VATE Q3 2017 Earnings Call

Operator: Good afternoon, and welcome to the HC2 Holdings Third Quarter 2017 Earnings Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this call is being recorded. I would now like to turn the conference over to Mr. Andrew Backman, HC2's Managing Director of Investor Relations and Public Relations. Please go ahead.

Andrew Backman: Great. Thank you, Brian, and good afternoon, everyone. And thank you for joining us to review HC2's third quarter 2017 earnings. With me today are: Philip Falcone, Chairman, President and CEO of HC2; and Mike Sena, our Chief Financial Officer. This afternoon's call is being webcast on our website at hc2.com in the Investor Relations section. We also invite you to follow along our webcast presentation, which can be accessed on the HC2 website, again, in the Investor Relations section. A replay of this call will be available approximately one hour after the call. The dial-in for the replay is 1 (855) 859-2056 with confirmation code of 99349087. Before I turn the call over to Phil, I would 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 of 1995. These forward-looking statements are subject to certain assumptions and risk factors that could cause HC2's actual results to differ materially from these forward-looking statements. The risk factors that could cause these differences are more fully discussed in our filings with the SEC. 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 SEC reports. HC2 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 SEC rules, such as pro forma net revenue, adjusted EBITDA and adjusted operating income, or AOI. Certain information required to be disclosed about these non-GAAP measures, including reconciliations with the most comparable GAAP measures, is available in the most recent earnings press release which is available on our website. And finally, as a reminder, this call cannot be taped or otherwise duplicated without the company's prior consent. Now, I'd like to turn the call over to HC2's Chairman, CEO and President, Phil Falcone. Phil?

