Horizon Lines Reports Second-Quarter Financial Results

CHARLOTTE, N.C., July 30, 2014 /PRNewswire/ -- Horizon Lines, Inc. (OTCQB: HRZL) today reported financial results for the fiscal second quarter ended June 22, 2014.

Financial results are being presented on a continuing operations basis. 

"Horizon Lines second-quarter adjusted EBITDA increased 7.4% from the same period a year ago, driven primarily by higher revenue container volumes and improved fuel recovery," said Steve Rubin, Interim President and Chief Executive Officer. "The positive factors driving adjusted EBITDA growth were partially offset by lower container rates and contractual labor and other expense increases."

"An 8.3% improvement in operating revenue versus the second quarter of 2013 was generated largely by a 10.8% revenue container volume increase across our three markets," Mr. Rubin said. "In addition, growth in non-transportation services revenue in our Alaska market resulted from a protracted seafood season. These favorable variances were partially offset by a 3.8% decrease in average revenue per container.  The decline in our container rates was primarily due to a shift in cargo mix to include more automobiles and a change in overall market conditions."

Second-Quarter 2014 Financial Highlights   

Volume, Rate & Fuel Cost – Container volume for the 2014 second quarter totaled 62,216 revenue loads, up 10.8% from 56,159 loads for the same period a year earlier. Container volumes rose in each of our markets. Volume improvement in our Hawaii market was primarily due to modest growth in the Hawaii economy, including construction materials and tourism, as well as an increase in automobile shipments. The volume increases in our Puerto Rico market were due to the June 2013 addition of a bi-weekly Jacksonville, Florida sailing to our southbound service between Houston, Texas and San Juan, Puerto Rico, as well as volume gains in both our northbound and southbound service between Philadelphia, Pennsylvania and San Juan. These volume increases were partially offset by volume declines resulting from new competition that entered the Houston to San Juan service in May 2013. We also experienced marginal volume increases in our Alaska market. Unit revenue per container totaled $4,080 in the 2014 second quarter, compared with $4,240 a year ago.  Second-quarter unit revenue per container, net of fuel surcharges, was $3,128, down 3.5% from $3,243 a year ago. Vessel fuel costs averaged $636 per metric ton in the second quarter, 3.5% below the average price of $659 per ton in the same quarter a year ago.   

Operating Revenue – Second-quarter operating revenue improved 8.3% to $281.2 million from $259.8 million a year ago.  The factors driving the $21.4 million revenue increase were a $19.8 million volume expansion described above, $5.7 million rise in non-transportation services revenue, and a $3.2 million increase in fuel surcharges. Non-transportation revenue was higher due to Hawaii automobile processing, an increase in terminal services from an extension of the seafood season in Alaska that continued into the second quarter, as well as growth associated with certain transportation services agreements.  These positive items were partially offset by a $7.3 million decrease in container revenue rates resulting from a shift in cargo mix and increased competition in our markets.  

Operating Income – Operating income for the second quarter totaled $16.3 million, compared with $16.0 million in 2013. The increase in operating income was largely driven by greater container volumes and the associated improvement in fuel recovery, partially offset by lower container rates and increases in contractual labor and other expenses. Second-quarter 2014 GAAP operating income includes charges totaling $1.9 million associated with a legal settlement, certain legal expenses and employee severance. Second-quarter 2013 GAAP operating income includes expenses totaling $0.5 million primarily associated with the return of excess equipment related to the 2013 fourth-quarter service change in Puerto Rico. Excluding these items, second-quarter 2014 adjusted operating income totaled $18.2 million, compared with $16.5 million a year ago.  (See reconciliation tables for specific line-item amounts.)     

EBITDA – EBITDA totaled $29.5 million for the 2014 second quarter, compared with $28.8 million for the same period a year ago.  Adjusted EBITDA for the second quarter of 2014 was $31.4 million, an increase of 7.4% from $29.2 million for 2013.  EBITDA and adjusted EBITDA for the 2014 and 2013 second quarters were impacted by the same factors affecting operating income.  Additionally, 2014 and 2013 adjusted EBITDA reflect the exclusion of $45 thousand and $114 thousand, respectively, of non-cash gains on marking the conversion feature in the company's convertible debt to fair value. (See reconciliation tables for specific line-item amounts.) 

