HC2 Holdings, Inc.
Q2 2017 Earnings Call Transcript

Published: 10 Aug 2017

[Operator:]

Good afternoon and welcome to the HC2 Holdings Second Quarter 2017 Earnings Conference Call. All participants will be in 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, Charlette and good afternoon, everyone and I thank you for joining us to review HC2’s second 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 HC2 website again in the Investor Relations section. A replay of this call will be available approximately an hour after the call. The dial-in for the replay is 1855-859-2056 with the confirmation code of 543009287. 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 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 measurements under the SEC rules, such as pro forma net revenue, adjusted EBITDA and adjusted operating income, or AOI. Certain information required to be disclosed about these non-GAAP measures, including reconciliations with the most comparable GAAP measures, is available in the most recent press release, which we filed this afternoon and is also available on our website. And finally, as a reminder, this call cannot be taped or otherwise duplicated without the Company’s prior consent. Now, I’d like to turn the call over to HC2’s Chairman, CEO and President, Phil Falcone. Phil?

[Phil Falcone:]

Thanks Andy. And good afternoon, everyone and thank you for joining us. On the agenda today I'll start with a brief recap of the results for both the quarter and year-to-date, provide some operational highlights from our core operating subs and including our Pansend platform and finish up with Q&A. Turning to Slide 4, highlights and recent developments, as a general comment, I'm pleased that we continue to see the momentum across our platform with which we began the year with several subsidiaries achieving significant milestones and accomplishments. First of all, DBM posted a sequential increase in adjusted EBITDA, maintained a healthy backlog and expects them to remain on track for a solid year and despite some incurring additional costs in the quarter for offshore power inflation repair work, Global Marine also expect to remain on track for a solid 2017, reflecting the strength of its JVs and the high level of short and long-term opportunities across the various market segments including offshore power and telecom. I know we discussed in a little bit more detail what was happening in the offshore power market in the last call. We continue to be very excited about what's happening there. The PTGi-ICS team continues to focus on higher margin wholesale traffic and again posted very solid results this quarter. In addition to delivering its fourth cash dividend to HC2 in as many quarters, as some of you may recall this was a business when we acquired control of the Shell, this was a business that was held for sale and essentially a discontinued operation. It continues to pay literally dividends and has been a phenomenal turnaround for us and we continue to be excited about what's happening there. During the second quarter ANG continued to integrate the Questar and Constellation acquisitions and expanded the number of ANG stations within the nationwide network with the opening of a new station Northeast of Syracuse New York and another in Fayetteville, Tennessee and Dave and Cherine continue to make great progress with Pansend platform, specifically our MediBeacon R2 and BeneVir investments and we will obviously talk a little bit about those as we go through the presentation today. For the second quarter, we posted adjusted EBITDA from our core operating subs of $17.9 million compared to $27.1 million in the second quarter of 2016. This was driven primarily by the timing of some of the large commercial projects in both DBM and GMSL, which I'll discuss in a couple minutes. I think the important thing to highlight here is this is not a slowdown, not a hickup of any sort. We've not changed our internal projections. This is purely timing and we've already seen that start to move back in the proper timeframe with what we've seen in the early part of the third quarter. On a year-to-date basis, adjusted EBITDA from our core operating subs was $45.7 million up 15% as compared to $39.8 million in the comparable year ago period, driven primarily by year-over-year increases in Global Marine's JVs and offset by the timing of certain projects in DBM. As we've said before, given the nature of the diverse businesses within the portfolio and the project-oriented nature of large complex contracts, especially in the two that I mentioned DBM and Global, our results will be lumpy from time to time, but as I just mentioned, we expect to remain on track for a solid 2017. Finally, we ended the quarter with $1.7 billion of cash and investments and $105 million of consolidated cash and excluding our insurance segment and remain focused on adjusting our capital structure and having further reduced our outstanding preferred equity in the second quarter. At the end of the second quarter we had just $26.7 million of outstanding preferred compared to $55 million of total preferred issued when we first did and completed the first and second tranches of that transaction. So, we're happy that we're -- some of the guys there are in conversion mode and whittling that one down, which will of course give us continued flexibility. One important point, at the subsidiary level on a gross basis, we've reduced nearly $73 million in debt and pension liability since the end of the third quarter 2014 which is a pretty good-sized number in looking at our overall subsidiary debt perspective. The bulk of that has come at that Global Marine level, again indicative of the kind of free cash flow that that thing will generate. Turning quickly to Slide 5, again this is how we lay out the portfolio and I'll cover each segment in a few minutes. Moving on to Slide 6, which is a good summary of the adjusted EBITDA for the second quarter and year-to-date, as I mentioned total core operating adjusted EBITDA for the second quarter was $17.9 million versus $27.1 in the year ago quarter. Year-over-year more in detail year-over-year decline was due mainly to better than bid performance on large commercial projects in DBM in the year-ago quarter, specifically Wilshire Grand and Apple Headquarters and the project delays of course of some of these various projects and this is not a delay on our end. It's sometimes these projects take a little bit longer to hammer out and there could be changes on one part of the project, which may or may not slow down the continued erection and fabrication of some of the different things that DBM does. So, it is something that we fully expect and again are seeing that