HC2 Holdings, Inc.
Q3 2016 Earnings Call Transcript
Published:
- Operator:
- Good afternoon. And welcome to the HC2 Holdings Third Quarter 2016 Earnings Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this call is being recorded. I would now like to turn the conference over to Mr. Andrew Backman, HC2's Managing Director of Investor Relations and Public Relations. Please go ahead.
- Andrew Backman:
- Thank you, and good afternoon, everyone. And I thank you for joining us to review HC2's third quarter 2016 earnings. With me today are Philip Falcone, Chairman, President and CEO of HC2; Michael Sena, our Chief Financial Officer; and Keith Hladek, our Chief Operating Officer. This afternoon's call is being webcast on our Web site at hc2.com in the Investor Relations section. We also invite you to follow along our webcast presentation, which can be accessed on the HC2 Web site again in the Investor Relations section. A replay of this call will be available approximately one hour after the. The dial-in for the replay is 1855-859-2056 with the confirmation code of 4088236. 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 that are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain assumptions and risk factors that could cause HC2's actual results to differ materially from these forward-looking statements. The risk factors that could cause these differences are more fully disclosed in our SEC filings. 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 attempt or obligation to update or revise these forward looking statements, except as required by law. During the call, management will provide certain information that will constitute non-GAAP financial measures under the SEC rules such as pro forma net revenue, adjusted EBITDA and adjusted operating income, or AOI. Certain information required to be disclosed about these non-GAAP measures, including reconciliations with the most comparable GAAP measures, is available in the most recent earnings press release, which is available on our Web site. And finally, as a reminder, this call cannot be taped or otherwise duplicated without the Company's prior consent. Now, I would like to turn the call over HC2's Chairman, CEO and President, Phil Falcone. Phil?
- Philip Falcone:
- Thanks, Andy, and good afternoon everyone, and thank you for joining us today. On the agenda today, I will start with a brief recap of the results for the quarter, provide a few operational highlights from our core operating subs, and then finish up with Q&A. So if we could turn to the slide number four, as a starting point today, it's the third quarter highlights and recent developments. Numbers are pretty self explanatory here, very exciting first quarter. We continue to be very pleased with the performance on each of our operating subs, as well as insurance. And very excited about what's happening, and the momentum that we have in each of these entities. Adjusted EBITDA across all of our core operating subs was up in this third quarter, both year-over-year and versus the prior quarter. During the quarter, we saw some very solid performance in our manufacturing segment, due largely to strength in the West Coast region. We saw increased performance in Marine Services with an uptick in Telecom and offshore power installations, as well as in maintenance and continued strong performance from our JV's, which we are very pleased with. Continued growth in the scale and depth of customer relationships and telecommunication segment is driving that; sub and continued execution of expansion strategy and increased volumes of gasoline gallon equivalent delivered in the utility segment. Adjusted EBITDA from our core operating subs, which includes the manufacturing; which is, DBM Global; Marine Services, of course, which is Global Marine; the utilities, which is ANG; and Telecom, which is PTGi, totaled $31.5 million in the third quarter versus $27.1 million in the second quarter, and up 16% quarter-over-quarter and up 23% versus a year ago quarter. So very, very strong performance in each of these operating entities. Consolidated cash, cash equivalents and investment were $1.6 billion at the end of the third quarter, which concludes our Insurance segment. Consolidated cash, excluding our Insurance segment, was $93 million as of September 30, 2016, with approximately $30 million at the corporate level. As we continue to focus on our capital structure, during the third quarter and subsequent to the quarter end, we've reduced our cumulative outstanding balance of Series A, A-1 and A-2 preferred, to just underlying $30 million from approximately $53 million at the beginning of the third quarter. Increasing our overall flexibility, we got a lot of questions regarding the rationale behind trying to do that, and trying to move forward to clean-up that part of the capital structure. And quite frankly, we want to continue focusing on it. It is really important for increasing our overall flexibility, not only at the holding company but at the operating sub. So, reducing that number by over $23 million was and continues to be a big plus for us, and we'll continue to focus on this going forward to try and improve our overall flexibility on the holding company and the operating subs. So, let's turn to slide five. Again, just a quick snapshot of our segment overview. I don't want to spend too much time on this. As hopefully most of you know what we are all about and where we are focused. Of course, we continue to look at a number of different situations, both tack-on acquisitions for each of our subs, and we were successful in both the Manufacturing and the Marine Services so far, as well as ANG buying some stations. And continue to look for opportunities to expand the platform to silo number five, if I may say; continuing to focus a lot on trying to find a good fit, from a capital structure perspective; and of course focusing on companies that we believe will generate positive cash flow. And that's a continued focus of ours, and a core focus for how we're thinking about the business going forward. Turning to slide six, a quick snapshot of adjusted EBITDA for core operating subs. As I mentioned, the adjusted EBITDA from the core operating subs is $31.5 million for the third quarter versus $27 million in the second quarter; $12.7 million in the first quarter and $25.6 million in the prior year-over-year quarter. So, nothing to be disappointed about here; solid performance; hats-off to the management teams at each of the subs for driving their businesses; and we continue to expect these numbers to continue to move higher going forward. Every one of our core operating businesses was up versus the prior quarter 2016, and year-over-year, with our Life Sciences platform and non-operating corporate, essentially unchanged to slightly better for the same period. Just