Q3 2019 Earnings Call
Greetings and welcome to 82 Holdings third quarter 2019 earnings call.
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I'll now turn the conference over to Garrett Edson Senior Vice President I see our you may now begin.
Thank you and good afternoon like to thank you for joining us to review H.C. Twos third quarter 2019 earnings results with me today are filled Alkone, chairman President and CEO of each C and Mike set up H.C. Twos, Chief Financial Officer.
Afternoons call is being webcast on our website H.C. do a dot com and the Investor Relations section. We also invite you to follow along with our webcast presentation, which can be accessed on 80 twos website again in the IR section replay of this call will be available approximately one hour. After the call Island for the replay is 184451 to two nine to one.
And with confirmation code of 1369, I have three nine <unk>.
Before turning the call over to fill I'd like to remind everyone that certain statements and assumptions in this earnings call, which are not historical facts will be forward looking and are being made pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act in 1995. These forward looking statements are subject certain assumptions and risk factors that could cause HCT was actually.
The differ materially from these forward looking statements the risk factors that could cause. These differences are more fully discussed in our filings with the FCC.
In addition, the forward looking statements included in this conference call are only made as of the date of this call and as stated in our FCC reports H.C. to disclaims any intent or obligation to update or revise these forward looking statements, except as expressly required by law.
During the call management will provide certain information that will constitute non-GAAP financial measures under the FCC rules, such as but not limited to adjusted EBITDA insurance adjusted operating income and insurance pretax adjusted operating income certain information required you disclosed without these non-GAAP measures include.
Lesions with most comparable GAAP measures is available in the most recent earnings press release, which is also available on our website and finally as a reminder, it's called cannot be taped or otherwise duplicated without the company's prior consent.
Now I'd like turn the call over H.C. Twos, Chairman, CEO and President Phil Alco Bill.
Great. Thank you Gary and good afternoon, everyone. Thank you for joining us I'm going to provide a high level run through third quarter performance.
And then we'll discuss our recent announcements with respect to global Marine and broadcasting our CFO , Mike Central will then discuss the quarter's financial performance in more detail and then we'll open up the call for your Q and <unk>.
Well, we made significant progress with respect to the global Marine sale process I would be remiss. If we didn't first highlight what was a very solid performance from our portfolio for the quarter.
And while we meet we remain committed to de leveraging the story continues to take shape within our business segments, which is a great sign for H.C. to over the long term.
Adjusted EBITDA for core operating subsidiaries increased by 30% to 34.2 million led by another strong quarter from our construction segment, which we generated a 22% year over year increase an adjusted EBITDA.
We also saw unimproved performance from Marine services as previously delayed projects are now fully engaged and from energy, which produced 130% increase in adjusted EBITDA driven by its acquisition last quarter of 20 CNG stations.
Total adjusted EBITDA increased 72% from the prior year period to 23.6 million. In addition to the improvement from our core segments. We've been successful incurring losses at broadcasting, while reducing expenses corporate partially offset by increased expenditures at life Sciences.
Following the recent fundings medibeacon and aren't too.
As a reminder.
We will be ramping up R&D at both Medibeacon and or two as they attempt to reach commercialization. However, well that may have an impact on total EBITDA going forward.
I have no impact on overall caching. These investments are already funded.
And our insurance segment continues to perform well, having another strong performance in solid capital levels for the platform. We reported net income for the quarter of 10.5 million in pretax adjusted operating income of 13.5 million.
That brings our year to date September net income to 74.6 million in pretax operating income to 75.2 million considering our initial investment in this segment was just four years ago. This is a real testing the quality of execution being accomplished by the entire continental team.
Before moving forward a quick update on liquidity at the Holdco level as we've noted consistency consistently given the structure of our business. We have the ability to pull cash from our segment up to our holding company throughout the year.
We received the Ben of your escrow payments in September and as of September Thirtyth, we have approximately 8 million in cash.
Thus far in the fourth quarter, we've received 2.6 million net management fees from Continental and a 1 million dividend from telecom.
Later in the quarter, we expect to receive another distribution from our construction segment just as we did back in the second quarter of this past year. As a result, we remain comfortably covered to meet our December interest payments.
With that as a way we're keenly aware that are investors have been very interested in young glowing ongoing global marine process. We have been very clear for some time that are number one priority is to delever, our balance sheet at the holdco level and last weeks announcement was an important step toward accomplishing that goal.
We appreciate everyone's patience and we're very pleased Weve completed the first step in the process with an agreement to sell global Marine's.
Groups stake in the H.M. and joint venture to hang Tom optic Electric company.
Hmm was valued at 285 million, which values the global marine's, 49% stake at approximately $140 million.
Global Marine is selling 30% ownership of H M and to hang Tong at closing and we'll retain a 19% interest under a two year put option agreement.
Which it will be able to exercise in 2022 at the greater of the current 285 million equity valuation or farm fair market value at that time.
Thanks, Tom will become 81% owner of the JV. After it completes its purchase of why wasteful stake and ultimately will own 100% of the JV upon the exercise of global Marine's put option.
