HC2 Holdings, Inc.
Q1 2017 Earnings Call Transcript

Published:

  • Operator:
    Good afternoon and welcome to the HC2 Holdings First 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 call over to Mr. Andrew Backman, HC2’s Managing Director of Investor Relations and Public Relations. Please go ahead.
  • Andrew Backman:
    Great Sarah, and good afternoon, everyone. And thank you for joining us to review HC2’s first 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 also be accessed on the Investor Relations page of our website. A replay of this call will be available approximately one to two hours after the call. The dial-in for the replay is 1855-859-2056 with the confirmation code of 13442870. 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 actual HC2 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 measurements under the SEC rules, such as pro forma net revenue, adjusted EBITDA and 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, Philip Falcone. Phil?
  • Philip Falcone:
    Thank you Andy. On the agenda today I'll start with a brief recap of the results for the quarter. Provide a few operational highlights from our core subs. And then finish up with a quick M&A. Hopefully, I'll try to move this along pretty quickly as I think the numbers pretty much speak for themselves here. And we're very excited about that. Let me start with a quick review of the quarter on Slide 4. As a general comment I would say the first quarter marked a very solid start to the year in a continuation of the many successes we had in 2016. During the quarter our portfolio performed very well, with many subs achieving significant milestones and accomplishments. In particular Rustin and the team at DBM had a another very solid quarter. And again posted near record backlog of almost $500 million, or $800 million inclusive of contracts awarded but not yet signed. And that's the benchmark that we like to monitor and that we've been talking about in the past. Dick, Ian and Global Marine team experienced very robust operating results for the quarter with solid performance from the core maintenance and power businesses, in addition to very strong results from their JV with Huawei Marine, which continues to perform very well. Needless to say we're very excited about what we've seen from both of these entities. Just continuing on Craig and the PTGi team continue to expand their business growing traffic volumes and increasing their roster of customers. We continue to see small dividends out of that entity which is quite promising considering that again, this was a business that we had when we acquired the entity. When we acquired the Shell, was discontinued ops. So the team has done really well here. Drew and American Natural Gas team remains focused on integrating the recently closed acquisition of Questar and Constellation and continue to see increased gasoline gallon equivalents or GGE's across the ANG nationwide network of stations. And we've had continued interest in continuing to build that operation out both inorganic and organic. We are big believers in that space and the economics are proving to be, what we expected there. Dave and Cherine continue to manage the Pansend Life Sciences, platform with MediBeacon and BeneVir achieving significant milestones this year, which I'll review in a couple minutes. For the first quarter, we posted adjusted EBITDA from our core operating subs of $27.8 million as compared to just $12.7 million in the first quarter of 2016 and ended the quarter with $1.6 billion of cash in investments and $92 million of consolidated cash excluding our insurance segment. Finally we remain focused on adjusting our cap structure which is something that I've talked about a number of times. Having recently further reduced our outstanding preferred equity and currently as a result have just $26.7 million of outstanding preferred compared to $55 million of total preferred issued. When we started down this path, fact that this sub-level on a gross basis, we have reduced over $72 million in debt and pension liability since the end of third quarter 2014 and just to remind you the pension is the only pension that we have outstanding is at the Global Marine level that we have part of the purchase price. But we have continued to pay that down and have seen that debt at the Global Marine level continue to get paid down from cash from operations. The thing about the pension is it – it’s at a pretty attractive rate, so we it’s not a top priority for us to pay that down. Considering that we could use that capital for building out that business. So we – it is kind of a delicate balance but it's moving forward quite nicely there. Slide 5, HC2 segment overview, again this is just the quick snapshot. I don't want to spend too much time on this but it's kind of how we look at the portfolio and how we think about it, as I’ve continued to mention we hope to be adding different people over time, with platforms over time, with a key focus on the cash flowing businesses such as a DBM or GMSL. That's a key focus of ours, we realize how important it is and I think as you look, as we look and think about how we're going to grow this business vertically or horizontally. That's a key component of what we're thinking about and clearly there are acquisitions that we consider, the tuck on acquisitions at the individual operated subs today that we continue to canvass the markets for as well. Slide 6, a segment financial summary. Good summary of adjusted EBITDA by segments for the first quarter, as I mentioned total core operating adjusted EBITDA for the first quarter was up significantly $15.1 million or nearly 120% driven mainly by a strong quarter for Global Marine, which was above – even above our internal budget. As well as a very good year-over-year improvements in ANG and PTGi. Total Early Stage & Other saw a slight quarter-over-quarter improvement mainly due to reduction in equity investment losses recorded for one of our investments the Inseego investment. Year-over-year increase for Life Sciences was due primarily to the scaling of operations at R2, MediBeacon and BeneVir. As these companies met critical development and clinical milestones. Again I will talk about this momentarily but we're very excited about what's happening there. Non-core operating was in line with our expectations