to give you a little bit more granular numbers and discussion. Our DBM Global, which was formerly known as Schuff, was up $1.3 million or approximately 10% from the second quarter, and essentially in line year-over-year. Global Marine was up $2.3 million or 18% quarter-over-quarter, and $4 million or 38.9% year-over-year. ANG was up nearly 36% over the previous quarter, and up about $400,000 or a 175% year-over-year. And finally PTGi continues to perform. That business was up $700,000 quarter-over-quarter and up $1.4 million year-over-year. Focusing on DBM, slide number seven. I want to turn your attention to our manufacturing segment here; another very solid quarter for Russ and team at DBM Global; which, as I mentioned, was recently renamed from Schuff International. Adjusted EBITDA came in at $14.5 million for the quarter versus $13.2 million in the previous quarter, driven by the strong growth in the West Coast. Gross profit margins were again strong as the Company continues its strategy to focus on the more complex and sophisticated projects that's what make this entity unique in the industry; and as I continue to emphasize unique in its approach in its abilities here. These are -- this is not a team that just builds the square boxes. There are very complicated projects, and we are seeing a tremendous opportunity for continued growth on the West Coast, from stadiums to expansion in technology, as well as healthcare. And looking at where the sweet spot is, we couldn't be more well-positioned for what is happening in that territory. And, as a reminder, we continue to proactively select the profitable strategic and core competency jobs, and not all jobs. Backlog, at the end of the third quarter, was approximately $320 million, is down slightly from the prior quarter of $344 million. But taking into consideration awarded, but not yet signed contracts and what we called the adjusted backlog, which we focus a lot on. Backlog, this adjusted backlog, would again be more than $500 million, very consistent with the last quarter; again very, very strong numbers. As we said last quarter, we continue to see a number of large opportunities in the commercial sector, totalling over $400 million in new projects that could be awarded over the next two quarters, which are not in our backlog. So, again, I think, from a geographic perspective and from an operating perspective where we have our facilities, we again are very well positioned. Lot of these new projects include new sporting arenas, stadiums, healthcare facilities, and sizeable commercial office buildings. As I mentioned the last quarter, DBM Global will continue to expand its overall product offering by offering a higher margin services, inclusive of planning design-build, building integration management services and detailing, as well as other diverse value-added services. That is a key for us as we think about going forward, which we want to be able to offer additional products, which we think will be complementary to our overall business. Supporting this objective, during the third quarter, DBM announced an agreement to acquire the detailing building information, modelling business of PDC Global, which is a highly experienced global engineering design detailing and 3D management company. DBM Global also announced that it has entered into a sales purchase agreement to acquire BDS VirCon, which is a leading global field in rebar detailing and BIM firm. Again, our objective here is to continue to scour the landscapes for complementary acquisitions, both that we think will complement our business, from a product offering perspective, as well as continuing to look at businesses that are similar to what we have right now. So, we however emphasize that we want to be very disciplined not overpay as we don’t need to rush to do anything in here. Both of these accretive transactions have closed, and in addition to helping open up markets globally, we believe the positive impacts maybe seen over the next couple of quarters, from a synergy perspective. Once again, fully integrated DBM Global, will provide a uniquely comprehensive set of services through design, build, and manage field construction projects. All of these initiatives are part of our plan to grow DBM to $1 billion revenue over the next three to five years. We’ve got the right team in place and got the right platform in place, to continuing moving forward on this initiative. And this is a plan that is in our scope, and something we're very keen to reach. And again, really no one better to do it than the existing team that we have on-board today. Turning to slide eight, Marine Services. Global Marine's adjusted EBITDA came in at just over $14 million for the third quarter, very-very solid quarter for us, up nearly 19% quarter-over-quarter and up 39% year-over-year. These increases were driven in part by increased telecom and offshore power installation revenues; continued strong performance from our maintenance business; driven by higher utilization of vessels in the quarter; including incremental maintenance revenues from our CWind acquisition; as well as solid performance from our JVs. One highlight, as you may have seen. Huawei Marine, which we own 49% have recently announced the number of significant wins. This is a JV. For those of you who are not aware that we have with Huawei Technologies, we've been in the JV for quite some time, and own 49% of this JV. And these significant number of wins include helping Papua New Guinea construct the new national broadband transmission network, as well as redesigning and constructing a portion of the Palapa Ring project in Indonesia; a broadband network project that is led by the Indonesian Government for the purposes of increasing broadband penetration in the more remote areas in Indonesia. The HMN backlog, again, increased very nicely with revenues and bookings up year-over-year, again creating long-term opportunities for GMSL, but also creating real value for GMSL. And as I mentioned, the last quarter, this is not a business that we focused on when we acquired the company two years ago. It's been almost a two year anniversary today. And needless to say, this JV has done phenomenally well, and continues to perform. And not surprising considering who is behind it, considering where they are located and the opportunity set in that part of the world. So again we couldn't have a better JV partner there than Huawei, and are very excited about it and very excited about continuing to provide value-added services to that entity. But we're expecting and continue to see some very, very strong results from that JV. Just a quick note on CWind. Subsequent to quarter end, we acquired the remaining 40% in CWind and now currently own a 100% of the business. This is a business that is focused on the offshore power, the offshore