The sale is expected to be completed during the first quarter of 2020 subject to customary closing conditions with proceeds then delivered to global Marine we're extremely pleased that this outcome for the H.M. and joint venture. We appreciate our long term partners with whom we've enjoyed a strong working relationship to grow.
The joint venture over the past five years and wish them well moving forward. Our focus is completely shifted to our majority stake in global Marine.
We noted on our last call that we've been seeing a much more robust sales process then in the past receiving multiple bids from high quality acquirers.
We're now further along in the sales process for global Marine and believe we will be approaching the culmination of the process as we move through the balance of the quarter.
Assuming we are able to announce an agreement for a majority stake.
We would expect that after satisfaction.
Any pending obligations and in concert with the H. amend sale H.C. to share of net proceeds from both sales will be utilized to reduce our debt at the H.C. to hold co level and of course any consolidated indebtedness of global marine will be eliminated with the sale.
They should ultimately allow us to significantly reduce our interest expense and our cost of capital over the longer term. We've noted consistent consistently that we need to execute on our strict strategic goals and we're excited to be able to deliver on part of that promise, but make no mistake. We know we are only part of the way there and still need to.
We execute on this next step as I noted on our last call well global is clearly at the forefront of this process to de lever. We continue to evaluate additional pass without other portfolio companies for additional monetization if appropriate Lee valued as we show progress improving our balance sheet.
We believe investors will we'll be able to see the value we are creating the benefits of a diversified portfolio.
As in prior quarters beyond my remarks here, we cannot comment further or answer questions at the time on the sale of Standalone Global Marine given it is still a very active and ongoing process.
Along with the positive news on the global Marine front, we recently completed and and important refinancing at the broadcasting segment with the issuance of 79 million of newly privately placed notes by H.C. to broadcasting.
These have a blended pick coupon rate up 9.6% and mature in October 2020.
Net proceeds from the financing we're used to retire H.C. to broadcasting's existing notes due 2019.
As well as fun pending acquisitions working capital in general corporate purposes.
This financing package completed our focus returns to the further build out of our stations for our broadcasting distribution platform as well as upgrading our technology and infrastructure.
We talked about broadcasting strategy at length on a conference call earlier, this year and suffice to say since that time, we're even more confident that our strategy has enormous potential to drive long term value creation.
Some of you may be following the large cable and satellite operators and I've seen the steady losses in subscriber counts on a quarterly basis.
This past quarter, we saw very rapid acceleration of cord cutting from Americans consumers as four of the largest cable and satellite providers noted that they have seen over 1.7 million subscribers leave their platforms in just a third quarter of 2019 alone.
Cord cutting phenomenon not only is here to stay is occurring more rapidly in real time than we had anticipated.
This bodes very well for our over the air or OTI, a distribution platform strategy. We now have 184 operating stations residing in nine of the top 10 de amazed and a host over 70 different networks, including our own Azteca America on this platform with the complete.
One of the financing, we're well on our way toward reaching our goal of 80% plus of U.S. homes with our T., a platform, which will allow us to broadcast content nationwide and further enable us to attract quality networks and content providers that wish to reach this growing OTI a viewers.
Yep.
With the financing now complete we are winding up step one of our broadcast strategy through closing our pending acquisitions and are now firmly moving to step two.
Which is upgrading infrastructure technology and building out some of the 150 silent licenses and some of the 200 construction permits we hold in turning them into fully operational stations over the next few years.
We are continuously analyzing our portfolio of these licenses and permits.
And we may look to acquire trade or stealth self stations in certain circumstances to optimize our geographic breadth and depth once completed within the next 18 to 24 months, we expect to reach our goal of 80% plus household coverage.
Which would provide us with the largest over the air distribution platform in the U.S. As a reminder, we have a couple of core elements of our broadcasting strategy to monetize your distribution platform and generate growing and sustainable cash flows.
Today, we have approximately 1100 channels.
On these 182 stations available to deliver content. This number will of course increase as we increase our station count leasing these channels to third party content providers, which we're not doing with over 70 different networks is a core part of our revenue generation.
We've also discuss various revenue sharing agreements with major content providers.
Additionally, we have our own network as Tech America, leading Spanish language network that delivers content to Hispanic American audiences that we are currently broadcasting.
As we own the network, we are able to generate ongoing advertising revenues keep in mind, the amount of effort and capital that.
We've utilized and building this platform over the last two years, given the rising value of T.A. stations and fewer licenses available. It would require incredible amounts of capital to build a similar platform in the future providing us with a de facto barrier to entry for others to attempt this strategy.
Beyond the rapid revenue growth, we believe we can achieve.
Once our platform is fully built we are in the midst of completing the move our media Gateway center to the cloud. This will allow us to operate a broadcast network remotely and centrally once completed we will be able to significantly lowered the operating costs of our stations essentially the cost structure will be almost complete.
We fixed which will allow us the potential for significant in rapid long term margin expansion as we sign up additional providers filling up our capacity.
That should equate to rapidly growing and sustainable and annual revenue and adjusted EBITDA, which will ultimately add significant long term value for shareholders. We're very excited to see everything coming together.