pick up already, but that lumpiness is a function of the project overall and some of it is out of our control. The one point that we have experienced this lumpiness is in relation to the Loma Linda Hospital in California Area in the Los Angeles area, but this project and again the Google project is being ramped up. So, it's something that we fully expect to see the pickup back over the second half of 2017. The early stage and other was down slightly quarter-over-quarter and essentially in line on a year-to-date basis. This is mainly due to an increase in expenses at R2 and MediBeacon and BeneVir offset by a reduction in equity investment losses recorded for our Inseego investment which is now at the insurance company. As a reminder, we typically fund the Pansend companies based on critical milestones such as FDA approval, successful clinical studies or other strategic milestones that are the Pansend companies then use that funding to further scale operations as appropriate as evidenced by the increased expenses for our two MediBeacon and BeneVir, all of which three achieved critical milestones over the past several quarters. This is an accounting treatment that we started to give people a very what we felt was a very good understanding as to what was happening as it relates to our exposure with some of the companies. This is not necessarily -- these expenses are not necessarily cash out the door for us on that particular time. It's just the way we've accounted for these expenses and believe that as a way for a consistent approach, so people don't see one accounting structure and strategy one quarter and another strategy and accounting structure in another quarter. Wanted to continue with this approach to be consistent across the Board. Non-operating corporate was slightly higher in the second quarter; however, we remain on track for approximately $25 million of nonoperating corporate for full-year. We closely watch that and make sure that we are in line with our internal expectations and you have to understand that we are a growing business and we will continue to -- at the same time however continue to make sure that these numbers are -- that we're crossing the tees and dotting the eyes on these numbers. So again, they're well within our internal numbers and we're comfortable and confident that we will keep these on track and make sure that we're balanced on the pluses and minuses as it relates to the nonoperating corporate expenses. Just turning quickly to Slide 7, the DBM Global, overall a pretty good quarter for DBM with adjusted EBITDA coming in at $11.1 million versus $8.6 million in the first quarter of this year and $13.2 million for the year ago second quarter. On a year-to-date basis, adjusted EBITDA was $19.7 million versus $24.7 million for the comparable 2016 year-to-date period. Again, due to primarily to delays associated with various design changes for Loma Linda and to a certain extent Google, the Google project this year and the better than bid performance on the Apple Headquarters in Wilshire Grand in Los Angeles in the year ago period. And despite these project delays, which create longer revenue burn or longer revenue stream as we move into the third and fourth quarter of 2017, DBM's expectations for the full year 2017 have not changed and we are quite frankly encouraged by not only the current initiatives but by the robust long-term pipeline of opportunities as we -- as we will discuss in a second here. The backlog continues to perform in line with what we've expected here and as we reported earlier this afternoon, DBM posted $590 million in backlog and over $800 million in what we call the adjusted backlog, taking into consideration awarded, but not yet signed contracts. So, these are two numbers again that are exceedingly strong and clearly give us very good visibility and in what we're seeing at DBM. Russel and the team continue to see a large number of opportunities in the commercial sector totaling more than $400 million in potential new projects that could be awarded over the next several quarters, which are clearly not reflected in the $590 million backlog with $800 million adjusted backlog for the second quarter. These projects include new sporting arenas, stadiums, as well as new healthcare facilities, some commercial office buildings and convention centers including a number of planned and potential projects in Las Vegas, where DBM has had typically a very long and successful history having constructed either entirely or in part over 30 hotels and casinos convention centers, retail centers etcetera. So, things continue to do well and continue to move in the right direction. In that area, these are again very big projects and they're very well-funded, which is also a very, very key thing and very important thing. They're not small minuscule projects that that could disappear. They are a very large projects which quite frankly, DBM has a reputation of dealing effectively and quite frankly performing in an outstanding manner. Turning to Slide 8 the Marine Services division which obviously is Global Marine. For the first six months of the year, Global’s revenues and adjusted EBITDA were up 23% and 62% respectively over the same six-month period last year, and despite higher offshore power installation and repair cost, incurred in the second quarter this year as the company built market share in this key area of growth. Adjusted EBITDA for the second quarter is 3.6 versus 16 in the first quarter, and the first quarter quite frankly was one of the GMSL's best quarters since our acquisition and this again is versus $11.8 million in the year ago second quarter. Just a little bit more detail on sequential and year-over-year variances, it was primarily due to higher costs associated with to offshore power and installation repair projects in the second quarter as a result of challenging site conditions weather et cetera. Very strong prior period JV performance in particular Huawei Marine as well as higher underutilized vessel and mobilization costs in the first half of this year associated with Global’s newly leased installation vessel the CS Recorder. When we made that acquisition essentially, we believe that one, it was a phenomenal, it would put the company in a phenomenal position, we continue to believe that. There were certain costs and upfront costs that you would normally incur in acquiring and doing a transaction like this. So, this is not unique for us or for quite frankly anyone in that industry and it’s not unexpected. As I mentioned, we expect to partially recover our offset some of the offshore power costs incurred in the second quarter throughout the balance of this year, but needless to say it's not a hiccup or