wind markets. And over the past several months, we’ve seen an increase in the number of verdict contracts at CWind with an emphasis on long-term operations and maintenance, reflecting the focus of management in remaining a partner to leading offshore wind farms. This is reflected in the CWind backlog, which is significantly higher now than when we first acquired our 60% interest earlier this year. I think what's really important here to understand is that the risk to GMSL team now behind this and the infrastructure of GMSL, I think, this is going to create a lot of value within, the CWind is going to create a lot of value within GMSL. Just having -- versus CWind as a standalone, when we acquired it, we looked at the growth opportunity there, and we’re very keen to get in the market that we had been, subject to a non-compete in the offshore wind farm space for the last couple of years. And that, quite frankly, did contribute to some of the down-tick that people saw over the last 18 to 24 months in global overall. But we were confident that we could build that back-up, and now with this acquisition, I think, we are back in the mix of focusing and building our offshore wind farm business. Looking at total revenues for GMSL, they were up nearly 52% versus the second quarter to $51 million, and up over 44% year-over-year. Main drivers of the quarter-over-quarter revenue growth included higher telecom and offshore power installation revenues, as well as higher maintenance revenues. Telecom install revenues were up 32% quarter-over-quarter due to an increased number of installed projects in the quarter, as vessels were almost fully utilized in the quarter and up 16% year-over-year. Offshore power installation revenues were also up significantly quarter-over-quarter, and year-over-year as GMSL re-entered the power market with a new intra-array install project that began in third quarter. We again had no exposure during the quarter to oil and gas installations. And while we mentioned that that marketplace and what was happening there had put a little bit of pressure early on GMSL, we are starting to see that subside and are now looking at trying to be opportunistic, and increasing our capacity by looking at some of the vessels that are now available at substantially devalued prices. So, we think that that marketplace has put the pressure on the higher industry. And fortunately again, we did not have a lot of exposure in that space. And now are trying to be opportunistic in looking at expanding our capacity by virtue of some of the vessels in that base being put on the market. Turning to maintenance, maintenance performance was again very strong in the third quarter, with maintenance revenues coming in at nearly $31 million, were up 50% year-over-year and approximately 5% sequentially. The year-over-year increase in maintenance revenues was driven mainly by the inclusion of CWind revenues, which was approximately $8 million, as well as incremental revenue as a result of the higher repair activity associated with one of our maintenance zones. Finally, as an aside we believe the overall install market has and will continue to see some margin pressure from the oil and gas market. But again, I think we feel like the worst of that is done at point. And for the most part, this is a market again that we traditionally have had limited exposure. So, if anything, we want to be opportunistic here. Within this market, we continue to be pleased with not only the performance of Global Marine over the last year. And while we were not been immune to market pressures, we continue to believe that we are very well positioned to take advantage of market opportunities through competitive positions we hold within each of our market sectors. And we continue to look at opportunities, again, from an acquisition perspective, across the board. And looking at where we can, not only increase capacity but provide value added services, to our clients in this space. Turning to slide nine, the little focus on our utility segment, which is American Natural Gas. And just a reminder, this is a design, build and operate commercial fueling stations, compress nat gas fueling stations. This is not for the retail market. This is a business that’s really focused on the commercial space, the Class A trucks, the trucks that are out in the morning, back at night. And the importance here is the proximity to where some of these big distribution or industrial parks are. And we have done -- and I should say Drew and team have done an excellent job of, not only growing this business but maintaining positive EBITDA. ANG currently owns and operate 17 compressed nat gas fueling stations. We continue to focus on expanding the station footprint through both internal organic transactions, as well as various M&A opportunities. As we discussed on the last earnings call, during the third quarter, ANG commission fueling stations in Saratoga Springs and Rochester. In addition, ANG announced it has acquired Krug Energy's public compressed nat gas station in Arkansas. And with the acquisition of this station, ANG also signed a long-term fueling agreement with Triple Transport Inc, and established Arkansas based hauling transportation company. We continue to be very, very pleased with the progress Drew and the team are making at ANG, and believe that we will be up north of 20 stations by the end of the fourth quarter into the first quarter of next year, and further expanding that footprint through 2017, '18. Again we have, when we first put the capital into this, we believed in the industry overall, believed in Drew and teams’ operating capabilities. And keep in mind we had low single-digits number of stations here. So the stations have really the growth in the stations have been very, very strong, and our objective is to continue focusing on this. There is a phenomenal opportunity to build up this footprint. And if you look at the economics, as I have talked about briefly in the past. If you look at the economics for these Class A trucks, and I don’t want to say it’s a no-brainer, but it makes all the sense in the world for these companies to be driving CNG trucks versus diesel even with diesel down at these prices. So, we were a little bit concerned that the marketplace would slowdown for a bit with the drop in oil, but quite frankly, turning now that there is as much focus on this base as ever. And as people are looking at this, there’s a real long-term solution towards cutting their one of the key components of their expenses from a distribution perspective. So, it's very exciting part of our portfolio, and continue expect to see some very good things there. We are looking at some different acquisitions. And the one of the problems that you have again is that people are really paying for growth. And we’ve passed on some of