Philip Falcone: Thanks, Andy, and good afternoon everyone and thank you for joining us. I’ve got a lot to cover today, so I'll try to get through it as briefly as possible and make sure I touch on everything at the same time. And so just turning to Slide 4, I wanted to include this slide to – as you really take a step back kind of what are we, how are we thinking about the business and how are we thinking about our holding company and what are we trying to do in you as both bond and equity investors, what are you looking at. And I think to begin with we do feel like we have a pretty diversified portfolio of uncorrelated assets and investments, which I think is relatively unique in the marketplace. And the actively managed perspective that we are taking at a holding company is we're not just making acquisitions, we are really getting involved from a financial engineering perspective. Clearly, we're letting people do what they do best at the subsidiary level, but our – how we look at our job is to really drive asset and capital appreciation, which we hope and ultimately think that the market will follow. We continue to push and drive organic and inorganic growth at the subsidiary level. You know keep in mind we've been at this now for three years and this was a Shell company and the focus is on growing that top-line, but at the same time making sure that that EBITDA and the – is growing along with the asset-base. And we've taken it essentially from zero to call it on a run rate basis about $1.5 billion of top-line and mid 70s through the first nine months of the year on our core operating subsidiary EBITDA level, which we are very pleased with. The objective two is to just stay positioned to opportunistically capitalize and build the platform in both the public and private markets. And I think we've tried to be as methodical as possible there. The market is pretty strong right now from an acquisition perspective and the multiples are relatively high and we want to make sure that we are buying right up. I was looked at both investing in acquisition that you make your money on the buy. And we feel that we've got a very disciplined approach as to how we look at it. We continue to believe that there are opportunities on a subsidiary level to capture and to build each individual platform. And as we look to build out an additional platform, again have to make sure that we are buying right. Ongoing commitment to realizing synergies across all the different entities from a legal from a human resources perspective et cetera, we feel like we've really contributed and continue to contribute a lot of value to our subs. And again it's really about an applied control or control perspective from an acquisition and from an investment aspect. We want to make sure that we can dictate our future and we want to drive the bus and not let – and not sit in the middle of the seat and be driven around. And I think based on where we are today, we feel very comfortable and confident that we do have the appropriate controls and all the bells and whistles and are really driving each of the businesses from a financial perspective. Clearly, the key focus for us as I mentioned is both cash flow – with a focus on cash flow and of course we do have and continued to like the option value perspective and doing a little bit of that on the broadcasting side, but be that as it may I'll kind of walk you through a little bit of what we're doing there, but we fully expect that business to be generating cash and generating top line and this is not just buying assets. So we do have a plan there, not quite ready to lay it out yet, we're looking at a couple of different things, but there is again a methodical approach to how we're looking at that business and I know there are a couple people have been asking us about it and we continue to be very excited about the valuations there. And again it kind of goes back to buying at the right values and we feel like we're doing that on that end. And clearly from an active management perspective, we look to not only create, but extract and monetize the value where and when necessary. And we are continuously looking at the portfolio. I'm less comfortable with the status quo, but I don't want to do things just for the sake of doing them. But we have to make sure we keep our hand on the pulse and make sure that from a return perspective that we are sitting in kind of the parameters that we kind of think about up at holdings and in terms of allocating capital. We want to make sure we allocate capital where there's growth opportunities and ultimately again that will drive both cash flow as well as asset appreciation. So just quickly now on to Slide 5, I wanted to present a good boilerplate consolidated financial snapshot to give you an idea because we do – while we do obviously have a diversified portfolio, we continue to think of the entity is on a consolidated basis and tweak it accordingly, but we feel pretty good about again where the numbers are and where we've come from and what the future holds. But as you can see that we do have year-to-date well over $1 billion of operating revenue and clearly core operating adjusted EBITDA of solid $73 million. So both is going to continue to improve and we fully expect to see those numbers continue moving in the right direction. Turning to the Slide 6, the third quarter highlights and recent developments. Overall, we have been extremely busy since our last call from the top going down. The DBM team again posted a record backlog of $656 million for the third quarter, adjusted backlog of approximately $900 million. And as stated in our press release, we were awarded a major contract for the LA Rams and the LA Chargers and recently completing an important tuck-in acquisition in the bridge and infrastructure market. So clearly a lot is happening on that end. We have some very good visibility clearly with the sizable backlog that that we have right now of $900 million and if I'm not mistaken I think that's an all-time record. So a lot of things to do there and we continue to expect some very good performance there. In addition, we just announced last week that DBM will pay a $5 million dividend later this month of which HC2 will receive approximately $4.5 million. There's addition tax sharing arrangements et cetera that are utilizing our NOLs. So we’re clearly taking advantage of the strength of DBM across a number of different levels. Global Marine, the backlog there at the end of the third quarter was the highest backlog since the acquisition of HC2 in September 2014. The Huawei JV posted backlog close to their historic highs with a strong, very strong pipeline of opportunities. Global Marine also announced the acquisition of Fugro’s trenching and cable laying business, which further positions the company for what we believe are significant offshore power market opportunities that's one thing that we emphasized in the second quarter how excited we were about the opportunity set in that market. And again that is the offshore, when we talk about offshore power, it’s the offshore, the wind turbines. And there's been a tremendous amount of growth there and we have no reason to believe just based on the activity there that that will slowdown any time soon. In addition, Global was recently awarded a five-year renewal for the SEAIOCMA maintenance zone, which is the number three of the three that we wanted to wrap up, very, very good business to get. PTGi delivered its fifth consecutive cash dividend to HC2 in the quarter and of course ANG continue to integrate the stations they acquired last year and working hard to ramp up volumes across the platform. And a very exciting transaction in the insurance space, our insurance team signed a deal acquiring $2.3 billion portfolio of long-term care assets from Humana. This significantly increases the cash and invested assets to over $3.5 billion and of course leverages the insurance platform that we assumed through the acquisition of Continental General from American Financial. For the third quarter adjusted EBITDA from core operating subs was $27.3 million versus the $31 million in the third quarter 2016, not a significant variance and mostly attributed to again the timing of projects in DBM Global and Global as we discussed last quarter, but a very nice bump from what we experienced in the second quarter. So we are well on track internally and again haven't changed our internal budgets. And as we explained during the second quarter that one or two of these situations were timing and it was just a function of catch up and now we're seeing that happen. And still finally on a year-to-date basis adjusted EBITDA was up slightly versus a year ago period, so continuing