HC2 Holdings, Inc.
Q1 2018 Earnings Call Transcript

Published:

  • Operator:
    Good afternoon, and welcome to the HC2 Holdings First Quarter 2018 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 that 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, Andrew, and good afternoon, everyone. I like to thank you for joining us to review HC2’s first quarter 2018 earnings. With me today are Philip Falcone, Chairman, President and CEO of HC2; and Mike Sena, 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 with our webcast presentation, which can also be accessed at the HC2 website in the IR section. A replay of the call will be available approximately 1 hour after the call. The dial-in for the replay is 1-855-859-2056, with a confirmation code of 4989606. Before I turn the call over to Phil, I would like to remind everybody that certain statements and assumptions in this earnings conference 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 disclosed 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 measurements, is available in the most recent earnings press release, which is on our website. And finally, as a reminder, this call cannot be taped or otherwise duplicated without the company’s prior consent. Now let me turn the call over to HC2’s Chairman, CEO and President, Philip Falcone. Phil?
  • Philip Falcone:
    Thank you, Andy, and good afternoon, everyone, thanks for joining us today. Once again, we’re going to try to keep the prepared remarks as brief as we can so we have a little bit more time for Q&A. And clearly I’ll focus my comments on some of the more meaningful accomplishments from the first quarter, including the recently announced monetization of our life sciences investments before opening it up for Q&A. Turning to Slide 5, you’ll see that there we’ve again broken out a summary of our adjusted EBITDA by segment along with our adjusted operating income for our Insurance segment. You will also notice the addition of our new Broadcasting segment, which I’ll talk a little bit about, which we’ve broken out for the first time. I’m extremely excited about what’s going on in that business and our entry point there, and I’ll have more to say about that in a few minutes. I’m going to speak, obviously, about each of our key subs, but overall this was generally a pretty decent quarter. Clearly the Marine Services segment was somewhat of an exception with the Global reporting negative adjusted EBITDA for the quarter. But again, as I’ll explain in more detail, this quarter’s Global results were primarily impacted from some short-term timing issues, mainly from some projects at HMN. As we’ve said before, given the nature of the large scale project work at Global and DBM, it means from time-to-time we can experience this sort of quarterly variability. That’s why we think it makes more sense to evaluate those businesses on an annual or LTM business – in a LTM basis, sorry. These are not businesses that can be judged or should be judged quarter-to-quarter and we’ve stated that numerous times. I would suspect that people are expecting me to say was a disappointing quarter, but again, not at all. What I’m a little bit more disappointed about is our stock price is not taking into consideration the value of our assets and especially this recent transaction, obviously, people or some people can’t do the math, but we’re doing it here, and we’ll continue to do what we think needs to be done to make sure that the appropriate value is extrapolated into the overall marketplace. Just ongoing with some of the different things that are happening at Global Marine, and then I think it’s important that we’ve been asked a number of times about the guidance for the year. And we have reaffirmed the full year guidance that we provided in our last earnings announcement for both Global and for DBM, our two largest subsidiaries. I think that’s indicative of the – I don’t want to say volatility, but the variability that we expect and will continue to expect to see from time-to-time is not unique for these types of businesses that are experienced – that have these big type of – major type of projects. So I think that’s very important to understand and clearly from reaffirming our announcement is not – our earnings for the year is not taken lightly. So we have crossed the T’s and dotted the I’s on this. And feel very comfortable about where we are and what we mentioned in the pervious call. We have a lot of exciting things going on in the portfolio, so let me quickly walk you through it all. First quarter highlights, first, as I mentioned, DBM had another decent quarter with near record backlog again of $718 million, and adjusted backlog of $759 million. During the first quarter, Roach and his team continue to ramp up the L.A Rams, Chargers – L.A. Rams Chargers stadium and Loma Linda hospital and generated almost $160 million in revenue and $10 million in adjusted EBITDA, all while maintaining that near record backlog. So that’s the kind of business that’s out there right now. I know some people have talked about visibility et cetera, things slowing down. Not at all, these are not projects that are decided in one moment and the next and clearly there’s enough business out there to be had and to continue with what we’re doing and what Roach and team are doing. And it’s clear from a backlog perspective that there is business to be had out there for DBM. Adjusted EBITDA was down from the fourth quarter of 2017, but up over last year’s first quarter, again, reflecting