anything like that. We are well on track to - the team is well on track there to performing in line with what we fully expected for the year. On a year-to-date basis, Global’s adjusted EBITDA was $20 million versus $12.3 million for the comparable year-to-date period due period in 2016. And this is primarily due to the higher JV income and a one-time telecom charge taken in the first quarter of 2016, which was a charge that we took if people recall of approximately $5 million. Of which we did recoup later a portion of that later in the year. It's a little bit different from an actual expense perspective this year. However, we do again fully expect to recover a good portion of that that we charge that we took in this next quarter. But overall, I think we’re very happy and clearly very happy with what these guys are doing year-to-date and are really performing as we had hoped and as we always believe they would. As I mentioned earlier there can be significant lumpiness and results given the project nature of both DBM and Global. But despite this lumpiness Global posted a 62% increase year-to-date adjusted EBITDA and we are very pleased with what we’re seeing. Turning quickly to the backlog for Global, at the end of the second quarter Global’s backlog was $328 million. This is essentially in line with the $332 million at the end of the first quarter with a nice increase in the CWind backlog and that was the acquisition the company had made over a year ago. In addition, telecom installation backlog at HMN, the JV achieved yet another record level in the second quarter with project wins in Southeast Asia. This has been a very pleasant surprise for us and that unit continues to perform and quite frankly considering Huawei and the 51% owner there. It's not surprising, but it's been a pleasant surprise if I may say of how strong the numbers have been there and about quite frankly the potential as you see, as you look at what's happening with that business. We clearly see have some good visibility there and think that there is continued very value-added projects and business and continued growth in the backlog that we expect. We continue to believe that globally remains well-positioned for both short and long-term telecom and clearly offshore power installation and maintenance opportunities. As I mentioned on the last call, we believe there's tremendous opportunity in the offshore wind market, which is offshore power with an estimated 50 plus gigawatts of additional global capacity to be added to that market over the next 10 years. Specifically, approximately 3 gigawatts of capacity to be installed each year in the European market alone with approximately 12 gigawatts currently in development and permitting for delivery by 2020 and additional 15 to 20 thereafter from 20 to 25. Why I mentioned that is a very important and a key part of our growth. That is a market that we had as I've explained from time to time that there was a non-compete associated with it. So, it is a new business line for us since we acquired the business we feel like with the acquisition that has put us on a pretty good -- pretty good line of sight to start building up that business and we’re seeing that take place, probably quicker than we expected. So, we really, really excited about Ian and Dick. Are very excited about what they're seeing in that part of the market and looking at opportunities as well. on the acquisition side that we can further expand and potentially expand into that market. If you look at the capacity that I was talking about if you add that capacity that the 12 gigawatts that's a currently in development permitting for delivery and add to this an additional 25 gigawatts expected in the APAC market over the same period. You can kind of see why we're so excited about it and the opportunity set and you know this is not a business that, that you can just enter overnight. These are massive projects; offshore and Global Marine is quite frankly well positioned and as the right experience to capture some of these projects and we’re seeing that happen in the marketplace today. Turning to Slide 9, American Natural Gas, at adjusted EBITDA for ANG was $1 million for the second quarter as compared to $500,000 for the year ago quarter, and $2.2 million on a year-to-date basis versus $900,000 for the comparable 2016 six-month period, both driven primarily by an increase in the number of fueling stations owned and/or operated. The ANG team continues to integrate the 18 stations acquired from Questar and Constellation, while at the same time focusing on increasing CNG volumes that exist in stations and expanding the geographic footprint through worth both organic and strategic M&A transactions. During the second quarter ANG delivered approximately 2.8 million gasoline gallon equivalents versus 828,000-gallon gasoline equipment equivalents in the year ago quarter. This integration which is moving along as taken some time, one of the things that I think Drew West and team are quite frankly noted for is, how meticulous they are in operating the stations, which not surprisingly is a very critical part of getting quality business. You don't want these trucking companies to show up in the morning and not be able to pump gas because there's no -- it's not like and there are alternatives where they can go across the street, which is quite frankly the part of the attractiveness of the business. So, the operating aspect is very key, very critical and the integration they're just making sure that they are crossing the Tees and dotting the eyes and is going quite frankly quite well. Will take probably another quarter before we really see the kind of numbers to kick in and the real ramp-up that we expect and expected to see also we will hopefully see some incremental impacts from certain renewable energy credits i.e. that the ring market and BETC space which have yet to be renewed implemented, but we remain optimistic there and remain very optimistic about the long-term earnings potential of this important business within our portfolio. And just one quick point on this company when you think of this business it's delivering and I mentioned that we delivered approximately 2.8 million gasoline gallon equivalents the EBITDA contribution and the cash contribution to incremental volume on this business is really the exciting part. As you think about total if you assume on we rounded up basis, we did 3 million GGEs for the quarter and annualized that. It's obviously 12-million-gallon gasoline equivalents for the year. From a capacity perspective, we're very well in position where we could do 60 to 70 million. So, think about the EBITDA and the positive EBITDA at this capacity level that we're at