to see even with the timing on some of the larger projects, a continued improvement year-to-date and again no reason to believe that that will change. Turning to slide quickly is one of the templates that we like to show, but just how we think about the portfolio and when we talk about core operating subs: DBM, Global American Natural Gas, PTGi, of course the insurance sub and then we've got their early stage and other holdings and we – and I will get to PANSEND a little bit later on the call, but again I think there's some phenomenal value in what the team has done with that entity. Turning to Slide 8, the segment financial summary. You'll see the segment detail. A couple of quick points here on some of the meaningful variances. For DBM, we saw a sequential and year-over-year increase in third quarter as we continue to gain momentum from the previously delayed projects we discussed earlier in the year. We're down slightly on a year-to-date basis and again mainly due to the project delays, but – and that's been a strong prior year performance, but again this is strictly timing. This is elaboration in the business and fully expect to see this thing be where we expected it to be once we get to year-end. For Global Marine, we saw sequential increase as well, but down slightly versus the year ago quarter due in part to declines in telecom install revenues. And if you recall back and I think even first quarter and even possibly fourth quarter, we talked about how – we didn't expect telecom to be too robust in 2017 and that that was going to start picking up again in 2018. So it's kind of playing out like we expected. On a year-to-date basis, however, Global was up slightly and we can do the continued strong performance in the JVs and in particular Huawei Marine. Life science expenses were up for the quarter and year as the companies within the PANSEND platform primarily R2, MediBeacon and BeneVir continued to increase scale and ramp up operations to meet critical, clinical, developmental and operational milestones. As a reminder we and other shareholders that are involved typically fund these investments as they meet critical milestones and each company uses those funds to ramp up operations as necessary, so it's not necessary – how we account forward, it is not essentially cash burn for us in that particular period even though the way we account for the adjusted EBITDA. We want to try and be as transparent as possible and show people how we – how these various businesses could be spending money and how they're ramping up the expenses. But again it's essentially in line for what we fully expect and anticipated early in the year and when we started building out that platform. Non-core operating expenses were slightly higher this quarter, but did not represent a run level of expense, increases mainly due to compensation related expenses. Expenses associated with some senior management changes that we announced during the quarter. For the full year, we still expect non-operating corporate expense to be around $25 million maybe a couple million higher given the increase expense we incurred in this past quarter because of the comp related expenses, but again in line. Turning to Slide 9 getting a bit more into detail on what's happening at our underlying subs beginning with DBM Global, a couple of key points here. First another record backlog for the quarter coming in at $656 million and more than doubling the reported backlog from the year ago quarter. Adding in rewarded or awarded, but unsigned contracts, backlog for the third quarter would have been approximately $900 million, an increase of $400 million or 73% from the third quarter of last year, very, very robust business a lot of activity in that marketplace right now. In addition, you know, clearly from a visibility perspective, there are other situations that are going up. I think we are really in the sweet spot there and trying to capitalize it at the same time without putting ourselves in a strain. So we are again very well positioned. As we've said before, we believe the backlog is a meaningful and appropriate way to look at the business, especially as it relates to DBM. You can't really look at these on a quarter-over-quarter basis. And as we've explained before that can vary a bit due to a number of factors whether it's the delays on behalf of the third-party was associated with the complex projects or whether as we've seen sometimes in Global. I think the backlog is a good indication especially of visibility, but of what – of how robust the businesses are. And you can see from – as how this works from a sequential increase and adjusted EBITDA each quarter this year as we started to see momentum building and have recognized revenue in some those projects that were delayed earlier in the year. So we – again I would want to emphasize that when we say delay it's not cancellation, but it's just from a pure timing perspective. As a result of the delays to give you an idea approximately $7 million of adjusted EBITDA in 2017 has been and will be moved to 2018. We – just based on in the first six months of the year, we don't expect the delays in the second half obviously in the third quarter and as we get into the fourth quarter that was primarily as a result of what we saw in the first half, but things still move in the right direction there. As we mentioned that we believe that the backlog provides a very good view of the runway of the business. In the case of DBM, you're looking at a good 18 to 24 months of visibility given the current reported in adjusted backlog, which is really nice to see and quite frankly something that business hasn't seen at least since we bought it and I know earlier than that. So, a good, good construction – larger infrastructure construction spending right now. As I mentioned DBM was recently awarded a major contract to construct the shell and roof assembly of the new LA Rams and Chargers stadium that is included in our backlog numbers. It's a good one to have. It's a very complicated project. And I think its part and parcel to the high quality of management that we have and the capability of getting these complicated projects done, which is always very good to see, again not just a pure commodity entity, but a lot of design and engineering that the team brings to the table. And it's no – no magic to why we are, where we are from a backlog perspective. We're getting that for a reason. Finally on DBM last week, we completed the acquisition of Candraft VSI. This is a Canadian based detail and modeling company. This tuck-in acquisition was completed using DBM’s cash on hand. It fits nicely with DBM’s prior acquisitions of BDS VirCon and PDC and expands the service offering into the bridge and infrastructure markets, which we continue to be believers. And we don't want to get too focused on continuing to build our vertical business there. We continue to be again opportunistic buyers to build out that platform and are focused on some different nuances as it relates to just staying with the stadium type build. We do like the bridge and infrastructure and the modeling type aspects. And hence those are acquisitions that we've focused on over the last couple years. In the Marine Services: Global Marine, as I mentioned a sequential improvement in adjusted EBITDA for the third quarter, but still slightly down versus third quarter last year and this decrease was due primarily to the anticipated decline in telecom installation this year and some timing on project work at the Huawei Marine business. As we have said before, we believe this telecom installation business and given a long lead time for these projects should pick up nicely in 2018 and 2019. So look for that to – that specific part of the business to rebound there. On a year-to-date basis, Global was up slightly versus last year mainly due to the strength of the JV with Huawei. And similar to DBM, which we believe is very meaningful to look at backlog as key measurement of the Global Marine and Huawei businesses versus quarter-over-quarter results. At the end of the third quarter, Global’s backlog was a record of $456 million. This is an increase of nearly $130 million or 40% prior – versus the prior quarter mainly due to the renewal of the SEAIOCMA five-year maintenance agreement. This is the third and final Global’s three long-term maintenance contracts. We’ve renewed since the beginning of last year. The NAZ contract was announced in March of 2016 and the ACMA contract was announced in January. These are the three contracts that were up that we – we anticipated we would be able to renew. It’s never done until it’s done and very happy to get these businesses kind of – or these contracts locked and