for the quarter. And on a run rate basis for the full year 2017, again we are closely monitoring this and making sure that our costs are in line with how think about the business and how we think about our cash flow overall. But for the most part we are right on track. Looking at DBM Slide 7, DBM Global overall a good quarter for DBM with adjusted EBITDA coming in at $8.6 million versus $11.5 million for the year ago quarter. Slight decline was mainly due to delays caused by design changes on existing projects and the backlog, which in some cases really delayed the anticipated start of the project. Despite these delays our expectations for the year have not changed and continue to be encouraged by not only our current initiatives but our robust backlog, which as I mentioned is the $800 million adjusted number and the long-term pipeline of opportunities. So with the backlog, that we have very good visibility beyond, well beyond a year and even beyond two years. And very excited about what's happening there, the market is not slowing down in that area. At the end of the first quarter as I mentioned DBM had another record year backlog of just under $500 million. And then again taking into consideration, awarded but not yet signed contract and what we call the adjusted backlog would have been approximately $800 million. I think that's an all time high for the Company. Rustin and team continue to see a large number of opportunities in the commercial sector, totaling approximately 350 in potential new projects that could be awarded over the next several quarters. Clearly these are not reflected in the $500 million backlog for the quarter. These projects include sporting arenas or stadiums as well as new healthcare facilities et cetera. So there's clearly a number of opportunities out there that we are seeing and that we are going to – we believe we will clearly win a number of them and get a good look on a lot of them. And you know, I think when looking at what's happening in that kind of construction segment especially on the West Coast it is proving to be much more robust than anybody expected and really looks like it has some very good legs in here. In addition there are number of planned and potential projects in Las Vegas where DBM has a very long and successful history having constructed either entirely or in part over 30 hotels and casinos convention centers, retail centers et cetera. That market DBM really cut their teeth on. Building that building the operation by developing Las Vegas and it has a phenomenal reputation there and it's nice to see that market even starting to pick up again where over the past two, three, four years we hadn't really seen a lot of activity. It's now starting to pick up again. So we're very excited about what's happening in even in the Las Vegas space. Moving on the Global Marine Slide 8, as I mentioned a very good first quarter for Global Marine with revenues up nearly 40% to $44 million, primarily due to higher off-shore power installation and maintenance revenues offset by expected lower telecom installation revenues. Adjusted EBITDA for the quarter came in at $16.3 million versus$0.5 million for the year ago quarter, which of course included the effect from a recorded loss associated with the telecom installation project. And that was, if you recall about $5 million. The strong quarterly performance, was driven by significant contributions from the Huawei Marine JV as well as several telecom install projects that have met key milestones. And solid telecom maintenance given higher vessel utilization in the CACMA and the ACMA maintenance zones and as well as continued contributions from offshore power, which we are very excited about installation and maintenance business. During the first quarter Global completed its first power cable repair project, since re-entering the power market in 2016. And again if you recall that was a market that we really couldn't participate in because when we bought the company, the company was on a non-compete in that space. So it's really I think the timing of our CWind acquisition and what's happening in that sector is – we, it's great to be off that non-compete and now to be able to start competing in that because it's really an exciting part of the market which I will talk about in a bit. Specifically that CS Sovereign successfully repaired a broken power cable between the Silly islands to UK mainland that had inadvertently been severed by a passing cargo ship to anchor. This for example – this successful repair restored service for thousands of island residents who had relied on the use of diesel generators, since the cable break early in the quarter. We believe as I mentioned there is a tremendous opportunity in the offshore power market specifically the offshore wind market for example at the end of 2015 there was approximately 12-gigawatts of existing offshore power wind capacity installed globally. Most of it in EMEA, Euro region, just as a point of reference 1-gigawatt of power is enough to power approximately 700,000 homes. Over the next ten years it's estimated that an additional 50-gigawatts of global capacity will be added to the market. In Europe alone offshore power has grown from literally no capacity 10-years ago to 3-gigawatts in 2010 to an estimated 12-gigawatts at the end of 2016. Over the next ten years it is estimated that on average 3-gigawatts of capacity will be installed each year in the euro market with approximately 12-gigawatts currently in development and permitted for delivery by 2020 and an additional 15 to 20 gigawatts to be installed from 2020 to 2025. Adding this expected European capacity to what is expected in the APAC market over the same period approximately, which is approximately 25-gigawatts you can see why we are so bullish on the offshore power market and the offshore opportunities. And Global is positioned in that marketplace. We are really thrilled with that opportunity set here and it's turning out to be quite frankly better than what we expected. And with the growth that's taking place, you're going to see that become a much bigger part of the overall market, of our overall business. Turning quickly to the backlog at the end of the first quarter Global's backlog was $332 million. Essentially in line with the $348 million at year-end and in addition telecom