thing, the big multiples for it, but as we’ve had some really good success, from an organic perspective. So, we've really created value here. If you look at what's happening in the M&A space and what the 20 stations, 20 plus station entity could be worth. But the objective is to continue pounding away on this marketplace as the opportunity set is really sitting right in front of us. Turning to slide 10, PTGi-ICS. PTGi again delivered another very solid quarter market, marking its sixth consecutive quarter of positive adjusted EBITDA. Adjusted EBITDA came in at $2.2 million for the quarter up $1.5 million from the prior quarter, and up $0.8 million year-over-year. The continued success of the business is being driven by PTGi's ability to take advantages of opportunities in the global marketplace. Regulatory changes in the Europe marketplace and holidays in the Middle East were the main drivers of wholesale traffic in the third quarter. With this third quarter strong performance, PTGi has now achieved in the first nine months their full-year 2016 plan. Going forward we expect Craig and the PTGi team to continue their profitable quarter-over-quarter performance in wholesale, while also exploring potential M&A activities in the grater telecom and technology sectors. Again, when we acquired control of the entity, this unit was a discontinued operation losing money. And the group that was here prior couldn't sell it. And I look now at what's focus, what a little bit of focus, I shouldn't say a little bit, to underscore the effort that Craig and his team has put on this thing. But getting a management team and the right management team and the right group to really focus on the same business that was there two years ago is really indicative I think of paying attention to what -- to your operations and what you can do. And quite frankly, the growth here is not done. It's not exactly the sexiest business, but guess what we don't need the sexiest business. If we can continue making money from this in this space, that's fine with us. And we took out our first dividend, albeit small, but that's pretty exciting coming from a business that was losing cash hand-over-fist, now with a bit of TLC is positive EBITDA and a company that we're extracting dividends from. So hats-off to Craig and his team for the effort of -- and the turnaround there, and again it's not over by any stretch. Turning to slide 11, Continental Insurance. Looking at the platform, as of September 30, 2016, CIG had approximately $2.1 billion in total GAAP assets and approximately $76 million of stat surplus. On a reported basis, adjusted operating income for insurance business was a loss of $1.7 million. One thing I want to emphasize here is how -- from an accounting perspective, we’ve had to look at this business and how we've delivered the numbers. And from a life perspective, you have to look at when we think about capital, you have to look at the stat surplus number, as well as the AVR number. And I think it's important just to focus everybody's attention on that for one second. The AVR is a moniker used for asset valuation reserves to essentially and it's used in the light space to essentially temper volatility that one would see in ones portfolio. And if you look at our total capital, gross capital, which is the stat surplus plus the AVR when we acquired the business, it was around $86 million. Of course, we contributed some capital to get to that number. But now I think it's just important to note that the stat surplus plus the AVR is over $93 million. And I wanted to emphasize that because when you look at the stat surplus of being at $76 million, $77 million, you may say well your capital number is not increasing, so you must be losing money on your portfolio, and your operations. And the fact that our stat surplus number plus the AVR is higher by $7 million, I think is indicative that that is not the case. And which is very important to point out for the people that that are zeroed in on what's happening in insurance; so again very pleased with the ongoing performance there. We continue to bang away and look for additional books to add to our platform, and the valuations have changed a little bit. And again, we just want to make sure that we’re crossing t's and dotting i's, I think we were fortunate by and to close on this deal when we did. But it's of upmost importance to continued building on this, and adding to $1.4 billion, $1.5 billion of assets that we currently have under this umbrella. So turning quickly to slide 12 Pansend Life Sciences. On slide 12 we again outlined the diverse companies within our early stage holdings. And as we’ve mentioned on prior calls, we had expected to achieve several significant milestones this year from Pansend Life Sciences’ platform, and have done exactly that. On October 5th, and if you look at the number of investments that we have in this space, BeneVir, R2, Genovel, MediBeacon and Triple Ring, I want to have these zeroing on R2 Dermatology for one second. On October 5th, R2 Dermatology achieved one of those milestones, having received FDA approval for the R2 Dermal Cooling System. This R2 device, which is used to lighten and brighten the skin has successfully treated and been studied on over 100 patients and over 1,500 areas of the skin. The system is now scheduled for release to nearly 50 key opinion-leader dermatologists, beginning in January 2017, with commercial availability expected beginning in the third quarter of 2017. So, big break-through here, and I don’t know if it kind was passed over in the marketplace. But a key focus for us was getting the FDA approval. And now as you go into these things, you always remain cautiously optimistic. I think we heard that last night. And our cautiously optimistic approach, when looking at the timing on FDA approval has clearly surpassed our belief and the efforts on behave of Pansend team, who have done a great job of getting this unit to this stage, has been a big plus, and to now beyond the cost of commercial availability. And again these are not small machines. This is not a small procedure. And the people behind this, from a technology perspective, are extremely -- highly regarded in the industry. So, I think there is a number of people watching this, there is a number of people focused on this. And the fact that we got the FDA approval on this was a huge milestone. It is estimated that approximately $14 billion is spent worldwide, $6 billion in Japan alone on a variety of skin lightening procedures, or processes with little clinical benefits. We believe that this machine the R2 Dermal Cooling System is well position to capture part of that total addressable market. This is a machine that will hopefully be positioned and a number of dermatologies spaces or offices and will replaced some of the product