loaded because they are very nice to have and are essentially annuities and thinking of how we look at that – at that maintenance business. I will also note that this is the highest backlog Global has had since the acquisition by HC2 in September 2014. In addition to telecom insulation backlog at Huawei remain close to historic highs with a strong, very strong pipeline of opportunities. Before moving on, I'd like to summarize some of the key points of the pending Fugro acquisition where Global is acquiring the trenching and cabling business. Total consideration is approximately $73 million and consists of the following. We paid in 23.6% of equity interest in Global Marine valued at $65 million. And if you kind of do the math on this thing this puts the pre-money equity value of Global at $210 million. And this is a $65 million plus the $7.5 million one year secured note. We did this. This was a strategic in key acquisitions. We had been circling the wagons on this for some time and really kind of look at it as a significant upgrade of the fleet of installation and maintenance vessels with the addition of the Symphony, which was built in 2011. And looking at cost and I don't want to think of just replacement costs, but as I mentioned in previous calls, we want to be opportunistic. And especially as it relates to capitalizing on some of the depressed prices in vessels, but needless to say Symphony, when it was built in 2011, was a very substantial amount of money when it came right off of – right out of the shop. So this is a phenomenal vessel – vessel acquisition for us. And in addition, we'll add two valuable trenchers and two work class ROVs. This acquisition importantly eliminates $70 million of CapEx that we previously thought about and had planned for 2018 and 2019. And finally, this acquisition we will – through this acquisition we’ll gain and lever a well respected partner in Fugro, who has many longstanding European relationships. And clearly, we didn't do this just from an asset perspective as this business – this acquisition will also contribute from a – on an EBITDA basis and will be a nice business to add to our existing arsenal in 2018. We expect that this business is going to close in 2017. So, it does a number of things for us. It represents a very attractive value for Global on an equity basis through a reputable third-party entity; make the company more competitive in the offshore wind market in Europe and other region regions and in fact already seeing positive momentum from the announced transactions, so very nice business all along. It took us some time to cross the T’s and dot the I’s, but very happy with how that played out. American Natural Gas just quickly to turning to Slide 11. Primary focus of Drew and his team have been continued integration of the 18 stations acquired from Questar and Constellation. It’s taken a little longer than originally planned. As a result, ANG increased station down time and incremental expenses as evidenced by the sequential decline in the adjusted EBITDA, but no need to raise any flags there because we understand and understood what we were getting into with these things. And again looking at it more from the long-term, but Drew and the team are working very hard to bring all these stations up to ANG's high standards and increase gallon of gas equivalence throughout the nationwide network. As I mentioned last quarter, ANG is currently operating at less than 20% of their total station capacity and still generating positive EBITDA. So the key to really seeing this business explode is getting additional volumes and we fully expect as this network has ramped up that that will happen. We continue to also remain hopeful that we'll see incremental impacts from energy credits, which have yet to be renewed or implemented and are clearly not in our numbers. So I think that’s additional gravy that we could expect to see and believe and remain hopeful that that will happen. Finally just from a 50,000 feet level that the recent upward trends in oil breaking $60 a barrel for the first time and in quite some time we continue to remain confident in long-term opportunities for this business. The thing about it is the natural gas spaces or the natural gas marketplace is not a lot of volatility in the price at the pump from a CNG basis and very attractive commodity pricing that we're getting and that we fully continue to expect to get. So, it’s from an economic perspective and from a back of the envelope perspective really believe that there's some opportunities here over the long-term, but it's a business that we've gone from essentially nothing to now 40 stations and are easily in the top four or five in the marketplace with in this and with number one not being too far away from a total station count. The other thing that I think the team has done well is Drew and team had made the conscious decision to really build high quality stations, i.e., the appropriate lanes, the appropriate speeds at the pump et cetera and at the same time mining – minding the costs. If you know Drew, he manages nickels and dimes quite well. So I think from an equipment perspective and from an operational perspective, we are well positioned in that business. Just moving on to Slide 12 in the PTGi space, again this is a business that Craig and his team have really turned around and I sound like a broken record talking about it because it discontinues to do the basic blocking and tackling and paying dividends and literally paying dividends. And that’s clearly what we like to see. So this is another steady quarter despite fluctuations in traffic volumes, which are typically par for the course in the business. Cause – it tend to cause some variability from time to time. On a year-to-date basis, sales are about even with the nice improvements in adjusted EBITDA given operating efficiencies across the business. We continue to see IoT and OTT trends putting some pressure on wholesale telecom traffic, but for the most part the traditional voice business is not going away. PTGi’s strategy has been to focus on a smaller Tier 2 and Tier 3 Global accounts versus a larger PTTs, which along with their operational efficiencies are bridging the success. In addition, Craig and the team are focused on select geographic expansion in Latin America. So if you think about the business in general, where we could get growth in this. We haven't done a lot of business in Latin America and we think there's especially an opportunity for expansion in that area as well as Asia. So there's a lot of opportunity to grow albeit being in a relatively mature business. But I have full confidence that you're going to continue to get these guys capitalizing on that and as I mentioned continuing to pay dividends. These guys have been extremely consistent with that, which is really nice to see in a business that was nearly written off when we acquired the company back 2014. On the insurance side, overall another good quarter for Continental Insurance with top-line results being driven primarily by higher net investment income as well as higher premiums due to the continued implementation of successful rate increases that not only us, but others are seeing in the long-term care space, which is again a very nice thing to see. Looking at the platform as of September 30, 2017, CIG had approximately $2.1 billion in total GAAP assets, approximately $1.3 billion in cash and invested assets. And. $73 million of stat surplus and $84 million of total adjusted capital, the RBC ratio as of the end of the September again exceeded the 400%, which was agreed upon minimum. So continued strong performance overall – or solid performance overall at that entity, a couple of key points on announcement yesterday. This was I think a very good deal for both parties. It’s taken quite some time and this is relatively complicated, but as we had discussed the objective with insurance was to use this as a platform. And by virtue of the acquisition that we made when we bought CIG from American Financial, we did acquire the platform and that platform was – it’s not just to runoff business, but people who could perform the administrative functions and it was key and critical for us to find the right addition to the overall structure. And we feel we've done that with this acquisition of Humana, which is about $2.3 billion of long-term care book of business. We expect this to close by the third quarter of 2018 at which point Humana will make a $203 million cash capital contribution to strengthen the reserves. So we've worked very – and the team has worked very hard on this. And Justin and team have done a spectacular job of crossing the T's and dotting the I's. And this was about turning