installation, backlog at HMN achieved yet another record level in the first quarter. As I mentioned on the last earnings call we continue to position ourselves to support what could be significant growth at HMN as evidenced by the agreement Global entered in the first quarter to charter the Maersk Recorder with options to purchase the vessel over the next five years, a very critical step for us here. The vessel was renamed CS Recorder and entered the fleet this quarter and is positioned to not only support expected growth in that Huawei JV but is capable of undertaking operations in offshore, wind and oil and gas. Keep in mind that as that business grows as Huawei Marine HMN goes out and bids, the installation and maintenance jobs, we now with the Recorder dedicated to that area have the ability to really capture what should be low hanging fruit for us. So it was a real key acquisition. Dick and team did a phenomenal job cutting the deal on this at very, very attractive prices. And one of the things that we mentioned was just as a result of the overall drop in pricing in the vessel market, we were able to pick up this vessel at a very substantial discount to what we would otherwise have had to pay just a few years earlier. So obviously, the lower the price of the vessel, the better margins you are going to have and the better you are going to be able to bid. So that’s was very key and we continue to look at opportunities, to continue building out and adding capacity. Just from a overall offshore wind perspective back, we did acquire the CWind business. CWind provides crew transport services and personnel for wind farm maintenance including turbine repairs blade cleaning et cetera. That – as that market grows you can fully expect that just the maintenance aspect alone and of course the transportation aspect will benefit the overall business. And then there's the opportunity to even install the cables et cetera. So that is a real exciting part of the market. And I think the growth there is above and beyond what we expected. In that market and it's really kind of proving to be a good solid place for us to focus and to build a substantial revenue and EBITDA base of business there. So we're very excited about that the CWind acquisition was relatively quiet and from a contribution perspective it was relatively quiet last year. And we are already seeing that. I don't want to say dividends, in the true sense of the word but be proven to be the right and the smart decision to really focus on that part of the market. As a reminder while we do not expect to see significant telecom install projects throughout 2017, we do expect based on our current visibility. Expect meaningful activity to pick up in 2018 and 2019 through not only our HMN and SBSS JV’s but through just the core Global Telecom install business as well. These are projects that are not turned around overnight and not started overnight and not determined overnight. So when you think about the capital allocation of some of the companies in building these, this not something that they get done in a week. So I think the visibility that we have right now is at 2018 and 2019 are really going to pick up in that space. But again the good news in the short term is we will make up for anything that we wouldn't have otherwise had in the telecom space. We’ll pick that up and hope to continue picking that up and some in the offshore power markets. So it's a good offset for us. Turning quickly to Slide 9. American Natural Gas adjusted EBITDA for ANG was $1.16 million for the quarter as compared to $400,000 for the year ago quarter driven primarily by an increase in the number of fueling stations, owned and or operated. Drew and the team continue to integrate the 18 stations we recently acquired from Questar and Constellation. And at the same time continued focus on increasing CNG volumes at existing stations and of course also expanding the geographic footprint through both organic and strategic M&A transactions. So a lot to do there. At the end of the first quarter ANG owned and/or operated approximately 40 natural gas fueling stations. Including stations under development in 15 states. When we first got involved, this was a situation where I think he had one or two stations. So the growth and the opportunity set even, with oil where it is, is really proving to be a value added opportunity for us. From building out this platform, which we fully expect to grow. It’s going to take a little bit of time integrating those stations, which were super high quality stations that we acquired. At the end of year, so rightfully expect that you will see continued improvement there from Drew and the team. Just quickly moving on to the telecom space, Slide 10. PTGi revenues were up 28% versus the year ago quarter, coming in at $192 million for the first quarter driven again by continued growth in wholesale traffic volumes and adjusted EBITDA was $1.7 million for the quarter versus $300,000 reported in the first quarter of 2016. Again good work by Craig and the team. This is an area that we are looking to expand from a roll up perspective because you dramatically increase margins here just by kind of doing the smaller tuck on acquisitions. There are – I don't want to say few and far between but again we are very conscious of what multiples that we're paying for this business. They're out there, but we don't want to reach to far and pay high single-digits for this thing. Yet but we do see some acquisition opportunities there. Turning quickly to insurance, overall a good quarter for Continental, as we saw higher premiums due to the implementation of rate increases and higher net investment income. Somewhat by the acceptance of contingent nonforfeiture options, in lieu of rate increases. This also helped drive some reserve releases resulting in a lower net reserve build for the quarter. Looking at the platform as of 3/31 2017, approximately $2.1 billion in total GAAP assets. More market metric for something like this is the surplus. Plus the what's called the AVR and that number is $71 one million of stat surplus and $85 million of total adjusted capital. So still, a number that we're happy with but clearly as we look to grow this business. We are very focused on acquiring additional books of business again at the right price, making sure our costs are in line focusing