the same timing related variability that I mentioned with respect to Global. During the first quarter DBM distributed $4 million of tax share to HC2 underscoring that this segment remains a good source of cash for us. And I just want to emphasize again that we are reaffirming our guidance for this business and continue to expect full year adjusted EBITDA between $60 million and $65 million. Moving on quickly, Global Marine also reported near record backlog of $430 million and $415 million of backlog for the HMN JV, which is continuing to be very, very good. Adjusted EBITDA for the quarter is, I stated earlier, was down $2.4 million. A few factors contributed to the first quarter results, including the timing of the large projects associated with the HMN JV, more specifically two major turnkey projects in the JV that commenced in prior periods, booked negligible revenue during the quarter as a result of normal project cycle. Fixed cost of the operation, manufacturing, distribution, SG&A et cetera were still incurred of course. Volume and profitability of these two projects are expected to ramp up across the remainder of 2018, primarily in the second half of the year. Quarterly variability is nothing new in Global. We’ve talked about it before. And as a point of reference, if you think back to the first quarter of 2016, Global reported adjusted EBITDA of only $500,000, but full year was again over $40 million. Last year in the second quarter Global reported $3.6 million of adjusted EBITDA after coming off a strong first quarter. And for the year again we came in at $44 million. So this sort of variability is not indicative of future performance, which based on current visibility, we believe remains very strong. All in all, based on our current view of the business, we continue to believe that Global will come in within the full year guidance range of between $45 million and $50 million of adjusted EBITDA. Moving on to Energy, as you remember last year, heard us talk about the integration of fueling stations associated with two acquisitions made by ANG, notably Constellation and Questar. ANG was focused last year in completing those deals and integrating and upgrading the associated fuel stations. This year the main focus has been on ramping up gallon of gas equivalent volumes by ratcheting up business development and marketing efforts to drive organic sales. In addition, it continue to look to develop preferred fueling agreements with new and existing customers, which will drive volume across the network and continued focus on monetization renewable gas tax credits across the network. In the first quarter, ANG saw increased flow of RNG gas through their stations and expect going forward. That RNG will have a significant positive impact on the business financially. And as a reminder, we told you that alternative fuel energy tax credit was renewed in the quarter, in the fourth quarter for the full year 2017 and that will result in ANG receiving $2.6 million net cash credit. And after paying out some of the credits to customers, after paying out some of the credits to customers as an incentive, you’ll see this $3 million credit reflected in the Q2 2018 results for ANG. Continued positive trend in that marketplace, especially with oil where it is and diesel pricing where it is. And I don’t know if many people saw, today the acquisition by a major oil company, I believe it was Total, that acquired 25% of Clean Energy, which is I think a very positive for the marketplace, and I think it’s indicative of how people should be thinking about this because it’s here to stay a lot of upside. And as you get critical mass you’re going to see some of the bigger players get involved in this thing. And despite what some people report from a station size, we are in the top three or four CNG entities out there. So even though we have the 40 stations we’re not that far behind from number one and two. And quite frankly, we have a pure play CNG where some of the other entities have more convoluted type structure. So there’s a lot of opportunity here, we continue to believe in this business, wouldn’t be surprising to see additional M&A activity going forward. We’ve built tremendous value in this entity alone that I don’t think is really understood. But be that as it may, we’re continuing to do what we do and Drew and team are doing a fantastic job here with this business. Just to touch briefly on PTGI, the focus there continues to be on building relationships. Again, the business distributed almost $2 million of dividends to HC2 in the first quarter, still continues to be a steady payer for us. So the guys, Craig and team are continuing to bang away and do what they are supposed to do. Turning to Slide 7. You’ll see there are no new significant variations in the Insurance segment from an adjusted operating income perspective. We continue to work through the regulatory approvals relative to the acquisition of Humana’s long-term care business and currently expect that the transaction will close in the third quarter. There’s always typically regulatory nuances that you have to deal with here, I mean, no reason to believe that we think it’s not going to close, we’re very excited about it. I think again it will be transformational for us. And we’ll take the portfolio size up from about $1.4 billion to $3.6 billion, $3.7 billion. There is definitely business to be had out there over and above what we’re seeing with Humana we want to do blocking and tackling. And