over as many rocks as possible and in a diligence process. So hence it's taken quite some time, but an excellent acquisition for us. But again I think both parties accomplished what we wanted to accomplish. Transaction will be immediately accretive to Continental’s RBC and stat capital, which is again very key, gives us a lot of flexibility, but once completed the consolidated Continental will have over $3.5 billion of cash and invest in invested assets. With an opportunity to meaningfully increase the investment portfolio yield of the acquired Humana assets that’s how we are thinking about the business, making it a bit more efficient. And when you think about how these businesses are typically run oftentimes they are not the core part of an insurance entity and rightly or wrongly they have other businesses, other insurance businesses that are fortunately for us more important for them. So now as it relates to it being under our umbrella, it is a key focus for us and we feel like with it being the key focus, there are certain things that we can do from a platform perspective and clearly from an asset perspective on the team aspect that will benefit everybody across the board including policyholders. So we do think that there is a real exciting strategic aspect to this. And it took us a while, but we did feel fine one that was somewhat transformational for us, a good solid portfolio. And clearly be allowed to lever on an operating basis the insurance platform that we acquired as I mentioned earlier through the American financial acquisition. The reality of it is that the platform and the entity that we had was a key advantage in the bidding process for Humana business versus financial sponsors without a platform. So it proved – our thesis proved to be correct in the sense that we utilized our platform and the effectiveness of how we have run the insurance business to really capture some synergies and to be a strategic bidder in this process whereby others who did not have the platform could not in a number of different ways compete with us. So we're very happy with how this turned out and this puts us on a different level to now have two acquisitions from phenomenally reputable third-parties in the insurance business. Under our belt is very key for us and we believe that that there will be a number of opportunities that will be at our doorstep as a result of really closing this second transaction you know as we peruse the marketplace and kind of kick the tires on a number of different things with some obviously very legitimate insurance entities, a lot of people were like whoa now really wanted to see us get another under our belt. And this one from an entity such as Humana was very important for us. Quickly moving on to Slide 14, PANSEND. We continue to be encouraged regarding the process. The progress of some of the different investments and developments at the entities we've made i.e., BeneVir and R2, MediBeacon, all moving in the right direction from an operational perspective. Dave and Cherine continue to remain focus on optimizing these investments and the platform and specifically as it relates to R2, MediBeacon and BeneVir. There without going into too much detail, we want to and continue to be a very important sponsor, but at the same time want to stick to our strategy of not funding these things through commercial deployment you know and some of them that's a long layoff. But at the same time you know there's a delicate balance between being a very good sponsor and being in the biotech business or in the medical device business. And we have to continue to be supportive and we are huge believers in the underlying investments. And at the same time also it's important from an investment perspective that we know our limitations from a business perspective with regards to the complexity of some of these businesses. And clearly getting strategics involved. One strategic or two strategics can be very value-added. So it's something that we are and we keep in mind as we think about these businesses. But we're being we're taking our time there's no rush. The key is being prudent and not doing something and sacrificing value. I think if you really lifted up the hood here on some of these, you would see the huge potential and again there's a delicate balance between monetizing and maximizing and not being hasty in our decision making process and we don't feel like we need to be hasty in that. And so we're trying to be as prudent as possible and be good stewards from an investment perspective from a shareholder perspective as well as from a management perspective. So we're doing exactly what I expected and we would do on all of these investments. And hopefully have some exciting things to talk about over the next number of months. So just turning to Slide 15, some quick financial updates, again continues to exceed our two times collateral coverage under our secured notes. Excluding the insurance segment, consolidated cash was again $100 million, over $100 million at the quarter end. During the third quarter, we received another cash dividend from PTGi. And on a year-to-date basis, we received a little bit north of 25 in dividends and tax sharing from DBM and PTGi. In addition, we expect to receive another 4.5 from DBM. As many of you know or most of you know if not all of you know we've been focused a bit on the broadcasting space. We announced the acquisition of Mako Communications and which will build on DTV America announcement that we made during the second quarter. And we expect that both DTV and Mako will close within the next couple of weeks and we do have financing arranged and the key – and the objective on this was to work on and focus on try to finance this at the broadcast level and from a bridge perspective that's where we're focused. We continue to believe that these will be – these are our operating businesses and that there will be some synergies here and there will be some top line growth and there will be some value from an asset perspective all in one. Again at some point, I will walk you through what our vision is and our view is and what our objectives are. And we are not doing this in anticipation of changing around the business model at all or expecting any change in license parameters et cetera. These are broadcasting assets. We believe that there is an opportunity here and these are businesses that have been around for quite some time and have channel utilization from a leasing perspective that we will assume meaning that there are revenues here they're not just financial or asset purchases. So we’re very excited about the valuations on these things here and being very strategic as we look at that. And as we stated in our press release there is a $75 million bridge loan to finance these acquisitions obviously that’s not going to get drawn at once. So keep that in mind, it's not drawing $75 million on day one. But we do believe that we want some flexibility to be opportunistic and look at – and continue to look at other opportunities again we feel like we've got a very good corner and can build around that. So that’s a very key part of our focus. As I've said before we continue and as I think about that first slide that we talked about, look for ways to optimize our liquidity and improve our capital structure, and balance acquisitions and balance cash flow. This is something that's very, very important for me. We are not quite there yet, but I think we're making a lot of progress and we are being very hands-on to make sure we are managing this process very effectively and are trying to think about it from a timing perspective as a number of things kind of play out with our strategic view and our strategic vision. So we're not sitting on our hands. We're not keeping our fingers crossed there is a methodology here. And as I've stated before and I will keep talking about, our objective is to get our cost – our debt cost to capital down. I'm not happy with our stock price where it is, but it is what it is and we have been very busy with on acquisitions. And I think overtime that will play itself out. And from a both asset appreciation or capital appreciation from a strategic value, from a cash flow perspective, I'd like it to be a lot higher than where it is, as I believe it should be. But that will find its course and find its way over time. And the key for us from a holdings perspective is to continue to focus on executing on and crossing the T's and dotting the I's, as we think about executing. So with that I know I've had here for quite some time now I want to move on and see if we can move on to a brief Q&A on the quarter. So with that Andy you want to bridge that gap there and move to the Q&A Session?