on getting the rate increases, which has been going quite well. As discussed on the last earnings call, we completed the merger of our LTC care insurance business into one legal entity domiciled in Texas. The merger increases the regulatory capital efficiency of business, which provides a tailwind to RBC which is the number that – an RBC is risk based capital. And of course provides an incremental administrative cost savings here. Just as for instance our RBC ratio as of the end of March again exceeded 500% versus our agreed to minimum with Texas of 400%. And if you call, when we closed the business we were at 450%. So improvement across the board here has really helped us increase our RBC which just gives that unit added flexibility and essentially added cushion. We continue to strengthen the regulatory relationships here and seeing a beneficial shift in the regulatory environment and providing further tailwind for the Company's planned rate increases. I think, at the end of the day the states realize that they have to do something here and fortunately we are have been on the successful end of some of those rate increase requests. So moving in the right direction there. Still need to, still we will see – the way you have to think about this business is because we bought the book we also bought the entire platform, which was a unique acquisition for us. And allows us to continue to do to manage that administrative part of the business. So any books of business that we buy we can kind of drop in to this platform and that's when you'll really start seeing the savings and we are being very methodical. There's a number of pieces or books out there for sale, we’re being very methodical and our thought process as it relates to dropping another book of business on to this platform. But again, that is the whole thesis. Just as an aside, the actuarial justified rate increases for this business remain a meaningful piece and our traction over the past several quarters which has been a key and which is something that we’ve talked about quite frankly have exceeded expectations. Here, so we are, we believe ahead of schedule with some of the things that are developing with that business. Turning to Slide 12 in Pansend. Two key milestones for Pansend so far this year, first during the first quarter MediBeacon announced that it successfully completed a key clinical study of its unique, real-time kidney monitoring system on subjects with impaired kidney function at Washington University in St. Louis. Successful completion of this Pilot 2 clinical study represents an important milestone for Pansend, as it essentially clears the way for a clinical study at other sites in the U.S. and Europe later this year. The MediBeacon technology and system has the potential to be a major breakthrough in measuring kidney function. As we've kind of talked about before this is a very unique technology and the pedigree of people that have developed this and quite frankly who are managing it and running it, is really second to none. This is not guys off the street that has decided to get into this business, this is a long running study and analysis and development of really a critical aspect of improvement in health care technology. There's a tremendous amount of excitement around this from people in the industry. And this is why we continue to be very big believers in the opportunity set here. MediBeacon will begin Pilot 3, which is the 60 patients during the third quarter before conducting the pivotal multicenter test in U.S. and Europe starting later this year. So the beauty of it is the testing that has been done, so far of both impaired and unimpaired have been excellent. And the good news is that it works. So there's clearly some testing remaining but we feel pretty confident with what we've seen and don't expect a tremendous diversion from what we've already seen from a testing perspective. This milestone of completing the Pilot 2 could attract significant interest from third parties interested in this technology. I would encourage people who want to see more of it just there is the website, the MediBeacon website and you can get a good idea of what the unit looks like and read a little bit about the applications potential applications that this product can and hopefully will be used for down the road, over and above what it was initially developed for. And that's real time kidney monitoring which quite frankly is not done today, you still have to go and take the blood take it to the lab et cetera. But these guys had been, these scientists had been working on this for quite some time and we now are playing a significant role in this in helping them take it to commercialization. Second, second point for the quarter. Subsequent to the end of the first quarter BeneVir the biotech company developing oncolytic immunotherapy for treatment of cancer, announced that it was granted another patent covering the composition of matter for Stealth-1H, BeneVir’s lead oncolytic immunotherapy. This is a very big, very positive step for us and it really further strengthens BeneVir’s product development program and protects its product platform through 2032. BeneVir plans to bring Stealth-1H into the clinic next year and accelerate the pre-clinical development of its platform assets to help a diverse array of patients whose tumors do not respond to current therapeutic options, including immune checkpoint inhibitors. This is a drug that is essentially paired with what's called the checkpoint inhibitors and it is a very exciting way to fight and attack cancer. And it's been noted in the marketplace and you've seen a couple of the big pharma’s involved in this in technology if I may say, of what the advancement of cancer treatment and cancer fighting and we are fortunately on the cutting edge of that. And when we got involved in this a couple of years ago, obviously it wasn't nearly as developed as it is today and proven as it is today. So this is a phenomenally exciting space. And I think it is going to prove to be a breakthrough for us as a Company and for us as a Life Sciences Unit. So we're very, very excited about what's happening here and again the pedigree of the people that are behind this. They are the top in the industry and have been associated with this therapy. And the development of this therapy from day one at