again, I don’t think people recognize what we’re doing here. And I fully expect that we will ultimately see the value in Insurance alone being realized. Moving on to Pansend. As we hope you saw, we announced a major milestone and really transformative event for both Pansend and HC2. With Janssen Biotech, one of the Janssen Pharmaceutical companies of Johnson & Johnson, will acquire BeneVir, a Pansend portfolio company focused on developing oncolytic immunotherapies for treatment of cancer and a transaction value that up to $1.04 billion. The consideration includes $140 million upfront payment to BeneVir shareholders and up to $900,000 in contingent payments for achieving certain predetermined milestones. When I think of our stock price and I look at this; if people think that we did this just for the $140 million upfront, they must be reading the wrong paper. There were clearly a lot of people looking at this thing. Johnson & Johnson has done a tremendous amount of diligence on this. And one of the key reasons why we went with them is their commitment to it from an investment perspective, from a firm perspective and how important it was for them. Obviously, I can’t speak for them, and they will tell you obviously more on their call, I believe, if not, whatever they announce. But this was not – this was a long time in the making. It was not taken lightly by anyone and we had to pick, I believe – a suitor that we believed would be able to deliver and deliver on the back end. And the more work that they had done on this, I believe the more commitment that we saw out of them. In essence it turned from an option to buy to this buyout. So I think that’s indicative of the belief in the product. And as we’ve talked about time and time again, the credibility underlining BeneVir and the founding partners of BeneVir, and why the deal was structured like this. This is the real thing and it’s – I think something that people are going to be very surprised, and I’ve said this before that. I believe Johnson and Johnson will someday look back at this and say they got a great deal, a fantastic deal on this. So we have no reason to believe that, that this balances are not going to come to us and its one of the key reasons why we went with them again their commitment and so on and so forth. So we’re very, very thrilled about that transaction. And took a little bit longer than we expected, but turned out how we expected it and handsome. Based on our current view, we believe our existing NOL should offset most if not all of the tax liability of the initial $75 million upfront cash payment. Obviously, we have to think about where we are on the backend for remaining payments as it relates to tax dynamics, but we’re already all over that. Since our original investment in November 2014, we invested approximately $8 million in BeneVir, $60 million in the entire Pansend platform. So a pretty decent rate of return on BeneVir for the most part. And again and this is why we’ve been excited about the Pansend platform and what the team has done there and again it is not the only thing in that portfolio. So we’re very excited about some of the other thing that they’re doing and we’re doing of course. And thrilled about where we are right now. We need regulatory approval which could take up to 45 days, but I expect to close it in the second quarter. So I don’t think it’s going to take the full 45 days, but it could. And as you guys know we’ve been talking about the deal for several quarters and hope you can understand why it took awhile to run finalize, it was incredibly complex, addressing both technical and scientific issues. David Present and Cherine Plumaker did an amazing job here and hats off to them guiding BeneVir to this point and clearly hats off to BeneVir management. Who again – we believed was the real deal from day one, it’s not the first type of transaction that these guys have been involved with, as it relates to this type of asset. It’s something that we’ve said we do. We’ve done it and I know it was important for people to see that. And investors to see that, I hope people to see that the capital we’ve invested in these assets. Has the potential to generate tremendously attractive returns and shows how we can use them to generate value up to the holding company. And we were somewhat criticized for it, but kind of stuck to our guns because we knew the underlying value here and don’t be surprised with some of the other things, again that we’re doing in that portfolio. Beyond the excellent financial returns. Obviously, the intangible dynamic of the potential contribution of this science in the fight against cancer is pretty exciting. When I kind of looked at it. When I always talk to people in the past about solving problems and financial analysis et cetera I would say, come on guys, we’re not trying to solve – trying to find a cure for cancer. Now turns out that, this was a step in that direction. So it’s pretty exciting just from an intangible part of it. The technology is clearly a game changer and a potential lifesaver for patients living with difficult to treat cancers and we look forward to seeing its benefits for years to come and clearly believe Johnson and Johnson will look at it down the road and say, wow what a fantastic transaction that was. And quite frankly for both of us. These types of situations they take a good deal of capital to take from Point A to Point B. And we talked about, we’re not in that business, we want to be good sponsors and we want