We're obviously very excited I'm quite confident need see twos future, but we're also very pleased with the president results from our ongoing operations or construction segment has had a strong 2019, thus far.
Strong project execution and contribution from the Grey Wolf acquisition continued to bolster results importantly, construction continues to maintain a healthy adjusted backlog in fact adjusted backlog at quarter end, we've just over 830 million, which is a record and grey Wolf has been almost.
Fully integrated in all aspects of dbms operation over the past year.
Rosins team have done a great job of executing and we look favorably on the segments potential in the years to come.
We also still expect that construction will hit its target of 75 to 80 million in adjusted EBITDA for the full year 2019. Additionally, as I noted before insurance has been a wonderful contributor for US this year and the third quarter was no exception.
Our construction in insurance segments are proof of the value inherently HC two platform and as we continue to build and grow our energy and broadcast segments and unlock value at life Sciences, we're strongly positioned to create significant value for our shareholders over the long term with that I'll now turn the call over to our CFO .
Like Ciena, who will discuss some of our third quarter 2019 financial highlights Mike.
Thank you Phil Let's review, our third quarter performance consolidated total net revenue for the third quarter 2019.
475.7 million compared to 501.4 million in the prior year period has lower revenues and construction telecommunications and broadcasting segment.
Partially offset by increases in revenue from the insurance segment that of eliminations as well as from the energy and Marine services segments.
Net loss attributable to common and participating preferred stockholders for the third quarter of 2019 was 7.5 million or 16 cents per fully diluted share compared to net income of 152.8 million for $2.97 per fully diluted share in the prior year period.
It's important to note prior year period results benefited from approximately 171 million of onetime gains related to the kicked acquisition that insurance.
And from our investment in Siegel Corporation.
At the company's core operating subsidiaries, which comprises it she twos construction Marine services energy and Telecom segment adjusted EBITDA for the third quarter of 2019.
<unk>, 30% to 34.2 million.
Compared to 26.3 million in the prior year period has strong improved year over year performance at our construction Marine services and energy segments more than offset a decline at telecom.
Total adjusted EBITDA, which excludes our insurance segment increased 72% 43.6 million in third quarter 2019, compared to adjusted EBITDA of 13.7 million in the prior year period.
Year over year, adjusted EBIDTA was driven by the improvement at the core segments as well as reduce losses at broadcasting in non operating corporate.
Let's just take a couple of minutes to growing through a bit more detail at our largest segments.
I construction, we recorded adjusted EBITDA for the third quarter 2019 of 19.4 million up 22% from the prior year period.
Construction has been a strong performer throughout 2019, driven by certain large scale DBM global commercial fabrication and erection projects.
As well as contributions from Grey Wolf industrial.
As of September 32019 reported backlog was 475 million comprised of 357 million a backlog of DBM.
At 180 million a backlog of grey Wolf.
However, adjusted backlog, which takes into consideration awarded but not yet signed contracts of DBM global and Grey Wolf.
It was a combined 833 million a record about comprising of 538 million at the B M.
And 295 million a grey wolf.
As a comparison point grey Wolf suggested backlog at year end 2018 was 147 million effectively doubling in nine months.
This is a testament to the quality of constructions brand recognition, it's consistently strong project execution as well as the ability to cross sell to our clients ongoing servicing maintenance and repair.
And importantly, this provides us with.
Significant visibility into 2020 in 2021.
Meanwhile, insurance, we generated a pretax adjusted operating income for the third quarter and year to date 2019 of 13.5 million and 75.2 million respectively.
The improvement from the prior year was driven by incremental net investment income and policy premiums from the addition of Humana's long term care business and higher net investment income related to the legacy C.G.I. block of business.
In addition, there was a decrease in policy benefits changes in reserves and commissions related to curb appeared reserve adjustments driven by higher mortality and policy terminations, an increase in policy cancellations or modifications as a result of improved rate increases.
And favorable developments in claims activity.
This was partially offset by an increase in selling general and administrative expenses, primarily attributable to head count additions related to protect acquisition.
As of September 30 insurance had cash and invested asset to 4.5 billion.
Total GAAP assets of 5.6 billion in an estimated 334 million in total adjusted capital.
Insurance continues to be an excellent value creator for H.C. too.
Finally at Marine services adjusted EBITDA for the third quarter 2019 grew 48% to 11.7 million compared to 7.9 million in the prior year period as the core Jean Michel business benefited from increased levels of project work across most of the service lines and the.
Benefit of improved vessel utilization.
We'd note, but I'll be 11.7 million in adjusted EBITDA, Hmm they'd be incurred a slight loss of $200000.
While in Q3 of 2018 it your bank contributed approximately 7.3 million adjusted EBITDA.
When we look at global the global Marine business, excluding Hmm adjusted EBITDA for the nine month period ended September 32019 was 19 million.
Fair to 13.6 million for the nine month period ended September 32018, and 20 million for the full year 2018.
It was a strong return to form for global Marine and we continue to expect improved adjusted EBITDA performance in the fourth quarter of 2019.
With the robust backlog of approximately 399 million as of September 32019, including approximately a 103 million of installed backlog.
