HC2 Holdings, Inc.
Q3 2015 Earnings Call Transcript

Published: 2 Nov 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the HC2 Holdings Inc. Third Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and then instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ashleigh Douglas, Director of Investor Relations. Please go ahead.

[Ashleigh Douglas:]

Thank you, Abigail and good morning everyone. Welcome to HC2’s conference call. We also invite you to follow along with our webcast presentation, which can be accessed on HC2’s website under the Investor Relations section. With me today are Philip Falcone, Chairman, President and CEO of HC2; and Michael Sena, our Chief Financial Officer, Hladek, our Chief Operating Officer will also be participating on the call today as part of the question-and-answer session. As a reminder, this call cannot be taped or otherwise duplicated without the company’s prior consent. Before we begin, I will remind everyone that this presentation may contain forward-looking statements and as such are subject to risks and uncertainties that we discussed in detail in our documents filed with the SEC, specifically the most recent reports on Form 10-K, Form 10-Q and Form 8-K, which identify important risk factors that could cause actual results to differ materially from those contained in forward-looking statements. During the call, management will provide certain information that will constitute non-GAAP financial measures under the SEC rules such as for forma net revenue and adjusted EBITDA. 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. With that, we’ll begin the call by turning it over to Philip Falcone.

[Philip Falcone:]