to do what’s necessary and I think this worked out just like we said it would, and just like we expected. Moving on to broadcasting, where we’ve continually – we’ve continued to strategically acquire assets through carefully targeted transactions. The goal of our – over the years strategy is to build the largest state-of-the-art broadcast, OTA distribution platform in the U.S. including inclusion of pending transactions we have a 150 operational stations, including 10 full-power stations, 42 Class A stations and 98 LPTV stations, with an additional 500 licenses and construction permits. I think again from a value proposition perspective, people want to see what’s happening and the value that we’re creating in this marketplace. They can look at some transactions that are out there from a stick value perspective granted there, they maybe ABC, NBC, CBS et cetera, affiliates, but that doesn’t mean that we won’t be able to find content. To not necessarily replicate what they’re doing, but to prove that we’re buying the stations that are super attractive valuation. And the objective here was to get the footprint across the U.S. And move quickly before these stations are gobbled up. At the end of the day, we do have – obviously, we’re focused on the broadcast market but keep in mind this is spectrum. They’re not making any more of it, it’s the pipeline into the house. Our aim here is to get to 75%, 80%, 85% coverage of the U.S. through the OTA market which we think will be of value a phenomenally value added proposition and a distribution platform. Alternative distribution platform that I think people will see and use pretty effectively as a complimentary to the other medium, video medium and technologies in the marketplace today. So currently we are covering or we’re in about 130 markets and include nine of the top 10 markets. And currently carrying programming for 40 network. Wish I don’t think people understand and appreciate their breadth and depth of this platform in the value here, and clearly we’ve been focused on it for a reason. We believe that, this platform will create an avenue for high end content providers to deliver their product to more viewers over the air. While positioning us on the cutting edge of a rapidly evolving media and technology distribution landscape. Where we are uniquely situated to benefit through fast cost effective adaptation to new broadcast industry standards specifically ATSC 3.0 which is a very disruptive technology. But essentially we don’t need that to succeed. We have tremendous real estate and there’s strength in numbers. This I don’t believe this strategy would work with one or two stations which is hence why we stepped out and moved very aggressively on it, where we could blanket the country. And that’s exactly what we’ve done and we were early, we were relatively aggressive and I don’t believe from a pricing perspective, but in our canvassing the landscape and acquiring these stations. And we are absolutely already seeing price increases for similar assets and – we were as they say, our timing was pretty good on this and fortunately we moved very quickly because there is a pretty dynamic change in the marketplace just from when we started buying to the stations that are out there today. And they are getting fewer and fewer and fewer out there and especially as it relates to the auction reducing the mobile auction the same spectrum in the mobile auction reducing the number of broadcast stations in every DMA from 50 to 35, it makes our real estate that much more valuable. And clearly if you look at the trends there, the cable companies have been and will continue to be concerned about, is the cord cutting and the movement to the over the top phenomenon as well as the over the air phenomenon. There’s nothing like free TV. It’s incredibly crisp and digital today unlike 1970s and 1980s where you have the fuzzy experience. And quite frankly the content there, there’s people chomping at the bit to be able to utilize a distribution network that we’re building out. During the first quarter, we made two key hires bringing in two industry veterans to lead an accelerated the growth of the business and two phenomenal hires quite frankly. Kurt Hanson as Chief Technology Officer and Louis Libin as Managing Director of Strategy. Both come from a pretty impressive background in this industry on the engineering side, and they came on board and I believe our – are incredible believers and what we’ve done and we’re doing it all together as a team. Highest priorities of the broadcasting management team are to integrate the stations at this point. And the station groups that we’ve acquired over the past three quarters continue to drive the cost efficiencies and increase revenues through advertising carriage. We’re really focused on that integration in getting the engineering done that. So we can bring everything under one roof and then can market the entity as a one stop shop for delivering content nationwide. It going to take a few quarters to do this, but we have the right management team and we’re well on our way. But the good news is we have all the pieces of the puzzle in putting those pieces of the puzzle together pretty effectively and the phenomenal beauty of that is our entry price. Which I don’t want to go through in detail, but we are pretty well positioned there. Just moving on to kind of Slide 8, focuses and priorities or focus and priorities. As we talked about last call one of our key priorities remains the