Which is 70 million greater than the prior year. We continue to believe marine is positioned well to grow adjusted EBITDA over time.
As of September 32019, 82 were consolidated cash cash equivalents and investments and 4.6 billion, which includes cash and investments associated with they choose insurance segment.
Excluding the insurance segment consolidated cash was 80 million.
Finally, we once again reaffirmed guidance at our construction segment for the full year 2019 of adjusted EBITDA between 75 and 80 million.
We thank you for your time today and I'd like to now open up the call for your questions.
Operator.
Thank you.
Well now be conducted in question and answer session.
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One moment, please hold we pull for questions.
Thank you and our first question comes from one of the Sarkis some fashion with B. Riley. Please proceed with your question.
Good afternoon, and thanks for taking my question here.
Sure first.
Just wanted to touch on global and the sale of the H.M. and JV can you walk us through maybe the reasoning behind retaining the 19% interest and Hmm you know why not monetize the entire stake at the stated valuation upfront.
Well, we can go into.
Sure particular details, but quite frankly that.
That was the buyers.
Desire that structure along those lines.
I mean, clearly as we've always stated we we want to do what we can to get as much cash upfront on these transactions but.
There were a number of different nuances relating to this and that's a that's the dynamics that we were dealing with with a 19% but that being said we believe it's a fantastic structure, because we know what our downside is on this and quite frankly.
We also know what the backlog is and see the backlog. So I think we're in a pretty good position.
Got it and just remind me who retains the 19% stake right is it global is it H.C. two or the potential buyer of global just kind of walk me through that.
No it will.
Remain with.
The the entity.
It won't be part of the a sale of global.
That being said it doesn't mean you can monetize it.
So, but that 19% will will essentially remain with.
With the surviving entity with the surviving shell.
Got it that's helpful and and I guess, you know assuming the Hmm JV transaction closes and one Q2 0, excluding the JV can you kind of help us understand what the EBITDA run rate is or or the contribution for the remaining global business. Mike I think you've tried to kind of give us a card.
Out of the nine month period, but but also seems like that business has been kind of you know depressed relative to its its history, just kind of one understand what the go forward.
Run rate is of global ex the Jvs.
Right. So I mean, what what I did and they are in the prepared remarks was what.
Nine month period ended September 19 was 19 million for the Ace ER, Jean Michel business without actually man.
Compared to 13.6 for the nine month period last year and the full year 18 was 20 million so.
Got to an LTM.
With those three or you know what those numbers.
We do have to say, though that you know I think any buyer that's coming into this understand.
The lumpiness of it and the key for any buyer is in should be the backlog and how that will play out. So I think we're in a pretty good position there yeah. I mean, it's an LTM up just over 25 million has of 930 for the business with.
Hmm.
Got it that's helpful until you did mention the backlog at Marine you know looks like the number was 399, if my memory serves correct on this call. So.
That's just global not including the JV is right.
That's correct.
That's a pretty big number.
Yep, Okay. That's helpful and I'll switch gears here I'm, just trying to look at the run rate nonoperating corporate overhead expense seems like it's maybe ticking down here in the last quarter or too.
Just kind of help us understand what's the run rate going forward for that operating expense bucket and do you have plans to kind of pruning those expenses.
Well I think.
There's obviously ebbs and flows depending on.
What how much what what acquisitions or divestitures, you're dealing with and if theres any accounting.
Extra accounting analysis that needs to be done via third party, but clearly our objective is to get this as low as possible and yeah. I mean, there's always room for pruning.
Okay.
You know, we think that we've done a decent job getting it down.
From where it was and we are clearly would like to see it.
Continue to chip away on it.
You know, it's not a point that goes.
Yeah.
Okay.
So.
[noise], where we're from a run rate perspective, I don't think you can you can extrapolate we don't want to give forward projections on it but you can kind of extrapolate from the numbers that you've seen over the last couple of quarters and.
Hopefully.
You know we're going to continue do doing what we can with this but we have been managing it more aggressively.
And feel pretty good about the progress that we've made.
It's not like we're spending money.
In places, where we shouldnt be it.
When you have an operation like we do you just have to have.
And accounting team and legal team and [noise].
What do you have one business or Ken businesses, you got that infrastructure and we're trying to managing do our best to keep that within line.
And obviously, we're going to keep our finger on that button as close as we possibly can.
Got it that's helpful and I guess, if I can kind of step out and talk about a the life Sciences unit. You mentioned R&D is expected to ramp up given maybe beacon and or twos respective fundings.
Kind of haven't anticipated level of spend or or you know kind of ramp trajectory in mind that you could share.
No we haven't given projections on not but I think the important thing is it's not a cash.
Doc issue for us.
Because of the way where accounting for it.
The fact that they got some additional funding there are some.
Additional expenses as we get towards sending the final testing analysis to the FDA as it relates to medibeacon that cost some money.
But again its noncash for us it.
Unfortunately, a line item as it relates to how we account for it but we we I guess the short answer to your question as we haven't given projections on that it's not going to be anything outrageous.
But we just thought it was important to highlight that but again. It is noncash you can't look at it is up as a cash negative for us.
Thanks, I'll hop back into queue.