Andrew Backman: Sure thanks Phil. Brian can you go ahead and give the Q&A instructions and queue up?

Operator: Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Sarkis Sherbetchyan with B. Riley please proceed.

Sarkis Sherbetchyan: Hi, good afternoon, Phil, Mike and Andy.

Philip Falcone: Hi Sarkis how are you?

Sarkis Sherbetchyan: I’m well thank you. So few questions here I’ll start with the Construction segment, it seems like some of the delays kind of continued here and I appreciate the color on how much shifted into fiscally 2018. Can you maybe describe the composition of the backlog in the construction segment? Maybe if you can talk about what your team has seen with regards to duration, is that increasing or decreasing over time, for example? Maybe even if you can get into the level of project profitability you're seeing, has that been kind of increasing or decreasing in that backlog?

PhilipFalcone: Yes as we discussed that there is – as you get into these larger and more complicated projects The Loma Linda Hospital or an L.A. Rams stadium, there's a number of different entities involved in these projects. And they may be – they may affect the entire project from the A to Z. And it’s essentially out of our control sometimes, or I should say sometimes. But when you have a third-party that is doing something different or making changes some way shape or form. But they are the larger projects like The Loma Linda Hospital, the L.A. Rams stadium. And the delay if anything does and concern us it’s clearly will be on the project for longer than we expected. So if anything it could benefit us over time. The longer the situation plays out, typically that the better off we are.

Sarkis Sherbetchyan: Understood, that's hopeful. Kind of thinking about the same for Marine Services, looking at the backlog, I think, the number was $456 million at the end of this quarter.

PhilipFalcone: Yes.

Sarkis Sherbetchyan: Maybe if you can talk a little bit about the same analysis there like the composition or kind of what your seeing?