Net Loss – The second-quarter net loss from continuing operations totaled $1.6 million, or $0.04 per share, on a weighted average of 40.8 million shares outstanding. This compares with a year-ago net loss of $0.9 million, or $0.02 per share, on a weighted average of 35.6 million shares outstanding. On an adjusted basis, the second-quarter net income from continuing operations totaled $0.4 million, or $0.01 per share, compared with an adjusted net loss of $0.1 million, or $0.00 per share, a year ago. The 2014 and 2013 second-quarter adjusted net results reflect the same items impacting adjusted EBITDA, as well as the non-cash accretion of payments associated with certain legal settlements and the tax impact of adjustments. Additionally, the adjusted net loss for the 2013 second quarter excludes the non-cash accretion of the then estimated multi-employer pension plan withdrawal liability related to our 2013 move from Elizabeth, New Jersey to Philadelphia, Pennsylvania. The withdrawal liability was satisfied in the fourth quarter of 2013. (See reconciliation tables for specific line-item amounts.)

Six-Month Results – For the first half of fiscal 2014, operating revenue increased 5.7% to $533.2 million from $504.3 million for the same period in 2013. EBITDA totaled $34.4 million compared with $37.2 million a year ago. First-half 2014 adjusted EBITDA totaled $38.1 million, compared with $42.9 million for the same period in 2013. The $4.8 million decrease in adjusted EBITDA was primarily due to higher fuel and labor costs associated with dry-docking transits, as the positive impact from volume gains was largely offset by lower rates, net of fuel. The net loss from continuing operations for the 2014 six-month period totaled $27.9 million, or $0.69 per share on 40.4 million weighted average shares outstanding, compared with a net loss of $20.9 million, or $0.59 per share on 35.2 million weighted average shares outstanding, for the prior year.  The adjusted net loss from continuing operations for the 2014 six-month period totaled $23.8 million, or $0.59 per share, compared with an adjusted net loss from continuing operations of $14.6 million, or $0.41 per share, for the comparable year-ago period. (See reconciliation tables for specific line-item amounts.)

Shares Outstanding – The company had a weighted daily average of 40.8 million shares outstanding for the second quarter of 2014, and 40.4 million weighted average shares outstanding for the first six months of the year.  In 2013, the company had a weighted daily average of 35.6 million shares outstanding for the second quarter, and 35.2 million shares outstanding for the six-month period. At July 28, 2014, the equivalent of 94.5 million fully diluted shares of the company's stock was outstanding, consisting of 41.5 million shares of common stock and warrants convertible into 53.0 million shares of common stock.     

Liquidity & Debt Structure – The company had total liquidity of $54.2 million as of June 22, 2014, consisting of cash of $5.2 million and $49.0 million available under its asset-based loan (ABL) revolving credit facility. Funded debt outstanding totaled $553.3 million, consisting of: $219.4 million of 11.00% first-lien secured notes due October 15, 2016; $197.7 million of 13.00% – 15.00% second-lien secured notes due October 15, 2016, bearing interest at 15.00% being paid in kind with additional second-lien secured notes; $28.0 million drawn on the ABL facility, maturing October 5, 2016, and bearing interest at a weighted average of 4.06%; a $73.9 million term loan to fund the January 2013 purchase of the company's Alaska vessels, bearing interest at 10.25% and maturing September 30, 2016; a $20.0 million super-priority term loan, also for purchase of the Alaska vessels, bearing interest at 8.00% and maturing September 30, 2016; $2.0 million of 6.00% convertible notes, due April 15, 2017; and $12.3 million in capital leases. The company's weighted average interest rate for funded debt was 11.89%.  Availability under the ABL credit facility is based on a percentage of eligible accounts receivable and customary reserves, with a maximum of $100.0 million of borrowing availability. Letters of credit issued against the ABL facility totaled $11.4 million at June 22, 2014. 

Please see attached schedules for the reconciliation of second-quarter 2014 and 2013 reported GAAP results and Non-GAAP adjusted results.

Outlook

We expect 2014 revenue container loads to be above 2013 levels. This projected volume growth takes into consideration the estimated impacts of a competitor that entered the Puerto Rico Gulf service in May 2013, as well as a second vessel being added by a competitor in the Hawaii service during the fourth quarter of 2014, partially offset by the full-year impact of adding a bi-weekly Jacksonville sailing to our southbound service between Houston, Texas and San Juan, Puerto Rico.

Overall, container rates are expected to be below 2013 levels due to competitive market conditions and a slight shift in cargo mix, particularly an increase in automobile volume.  The vessel capacity added in Puerto Rico in 2013 will continue to impact rates, and the new vessel capacity expected to be added in Hawaii in 2014 could also impact rates as well.

We will experience increases in expenses associated with our revenue container volumes, including our vessel payroll costs and benefits, stevedoring, port charges, wharfage, inland transportation costs, and rolling stock costs, among others. Although the number of vessels being dry-docked in 2014 is less than 2013, the costs associated with repositioning vessels and expenses related to spare vessels will slightly exceed 2013 levels. However, the majority of costs associated with repositioning vessels was incurred in the first half of 2014 whereas the costs were more evenly distributed throughout 2013.