right now and the expansion there and it's one of the having that platform and having the infrastructure and proving that we can make money at these volumes is quite frankly speaks volumes of the potential in this business. So, we continue to be very excited as to what's happening there. From a station perspective, as announced last week, ANG held a ribbon-cutting ceremony and unveiled its new public compressed net gas station in Fayetteville, Tennessee. This facility will be open to the public and Pepsi's Frito-Lay division, which will be a major customer with its fleet of CNG tractor-trailers. In addition, as announced last month ANG opened a new station Northeast of Syracuse to meet regional demand for high-performing, easily accessible CNG fueling facilities for the region's heavy-duty and long-haul trucking fleets. Again, this is for the commercial market. These are primarily Class 8 trucks and these are trucking companies like Frito-Lay, a distribution company that are out in the morning, back at night, so on and so forth. So, when you see companies like a Frito-Lay, moving into this market, they're doing it after studies that they've conducted and see the opportunity the opportunity there from both a cost savings perspective as well as a potential tax credit perspective and equally important is from an emissions perspective. So, there's clearly a lot of wind on our back here in this industry. It takes time, but the fact that we are now up at over 40 natural gas fueling stations and these include a couple that are under development in 15 states, up from one or two when we first got into this business, has been -- this has been a very exciting industry for us and we continue to be huge believers in the potential here just on the 40 stations alone and the building up of additional volumes at these stations will clearly drop a big chunk and a nice chunk to the bottom line. So, keep an eye on that sector and in that industry and I think you'll be pleasantly surprised. Just moving quickly to Slide 10, as I mentioned this -- the PTGi-ICS business, adjusted EBITDA was $2.2 million for the second quarter versus $1.5 million. On a year-to-date basis, adjusted EBITDA was up $2 million at $3.8 million versus $1.8 million and the second quarter marked the fourth consecutive quarter in which PTGi paid a cash dividend HC2. Fantastic work by Craig and the team during the quarter and the year so far and look forward to additional progress as they continue to build on their strengths and look for various other growth opportunities and strategic initiatives. Quickly on to the CIG business, the insurance business, overall a good quarter for CIG with topline results being driven primarily by the higher net investment income as a result of premium collections and higher premiums due to continued implementation of rate increases, which I think is a very nice positive thing to see in the marketplace. Premium growth from rate increases was offset by the acceptance of contingent nonforfeiture options from policyholders in lieu of rate increases, but these forfeiture elections drive some reserve release which resulted in a lower net reserve build for the quarter. Looking at the platform as of June 30, 2017, CIG had approximately $2.1 billion in total GAAP assets. Approximately $69 million of stat surplus and $79 million of total adjusted Cap. Our RBC ratio as of the end of June again exceeded 400% which is our agreed to minimum with the Texas regulators. We continue to strengthen our regulatory relationships and continue to see a beneficial shift in the environment, which we continue to believe will provide a tailwind for the company's planned rate increases. As we discussed in part in the last quarter, we've been successful in obtaining rate increases in excess of our plan, which we continue to implement in the second quarter, which had a positive impact on our operating results. Just as an aside, one of the key things for this business is scale and we continue to pound the pavement to make sure to look at other opportunities of increasing the exposure here and we have been quite frankly knocking on a lot of doors, but taking our time. So, we fully expect that we will continue to try to turn over as many rocks as possible, but I think overall the business is performing along the lines of what we expected and I think you will see that as we build the overall asset base here, you will continue to see the positive and larger contributions to what the insurance business can do for the overall structure. Turning to Slide 12 and Pansend, companies in Pansend portfolio continue to achieve strategic milestones during the second quarter. Specifically, R2 received its second FDA approval for the second-generation device, the R2 Dermal Cooling System. As a reminder, the Dermal Cooling System is intended for use in dermatologic procedures for the removal of lesions of the skin including skin lightning and skin evening, which is an approximate $20 billion marketplace. The modifications to the initial R2 device which received FDA approval last October will improve the usability of the device, for example, reducing the steps required by the user for set up of the system and treatment and to make it more commercially appealing. R2 continues to garner feedback from key opinion leaders in the space and remains on track for commercial launch late next year. This is as I mentioned, a commercial aspect, this is not the type of product that’s going to be sold in retail stores at least today. This is a device or machine that will be sold in the dermatology offices and the feedback has been fantastic here and it will comes down to the product working. And the pedigree as it relates to who, what, where, when and why on this project, I think is second to none and without going into detail this is the same group that had developed and built out the product that is called cool sculpting in this project and this product, albeit quite frankly are a bigger market is an somewhat of an offshoot from that. But the same pedigree. So, it is a quite frankly the real deal. In addition, BeneVir which is a biotech company developing oncolytic immunotherapies for the treatment of cancer announced during the second quarter that it had received a second patent for the Stealth-1H, which is BeneVir’s leading oncolytic immunotherapy as well as other platform assets. This patent further strengthens BeneVir’s product development program and protects its product platform through 2032. BeneVir plans to bring Stealth-1H into clinic next year and accelerate the preclinical 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. It's a mouthful right there, but that's the business, I guess the simplest way to try to explain