Thanks, Ashleigh, and good morning everybody. And thanks for joining the call today. I want to coordinate today’s discussion with the slide presentation, so I just want to make sure we are on Page 4 with the third quarter highlights and recent developments. We’re pleased to update you on the continued execution of our diversified holding company model. HC2 yielded strong year-over-year growth during the third quarter, which demonstrates the progress we’ve made building the businesses, over the course of the past year. On the agenda today, I will start with a brief recap of the results this quarter and will also provide a few operational highlights from our primary operating subsidiaries. We will end with a bit more detailed financial overview of the quarter and then ask the operator to turn the call over to a question-and-answer session. So, just some of the quick highlights here. Obviously, we continue to perform as we expected, the strategy of acquiring, building diversified operating company contributed to a solid third quarter result. Our net revenue totaled $277 million in quarter three, a 55% increase compared to quarter three 2014, and a 24% increase on a pro-forma basis from the Q3 2014. Total adjusted EBITDA totaled $14 million in Q3 2015 and $39.4 million in the first nine months. I think that when you see, when I walk you through these numbers, you’ll see how we’re calculating EBITDA, and I think you will be pleasantly surprised, adjusted EBITDA attributable to the manufacturing in Marine Services $24.7 million Q3, and $69.8 million year-to-date. Our Telecom segment enjoyed a positive adjusted EBITDA for the second consecutive quarter bringing year-to-date adjusted EBITDA to $1 million. And if you recall, this was a discontinued business for us when we acquired the shell company, PTGI was losing maybe $3 million to $4 million of EBITDA, we pretty aggressively restructured that business. And now it’s turned around nicely and we continue to expect to see positive results from that segment. Schuff backlog in the quarter increased to 16% to $382 million which is a nice development. Couple of other points of interest, HC2 received total dividends of $16.2 million from its primary operating subs year-to-date. We expect another dividend in the fourth quarter and hope to finish out the year with a mid-20s, dividends through 2015. Not bad for our first year of business - first full year of business I should say. Continental Insurance Group, we expect this transaction to close in Q4. One other point that’s more of a third party related point but, the HRG subsidiary sold out of all its shares. We think that this adds and will add significant diversification and strength to our shareholder base and really reduce the overhang. Just turning the page to the quarter snapshot, as you can see, our organization structure here, we continue to be very pleased with the development and how we’re building this out. You can see the four key platforms that we have, and all reporting positive EBITDA which is very exciting for us. This in general was a very solid quarter for us, $277 million of revenue an increase of 55% when compared to last year’s quarter. While the addition of our manufacturing and Marine Services segments continue to anchor the topline as I mentioned are Telecom, as you can see on page 5 did contribute. Net revenue decreased slightly in Q3 when compared to the seasonally high second quarter of $281 million, again second quarter especially in the global Marine segment is typically a bit higher. The reduction has been more as a result of the industrial projects in the Gulf Coast region in Marine Services segment due to lower installation projects during the quarter. This decrease was largely offset by continued improvement in our Telecom segment due to the continued expansion in emerging markets. Schuff and Global Marine, our two largest subsidiaries yielded a combined adjusted EBITDA of approximately $25 million during Q3, bringing the year-to-date combined adjusted EBITDA to roughly $70 million. I’ll go into a bit more detail on this during the operational view but in short, adjusted EBITDA for these two segments are right in line with expectations and remain on track for full year 2015. As I mentioned, as you can see in page 5, the Telecom segment did enjoy a positive EBITDA for the second quarter bring year-to-date EBITDA to $1 million. And the Nat Gas business that we continue to build out also reported positive EBITDA which is a very good sign. One point to mention is as I mentioned that of the $382 million of backlog increase at Schuff that continues to improve through as we move into the fourth quarter. And I believe as of last week that number, the backlog for Schuff was north of $480 million. So, that business continues to perform very well for us, Rustin Roach and team, are doing a fantastic job. And I have some pretty good vision as to what’s happening in Schuff’s field. In other recent developments, as I mentioned very close to the finish line in Continental Insurance. This has taken a little longer than we expected and as you will see has contributed to our increasing deal expense. But all well and good as we are very excited about this business, and what we can do with it. And Jim Corcoran, who was a former superintendent of New York State Insurance, has been a fantastic addition to the team. And we’re very excited about bringing this thing to a close, and working on building out that business. Just a quick discussion of our capital structure, continuing on with Slide 5, approximately 41 million shares fully diluted. This includes the preferred stock conversion which is approximately 11 million shares, so obviously without the preferred stock conversion you’re looking at 30 million shares. We’ve been methodically adding to the HC2 platform over the course of 2015 and feel very good about the prospects of each segment going forward. I want to spend a few minutes on each of the primary operating subs and specifically Schuff and Global Marine, so you can see what is happening with these two businesses. Schuff in particular experienced continued sequential growth in adjusted EBITDA this quarter, as several major commercial products in the Southwestern Pacific regions of the U.S. that began in late 2014 continued to deliver. Year-over-year revenues were down a little bit primarily because of projects in the Midwest and Gulf Coast. But the gross profit continued to improve across the board to make up for some of the slight year-over-year revenue decline. And this is a little bit different than we think some of the competition out in the marketplace is a little bit more commodity based when you think about what these guys are doing, we are, we believe we are a more of a specialist in design and engineering in direction of - in the steel segment. Notable ongoing projects include the Apple World headquarters in Cupertino, California, the Wilshire Grand in LA and the Sacramento Kings Arena, so these are high profile projects. They’re not the square boxes that distribution centers. So it’s one of the reasons why we continue to believe we will have some good vision going forward because of our specialty here and the ability of Rustin and team to execute on some of these more complicated projects. As mentioned earlier, the backlog of projects is growing at a very good pace. This is due primarily to Rustin and team kind of getting out there and really a lot of blocking and tackling and relationship building and getting this backlog over and above quite frankly where we thought we were going to be. And as I mentioned, the backlog is up to $400 million, over $480 million. Looking ahead, the company continues to increase in diversified sales pipeline particularly in the commercial and the industrial sectors. I may have skipped ahead here but people should be looking at slides, at page 7 in the presentation where you’ll see the detail on Schuff. So, I apologize that for moving too quickly. But this Schuff has Page 7 we’re going to kind of go back and forth a little bit here. We’re looking to continue to make tack-on acquisitions of our various platform companies. We want to be opportunistic however, and we have looked and kicked the tires on a number of different companies. But one of the things in this segment is that companies are performing quite well. If you look at the public comps of Schuff and one notably that we like to compare ourselves to is Canam, and the eight times multiple. It’s kind of indicative of the selling prices that people want out there and even for some of the smaller situations. So, we’re going to try to be opportunistic and look to see if we can add to the top-line but we’re not going to do something crazy and pay north of 8.5 or 9 times, even