optimization of the HC2 capital structure. Early this week we completed the refinancing of our bridge, broadcasting bridge loan that helps support the expansion of our OTA strategy. We have this kind hanging out there, and I know some people were kind of scratching their head over it. We just wanted to get it done and so we could take a step back and then kind of figure out what our next step was to continue moving in the direction that we’ve been preaching. And we’ve priced these bonds at the 102 price, it’s an important step and provides additional optionality, but very, very, very, very important for us to focus on the 11s and we know what we’re doing and we are crossing the T’s and dotting the I’s on this and figuring out how, when, where, what, why. But come hell or high water we are going to reduce our cost of capital. And in addition we’re continuing to look at the ways to reduce the preferred equity. Looking at the financing at the subsidiary levels as part of this and including broadcasting assets. So I think the good news, we’ve got alternatives, we’ve got options. I don’t like paying that kind of interest cost, we knew we would have to do it starting out. But I think now, we are well positioned to take those appropriate steps. Beyond the capital structure, we’re working on other potential opportunities to monetize other assets across the portfolio. BeneVir was a clear example of how we’ve created value in Pansend. No secret that there are other potential value creating opportunities. But again we want to take our time, we don’t want to be pressured into doing things as it relates to monetizing, but there are options out there. We’ll continue to evaluate those quarter-to-quarter-to-quarter. But they’re there and that’s the good news. We discussed the OTA strategy earlier and I think we’re extremely well positioned here, you’re going to see us talk more and more about this. And especially to capitalize on changes in the marketplace in the technology. Finally the core operating subs continue to perform well. Don’t lose sleep over Global Marine. Company has been around for 100 years, again these guys know what they’re doing. It’s not a slowdown, it’s various nuances in the marketplace. We continue to be big believers in these underlying businesses and confident in our full year outlook for DBM and Global. Again just to reiterate, as we’ve reaffirmed our full year adjusted EBITDA guidance for each of them. So I tried to keep this short and sweet. With that, let’s open up the call to Q&A. Hopefully there’s no boring questions. Anyhow, thank you for joining and if anybody has any questions just we’re here. So with that, we’ll pass it on and open it up.
  • Operator:
    [Operator Instructions] And our next question comes from the line of Kurt Hoffman with Imperial Capital. Your line is now open
  • Kurt Hoffman:
    Hi, good afternoon. Hopefully I don’t start with a boring one. Congratulations on BeneVir, it seems to put you in a great position to reset the capital structures you mentioned. The bonds are now trading at something like a 6.5% yield to worst. So what’s your thought on timing there? And any changes to your expectations around the rate after the BeneVir result?
  • Philip Falcone:
    I mean, listen, I continue to think they’re very, very cheap. And would hope that it would be a little bit more reflective or the actions that we’ve taken would be a little bit more reflective. But be that as it may, we’re getting close to the right levels. As I mentioned in the body of the call, top priority for us we are all over this like a wet paper bag. I’d like to do it sooner rather than later. I’d like to have it done yesterday. We’re waiting for these things to get done and we have crossed the T’s and dotted the I’s on this. Obviously, I can’t tell you the exact date, but I want to get that kind of lock and loaded sooner rather than later. But we’re just looking at – we’re trying to be creative from a structural perspective on how fast we get it done and do things like that going forward to give us the flexibility.
  • Kurt Hoffman:
    So potentially doing it before the, call, premium drops? Is that on the table?
  • Philip Falcone:
    Anything is a possibility.
  • Kurt Hoffman:
    Okay. Okay, fine. And then turning to the Broadcast segment, negative $5 million EBITDA in the quarter. Can you talk about how you expect cash flow at Broadcast to look over the near-term and medium-term?
  • Philip Falcone:
    Yes. I mean, we’re not forecasting that, but this is again not a surprise, but more on the network side and we’re doing the things and really realize that it would take a quarter or two to get our arms around that and start reducing accordingly. But that’s a key focus of ours and it’s primarily on the network side that we’re experiencing now that’s the Azteca, not the station side the Azteca network side. And there are things that we can do to get that done. We have to get it under our umbrella and/or doing those things. But – well, we can’t project and don’t want to start projecting on that. I’m not the type that will sit and watch that number increase. And I don’t want it to increase, again, we have that kind of crossed the T’s and dotted the I’s accordingly, make sure that we’re doing the right thing, and we feel like we’ve got our arms around it and know what we need to do.
  • Kurt Hoffman:
    Well, I don’t want to lock you into your long-term forecast, but is $20 million cash burn for 2018, is that something we should model in?