what the basis is on this oncolytic immunotherapy. It’s really to partner with a checkpoint inhibitor to essentially treat cancer. And as I have said and as I talked about, we’re one of the things especially in Pansend that is very key for us, is the pedigree and understanding who is behind these products and who has developed and built and been involved in the patent et cetera. And again, with this particular situation there is really a very exciting story behind who is behind - who has developed this and the individuals are quite frankly second to none. As I said on last quarter's call, key milestones like our two second FDA approval BeneVir’s news Stealth-1H patent and the successful completion of MediBeacon's Pilot 2 trial in the first quarter of this year has attracted significant interest from third parties interested in these groundbreaking technologies. You know the interesting thing about these projects and products is some of the big strategic you want to see development and are not necessarily incubators of these types of devices or products or so on. And as they move down the path toward commercial - commercialization then the strategic start getting more interested and that’s to many of you that's not surprising. But the fact that we have been involved in these three specifically and the developments in the past and the process behind it and the move forward has really been very exciting and quite frankly has brought in a number of - have received a number of incoming phone calls as a result. And while there's nothing to announce today, we are on very pleased with what's happening here and look forward to some additional key milestones in the coming quarters and additional developments on one or more - with one or more of these companies and investment. So, very exciting about what’s happening here. We clearly did the right thing by moving into this area a few years ago, and I think people will be pleasantly surprised with the progress and with the potential with some of these different commercial items or the items as we get closer to the commercialization and that's really what it's all about for us and I think the important thing is, we realize that it would and has taken a little bit of money to get them to the stages. But it's not the Indiana our objective to build out something from the complete soup to nuts comfort commercial aspect, and I know a number of you have asked the question from time to time. But there is and there has been a specific method and a specific strategy as it relates to these. And quite frankly, we are on the right path and have done I think a great - have made some great progress on these three particular companies. So hopefully, we'll have some additional exciting news over the next number of months. Just turning to Slide 13 some notable financial and other updates, given the value of the HC2 portfolio we again continue to exceed two times collateral coverage and under our 11% senior secured notes, excluding our insurance segment consolidated cash was over $100 million at quarter end with approximately $56 million at the corporate level. During the second quarter, we received $11.5 million in dividends and tax share from DBM and PTGi, further reduced the cumulative outstanding of our convertible preferred to approximately $26.7 million from $30 million at the end of the first quarter 2017. During the second quarter, we completed a $38 million private placement of 11% these notes were issued at an issue price of $101 and continue to move up and trade higher in the market. As I've said before and as I continue to focus on internally is we look for ways to continue to improve our capital structure Optimizer liquidity, while balancing accretive acquisitions that had the overall value of the of the portfolio. The ultimate goal here and I don’t want to say ultimate goal, but it's clear we want to reduce our cost of capital and we fully expect that with certain things that are happening and that we’re doing that. We are well on track to doing that. You know we have been - we did make a small enter into a small transaction that in the second quarter. It's really a series of transactions that needs approval by the FCC but will result in us owning over 50% of the common shares of DTV, which is an aggregator and operator of low-power televisions television stations. We are continuingly, I should say we're looking at a lot of different things, but we don't want to overpay and as I've always said you know you really make you money on the buy and where will we just don't want to be aggressive for the sake of being aggressive in building our top line. We don't feel like, we need to do that. We’re not going to do that. We’re being very opportunistic and we are just talking about it today that, that patients we will be rewarded in the end. We’re looking opportunistically at - will there be another platform, if we can find the right platform and if we can buy it up and getting at the right-hand valuation. Yes, we will also continue to look at acquisitions on the platform level, which is where we can be a little bit more strategic and really buy, quite frankly with the strategic hat, with our strategic view in mind where we will be able to capture certain synergies. So, we continue to scour the landscape, but we’re being patient and this focus on the low power is vision stations is something that we've been looking at and I personally been looking at for an awful long time, very interesting exciting part of the business and look more -- will look forward to discussing more in detail and how this develops as we move forward. It’s not a large investment for us right now, but we -- it doesn't necessarily mean it's not going to be an important one for us and from a value perspective. So, as we move forward, we’ll clearly keep people abreast of what's happening in that. But we’re being patient and again it's all about not overpaying in scouring the landscape and looking for the right opportunity set. So, in summary, I am very proud of the dedication and hard work of the management here and how we really continue to be focused on building on our strategy and building out our strategy and being patient, and clearly the performance is starting and has been increasing and will continue to move in the right direction. But the year-to-date performance in the first half of this year is we’re very pleased with and look forward to many more such milestones going forward. So, with that, let's move on to the Q&A, and if anybody has any questions hopefully we’ll be able to give you some insight on some of the different things that you may have on the table for us today. But thanks again for taking the time. And let's now move on to Q&A.