PhilipFalcone: Yes, if you think about that detail, as we mentioned, that increased by about $130 million alone just from the SEAIOCMA deal that which was the five-year that we signed recently. The additional backlog was from the force in a bit less from the other two cable maintenance zone contracts. And I don't have details on what those two backlog – what those two contracts contributed to backlog offhand. And I’ll see if I can dig them out somewhere. Typically I don't want to say typically, but between the two of them there each maybe $120 million $150 million. So a good chunk of that 456 is from the maintenance or the maintenance contract which is again from a timing perspective is super high quality business. That’s the bulk of the NAZ, the North America, the OCMA, and the SEAIOCMA or the bulk of the 456. And they range from each 120, to 140 to 150. The other increase that we've seen, that we've mentioned is in the Sea Wind business which is up nicely for the year – for the year-to-date in 2017. So between those four situations, those are the majority well more than – well north of the majority of the 456. And just the fact that maintenance contracts are kind of from a consortium perspective, that’s super attractive business. And we – it's a business that we really wanted. We wanted to renew that, we felt it was important from a reputational perspective. And the fact that we did, I think, is again kind of our parcel to the underlying platform. You can’t have somebody with a robot being a part of your maintenance crew on some of these mission critical telecom telecommunications cables. And there's a tremendous amount of extra piece of engineer that play the key role here. And I think it’s another reason why we need to thing about the business. Because of the complexities around it, because of the contracts, when you think about the businesses, it’s a very value-added contract, but a very value-added business overall that, I think, would probably from a valuation perspective be a number of iterations higher than three, five or six multiples. This is an engineering critical, machine critical aspect that where we own here, and that we control and having these three, I think, there's only four in total, sorry six in total to have 50% of the marketplace. I think that’s a good feather on our cap for and speak volumes to people’s trust and the abilities of Global Marine.

Sarkis Sherbetchyan: That's very helpful. And if I can stick with Marine Services, I mean, I think, the transaction with Fugro seems pretty interesting on multiple fronts. If maybe you can give us a better picture on what that meant from projected CapEx perspective on Marine Services, I think, you mentioned it avoids approximately $70 million in CapEx. Just maybe any incremental color or comments you can give us to frame that?

PhilipFalcone: When you think about the vessel business, albeit, it's a little bit different when you think about CapEx on a plant and building out a plant. But your capacity is year vessel, like your capacity is your plant. And in this particular case we want to continue growing this business. We want to continue not only growing the business, but upgrading our fleet. And I think we accomplished that, in fact I know we accomplished that with this acquisition by virtue of having now this vessel being part of our fleet. There’s a lot of flexibility on what this vessel can do. And vessel new – this vessel new is easily $130 million, $140 million. Now the market has come under a bit of pressure. And we said two years ago or a year and a half ago, we are looking to try to capitalize on it. And I think from Fugro’s perspective they realized and I don't want to speak for them, but in looking at their willingness to take equity, I think, said something about their – their belief in the business. And about not wanting to just get rid of this thing at what could be trough levels. So I think they could walk away thinking that what, kind of a good deal and by the way the market rebounds and returns like we think it will, we will participate without having the news around our neck and thinking that the vessel valuations are gong to snap back and this thing now being worth $140 million again. I think that will be tough for anybody this time. So, I think, we accomplished what we wanted to accomplish and they did as well, because it does expand our business, does upgrade our business. And as well as give us flexibility on the trenching side and opportunistically gives us some ability to move some of these assets around to different parts of the world and maybe even monetize something that we now have more than one off. So I think it was a good acquisition overall. And I remember talking to the team about it in the summer, how they thought it would be a good acquisition from a transformation perspective to help our overall business. This is not just an asset purchase. And I want to emphasize that that there is a business here, there are people here that are coming along with this business and will expand our top line at the same time. So I think we crossed the T’s on and dotted the I’s on a number of different fronts with this acquisition. And clearly from the cash perspective, as I talked about, you want to grow your business, you got to spend the money. And this was an alternative to us really kind of a check, if we want to grow our business, or upgraded our business. So gain there's a lot of things for us on a number of different fronts.

Sarkis Sherbetchyan: That's very helpful. Moving to the Life Sciences component on last quarter's call you did mention the data room is being set up for some of these assets. It sounds like the team is taking time to negotiate the right value for these assets and we can certainly appreciate that. So just want to get a sense for perhaps the next few milestones we should be looking for from either a strategic perspective or a value creation perspective?

PhilipFalcone: Yes I think as it relates to the absolute – the commitment to put in additional capital, I think, we've reached all our milestones on that end. And suffice to say we want to be good sponsors, but there is no demand on behalf of the underlying entities that they can make that contractually obligate us to commit to putting more capital on. That being said, you make a business decision. If you think you can support the business while you are going through these processes of dealing with strategics, you want to do that is the right circumstance, you don't want to put good after bad. But this is not even remotely the case with any of these investments. They are on the upswing here. But as it relates to the milestones that we talked about, they are not – there is no additional formal obligation on behalf of HD2 to continue funding. Opportunistically we will look at it and we are very close to each and everyone of the operating management team i.e. from Cherine and Dave’s perspective again being actively involved and actively managing. So like any situation but I think the good new here is if we didn’t want to put money in, we wouldn’t have to.