and machines including lasers that are used now for skin lightning. I think the process and the results have proven themselves to a point where; One, we are able to get FDA approval and; Two, I think the results are very exciting on our end of how this machine has developed and the potential is quite astounding. So we are pretty excited about this and this is a situation where we own 61% of the company. In addition to R2 another Pansend portfolio company MediBeacon which is a real time kidney function monitoring made significant progress since our last earnings call. And MediBeacon is more specifically is more than halfway through its FDA pilot study 2 of 60 patients at Washington University School of Medicine. We believe the trial is progressing very well with anticipated completion of the study by the end of the fourth quarter this year. And I think just a tip bit on this when you think about kidney function and the test today and how doctors and surgeons and whomever measure kidney function the only real way to do it is to take your blood and take it to the lab. While this MediBeacon optical function monitor will be the first and only non-invasive system to enable real-time direct monitoring of renal function at point of care from a kidney perspective. And you think as health care development and how technology has really advanced many of the processes taken place today, one of the areas that has not move forward is quite frankly this and being involved in this product and being in this position I think is phenomenally exciting. We own 35% of this company. We do have the option to increase our exposures here and I think that with everything moving forward the way it has been and as the results continue to come in we continue to be extremely excited about the end gain here in this business. In addition as we announced on October 18, MediBeacon in collaboration with Washington University School of Medicine received a 1.1 million grant from the Gates Foundation to study MediBeacons platform technology and monitoring, gut permeability and gastrointestinal diseases including Crohn’s Disease and Ulcerative Colitis amongst other and what is this mean is that, in is that this process and this technology can be potentially used for other -- monitoring other diseases and other issues in your system other than kidney and other than kidney function. And the versatility and the potential versatility of MediBeacon platform technology here is very exciting in ambition to the significant progress and recognition it has achieved. And it’s not easy getting a grand and the fact that this entity and this team did receive the grant, I think really again speaks for itself and the value creation of having and focusing on this things under our umbrella. We look forward to continue reporting additional success from R2 and MediBeacon and other Pansend portfolio Company's as we continue to believe they offer not only a very significant upside potential but real optionality within each of this businesses and milestones at those R2 and MediBeacon have reached -- are really playing out quite frankly like we expected like we had hoped. Just been a final point on in Slide 13. Quick note of our non-core investments and we continue to spend some time developing the nerve technology and as well as the Dusenberry Martin Racing which only fee licensing right to NASCAR, just one tit bit to mention on that is that the company did successfully released their new game, NASCAR Heat Evolution on September 13. So we are very pleased with the getting that first game out from under our belt and well see obviously the key is sell through and what happens in the next 90 days. Again this are -- I want to say not core, but they’re non-core investment for us, but we continue to believe that they will be a value providers for us. Just Slide 14 now I'll continue to move on try to move on as quickly as possible here. Just some quick financial updates. Given the value of HC2 portfolio, we continue to exceed the 2.0 times collateral coverage under our 11% secured notes at the end of the third quarter. Excluding our insurance segment again consolidated cash was over $90 million at quarter end with nearly 30 million at the corporate level and as I mentioned their earlier during the third quarter and subsequent to the quarter end, we reduced the cumulative outstanding balance of [indiscernible] to $30 million from $53 million. And I think one important thing to know in addition to this reduction and the preferred form 53 to 30. The debt intention pay down that we seen at global marine has been -- from internal operations has been fantastic. We at the global marine operating sub we have paid down approximately 50 million from the close. So, just indicative of the cash flow potential of that underlying sub I think goes a long way in an environment where we were under a little bit of margin pressure which again as I said we just by virtue of the results have subsided. So there's been a lot of focus on our cash structure something I think about every day getting that cost to capital down, that is our goal and we will get there, come hell or high water and I think the reality of it is our performance of our underlying subs will and should go a long way towards getting us there. The stock price that we've seen is not exactly pleasing, but as I like to tell people it's a marathon, it's not a sprint, but it doesn't go day without me focusing on it because I know people are expecting a lot. But again this is something that I think time will prove that we're building value and with the building of value and as we get out and tell our story we fully expect that the positive effects of lowering of our cost to capital and improving stock performance will and should follow in tandem. There's been a lot of noise around the preferred and the hedging and the shorting which didn't help, but -- and again it's another one of those reasons why it's important for us to continue focusing on cleaning that part of the capital structure up because I don't like to see the stock at $4, and while I can't discuss what I think it's worth it's -- I'm not happy with where it is. But again the good news is that over the long term fundamentals will win in the end and with this quarter that we’ve had there's no reason to believe that we'll drive the two points that I just mentioned. So, with that let's move in on to the Q&A, I know people -- this is probably gone on a lot longer than what everybody has hoped, so hopefully we can get through this quick. Great quarter and I'm very excited about what we've seen and the strength of the underlying subs from the fundamental perspective, team is really hitting on all cylinders and no reason to believe that we -- that that won't continue. So, with that let's turn it over to the operator and to Q&A.