We expect 2014 financial results to approximate 2013 results, with 2014 adjusted EBITDA projected between $90.0 million and $95.0 million, compared with $95.2 million in fiscal 2013.

Based on our current level of operations, we believe cash flow from operations and borrowings available under the ABL Facility will be adequate to support our business plans. We expect total liquidity during the remainder of 2014 to range from a low of approximately $58.0 million during the third quarter, then build over the balance of the year and end 2014 at approximately $78.0 million.

Use of Non-GAAP Measures

Horizon Lines reports its financial results in accordance with U.S. generally accepted accounting principles (GAAP). The company also believes that the presentation of certain non-GAAP measures, i.e., EBITDA and results excluding certain expenses and income, provides useful information for the understanding of its ongoing operations and enables investors to focus on period-over-period operating performance without the impact of significant special items. The company further feels these non-GAAP measures enhance the user's overall understanding of the company's current financial performance relative to past performance and provide a better baseline for modeling future earnings expectations. Non-GAAP measures are reconciled in the financial tables accompanying this press release. The company cautions that non-GAAP measures should be considered in addition to, but not as a substitute for, the company's reported GAAP results. 

About Horizon Lines

Horizon Lines, Inc. is one of the nation's leading domestic ocean shipping companies and the only ocean cargo carrier serving all three noncontiguous domestic markets of Alaska, Hawaii and Puerto Rico from the continental United States.  The company owns a fleet of 13 fully Jones Act qualified vessels and operates five port terminals in Alaska, Hawaii and Puerto Rico.  A trusted partner for many of the nation's leading retailers, manufacturers and U.S. government agencies, Horizon Lines provides reliable transportation services that leverage its unique combination of ocean transportation and inland distribution capabilities to deliver goods that are vital to the prosperity of the markets it serves. The company is based in Charlotte, NC, and its stock trades on the over-the-counter market under the symbol HRZL.

Forward Looking Statements

The information contained in this press release should be read in conjunction with our filings made with the Securities and Exchange Commission.  This press release contains "forward-looking statements" within the meaning of the federal securities laws.  Forward-looking statements are those that do not relate solely to historical fact.  They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events.  Words such as, but not limited to, "believe," "expect," "anticipate," "estimate," "intend," "plan," "targets," "projects," "likely," "will," "would," "could" and similar expressions or phrases identify forward-looking statements.

All forward-looking statements involve risks and uncertainties. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from expected results.

Factors that may cause actual results to differ from expected results include: unfavorable economic conditions in the markets we serve, despite general economic improvement elsewhere; our substantial leverage may restrict cash flow and thereby limit our ability to invest in our business; the vessels in our fleet continue to age, and we may not have the resources to replace our vessels; our ability to obtain financing on acceptable terms to pay for the potential vessel repowering project; our ability to manage the potential vessel repowering project effectively to deliver the results we hope to achieve; volatility in fuel prices; decreases in shipping volumes; our ability to maintain adequate liquidity to operate our business; our ability to refinance our existing indebtedness; our ability to make interest payments on our outstanding indebtedness; work stoppages, strikes and other adverse union actions, including those by workers who perform services for us but are not our employees; government investigations and legal proceedings; suspension or debarment by the federal government; failure to comply with safety and environmental protection and other governmental requirements; failure to comply with the terms of our probation; increased inspection procedures and tighter import and export controls; the start-up of any additional Jones-Act competitors; repeal or substantial amendment of the coastwise laws of the United States, also known as the Jones Act;  catastrophic losses and other liabilities; failure to comply with the various ownership, citizenship, crewing, and build requirements dictated by the Jones Act; the arrest of our vessels by maritime claimants; severe weather and natural disasters; or unexpected substantial dry-docking or repair costs for our vessels.

In light of these risks and uncertainties, expected results or other anticipated events or circumstances discussed in this press release (including the exhibits hereto) might not occur. We undertake no obligation, and specifically decline any obligation, to publicly update or revise any forward-looking statements, even if experience or future developments make it clear that projected results expressed or implied in such statements will not be realized, except as may be required by law.

See the section entitled "Risk Factors" in our Form 10-K for the fiscal year ended December 22, 2013, as filed with the SEC for a more complete discussion of these risks and uncertainties and for other risks and uncertainties. Those factors and the other risk factors described therein are not necessarily all of the important factors that could cause actual results or developments to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. Consequently, there can be no assurance that actual results or developments anticipated by us will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, us. Given these uncertainties, prospective investors are cautioned not to place undue reliance on such forward-looking statements.

(tables follow)

SOURCE Horizon Lines, Inc.

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