  • Philip Falcone:
    High, that’s high.
  • Kurt Hoffman:
    That’s high. $15 million?
  • Mike Sena:
    Yes. Kurt, we will give you update as we go along, clearly.
  • Philip Falcone:
    Our goal is to get that down as close as we possibly can to zero and go in the other way.
  • Kurt Hoffman:
    Okay.
  • Philip Falcone:
    And again, we’re not watching that – watching it instead of doing anything.
  • Kurt Hoffman:
    And would you expect corporate costs at life sciences to decline any with BeneVir gone?
  • Philip Falcone:
    It’s a good question. I think we should over time. My guess is depending on when it closes in the second quarter. To close this in the second quarter there will be certain expenses associated that we would have accrued accordingly and then will disappear.
  • Kurt Hoffman:
    Okay. All right, I’ll leave it there. Thanks.
  • Philip Falcone:
    Thanks.
  • Andrew Backman:
    Thanks, Kurt. And our next question.
  • Operator:
    Thank you. And our next question comes from the line of Sarkis Sherbetchyan with B. Riley. Your line is now open.
  • Sarkis Sherbetchyan:
    Thanks for taking my question here. And congrats to the teams at HC2 and BeneVir for a fantastic transaction, Phil, which if I’m not mistaken was about $8 million to HC2 on a cost basis in the past four years, if that’s right. So a lot of value creation there, right? I mean, I do agree that some can’t seem to do the math. Phil, so in that light, can you help us understand what other monetization opportunities you’re considering in the portfolio either in Pansend with a little bit more flavor there or across the broader HC2 platform?
  • Philip Falcone:
    Well, we don’t want to be traders of our assets. We clearly believe in the platform and building out things that we’re doing. We’ve got to think of taxes associated with it et cetera and we clearly zeroing our return on capital and opportunity cost on the different underlying industries. We will be opportunistic. There are things that we could do and clearly we received incoming phone calls on – and we continue and always have on some of our different assets. And that’s why I’m saying there’s always options for us, we just have to think about redeploying the capital, where – what we’re going to do with that if we can get – if we can redeploy that capital. But one of the beauties of this platform and the dynamic around the control is we can move things around. And if we believe that things are not performing and will not perform or kind of hit a peak, we will need to act accordingly. And as it relates to Pansend specifically – as I’ve mentioned in the past, we don’t want that entity is kind of a black hole of funding to commercial. And we’ve done – I think the team has done a exceptional job incubating as we said we were. Without going into too much detail, there are – there is an opportunity whether it’s JVs or strategies, et cetera, that you’re talking to and are probably heating up at the moment. But again, we wanted to make sure that we’re getting appropriate value because we do think there’s phenomenal value with the two underlying – three underlying assets quite frankly remaining there. So as it relates to what things that we could monetize, I guess you could – you have to keep a flexible mindset. But we’re kind of balancing a number of different things going forward. But we think the beauty of that is we still feel very comfortable operationally that there’s some pretty solid growth here and pretty solid cash flow especially from like a DBM where we don’t have to do kind of a major – I mean, we get to ask that question all the time. These companies have ups and downs. And as long as they’re structured right and as long as we can keep building and getting cash out of them and managing the business overall, that’s how we have to think about. But we clearly have that mindset of being flexible where necessary and unnecessary. And I think you could feel comfortable especially with Pansend some of the things, there are some opportunities there until you extract some real value that we fully expect, will probably come to the forefront sooner rather than later.
  • Sarkis Sherbetchyan:
    Understood, and that’s certainly a helpful color there. And I suppose thinking through what your – two receives assuming the transaction closes with regards to BeneVir, I think it was about $70 million net proceed number. A little bit of – I think there was a NOL associated, whether that could shield, right, some of the cash taxes that might be paid? What would you do with that capital? How would you redeploy it?
  • Philip Falcone:
    Well, it’s going to be more than for once. It’s probably up to $85 million. And listen, we’re – we like to – we don’t have plans to go out and buy anything at the moment. Clearly, we want to try to utilize it especially as it relates to get reduction or cost of capital, picking about cost of capital and allocating accordingly. We think it’s going to be obviously a good thing to have on our balance sheet as we look to again trying to do increase and create financing. But there is no rush to do anything with that at the moment. We think we have got the strategy for a broadcasting business and we’re doing some things there. The underlying businesses don’t need cash as you’ve seen we’ve been extracting cash. So it’s not like we’re going to turnaround and start dumping money into medium and global for one broadcasting we have a strategy ANG I think we’re pretty set. Insurance we’ve got that that deal kind of often loaded. So, well, I am try to be opportunistic where we can, but make sure it fits in with the big picture with building our platforms or building another platform, but having appropriate debt costs to – just start thinking more longer-term of that.