Sarkis Sherbetchyan: Perfect. And if I may switch gears here and talk a little bit about insurance, certainly thought that was an interesting acquisition here from that segment did seemed like a win-win for policy holders, the seller and also for your division. I'm assuming the deal closes. Can you give us a sense for how the team could leverage the infrastructure you've built since the acquisition of AFG. I know you kind of talked about it from the prepared remarks. But any incremental info we can kind of gain on that.

PhilipFalcone: Oh yes, I think, in looking at team, keep in mind there's 100 people down in Austin right now plus or minus. And obviously to bring a – to administer a portfolio like this, which it think is a tremendous value add from a relationship perspective. And it’s one of the big plus is that we're not a financial buyer that will then have to go out and pay somebody from a servicing perspective. There is that value add from not having to go to third-party from a servicing perspective. And then you got 100 people down in Austin that you are again over doubling the portfolio – the size of the portfolio without having to materially increase any headcount. So this is a classic case of capturing synergies at the platform perspective and was extremely in critical for us to as I discussed all along to leverage that platform. When I talk about leverage it’s the operating leverage. And clearly this one will get us there and still give us flexibility. So we are going to continue to cross T’s and dot the I’s on the landscape, because there is an opportunity here and there is an opportunity of in this space where we will or by the way become a one hundred percent focus as opposed to – and again know trends that allow people run their business, it’s just when people have diversified operation on the insurance side, they may focus and have their bread and butter in one area and not the other. So we kind of look at it as this is our space, we’re going to focus on it, we're going to try and capitalize on it. And we think as a result we can create some efficiencies there. Not one would otherwise not see and especially one would otherwise not have if they were just a financial buyer.

Sarkis Sherbetchyan: That's very hopeful. Just want to switch gears and talk about LPTV a little bit. I know you maybe didn't want to dive too much into the strategy yet but just wanted to kind of pick your brain and understand with regards to the assets, right I mean what's the opportunity in broadcasting? Do you expect those assets to perhaps be cash flowing? And then if I can kind of add a question alongside that I mean, it sounds like there's going to be a bridge loan here obviously would probably require credit agreement. But would that be short-term debt or long-term debt, and then perhaps would be at the sublevel?

PhilipFalcone: Well the sub the entity that is signing the bridge is the HC Holdings’ broadcastings. We full expect that this is a short term strategy and it will clearly and already looking at putting the proper capital structure and financing in place for this. So as it relates to this bridge and again it's a bridge you have to think about it as the bridge to something more permanent down the road. And as we continue to build out the space, I think, the strategy will become more clear. But also to it’s not with the acquisitions that we’ve signed up it’s not drying $75 million on day one. I don't think we made public what number it is, but it’s not near $75 million. That’s really to give us that additional flexibility. But there is a strategy here. And listen, the opportunity is on a number of fronts without going into too much detail, but this is about having critical mass in the broadcasting space about taking advantage of the fragmentation in this marketplace today. And about having the ability to broadcast into a substantial number of households across the country. So to know secret what’s happening in the media space just without getting into too much detail, the rationale when you think back to the basics, you had over-the-air television back in 70s and 80s being the primary method and means of viewing television. And then you moved into cable for really two reasons: content and – content and – I am blanking on the word, I must said this about 48 times already, content and reception. You have to have cable to get proper reception. Today that’s not the case. The business has changed. The technology has changed and or by the way the content is there. So stretch those two off. There is no reason to believe that the dynamics of over-the-air television and oh by the way I have one in my office in New York City and I get 40 channels that are crystal clear, you know, a part of the problem has been the content. And again, there is a real business here and there is a business that can be of super attractive even niche business without thinking you would have to take a big chunk of what’s happening out there, but there is a phenomenal number of content providers that have no means or method to get eyeballs. And that’s – if anything it’s becoming more difficult as more and more content as more and more people eliminate their cable and nothing that we think cable that business is going from 20% to 25% to 50%, I don’t think that’s happening. But the opportunity is there for every individual that or for every entity or individual that that does go through the court cutting. They will ultimately have over-the-air and OTP. And again, just based on the critical mass we have and the valuations, we don’t have to have a $5 billion business plan for this thing to be successful and to generate some relative – some real attractive valuation. So, you know, with that without getting into too much detail, I think you will see this thing play out pretty effectively for us. We do have our site set on a couple of other different things, but nothing no anomaly as it relates to what you’ve already seen. And we just wanted the flexibility and have been working on a financing package, but it is a bridge and we will get to at some point over next two, three, four months something more permanent. So that’s the thesis – the short term thesis in a quick nutshell there.

Unidentified Analyst: Thank you. I appreciate that. That will be all for me.

Philip Falcone: Great, are you sure?

Andrew Backman: Thanks, Sarkis. We appreciate it and we’re bumping up against time. So, thank you, Phil and thank you everyone again for joining us today. As always our management team is available to speak. Should you have any questions or follow ups, please do not hesitate to call me directly here in New York at 212-339-5836. Brain, could you please go ahead and provide the conference call replay instructions once again. Have a great evening everyone.

Philip Falcone: Thanks everybody.