-


-

Net loss attributable to Signature Group Holdings, Inc.

$         (10,034)


$           (7,468)





LOSS PER SHARE:




Basic and diluted:




  Loss from continuing operations

$             (0.85)


$             (0.34)

  Loss from discontinued operations, net of income taxes

-


(0.30)

    Net loss attributable to Signature Group Holdings, Inc.

$             (0.85)


$             (0.64)





 

Signature Group Holdings, Inc.




Consolidated Balance Sheets









December 31,

(Dollars in thousands)

2013


2012

ASSETS




Current assets:




  Cash and cash equivalents

$            47,880


$            50,894

  Restricted cash

2,805


2,805

  Investment securities, available for sale

-


3,060

  Trade accounts receivable, net

3,736


3,607

  Inventory

10,345


10,247

  Loans receivable, net due within one year

85


620

  Other current assets

814


1,266

  Current assets of discontinued operations

691


3,614

    Total current assets

66,356


76,113

Loans receivable, net

1,322


23,752

Intangible assets, net

2,708


4,329

Goodwill

17,780


17,780

Other noncurrent assets

1,358


3,087

Noncurrent assets of discontinued operations

596


650

TOTAL ASSETS

$            90,120


$          125,711





LIABILITIES AND STOCKHOLDERS' EQUITY




Current liabilities:




  Trade payables

$              3,205


$              2,222

  Line of credit

500


1,000

  Contingent consideration

-


4,000

  Long-term debt due within one year

3,600


3,490

  Other current liabilities

1,096


1,009

  Current liabilities of discontinued operations

2,285


2,292

    Total current liabilities

10,686


14,013

Long-term debt

13,600


43,562

Common stock warrant liability

9,300


2,350

Other noncurrent liabilities

116


60

Noncurrent liabilities of discontinued operations

6,500


7,500

TOTAL LIABILITIES

40,202


67,485

TOTAL STOCKHOLDERS' EQUITY

49,918


58,226

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$            90,120


$          125,711





 

Non-GAAP Financial Measures

A non-GAAP financial measure is a numerical measure of historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles ("GAAP") in the balance sheets, statements of operations, or statements of cash flows; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measures so calculated and presented. EBITDA and Adjusted EBITDA are not measures recognized under GAAP. EBITDA and Adjusted EBITDA are presented and discussed in the Company's Management's Discussion and Analysis of Financial Condition and Results of Operations in its filings with the Securities and Exchange Commission, because management believes they enhance the understanding of the financial performance of the Company's operating segments by investors and lenders. As a complement to financial measures recognized under GAAP, management believes that EBITDA and Adjusted EBITDA assist investors who follow the practice of some investment analysts who adjust GAAP financial measures to exclude items that may obscure underlying performance and distort comparability. Because EBITDA and Adjusted EBITDA are not measures recognized under GAAP, they are not intended to be presented herein as a substitute for net earnings (loss) as an indicator of operating performance. EBITDA and Adjusted EBITDA are primarily performance measurements used by our senior management and the Company's Board of Directors to evaluate certain operating results.

We calculate EBITDA, and Adjusted EBITDA, as earnings (loss) before interest, taxes, depreciation and amortization, or EBITDA, which is then adjusted to remove or add back certain items, or Adjusted EBITDA. These items are identified below in the reconciliation of net earnings (loss) to EBITDA and Adjusted EBITDA from continuing operations. Net earnings (loss) is the GAAP measure most directly comparable to EBITDA and Adjusted EBITDA.

Our calculation of EBITDA and Adjusted EBITDA may be different from the calculation used by other companies for non-GAAP measures having the same or similar names; therefore, our calculations may not be comparable to those of other companies.  

The following tables present our reconciliation of net earnings (loss) to EBITDA and Adjusted EBITDA from continuing operations for the three and twelve months ended December 31, 2013 and 2012:


 



Three Months Ended December 31,

(Dollars in thousands)


2013


2012

Loss from continuing operations


$              (383)


$                 718

Plus:





  Interest


951


999

  Taxes


75


557

  Depreciation


10


20

  Amortization of intangibles


397


586

EBITDA from continuing operations


1,050


2,880

Adjustments:





  Change in fair value of common stock warrant liability


(1,500)


(500)

  Change in fair value of contingent consideration


-


178

  Gain on sale of nonmarketable equity securities


(14)


-

  Share-based compensation


613


535

  Discount recognized on payoff of loans receivable, net


(438)


-

  Accretion of discounts


(8)


(168)

  Amortization of other capitalized costs


13


18

  Professional fees related to the Shelf Registration,

  Reverse Spit and Reincorporation

 

247


 

-

    Total adjustments


(1,087)


63

Adjusted EBITDA from continuing operations


$                (37)


$              2,943






 



Year Ended December 31,

(Dollars in thousands)


2013


2012

Loss from continuing operations


$         (10,106)


$           (3,967)

Plus:





  Interest


3,944


4,164

  Taxes


163


580

  Depreciation


105


69

  Amortization of intangibles


1,588


2,346

EBITDA from continuing operations


(4,306)


3,192

Adjustments:





  Change in fair value of common stock warrant liability


6,950


947

  Change in fair value of contingent consideration


-


403

  Change in market valuation allowance on loans held for sale


-


(2,776)

  Gain on loans held for sale


(5,027)


-

  Impairment of investment securities, available for sale


-


620

  Impairment of nonmarketable equity securities


581


-

  Share-based compensation


2,116


1,743

  Discount recognized on payoff of loans receivable, net


(581)


-

  Accretion of discounts


(200)


(656)

  Amortization of other capitalized costs


67


57

  Gain on extinguishment of long-term debt


-


(396)

  Professional fees related to the Shelf Registration,

  Reverse Spit and Reincorporation

582


-

  Estimated incremental contested proxy

  and related expenses and settlements

1,900


1,500

    Total adjustments


6,388


1,442

Adjusted EBITDA from continuing operations


$              2,082


$              4,634






 

SOURCE Signature Group Holdings, Inc.

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