top institutions. That's the beauty of what Dave and Cherine have done is found super high quality people scientists, et cetera that have developed from device to therapies such as this oncolytic virus. The pedigree is really second to none, on if you look at the investments on any of these investments that they’ve made. The health care market is an area where there's huge opportunity and the huge opportunity exists from super high quality people. And Dave and Cherine have done a phenomenal job of zeroing in on the right people that have developed these products. Just moving on to Slide 13, just a quick notable financial and other updates. Given the value of the HC2 portfolio, we again continue to exceed the two times collateral coverage under our 11% senior secured notes at the end of the first quarter. Excluding our insurance segment, consolidated cash was again over $90 million. During the first quarter we received $9.2 million in dividends as a result of the special dividend DBM announced in December and $2 million dividend from PTGi as I mentioned. Great thing to see. And just yesterday DBM announced that it would pay an additional cash dividend on June 5, which HC2 expects to receive approximately $4.5 million of the total of the $5 million DBM global dividend payout. During the first quarter, we completed a $55 million 11% senior secured note offering, which was used primarily to repay a bridge loan that was used for ANG’s acquisition of Constellation Cng and Questar. Last week we reduced the cumulative outstanding balance of prefs to approximately $27 million from the $55 million of total pref issued. Going forward we will continue to look for ways to improve our capital structure and optimize our liquidity while balancing accretive acquisitions that add to the overall value of the portfolio. The long end, short of it is one of the top priorities of the team here as we think about opportunities at cash et cetera is to lower our cost of capital. I have said before and you will continue hearing that from me. I don't want to continue paying 11%. We will take our time to do what is necessary and do what we need to do but that is something that's on our radar and very important for us to attack. And we will continue keeping that at the top of our list for those of you who’re wondering how – what our thought process was there. And not the ability to do that, to lower our overall cost of capital is takes times. You develop things, you have to prove out your strategy and I think from an operational perspective we've done a phenomenal job with that. It is a couple of more things and couple more steps that we are taking and that I feel like we have to do before. We make a real push for that but they are in our sites today. So we feel like we have made a tremendous amount of progress on all fronts proving out what our objectives are again we always have a wood to chop, always have always looking to improve our cash flows, always looking for accretive acquisitions. We're not kind of sitting on our hands here. But we want to make sure it's done right and that our timing is right. Let me, touch on a another major milestone for the Company that we announced this afternoon in conjunction with our earnings. And that's our intention to transfer the listing of our common shares from the NYSE market to the New York Stock Exchange. Obviously that is a very significant milestone for the Company and one that aligns HC2 with some of the best companies around. And the fact that we've done it in a very short period of time I think is really proving to be a big plus for us as we continue to grow our brand and to be next to some of the most influential brands in the world, it good for others to have in our cap, which key that we as part of that hopefully we will see or the market will see enhanced trading liquidity of our stock. And ultimately increase our shareholder value. Our stock will begin trading on the New York Stock Exchange next Tuesday May 16, under our current ticker HCHC. Very proud of the dedication and hard work of every person at HC2 and subs and investments that we've made in companies that we are building out. And in a very short period of time we've made, as I mentioned tremendous amount of progress. So I just want to kind of thank everybody involved here for doing that and I can't let up now we've just got to continue plowing ahead. But very excited about what we've done here and we'll continue to push to make sure that shareholder value continues to move higher. I mentioned to somebody that not happy to see our kind of stock price up and down, and up and down and I think as we get out and tell our story and people understand the real value here and really look at it as it's an amalgamation of different companies and different industries. But we are very proactive in how we are managing them and what we are doing with them. Unlike I think your typical conglomerate. So we are very active and very active in how we think about these things. They don't happen overnight, they take a little bit of time but I'm confident that as we get out and tell this story and people see the value here. And some of the things that we believe will happen our stock will get to a point where, it's parity with and hopefully at a premium because people believe that we're putting capital to work effectively in buying the right companies et cetera. So with that, I think it's just important that you understand how we think about this and we were trying to be patient but we're not going to sit around and rest on the last quarter. So with that let's turn it over if anybody has any questions, hopefully we'll have the answers. Andy so let's turn it over and to the investors who are on the call. If anybody has any questions as you know we are here, Andy is here he has done a phenomenal job of telling our story. If you choose to not answer a question today don't be shy to give us a call and we'll tell you what we can tell you within all the regulatory, make sure we're within all the regulatory bells and whistles. So with that let's just turn it over to Q&A session.
  • Operator:
    Thank you. [Operator Instructions] Our first question comes from the line of Sarkis Sherbetchyan from B. Riley Company. Please go ahead.
  • Sarkis Sherbetchyan:
    Yes good afternoon
  • Andrew Backman:
    Yes Sarkis, how are you?