Okay.
Thank you.
Thank you as a reminder to ask a question today, Chris Star one from your telephone keypad. The next question is from the line of Nick Brown with Zazove Associates. Please proceed with your questions.
Hi, guys. Thanks for taking my question.
One question about the distribution of proceeds from the H.M. and sale is there any reason why can't be dividended to you and and the other overweighed shareholders before.
The entire global Marina so sold.
No there isn't and quite frankly, if it closed tomorrow I think we would expect to get that dividends.
We think that theres going to be some convergence on timing.
Between the two but as soon as they close whichever close is first we'll get the dividends.
Okay I took the wording in the press release to suggest that do you what I've got had any dividends until the entire global rain was sold to the thank you for clarify not.
Well.
[noise].
Thank you.
The next question is a fall off in line of Sakellaris suppression with B. Riley. Please proceed with your question.
Hey, Thanks for taking the follow up here I know you mentioned the the satisfaction of any pending obligations. Upon the kind of a sale of of global there can you maybe outline what those potential obligations are right I mean could it be the pension could to be kind of the debt level just remind us what.
Those are.
Yes, yes, I mean, it's a combination of the two they're not.
They're not outrageous, but.
They are they are something that we have to take into consideration when looking at the net proceeds.
You can kind of take a look at the balance sheet.
Global and the information that we provided to get an idea.
As to how we're thinking about it.
Got it and you know in in the prepared remarks, you also mentioned evaluating some other potential monetization opportunities on the portfolio I'm, giving you know the appropriate valuation.
I don't know if you you'd be willing to share anymore, you know ideas or thoughts around that like what would that be.
Well I think the point is is that we've heard from people and clearly, we're not happy with where our stock prices and <unk>.
Thank you got in this day in eight from a leverage perspective.
Everybody want and I personally want to see our leverage down.
Especially with that coupon so we have to be opportunistic to.
To look at and take action where necessary.
To continue reducing the debt over and above what we do with with global Marine and and the culmination of.
Global Marine sale in the Hmm sale.
We I can't really go into specific but no. We do have an x. I'm very attractive pool of assets.
You know whether it.
Monetizing certain assets or.
Financing accordingly to reduce our holding company debt.
Yes, really how we're thinking about it.
Not taking it lightly and we are not stopping with.
Okay, clearly the Hmm sale was fantastic a sale for us as we grind down on a global marine and get that Don you know definitely got to continue.
Making that move to eliminate.
Net debt we can obviously.
It's dependent on the right valuations and.
The right strategy.
With what how we're thinking about what we have going forward, but quite frankly, nothing is off the table and.
We just have to be opportunistic and have to understand.
We think is one the investor base is interested in and to what's going to help our share price because.
No I can't stand looking out at this price.
Understood and one last one.
Yeah, so as I Miss.
Mentioned the good the good thing is we do have you can just see by the quarter numbers.
The results are are are very solid across the board and I'm very excited about what we're building.
But again, we have to think Opportunistically and.
Thank you.
Growing on doing what we can with that load.
And one last one for me regarding the insurance unit and the ability to take cash from the unit.
Thank you mentioned a cash flow contribution in the presentation I believe year to date, it's about $7.4 million and I think in the prepared remarks, you mentioned to change to unchanged million into Fourq you here.
Is that kind of the level that you'd expect to clip up and management fees to the holdco or do you expect that to grow for for 2020.
Yes, I mean listen we.
We think it should be higher we're working on on doing what we can to make certain adjustments with that.
You know our objective is to.
Getting the key.
I see that number keep growing.
You know, it's at the lower end and slightly below with what we expected, albeit not dramatic but.
Again.
We are very focused on that and and looking at what can be done.
To a turn that around and change that we don't see you know it.
Diminishing of course, absolutely not but if anything we do see it going higher and whether that's.
Additional work on the portfolio and additional discussions with the regulator and.
Additional acquisitions, which we're always working on I think the combination of those three but quite frankly, I'm not happy with where that number.
Thank you that's all for me.
Your next question is from the line of Anton Abacus was nice capital. Please proceed with of course.
Hey, guys, who Oreo congrats on the M&A progress and very solid.
Quarter I had two more quick clarifications, if I may one is.
Obviously on the signed a awarded but not signed backlog tremendous progress both year over year in quarter over quarter, I'm, just yeah and looks like some of that some of the major headwinds obviously happening on the legacy Grey Wolf side can you sort of compare and contrast to kind of work, they're winning today with some of your legacy projects that might be.
No rolling off like the Rams Stadium.
Obviously, the embedded curiosity is sort of the margin profile of the works are winning today versus some of the legacy projects, because clearly margins and they you know DBM segment of our all have rebounded very very nicely and then I have one other kind of nitpicky question for Mike. Thanks.
Yeah I think.
<unk>.
Ramps and low Melinda, where the two big projects, they're kind of are coming to an end rolling off they're continuing to so backlog or sell projects in the legacy business Theyve also had a.
Very good success you see in the prepared remarks that I said that the grey Wolf backlog adjusted backlog has grown to 295 million, which is quite significantly since we took over the business and that's really a product of them being able to cross sell cross sell to their customers.