- Operator:
- Thank you. We'll now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of Kurt Hoffman of Imperial Capital. Your line is now open.
- Kurt Hoffman:
- Just want to start on DBM, Trump gave a nice speech last night emphasis his plans to significantly increase infrastructure spending, we saw a lot of very big moves in stocks that could benefit from that today. I think a lot of people look at DBM, they stadium, as see this great one-off projects for private companies. Can you talk about how DBM could benefit from publically funded infrastructures that they could proliferate under Trump?
- Philip Falcone:
- Yes, listen something that we kind of talked about today in relation to what was happening in that -- what was happening last night, and DBM is focused a lot and has a focus a lot on the stadiums and the infrastructure and going as far as the stadiums and healthcare and technology building. Quite frankly because that’s where the opportunity is. Steel work and I don’t want to make it that simple, but this company has the flexibility to move into different markets, I think the one area where we don’t have the expertise is in the bridge area, and that continues to be and it has been something that we have thought about and have been interested in. But that’s only one part of infrastructure, there are many more parts where if desired where this team with their facilities could turn their attention. So I think it's a really across that the entire space other than the bridge side where the flexibility of the team and the facility and the capabilities could go a long way towards ultimately focusing on some of the infrastructure projects depending on what the government is talking about. But it's clearly something that we talked about today, it’s clearly something that sharp [ph] or I should say DBM could benefit from going forward and there is no reason to believe that we shouldn’t benefit from that. Again because of the flexibility. And you focus where the opportunity is, today it's on stadiums. They build -- keep in mind they build their business not in the stadium business but in Las Vegas building starting in the casino space. So when you are doing building projects like that the infrastructure associated with that from sewage drainage, water, et cetera is kind of part and parcel. So we are very excited about that point. And have no reason to believe that we shouldn’t be able to participate going forward.
- Kurt Hoffman:
- Great. And I think on Global Marine, a lot of investors that can be very pleasantly surprise to see the EBITDA growth there. It's nice to have the backlog discloser on DBM, that kind of gives us a context for future results might be like, is there any sort of metric you can provide or other way to set expectations for Global Marine’s initial performance just even over the next several quarters?
- Philip Falcone:
- Yes, I am just checking with the guys here, I think we did last quarter if I am mistaken we talked about thee backlogs being about 270, obviously that portion of that burns, burns off overtime. But in that number is still well over 200, and the fact that we can now participate in the offshore wind farm market globally means I think it's going to mean a lot to business from a growth perspective. One of the reasons as I mentioned that the numbers tailed off a little bit is that the non-compete aspect and the focus and the business of wind farms and the focus that we had on wind farms, we couldn’t compete in that space over the last few years. And over the last few years the wind farm market of our exposure, I believe is gone from mid-teens to single digit to zero because we couldn’t compete. Now it's starting -- that uptick is staring. So when you think about the uptick in EBITDA that was one of the reason for it. That coupled with the margin pressure so it wasn’t just margin pressure, so I think this is very, very, very good sign that now competing in this -- being able to compete in this space, the fact that we own a 100% of Seawind and the backlog has almost quadrupled in Seawind since we acquired the business. I think is indicative of how people are looking or how people in that industry that are building these wind farms are looking at global having owning and controlling this business versus it being a standalone. And the other now kind of, what other bolt-on services can we provide in the offshore wind space that could be value added. So I think this is opening up something, I don’t want to say something new, but something new over the last few years because we couldn’t focus on it. And it was a core part of the business prior to our acquiring it. So we continue to expect big things there but I think in general the backlog is just from standard burn-off is down a little bit, but still well over 200.
- Kurt Hoffman:
- And then I'll just squeeze in one more. This is on ANG I saw where this Search Results Love's Travel Stops, but something like 35 CNG stations in a private deal or something like we as a $120 million to $150 million range? The earnings release today indicates you plan to have 20 of these stations, are you familiar with that Love's Travel Stops deal and is it appropriate to use that type of per station valuation as a read through to the potential value of ANG?