[Operator:]

We would now begin the question-and-answer session. [Operator Instructions] And it looks like our first question will be coming from the line of Sarkis Sherbetchyan from B. Riley & Company.

[Sarkis Sherbetchyan:]

Thanks for tasking my questions here. Phil, can you talk about the lumpiness in the business. I know you mentioned this as you are going through the results and obviously, it's really hard to look at a project based on a quarter-to-quarter basis. So clearly good backlog growth in the businesses. So maybe if you can give us a perspective on what you're seeing in both Marine Services segment and construction. And just kind of what gives you right incremental confidence of making up for the balance of the kind of numbers in the back half of the year?

[Phil Falcone:]

Well, the reality of it is, when you look specifically at EVM, when you are building, when you are evolved in the development and building of a project like a stadium or Loma Linda Hospital. The size of that project typically doesn’t get smaller, it gets larger. The lumpiness aspect is a function of maybe a something in relation to a design change or a weather related as it relates to Global Marine. But the size of the project doesn’t change. Clearly the timing of implementing a certain design change that maybe not in our realm will lead to us not building or erecting maybe the 35 floors, 45 floor and then will in the second half of the year as that change was implemented on something glees project, then our part, again kind of picks up a bit. These are massive projects and they typically don’t change in size going the opposite way. They typically increased with various changes that the contractor or the sponsor, developer will implement. The easiest aspect as it relates to Global Marine could be weather related. When you are building an offshore power unit, you got the contract to built it, if the weather is not in line with what - how you can operate how you can build. It might delay you for a week or two weeks or three weeks or four weeks. So, it has to then size of the contract doesn’t change as a result. It’s just really timing related. Again, that’s the kind of lumpiness that you and that is typically seeing in these bigger projects. It’s not like half way through, they decide, they don’t want to finish the building. That’s the critical part, it’s typically design changes as it relates to DBM or whether related as it relates to Global because these are sometimes very harsh weather conditions, which can result in delays over a week or two weeks or three weeks.

[Sarkis Sherbetchyan:]

That’s helpful. And it certainly sounds like the backlog is building. So that’s good to see there. I guess next if you can maybe switch gears and talk about the life sciences division. Obviously R2 received clearance for the gen 2 device as you mentioned and BeneVir received the Stealth-1H patent. So, maybe if you can give an update, right, like what are the major milestones we should be looking for these assets next. And maybe how you are thinking about kind of the funding, I mean you did mentioned some strategic enquiries, some inbound calls there. So, any kind of updates on value creating or realization events in the portfolio alongside some new milestones?

[Phil Falcone:]

Sure. Well, I can’t go into detail with regards to who we’re actually speaking with or what we’re doing on that end. But I think it’s before understand that from a committed capital perspective, we don’t have - clearly, we want to sponsor, we want to the proper sponsor and the right sponsor for these projects. But at the same time have to make sure that, we are balancing our internal budget and making sure that we have the appropriate resources. So, while we look to and think about the - getting these things commercial, it has not been our objective to fund the all the way through. If you look at the projects now, I don’t believe we have a tremendous amount of committed capital that we have to put. In fact, [Mike] is giving me the zero sign that, we essentially don’t have to put any additional capital into these projects. That being said, if we believe that there are multiples from a return. We want to be good sponsor. We are very excited about each of these projects. We have been involved in each of these projects now for quite some time. There are either big enough projects where I think from a strategic perspective, it’s in our best interest and the shareholders best interest to look at the opportunity set of bring on a strategic and having them take it from point C to point D, E, and G, while we were there from point A to point C. And that’s how we kind of think about this business and that’s how we structured it, so when I think about our two for instance, we funded, we’ve been involved. We have been, David and Cherine have been very involved in day-to-day activity here. And the objective with this particular device would get it to a point where it works and is bundled and is approved etcetera and the look at the opportunity set kind of the stage three or four level of okay, who is the right partner and how can we best create value in the long term and that's how we're kind of thinking about it and the progress that we had in each of these whether it's BeneVir, whether it's R2 or MediBeacon specifically, we're now at a stage where these are very well advanced. These are beyond the incubation stage and to a point where we know they work. Once you kind of know they work is when you start thinking strategically and we are doing that on all three of these and there have been a number of incoming from very credible I want to say extremely credible, strategic on each of these projects because they are not small and could be even for the sizable entity, bottom-line contributors for serve the strategic. So, we're taking our time. We're fielding holes. We've day rooms set up. We are making sure again that we're thinking about this in terms of trying to extract the right value, the right not only whether it's an upfront payment, but stream of revenues etcetera because we know what we have and these are things that we're believers in and not looking to dump that any product, put it that way. So Dave and Cherine have their hands full with working with management and making sure that everybody is on Board and between AC2 Dave and Cherine and existing management of these subs, that we're all on the same page and I think the working relationships have been fantastic and I guess when you have projects in products like this that progress like they have, it makes it a whole heck of a lot easier, but while we can't report on anything today, we're looking at I don't want to get people from a timing perspective, but there is real value in the air and we're taking our time to make sure things are done properly. That's a kind of a long-winded answer to your question.