As to the legacy customers and directly with them. So.
Team is very excited though you have to what the unable to do and accomplish I think you know margins they don't expect to be.
Point of sale margins, they don't expect to be much different but they're very.
Happy with.
The type of projects that they're getting with grey Wolf and the success that they've had in kind of go away to the customers that are very familiar with DBM in the past, yes, I think just to add on not that's been a I think acquisition a lot of people question.
But I.
I think if you talk to a the team at Shaw for DBM, they're very happy with.
What's happening there and we never expected a lot of operational synergies, but from a business pure business or I should say FG and H synergies, but I think we're finding that there is a.
A decent amount of overlap and the guys are very excited about it because it does shift the business away from being a.
Sure construction based.
Entity to now one where we.
We're we're moving away from that from that Ah.
Typical one.
Operation.
And.
It's a really good thing for the company.
Not only today, but going forward because it is proving to be I'm very very value added.
Acquisition for us on on quite frankly on both ends.
No. That's helpful debris shows Phil and then I hope this is not to.
Microscopic, but the way I have thought about see the EBITDA composition within the Marine segment is have tended to take the kinda reported adjusted EBITDA figure and then look at the income from equity Investees.
Which historically I've used this proxy for the Hmm JV contribution.
But what struck me as a member scrolling through your 10-Q low Mike you're going through your comments and income from equity Investees and this quarter in the Marine services segment was 1 million fives.
And I think you called out that it'd be Hmm JV contribution was actually negative couple hundred thousand so am I drawing the right inference that there are other JV is like eight sbss that had a meaningfully positive contribution to segment EBITDA and if so are those stakes also being divested as part of the rest of the.
Oh, Gee I myself, our M&A process I hope that makes sense. Thank you guys yes.
Yes, yes, you're looking at that correctly and clearly again, that's an asset that could be part of the global Marine sale our could go separately.
Depending on what people want I think it's.
Not as or not as.
I should say.
Exciting as as Hmm, but clearly a very solid JV that where there's some real hidden value there that we think.
That people will realize and quite frankly are realizing it so theres a few different paths that we can take it in one is.
Included with the sale is somebody wants it or to solid to third party.
Right.
Remind me you own how much 49% of the try them, although the JV or how much the on there.
49.
What is on its way up.
Thank you guys. Good luck.
Our next question.
Our next question is from the line of Josh No Swiss Foxhill capital. Please proceed with your question.
Hi, Thanks for taking my call guys.
Well I am sure as the 297 million of statutory surplus or is there any ability to go to the regulators to get a some capital relief there or.
Have you thought about that approach that do you have any sense of what might be a reasonable.
If that were possible at reasonable number or I'm, just thinking about possible ways for more de leveraging if there was a way to get some.
Capital relief in dividends some of that surplus capital up or not.
Yes, I listened in the first it's a good very good very intuitive point that you're looking at and clearly.
Within the first couple of years than I think we've talked about this in previous calls we didnt have any dividend capacity of capability.
Two years.
Any dividend you have to go to the regulator.
You just can't you to laterally unilaterally make that decision, but is there an opportunity to do that will there be an opportunity.
Possibly.
We clearly have looked at insurance in terms of.
How we can.
If necessary.
Capital, but that's a.
A regulatory aspects that we have to Ah that we have to deal with but.
He there there we haven't we haven't addressed it per se.
Yeah, but you know clearly it's out there as as a potential option.
What do you think therapy like a lower cost of capital instruments that you could enter issue. It like an intermediate company based on that surplus capital that that you could then used to pay down debt and have a lower.
Cost of funds or is that.
Overcomplicated already complicated corporate structure.
No I mean, I think there we're looking at all types of all things are kind of open you know where we're.
These things take a little bit of time, you're clearly not.
Based on something like that by by no means.
The value.
Mine when we first our first acquisition with insurance it was like 85 or 86 million a stat capital with the performance and with Humana acquisition as you pointed out.
Total adjusted capital now is north of 300, that's that's meaningful.
You know we've been doing and the team has been doing I should say a number of things very well, which should give.
The parties to be.
A lot of comfort and what we're doing from an operational perspective, so there's a real business there.
That's a real number and you know we are kind of again without going into too much detail looking out the things that we can do and things that we couldn't do clearly we have to stay away from but.
We've got we've got alternatives, there's no question.
[laughter] beat a dead horse, but just to tick and tie some thing on the Oh, the H.M. and sale.
Ed do you know how much how much cash I'm, just trying to figure out what they what they paid if there was in that 285 or whatever they paid if there was a bunch of cash there that there were essentially paying cash for cash where she was just to try and back into what might be a you know sort of LTM.
Easy to EBITDA multiple that they paid just to kind of get a sense of what what buyers are willing to pay.
Was there a significant cash there.
So there was there was cash there.
We were nor wild way has flows that cash amount and you know a couple of years, but they had accumulated about 80 million of cash now. We've also disclose that GM itself received about 15 million dividends between last year and this year.
And you know that's 49% so roughly 30 million of cash as come out and they've had some earnings. So you can kind of ballpark to get to the amount of cash. That's that's in there I think like Triangulating that way so yeah.