  • Sarkis Sherbetchyan:
    Well thank you first Phil on the construction segment so you did talk about the design changes causing some delays. Can you maybe help us understand the timing as for those delays?
  • Philip Falcone:
    Yeah as typical this is not a – there's a little bit of seasonality here but some times depending on who the contractor is or who you're dealing with, they may take longer than what you would like on certain – in a certain situation. We fully expect that over the next quarter, we will see that back in-line and even above kind of a catch-up to where we kind of expected to be. So this is not a year delay. This is just like month or two month type of thing. Just so happened to, some of the changes that we expected were delayed by weeks or a month or so its nothing lengthy from a timing perspective.
  • Sarkis Sherbetchyan:
    That’s certainly helpful, you also noted the adjusted backlog figure, which is near $800 million, pretty impressive amount. With regards to the additional $350 million in potential new projects and if you were to receive any of those that's not included in the adjusted backlog of $800 million is that correct?
  • Philip Falcone:
    That is that is correct. Yeah it’s a very important point that that 350 as you could assume that we were we may have been thinking that we would get to 300 of the 350 and get to 500 - get to 800 but that 350 is not included in the 800 so you could see the backlog take another spike up. But obviously there's no guarantees there but you know there's no reason to believe that we shouldn't be. Participating in some of those ventures.
  • Sarkis Sherbetchyan:
    Done. That's very helpful. So one quick point also on the construction segment. Your competitor Canam is potentially going private here in a pretty significant valuation multiple any big differences as to what your construction segment does or kind of generates from a margin perspective versus what they do and you know maybe can you just talk about valuation disparity.
  • Philip Falcone:
    Yeah, I mean listen. Canam is very good company, we know them relatively well. There's no reason to believe that their business is dramatically different than ours. I would argue that we have a better run business quite frankly. So I think, from a core perspective, now they – everything that they can do with that jingle everything they can do we can do better. But now there are a very high quality firm. And very similar to what – their capabilities are very similar to ours and ours are very similar to theirs, so on and so forth. So we don't think it should be dramatically different.
  • Sarkis Sherbetchyan:
    And moving on to Marine if I may, you mentioned a figure of backlog over $330 million there, does that include the HMN JV and other JV or is that just for your piece of the business.
  • Philip Falcone:
    No that is just for our piece of the business, we do not include and I don't think that HMN backlog is public but it is, we know what it is. It's a pretty sizable number but it is not public but it’s not inclusive, it's not included in that $330 million number.
  • Sarkis Sherbetchyan:
    Right but given the strong performance for HMN, in particular I mean you'd expect to see that kind of flow through into your results over time as well, is that correct.
  • Philip Falcone:
    Yes. No question about it, I think that's a really exciting part of the overall business. You know that being said, I think the one thing that we are very, very, very, excited about is the offshore power market. And you know just reviewing the recent numbers that have come out and the projected. Projected build on that and considering we are how well positioned we are that I think an improved to be a real money maker for us. And again over and above what we ever expected to see, I think it's just the dynamic of what's happening in that market. When we had our recent board meeting, they were talking about, Ian mentioned that there were times when I think on average 30% of the UK power is from – generated from offshore markets today. That's pretty phenomenal and there are days when there are no coal fired facilities operating. Now I think that's what you're seeing in that market and the UK is only one part of it. So there is, I think people are really kind of taken notice and where it was years ago just something that people kind of did from a environmental perspective, I think people realized that hey guys this is a real business now and real opportunity and real potential. And oh by the way it works. So that has really changed, I know years ago I wasn't a big believer in that. But now you see that number of these guys are developing and have developed and what they can actually do and the fact that they're actually generating that much power it's a real business.
  • Sarkis Sherbetchyan:
    Yes, certainly seems like your business is exposed to the right side of the wave if I may. With regards to the Life Sciences component, I mean the patents for bio pharma, I mean that seems like a pretty interesting development. Just given, I guess you would call it the Gen 1 of a similar asset had a transaction a few years back. Any kind of way to frame or think about what that asset needs to go through to maybe commend a similar type of valuation in the marketplace. Just kind of framing your thoughts around that.