[Sarkis Sherbetchyan:]

Yeah, that's extremely helpful, one final one for me and I'll hop back in the queue, just regarding the…

[Phil Falcone:]

Charlette, next question please.

[Operator:]

Our next question comes from the line of Kevin O'Brien from Jefferies. Your line is now open.

[Kevin O'Brien:]

Hi. Thanks for the time. I wonder if you could -- if we could go back to Global Marine for a second, I understand from the DBM construction side, lumpiness in the business where a design delay might eventually lead to growing the project, the change order may come in may be higher than the original bid. I am trying to understand on the Global Marine sides, you had two projects that had some cost overruns, whether or not it was due to weather, or whatever those specific items were. How do the contracts actually work and how confident are you that some of those overruns or some of the unforeseen costs can actually be sort be recouped in future periods? Can you hear me?

[Operator:]

Ladies and gentlemen, please remain on the line. Your conference call will resume momentarily. You may resume.

[Phil Falcone:]

Thank you. Kevin, we heard part of your question. If you can queue back up please real quickly and you would love we want to make sure we answered your question. So, we'll pause for two seconds so you can queue up. Charlotte look for Sarkis please. He should be in queue right now.

[Operator:]

Sarkis, your line is now open.

[Sarkis Sherbetchyan:]

All right. Thanks for the color on the prior question. Just real quickly on the DTV America assets, maybe if you can give us the rationale of acquiring those assets. I think you paid about $18 million for the transaction. Is it cash flowing today? Is it going to be a platform that you can kind of build off of. Any incremental thoughts for us to get a better understand. Thank you.

[Phil Falcone:]

Yeah as I mentioned, it's a small acquisition for us. It is an operating business, which is something that we wanted to focus on. There is a platform there. We felt like it was undervalued. There is a possibility to build on it, but we're crossing the tees and dotting the eyes, but we do think that have a -- that we got in a pretty attractive entry price there and it's not something that I want to go into too much detail on right now because clearly it still means that you see approval. But we see an opportunity set and an opportunity set where there is not a real CapEx like building out a telecom, wireless telecom network or anything like that. We like their underlying business and as I mentioned they're operating and probably could be a bit more efficient, but I think overall, we've done it at the right price and like the valuation and very pleased with the diversified asset that the company has built in their previous history.

[Sarkis Sherbetchyan:]

All right. That will be all for me. Thank you.

[Phil Falcone:]

Thanks, Sarkis.

[Andrew Backman:]

Charlette, are there any other questions in queue right now?

[Operator:]

At this time, I am not showing any further questions in the queue.

[Andrew Backman:]

Okay. Thank you, Charlette and thank you Phil and Mike and everyone for joining us today, Charlette, I just saw Kevin queue up in queue. Can you let Kevin O'Brien in from Jefferies please?

[Operator:]

Certainly. Kevin O'Brien your line is now open.

[Kevin O'Brien:]

Thanks. Did you actually get any of the other question as it came through prior or shall I reask?

[Phil Falcone:]

No Kevin. Just do it again. Thank you.

[Kevin O'Brien:]

Yes. Okay. So, the question was really revolving around Global Marine. I can understand and seeing some of the lumpiness of the business from the construction side where design delays may push things off from a timing basis into third quarter or future periods, I also understand that generally that may come back as a positive with a change order leading to something that's better than the initial bid. I am trying to understand a little bit better the lumpiness in the Global Marine side of the business and what to expect going forward if weather it is such a variables? How are contracts set up for things or cost overruns that you saw in the two projects? How confident are you that you can recoup some of those costs over future periods, just to try to understand how to view that business going forward?

[Phil Falcone:]