I know you're trying to get to a a multiple.
But you know you have to look at this business and understand that about 508 backlog any given LTM period.
You know to fill his point earlier these businesses are very lumpy. So you know.
Multiple jump around significantly depending on which period or looking at.
And.
Good.
Yes, please keep in mind.
That as Mike said, they had the backlog they have some cash on the balance sheet and we've talked about that number from time to time and it hasn't moved.
Much other than for the dividend payment that both we and while we talk.
But if you look at this the most recent quarter. The most recent contribution from walk away and the number the to 85.
I think it's kind of indicative of.
The the value that people believe there in me businesses, not only H. and then but global marine it's not just about what they did last quarter.
But we haven't looked we havent disclosed kind of.
The.
The EBITDA multiple but.
It's a pretty decent number and I think we.
We feel pretty good about that that that price.
Put it that way.
I mean I'm just.
If I think what you guys said earlier with that year to date age and then at 13.6 million of EBITDA.
With that did I hear that right.
The.
Year to date, they had 2.4 million of.
Yes.
And that our that's really net income.
That goes into our calculation of EBITDA, because we consider that sort of a horrible proxy of cash, but they have very little capex.
Okay, Alright, so I'll just try to can you tell us what LTM EBITDA was that 930 for each a man or you can't disclose but.
Yeah, I put I put the details in the in the queue. So.
All right, so we'll be able to figure that out.
You got to it yeah.
And then just one other thing the there was about I think the lot I haven't looked at the current Q, but there was about 70 million of debt at global Marine when I add to that added it up or.
Yeah, it's at about <unk>, excluding pension, which I don't know when I look at pension that's just something a buyer assumes not shouldn't be and that's a cash on the I happened what I haven't seen the apiay. So I don't know, but was 70 million about the.
I assume that they.
That was 66 million that okay. So then the cash proceeds that came in in this first Toronto before the pool that would go to satisfy first that that debt so effectively you're selling no.
No no no separate.
Yes, okay. The HMS.
Yes, the HMS sale is independent of.
What's happening at a global marine.
So they they 80 million or whatever that we get in there that is just sitting in escrow until.
Close right now I know I'm, assuming I'm I'm, okay, I'm jumping forward in time I assume it closes at the end of Q1 that money would be theoretically available.
<unk> upstream though.
Correct.
And would you and based on all your comments you would as a I'm assuming that would be upstream.
If it closes.
Yes, our percentage would be.
Scouted as an asset sale right. So it would be it would be upstream the one thing that those in front of it as the pension, which we would have to negotiate with the pension trust.
Wow, Okay. So [laughter], so it'd be like a buyout or something up they.
No I don't think could be a buyout, but at the end negotiated payment to the pension plan [laughter] or you know a number of factors were not okay.
I'm not looking to get that far down in other words.
Hi, good subsets of.
Okay single distribution will drop to the century trustee, we're looking at a contest of an overall sale in how we were treated in the sale. So an ultimate Biogen Michelle we [laughter].
We treat this is that right. So it's a wash and the overall sale and if you have to pay it out of that distribution versus the overall sale, it's really a wash right. Yes. It was not as one where you're not going to see a double debt right right [laughter].
So in the there's nothing contemplated though in the asset purchase agreement as such that wouldn't allow you to monetize that 19% stake say in the sale of the rest of global Marine that 19% stake could is also monetizable as part of that sale or do you have to maintain that for the two years to.
Yep.
Or.
There is that transferable or.
There might be opportunity you know we have that we have gone down that path. Obviously at this point right now we're focused on.
Getting that deal behind us and.
So fail, but.
So I wouldn't happen it can't happen you report right doesn't become.
Realizable until until the full two years or up if you are putting their rights or its.
There's no interim.
Get extra right, it's not exercisable until two years from the closing date.
Correct, but it doesn't preclude you from doing something to monetize.
Right, Okay, so whether selling that along with the rest of Jim or somebody wanting to buy that payment and then discounted.
Ah at whatever they think the risk drugs.
Hop whatever optics is.
Okay, those thereby all my questions.
Right Okay.
Okay. Thank you.
Thank you.
Our next question is from the line of Kurt Hoffman with I'll spend a few me with Imperial capital. Please proceed with your question.
Good afternoon, guys [laughter], what do you think about the outlook courage to today [laughter], India, then global Marine sold for whatever number you're bracketing internally in the subsequent pay down and hopefully immaterial trunk of these high coupon bonds [laughter], how comfortable are you going to be the ongoing liquidity situation in the holding company.
It could really to service the remaining debt corporate expenses over an extended period of time with no further bandied.
Or do you think further steps you're going to be required to de lever infrastructure.
Well there it depends on how you think about de levering.
Is it a pay down is that.
Subsidiary, playing a bigger role.
Clearly again, the fact that we are diversified and the fact that we do have.
Our operating subsidiary.
As well as other investments there are things that we can do there's no question about it.
We.
The ultimate goal that how we think about it is to make sure that our.
[noise] dividends for a tax sharing arrangements for distributions et cetera.