- Philip Falcone:
- Yes, it's one of the things that we focused on, we were very aware of that business and I think I mentioned a couple of quarters ago that we had did and missed on a transaction and quite frankly that was the transaction, but the fact that 30 plus patient enterprise went for the number that it did is indicative of the value that we are creating and to be up over now 20 is I think a testament to the dedication and the growth opportunity quite frankly that this company has. So you know there is a lot of different dynamics associated with station by station, but it’s probably a good back [ph] of the envelop. And in looking at -- just to look at the contracts and how well-run the business are. But in, there is no reason to believe that we’re dramatically different than that transaction and the value that up. The value that people placed on the 33 stations that went north of 120 million.
- Kurt Hoffman:
- Perfect. I'll leave you there. Thank you very much.
- Philip Falcone:
- Okay. Thanks. Operator next question please.
- Operator:
- Our next question comes from Sarkis Sherbetchyan with B. Riley. Your line is now open.
- Sarkis Sherbetchyan:
- So first on manufacturing. Do you have any updates on bids submitted to secure work on the new LA Ram stadium?
- Philip Falcone:
- There is not a lot we can say on that. Other than the contract for the steel has not been awarded yet. We had continued ongoing dialogue with Turner Hunt who is managing the construction of that stadium. We've done a lot of business with this people in the past and of course you have dialogue with the league as well. And we believe that we are in the final stages and that it should be awarded in the coming weeks. Keeping our fingers cross there, but continue to believe we’re will positioned and of course very capable based on where and what we've done in the past, but as of yet it has not been awarded and we are kind of just waiting to hear what the status is.
- Sarkis Sherbetchyan:
- Very good and so the $400 million in potential new projects that you'd outline that could be awarded in next two quarters. Is that inclusive of that stadium deal or is that -- does that not include it?
- Philip Falcone:
- Yes there is obviously a couple of parts to the stadium deal, and that is included in that $400 million, is inclusive of some of that, obviously not all because that's a very, very complicated and big project. But that's something that we are keeping a close eye on and is part of that a piece of that is part of that 400.
- Sarkis Sherbetchyan:
- Good, moving over to Marine Services are there any sizable contracts in the near term that are up for renewal on the business and then separately can you speak to the trends that you're seeing in new installed projects and also your confidence in being able to secure new business there?
- Philip Falcone:
- Yes, the business we've no reason to believe that we will not win new business there because our performance and the recent contracts we've had is indicative especially the recent [indiscernible] contract that we signed which was a very big contract for us and it is I believe a seven year contract. Your capacity in the space is limited to your vessels and we have a very sophisticated engineering team, very sophisticated vessel portfolio which has a phenomenal reputation and there's a 100 year history in this space. So, we're at or close to full capacity in some aspects here. We do have flexibilities to move vessels around and sign new contracts, of course you don't have to have every vessel out at every point in time. So we've no reason to believe that we're going to continue winning business. I think -- we with the performance in the three to six months we definitely have proven that we can win new business, we'd like to expand our capacity. I think the fact that Huawei continues to explode from a backlog perspective -- and keep in mind how you have to think of that is, they put their projects out for bid or need to sign up contracts for vessels to build out every job that they have. Some we do, some we don't. And the more vessels we have the more we could build our business and do an increasing number -- increasing higher percentage of jobs for Huawei Marine Network and that's what we'd like. Now regardless we'll still see 49% of the profit, but if we can see 49% of the profits and also do direct business and bid on jobs in the Huawei Marine space that's a kind of a double bank for the buck for us which is extremely attractive and from a growth perspective I think it'd hard for us to find anybody in that space that’s growing as much as they are. So, yes, we're getting the benefit which is creating phenomenal value from the 49% perspective. But we could also improve and increase our top line and obviously bottom line by giving more jobs for them and I think that's a very key focus for us and key area of expansion for us and we are very, very zeroed in on trying to find and looking for, and we do have our eyes on some different vessels that are available which I think will benefit us in both way. So just without doing anything else should have a leg-up on that space.
- Sarkis Sherbetchyan:
- It does. Sounds like you have managed pipeline there. And then I guess a final one from me here. If we look at the portfolio of your holding company's assets, how do you think about the opportunities maybe to monetize of realize value from one or more of assets? If you can maybe walk through that kind of as it stands today and perhaps what it could look like down the road? I think your comments mentioned silo number five, maybe some flavour there. Thank you.
- Philip Falcone:
- We have and continue to look at a number of opportunities. We don’t need to reinvent the wheel. We have a very solid platform that continues to perform to all of our -- and really exceed our expectations. I think it's important that the business, if we do add another platform that kind of fits into our model of strong cash flow, stable, not binary and we just want to -- we are looking at kind of a handful of companies right now and continue to try to find the right situation. And they’re out here and we’re just taking our time and kicking a lot of tires. As it relates to monetization, listen I don’t want to -- I think the big plus for us is that we don’t have to sell, at the same time we have to opportunistic, we have to be sensitive to the market place, we have to be sensitive to the overall global cycle, albeit that’s not ever easy to pin point. But we don’t want to be traders, we are not, we are building I think a very stable corporate base. But we will be opportunistic if we get the right price on something. I don’t want to make it seem like we’re out shopping because people do kick the tires and call us up, are you interested in this, or are you trying to do this, are you trying to do that. Listen, we have to be opportunistic, we have to keep thinking along those lines. We’re however in no rush to do anything and if something, a buy or a sale comes along, that’s the right thing to do for the view we have. And from a valuation perspective and from a capital perspective, yes, I mean we have that beauty to peel back the onion on everything both buying and selling. I think we’d be doing a disservice, if we didn’t do that. So we are wide open to both providing that they sit with how we think about valuation cycle, vision, et cetera.