Okay. So, let me answer the first part of your question as it relates to lumpiness. Again, you have to think about this is whether you're building a stadium or an offshore power unit, while they're different, they're the same in terms of the size and the scope of the project and the timing, there may be a different construction keys where we're not involved in where they may have slowed down for any one of the number of reasons, or there may have been a change with one of pieces or one of the designs or the products being ready for installation. Again, something that's related to the project, but essentially out of our control. No different than building a stadium albeit once in the offshore, one is onshore. So, you have to think about it like that and then we have the other dynamic of whether and depending on where you are in the world, these are not projects that are qualified offshore. They can be in pretty rough weather and which makes the business and that part of Global that much more valuable because you have to have that expertise to be able to operate in those type of environment. So, the combination of he two will make spread things out from three months to six months or three months to a six months to eight months depending on the other participants in the construction aspect or I don’t want to say to a lesser extent. But they are both - with the weather part of it. So, that’s not new and again, you see these are very well funded projects. They just completed. They may take more time, they may increase in size, but once they are started, they typically get completed and that’s quite frankly the beauty of it. So, albeit, it’s different from a characteristic perspective between DBM and Global similar from a scope perspective. As it relates to the ability the global to extract that certain cost associated with the project. It’s I don’t want to say typical, but if not a typical and we’ve seen history will tell us that, we have again project. There is and that has been a history of being able – if there is a cost issue with some particular project of extracting that over the time of project. We have I think a very conservative theme that bids on contracts based on profitability not on top line. This is an expertise that these guys have built their careers around and that’s something from a historical perspective that the company just been successful in doing and they are quite frankly they are not material charges to begin with or material expenses to begin with. But kind of miss and match here and there, that we may get in last year we got it in the first quarter and extracted it back over the remainder of the year and this year from the second quarter and believe that will get it back over the next six to eight months or a good chunk of that size. So just from a history from a relationship perspective from an expertise perspective, that’s tend the rationale for why we are thinking, we were thinking. It’s just an experience that, positive experience that we have.

[Kevin O'Brien:]

Wondering if I could just chime in one more and switch gears back to the energy side. I think you had mentioned, if you were to look at this quarter’s performance on a GGE basis and annualize it out to $12 million. You mentioned that you have the capacity to potentially do $60 million to $70 million. What’s the pathway to get towards that great volume? Does it have to come from organic growth, is it more the growth. As you are seeing here with the facility in Tennessee, that it’s next to a large commercial contract or commercial operator. I guess as part of that, with Pepsi, Frito-Lay. Is there actually a contract involved with that station or is it just location based volume growth?

[Phil Falcone:]

It’s primarily contract, and clearly, these are big moves for some of these companies. And they kind of master suite and they don’t change over there and tighter fleets overnight. This is very strategic for these guys. When you about our stations, it’s creating an environment to get their truckers in and out as quick as possible. So, the sizing of the lanes is very important. The speed and the efficiency of the pumps are extremely important and these are things that the underlying distributor thinks about because time is money and we’re not selling potato chips and coffee. The big distributors like to think about it as time, time is money, is efficient and is fast, so they can get and get out. That is -- that means that they are that much more productive. But from a capacity perspective, again, these guys, these stations are in distribution centers, they are strategically located. They are typically contract associated. But before you - if you are delivering you know the product to Frito, you have to make sure that you are, things are running smoothly and you’ll see over time, volume pickup. And the volume pickup will be primarily organic as it relates to the existing distributor. But there is also the opportunity set is as more and more of these distributors and trucking companies convert, that’s all kind of I don’t want to say that, but there are people that are using the site now that we didn’t expect just by virtue of the location of some of these facilities. So you got the growth from the underlying contract and from the growth, we expect growth in - with the underlying distributor and then you have the kind of one-offs that will come and utilize the facility as they get to understand and see that it operates and it works. By the way ones, you have the station, and our strategic, and you can go out to the start marketing it and go to the number of other trucking centers. That’s why the growth opportunity is really tremendous in this area. If you think about the number of stations, from compressed nat gas perspective, versus the number of depot stations. The number of depot stations is just magnitude is versus the compressed nat gas station is no comparison. So from a growth perspective, there is I guess you could say inorganic growth of stations that we don’t have taking it from 40 stations to, even if we had 100 stations. We wouldn’t be making it dense in the diesel market and we are on the top three or four right now, which I think the largest pure play competitor maybe as 60 to 70 stations. So, we’re right there and we’re seeing nothing but growth opportunities in this marketplace. And there will be the building of the stations, but just from the reality of it is, even with the 40 stations because of our capacity capability is massive growth with just 40 stations that we have. So, there is a kind of a dual from perspective here that if you think that you can think about from a growth perspective, it’s not only going and getting Q4 capacity, but also growing the number of stations which is also very important to us. And if you are affected with a Frito-Lay, it’s not like they have one distribution centers. They got centers all around the country. And that’s just one group and as long as the economics are there and the economics are so, they are right there in front of you today. It’s just you know takes time for people to get comfortable and to understand the dynamics. But if you were a trucker, you want to bid us.

[Kevin O'Brien:]

That’s great. I really appreciate that insight. I will take it back to the queue, if there is any other questions.

[Phil Falcone:]

Kevin, thank you.

[Kevin O'Brien:]

Okay. Thank you.

[Andrew Backman:]

Kevin, thank you and thank you everybody for joining us today. Thank you, Phil and Mike again. As always, our management team is available for some follow-ups should you have any follow-up questions, please do not hesitate to call me directly at 212-339-5836. Charlotte, could you please go ahead and provide the conference call replay instructions once again. Thanks again, everyone and have a great night.

[Operator:]

Thank you, Mr. Backman. As a reminder, this conference will be available for replay, beginning approximately two hours after this call. Dial-in for the replay is 1855-859-2056 with the conformation code of 54309287. Again dial-in for the replay is 1855-859-2056 with a conformation code of 54309287. This concludes our call. You may disconnect.