Ultimately see our expenses at the holding company.
So we kind of half as we think about this and think about the structure, we keep that in mind.
And.
As a global Marine for instance, you know, we like that business a lot.
It.
When you think about exiting that business, we haven't extracted a ton of cash out of it. So it's very accretive from that perspective.
When you think about that.
But as I mentioned earlier, we this 11.5% coupon is way out of line, especially when you think we can raise money at the subsidiary like we did at broadcasting with a 960 blended pack.
So.
[laughter] that being said we have to get.
We don't realize there were two things that we need to do it sounds like a man self global marine.
I think we're going to have other options as we think about going forward not do we do some sort of creative financing in there at the subsidiaries or from an me from an intermediate subsidiary structure.
There was discussion and talk about.
Some things that we could do from.
In and around the insurance company.
And that's not the only entity that we have so.
Yeah, I mean, we are very zeroed in on this.
On we have no reason to believe that.
We should be concerned about it based on how we're thinking about the business and how we're thinking about the cash flows but you know we're this is on.
It's on Mike Whiteboard, and his office put it that way and we're looking at it.
So.
Happy with this first step.
It's a great first step and improvement in the global Marine numbers core go when remembers the way food reviews with our current this quarters or will you get a [laughter] a nice number there, but I guess, what I'm hearing is in your mind, you're not looking necessarily it further asset sales in the near term.
You are more.
Other.
No that's not what I said I said.
We are we are keeping all options open.
Okay sounds like you're more looking for creative financing solution [laughter] no I'm, just saying that in this in a spectrum of alternatives.
It goes from additional asset sales too.
Creative financing at the subsidiary.
So nothing is off the table put it that way.
Got it.
Okay. Thank you okay yep.
The next questions from the line of Ariel Rothman was taking capital. Please proceed with your questions.
Yes, Hi can you hear me.
Okay.
Sure.
My questions have been answered your one quick one I noted kind of [laughter] area.
Until you get the broadcast car business or maturities, rather short and what are your thinking there in terms of bad and kind of is their ability to kind of rolled out a year next year or what is kind of a thought process behind a maturity there.
Yeah listen to very good question and.
Oh I looked at it is I just believe that one we're going to be different position.
Different place.
In one year time, and we do have very good relationships with the the investors and they understand the asset and we kind of collected we looked at it and said okay.
Okay, Here's the right thing in the short term, how how they should be structure and what's needed and what needs to be gone and it was kind of a collective.
Proche where are we.
Came to conclusion that rather than locking in longer than one year.
I wanted flexibility quite frankly, you know we were really driving that on our end because of the things that we have going on at broadcasting.
No people kind of look at it and say what's happening there with filling on.
We have a number of very exciting thing happening and I didnt want a box box ourselves into some fiber seven year financing.
So.
That that having that flexibility I think is.
Going to.
The very advantageous for off considering some of the things that we're we're doing and we're thinking about so.
It's not like we were we were we were pushed into it.
It was kind of very collaborative.
Process with the lenders and ER.
Quite frankly, I'm happy that it's only one year.
Okay, Great that's it for me Frank.
Yes.
The next questions from the line of Hadrian, South Korea Medina exercise capital. Please proceed with your questions.
Hey, guys. How are you. So I just want to get a clarification and what do you said feel in the beginning of the call. You did you say that global Marine it's in a very active and <unk> and recent they go set programs, where we might see a possible sale by the end up that quarter did I get that right.
Well, we can't you can't it is that's put it this way there's a very active process, we're very happy with where where we are in that process.
We can.
Talk about the details around closing and the date, but.
You know we've been working at this thing for quite some time.
We're pleased with where we are right now and put it this way I think the age of man.
Asset sale was the difficult one.
Right right.
I think that was oh.
Hi, My question. Thank you very much.
Okay.
Thank you at this time I will turn the floor back to management for closing remarks.
Okay well.
Thank you again for taking the time.
Yes, we heard what people, it's sad and quite frankly, our Ah our stock price is shown it as well that people are concerned about our leverage and we're taking the right steps and we're doing the right things and where we have not less any stone unturned as we think.
About this.
I think there were a lot of questions around Asia man in global and could we get that done I think.
You know my hats, or my house or certainly off to the team at global who negotiated this deal with Ah Hey, Tom Ian Ian Douglas and a team that.
That was a phenomenal effort and a great transaction, especially when people thought that.
No nothing was happening but.
We're plugging away very very happy about the up the numbers and that's.
One of the one of the great things I think of our structures Weve got the diversification and we got the performance and I think you're going to continue to see some exciting things and hopefully we're going to see some some things from a broadcast kick in and we have a high expectations.
Of course for and GI and then we've got a recent investments in our two and Medibeacon. So I think a collectively we've got a very good group of assets.
And here everybody that a the debt is an issue and quite frankly, it's an issue for us too and that's why we're focused on it. So thank you again for your effort.
Sticking with us on this call today and ER as usual if you have any additional questions were always around to answer if.
You didn't get a chance to get an acute today, but thanks again for your time.
Thank you. This concludes today's conference you may disconnect your lines Sun. Thank you for your participation.