  • Philip Falcone:
    Yeah you know a very good question, I think we have to be very careful how we answer that because it is a developing aspect right now. And we are kind of looking at a number of different things in this space from a capital perspective and clearly what's happening there and the excitement around that product is creating inbound phone calls because the results are good. And people know it. And again kind of, by the way where it was a theory years ago, it's proving to be a factual effective way to treat cancer and to fight cancer. Given the fact that we have this, I think people are kind of looking at it and saying wow interesting, how did you do it, how did you get it and again Dave and Cherine kind of partnering up with the guys at BeneVir was a brilliant move. And we would not be able to do that same deal today, put it that way. Not even close. So our timing was right and our thesis of kind of going into this space and allocating some capital. Now obviously there is things that have to take place as we go forward, to really realize some of the value here but it's the type of thing where you don't have to have FDA approval to get real value for these things. And I think that’s the taking it to FDA approval is one thing and there are people certain people that are better at it than others. So will we just have to think about all that not rush to the exits because this is, it’s the real deal and the good news is we are now well aware of what it is, well aware of what it can do and well aware of the value around it and we're being I think very methodical in terms of thinking about what's next for that particular situation. But as I mentioned there are a number of in inbound phone calls that we have received but we're just taking our time and making sure that we do it right. And whether it's partnering with the right people or whatever or the right institution, but just a lot of T crossing and I dotting there. But we are all over it like a wet paper bag in making sure that it's being done the right way and Dave and Cherine have a done a super job with this thing.
  • Sarkis Sherbetchyan:
    Great a final one for me and I'll hop back in. With regards to the opportunity set to lower the cost of capital obviously the strategy as far as what you guys have communicated and kind of performed here with the different business piece are playing out pretty nicely. So any kind of peek at the opportunity set to do so.
  • Philip Falcone:
    Well I think the good news is that we have performed from a operation perspective. I think we are looking at. Certain things happening from I don't want to say a monetization but a real up further realization of our platform that we fully expect will help us ratchet down our cost of capital. In the short term and we're hitting all the right levels and doing all hitting the right things and metrics for operations, I think there are as I mentioned earlier a couple of things that we couple of more things that we have to do and that’s. We're optimistic that we will see some developments on the Pansend side and whether it's in R2 or MediBeacon or BeneVir, those are well ahead of where we expected they would be. And anyone could happen that we believe will be the catalyst or one of the catalysts for getting our capital in a position where we are happy with it. But there it's not just going to happen we have been – we have to actively manage the portfolio of companies in situations that we have. We're making sure that we do that but not being hasty. Just to do it.
  • Sarkis Sherbetchyan:
    Yes thank you for the that.
  • Andrew Backman:
    Thanks Sarkis.
  • Philip Falcone:
    Thanks.
  • Andrew Backman:
    To our next question please.
  • Operator:
    And our next question comes from the line of Kevin O'Brien from Jefferies. Your line is open.
  • Kevin O'Brien:
    Good evening. I had a couple of questions and I wanted to start if I could back it DBM. Obviously you've seen a tremendous growth in the backlog as well as, the awarded but not yet signed opportunities, and I was sort of wondering assuming that backlog sort of pulls forward and you can get some of that yet to be awarded into the awarded bucket. How do you manage the capacity going forward for DBM. How big can it be or become before capacity might become an issue if at all.
  • Philip Falcone:
    Yeah, it's a good question and its one thing that we've. Watched very closely, but the key aspect is around, what we call the swing capacity and when you're running an operation like this, you can do it one of two ways. You either have the fixed cost on the fixed capacity, that is great, and your margins might be a little bit higher. But then if it slows down or something happens, you're stuck with an over – with a higher overhead and I think that's one of the things that Chuck has been exceedingly well over the last number of years that the company has put in place from day one. And that's really the swing capacity working with other entities and other individuals. I won't say individuals, but facilities that have the capacity and the capability of maybe not doing the entire Wilshire building job that could do pieces and it's really piecing out certain business that Rustin and the team called the swing capacity, which allows a phenomenal expansion of the ability to capture, to grow the backlog from $800 million to $1 billion because people might say. Do you have plants all over the place?" No, you have the swing capacity because there is a number of guys in the industry and if you can do it effectively, you still get very attractive margins and it gives you tremendous flexibility where you're not just stuffing your plant to cover overheads. So you can really – if you were just operating in your one facility, how you think about it. You some time, some of these guys in a typical manufacturing companies they want a fill up the capacity and they made bid on jobs and not bid on jobs effectively and make some money just to fill capacity to cover over ahead. Well then when that jobs comes online that is exceedingly attractive with exceedingly excellent margins, you can't bid on it because your plant is full. So you kind of get stuck and that's the one beauty of how at least how Chuck runs their business. And it's kind of part and parcel to the ability to – really the part and parcel to the answering your question is really a function of the swing capacity. Now this, at some point, does that – do you fill up your swing capacity? Sure. But I don't think there's any cause for concern with that. But there's supply and demand dynamics and there's no issue right now that we see from even increasing another 20% or 30% of backlog basis. But that's the genesis of how we think about it and the ability to increase our book of business and really take revenue base from where it is to – or EBITDA base, from where it is to $70 million, $80 million, $90 million, without having that fixed capacity or fixed CapEx capacity.