  • Sarkis Sherbetchyan:
    Understood that’s helpful. And if I kind of switch gears here, thinking through insurance, it does seem to be pretty steady and this is before bringing over the Humana LCC block of business, which I think you said would close in 3Q. Can you maybe remind us what that means as far as transforming the insurance segment? Obviously, you’re adding a big book here to the business. What would it mean from a maybe cash generation perspective? Or kind of how should we think about the changes you can make to that portfolio to be accretive to your existing platform?
  • Philip Falcone:
    Well, I think for one – one of the beauties of the long-term care space is that it’s typically 10, 15, 20 year duration capital, depending on the underlying structure of the assets or not the assets, but the policies. And keep in mind that these portfolios, I want to say are orphaned or had been orphaned, but they are managed typically in a coming lead manner where it’s a large $40 billion, $50 billion, $60 billion plus insurance companies at typically 5-year duration capital. They are not setting up a separate team to manage $1.5 billion or $2 billion. It’s a pro rata across the board. So you could see – and we have done that where you are extracting value just by going out on the curve not because of anything that the sellers have done. It’s just how they managed their business. We’re primarily short-term in nature because of – it’s a P&C business or fixed annuity business versus long-term care and you’re not going to buy a five year piece of paper of a 30 year piece of paper. You’re going to buy what a five year, typically a 5-year piece of paper because its asset liability match – matching. So you can what we found is that in these typical portfolios, there is kind of low hanging fruit that that you can extract value just by virtue of going out of the curve. And then you’ve got some – there are certain things that you could do with the portfolio, but we’ve done I think a pretty solid job with that. And you have seen our RBC, which is kind of the metric that is closely watched by the regulators if it has approved and done well then you’ve got the underlying operation that that you imagine as well. So there are things that this is not kind of static management. This is active hands on where we are really proving that we’re building value here and I think it’s noticed. And when I talk about the transformational transaction there’s a number of the portfolios out there. And some of them are big. And there are – the more credible if you want to becomes credible, it takes not just one but may be two deals like this to get done. I think the second deal Humana will be transformational from that perspective that people see that we have the capability of closing – that we have the platform which is a huge value-added proposition in the market for this. And when I talk about platform it’s the servicing platform when we did the first deal, we brought from American Financial, 100 people down in Austin that are servicing the portfolios. There is a tremendous value in that, especially when the sellers understand that we are the insurance company, we’re not outsourcing that. So there’s no question, there’s how many hurdles in closing these things is evident by the time it’s taken. And we still have a couple of hurdles to jump over to with the chops that are cautiously optimistic that will close. And again, I think, it’s just a credibility after that. We are closing deals and now almost will be up to almost $4 million that just helps them in the general insurance marketplace. So I think that’s what I mean from a transformational perspective. Aside from the fact that, or by way there’s a lot that we can do with the portfolio.
  • Sarkis Sherbetchyan:
    That’s great. Thanks for that Phil. That will be all from me and I’m looking forward to seeing you Phil, and Andy and Mike at our conference in a couple of weeks.
  • Mike Sena:
    Great, thanks – for your half.
  • Andrew Backman:
    Great, thanks attendees. I want to thank Phil and Mike. And I want to thank everybody here for joining us today. As always, our team is available to speak. Should you have any follow-up questions please do not hesitate to contact me directly at 212-339-5836. Andrew if you would mind would you please go ahead and provide the conference call replay instructions once again. Have a great evening everybody.
  • Philip Falcone:
    Thank you everyone.
  • Operator:
    Thank you, Mr. Backman. As a reminder this conference call will be available for replay beginning approximately two hours after this call. Dial-in for the replay is 1-855-859-2056 with the confirmation code of 498-96-06. Again dial-in for the replay is 1-855-859-2056 with the confirmation code of 498-96-06. This concludes our call. And you may now disconnect.