- Andrew Backman:
- So we have time for one more question please.
- Operator:
- Our last question comes from the line of Umesh Bhandary with Jefferies. Your line is now open.
- Umesh Bhandary:
- Maybe the first one, Phil you talked about lowering your cost of capital, hell or high water. So what do you think you need to achieve in order to sort of get that result? Just from a -- as if from a leverage perspective or free cash flow perspective, what do you think you need to get to, to achieve your cost of capital?
- Philip Falcone:
- I think we’ve proven from a value add and a performance perspective which is the most critical thing that you have to do. Because you could have an asset that doesn’t perform. We have got since a number of assets here that are performing and just by virtue of -- and I believe just by virtue of how the strength that we have in the underlying subs, not inclusive of some of the development and can stand on the opportunities out there and in the value creation there, we should be able to reduce out capital structure or our cost to capital. When we think that the market would be somewhat rational, but sometimes people maybe don’t understand what we are trying to do or how we are trying to do it. And you have to think about maybe do you refinance, do you finance maybe something at the -- an operating [technical difficulty]. You take in a JV partner at a higher valuations. So kind of all those things or do you completely monetize something. So I think those between the fundamental performance, between maybe tweaking how we are thinking about financing to maybe looking at a JV partner who wants exposure and in some way cheaper form perform at an attractive valuation to us. I think those are things that you have to do and then monetizing something. I think those are things that you have to think about it in terms of proving out some model. And I have no reason to believe that just by the virtue of the fundamental performance that we are not on the right path we absolutely are -- and again I think that if I had a choice I would rather see in the position where we are, where we have the positive fundamentals. Because that at the end of the day will win and we do have I think a number of levels that will benefit the entire cap structure and the question [technical difficulty].
- Umesh Bhandary:
- Got it.
- Philip Falcone:
- And two, we are thinking about the timing on some of the Pansend situations and really realizing the value there because when you think about our portfolio it close in $45 million to $40 million plus or minus into that, so I think we’ve created phenomenal value and we can't yet discuss in detail what's specifically happening, but I have no reason to believe that you won't see something developed their based on the milestones that I talked about earlier. So, we've got again you know a number of things kind of in the hopper that were thinking about, and that will be seeing methodical -- thinking methodically about to make sure that we get it right
- Umesh Bhandary:
- Got it. That's very helpful. And then obviously as you continuing to do some of this tuck-in acquisitions. May be can you discuss little bit about sort of the pipeline for some of this transformative acquisition and to your thoughts on the valuation that you're seeing for some of transformative opportunities that you're looking at.
- Philip Falcone:
- You know I think one others acquisition that we looked at was as, I think Kurt mentioned was there 30 plus stations asset sales that was put up for sale. You know we bid on that, somebody was obviously willing to pay a much bigger multiple. I don’t like to pay big multiple for things, that thing instead of five things gets accretive and we can be -- it can be value added to our portfolio, clearly we have to keep an open mind. But it's really tough to say from a multiple perspective of how we’re thinking about things, it just vary from industry to industry to industry and you’d like to think that we should be able to buy something between 5 times and 7 times, something that's accretive from a cash flow perspective. I think that’s how we’re thinking about it. There is an opportunity to pick something up via the disrupt [ph] market control that's also some things that we're looking at. We turn down a lot of things. We are kicking a whole heck of a lot of tires. There have been things that has been very interesting, but we didn't like one piece of that. But we are being very diligence. We are not rushing to anything. The quick solution would be to make an acquisition and refinance the whole balance sheet. But we don’t need to do that. We don’t need to do something for the sake of doing it. It's got fix within our plan with our strategy and so There will be something, I don’t know if it will be tomorrow or next week or in three months. But there is enough out there, there is still dislocation in the market. But it's got to stay.
- Umesh Bhandary:
- Great. Thank you very much.
- Operator:
- This does conclude our Q&A session. I would like to turn the conference back over Mr. Backman for any closing remarks.
- Andrew Backman:
- Great. Thank you Ester and thank you Phil, Mike and Keith and thank you all for joining us this evening. As always our management team is available to speak, if should you have any follow-up question please do not hesitate to contact me directly here in New York at 212-339-5836. Ester, could you please go ahead and provide the conference call replay instructions once again. Have a great day everybody. Thank you everyone.
- Operator:
- Thank you. As a reminder, this conference call will be available for replay beginning approximately one hour after this call. Dial-in for the replay is 1-855-859-2056 with the confirmation code of 4088236. Again, dial-in for replay is 1-855-859-2056 with the confirmation code of [408826]. This concludes our call. You may disconnect. Everyone have a wonderful day.
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