  • Kevin O'Brien:
    Great. Thank you appreciate that. I wonder if you could go back to Global Marine as well, I wonder if you could expand upon or offer a little more color as to sort of what surprise you that actually you exceeded sort of the internal projections, if you will? Was it really the return into the power market? I think you've said on the last call that you expected 2017 to be somewhat soft on the telecom install, did the return of that market sort of offset some of that softness and how do we think about that going forward? Is it – obviously, it sounds like a great opportunity set, is that really the growth driver going forward?
  • Philip Falcone:
    Yes, it is in the short-term. I think that is – I think the power, the ability from just the maintenance perspective in the Power segment proven to be a bigger kicker than what we expected. And, of course, HMN had a very solid quarter as well but I think kind of just the combination of the two where we were a bit surprised on the upside was really more in the power sector. And, again, kind of look at the dynamics of what's happening in that business is kind of eye-opening. So we are very, very thrilled with just the fact that we positioned. I like to think that the management team had great foresight to step in and acquire CWind, which positioned us well for that marketplace on both the transportation and maintenance part. So yes, that power segment was very good.
  • Kevin O'Brien:
    Great. And maybe one last question, if I might. Back into life sciences, maybe using MediBeacon as sort of an example. Obviously, you've hit some important milestones and are continuing with additional Pilot work. Wondering if you could refresh what you're thinking might be – I know you had mentioned that there was some JV interests in potentially partnering up. Is it something you might be looking it to be more near-term as it progresses through the additional testing? Or is it more beneficial to sort of wait until a commercial viability is proven before you look to monetize that and I guess, wrapped up in that question is, is there additional funding that would be required for the testing going forward and that sort of precipitates the JV to step in?
  • Philip Falcone:
    One of the key aspects here and it's a very good question because one of the things that we didn't want to do when we looked at building out this area is being the ones who took it from point A to commercial. Because that could be – sometimes be a decent amount of capital and we have to – when we set out in this space, that wasn't the objective. The objective was to be a – I don't want to say an incubator from day 1, but maybe kind of step in early and step in where some of the bigger institutions are not there where their strengths are and kind of take it through one or two phases of development and then bring from a financial perspective, bring a partner into the picture. And that's exactly how were thinking about the business because we don't want to get into a position where we are funding, from a capital perspective, a commercial buildout of our two or MediBeacon. And it has nothing to do with our belief in the product or not belief in the product, it's just the strategy. And I think that's really important to understand that it is not the type of thing, from a capital perspective, that we are going to go down the path. And you know, hopefully from the one of the beauties of the setup we have, is that the financing characteristics of this setup and the structure we have will prove to be valuable to that strategy of finding, negotiating and closing the second kind of – or third stage groups, and they are out there that we'll take – help take it to the next level. Whether that means debt financing, preferred or additional equity is – it depends on the situation. But by no means are we looking at it where, yes, we're going to be the sole capital provider and take these things to commercial because that's not our expertise. That's where their critical and key partnerships come in and we are down those paths with people and, you get – not every device is – you're going to be able to raise capital and that's the kind of inflection point where you take that next step to try again to prove it out or you just say, "listen, this doesn't work" and that's how we think about it but we've been fortunate where the things that we are invested in, we don't have any reason to believe that there is not going to be people lining up on these things. So I'd like to think that that's the case of every investment we make in that area but the nature of the beast, sometimes, things don't turn out the way you want. And that's the whole point of having a diversified portfolio in the healthcare area. Fortunately, these early things that we've been involved with look awfully, awfully exciting. But again, to get to your point is, there are people that kind of step in when certain tests and Pilots are done and that's what they do and we are making sure that we are going down that path and we are doing it exceedingly effectively to really stick to our strategies, stick to the objective.
  • Kevin O'Brien:
    That’s great thanks I appreciate that insight, I think I’ll hop back out and allow some other questions and congratulations on the move up to the next.
  • Philip Falcone:
    Okay, thanks Kevin.
  • Andrew Backman:
    Thanks
  • Operator:
    Thank you, I’m showing no further question in queue. I would now like to turn the call over to Mr. Backman
  • Andrew Backman:
    Great thank you so much Sarah. And thank you Phil and thank you to everyone again for joining us this afternoon. As always our management team is available to speak with you. In fact, we will be participating in a couple of weeks at the B. Riley conference on the West Coast, so if some of you are there, please stop by. Should you have any follow-up questions, please do not hesitate to contact me directly at 212-339-5836. And Sarah could you please provide the conference replay instructions once again. Gave great day everybody.
  • Philip Falcone:
    Thank you.
  • Operator:
    Thank you Mr. Backman. As a reminder this conference will be available to replay beginning approximately one hour after this call. Dial-in for the replay is 1855-859-2056 with the conformation code of 13442870. Again dial-in for replay is 1855-859-2056 with a conformation code 13442870. This includes our call you may now disconnect.