though we believe on some of these acquisitions there could be opportunistic and synergistic. But the good news is this company continues to perform well. There are some pretty good vision, and the numbers kind of speak for themselves. We’re looking forward to a very good fourth quarter. And as a matter of fact, we expect more dividends coming out of Schuff as we move forward and move into the fourth quarter. Looking into the next page, slide - Page 8, Global Marine. One of the differentiating factor here is it’s diversification with both installation and maintenance. And I think those, the combination of those two, continue to drive the business and continue to see positive performance as a result. Third quarter revenues totaling $35.1, maintenance made up for more than half of that and continues to be a very stable and robust part of the business. Again, this is not, you’re not putting or maintaining and installing a line from Second Street to Third Street, this is offshore and really mission critical for some of these big data companies and telecom companies. So this is a really critical business for the marketplace. These guys have been around for a long time. They’re very dependable, have a great reputation. So there is, I believe some things that we can, some acquisitions again that we can look at in terms of continuing to build out this business. But we’re pretty happy where we are right now. We’ve seen as I mentioned solid performance on the maintenance side and also solid JV performance which both offset short-term market challenges in the installation business. I think you’re seeing a little bit of global oversupply of vessels and low oil prices are driving some competition from the oil and gas market from the vessel side. That doesn’t, you can’t just go from oil and gas to Telecom, but we feel that with our maintenance business and our dominance in the far east with the Offshore or with the JV, with why we’re are Marine networks that we will very easily be able to continue doing what we do and continue performing. Again, despite some of the market challenges, i.e. with margins, because of some of the vessels out there. The outlook remains very positive for organic growth and acquisition opportunities. And in fact, we’re kind of looking at this market, where the market challenges are if anything creating opportunities to potentially add vessels. There are some situations where we look at six to eight months ago for vessels, and that’s how you have to think about this business and adding capacity is really adding vessels. So we think that and we know from looking at the pricing of vessels in this market, some situations may have been cut in half, and with the oil and gas industry in this area, really upside down, people are going to have to sell some vessels and we’re going to be opportunistic. And really, it’s coming our way. So, we’re going to be adding capacity via picking up some of these situations where vessels in 6 to 8 to 10 months have been essentially cut in half. And as long as we can bring some of these and acquire some of these vessels and add capacity, you’re going to see, we believe some good growth from us in that area. And we’ve looked at and we’re essentially acquiring two new vessels right now and we’re - at very attractive prices. And we’re financing virtually 100% of the acquisition cost. So, I think the combination of the two that the oil and gas market upside down. And we don’t have a lot of exposure to the oil and gas segment which is then very good news for us. So, we’re going to be opportunistic and we’ve got Dick and Ian, Dick Fagerstal and Ian, really circling the globe crossing the Ts and dotting the Is on situations that we think we can capitalize on from an acquisition perspective. Key accomplishments in the quarter three, completion of a major fiber optic project in New Guinea, and I don’t know if people have seen the announcement of Huawei Marine which is our Global Marine JV, we’ll construct the Cameroon Brazil Cable System which will connect Africa to Latin America, not a small project. But the type of projects that you’re seeing, you will continue to see especially in emerging economies with the robust marketplace in both wire-line and wireless communications. We expect that you will continue to see some of these third world countries, start building their own cable, their own data communications network. Because of some of the situations you’ve heard in the marketplace about hacking, so on and so forth, people seem to have and there seems to be a move to having your own network not only as a country but as a business. So, we’re pretty excited about what’s happening in telecommunications globally, and even with the wireless, the wireless communication that wireless data has to travel online at some point and has to go from point to point. And the only way you can do that is via cable. Some upcoming strategic initiatives; we expect to reenter the offshore power market on November 15. And this is the offshore wind market. And we had a non-compete and this entering back into this market is effectively following the end of the prism in non-compete. We continue to believe that this segment will give us some very good growth. Keep in mind the company was in this area prior to 2012 and it’s clearly an area where we believe we will see some low-hanging fruit. There has been some very good building and focus by some of the EU countries on offshore power as it relates to the focus for the EU on alternative energy. And you have to get the Power from the Offshore to Onshore. And the only way you can do that is via cables. So, we think that with our non-compete rolling off that we’re going to see some opportunities pick up here. And as I mentioned we’re very encouraged by emerging opportunities in Telecom particularly in Africa and the Persian Gulf, I think there are some real good opportunities in the Middle East. And we’re targeting that area as an area for growth. And not only are we looking at M&A opportunities by strategically adding vessels but there are some companies out there upside down that we think we can pick up. And again, kind of drop right on to our platform. So we think we’re in pretty good shape. Again, the reputation and the maintenance - especially on the maintenance side of what these guys do. They’re arguably the best in the business or I think the best in the business. They’ve been around for a long time. And have ongoing relationship in contract that continues prove to be very valuable as we navigate these markets. If you turn to page 9, just some of the other holdings that we have in our portfolio, we previously discussed the status of the pending closing of the CIG acquisition. Novatel Wireless, our 23% owned subsidiary, completed the acquisition of DigiCore, which we think is a key acquisition for this company as they set their sights on global internet of things opportunities, I think that’s a cliché that’s thrown around probably way more than it should. But I do think that and there is a lot of competition in this space. But I do think that with this acquisition, it’s clearly going to set Novatel and their abilities to compete in this space in a different, put them in a different place than where they were 6 to 8 months ago. In addition, we’re very excited that Sue Swenson is stepping in as CEO. Alex Mashinsky, was our former CEO, did a good job by getting us to this point. And really ushered in this DigiCore acquisition and now there is a real lot of blocking and tackling and repositioning. And we felt that Sue being on the ground in San Diego was the right person to take this company to the next level. And you’ll be hearing more from Sue over the coming week. That stock, I don’t want to talk about the, where I think it’s going but it’s been bit volatile and it’s been a bit volatile because I think the - there is not a lot of understanding as to how this DigiCore acquisition is going to work but it was as high as 6 and change, it’s now down to 10 to 15 to 20. So we think that you’re going to see some positive momentum on the upside here. But that’s something that we’re going to keep our hands on the pulse very closely. One, I don’t like to see that kind of volatility in our portfolio with one of our holdings. So we’re watching that very closely, we’re going to work with Sue very closely and look at things that we can do with Novatel to really help get them back on track. But we think that they’re clearly positioned to do that. American Natural Gas, now has 10 stations as of September 30, had 8 at the beginning of 2015 and the pipeline continues to grow. They completed a new CNG facility at the Tops Market Distribution Center in Lancaster, building a station in Georgetown Kentucky, and also building stations in Rochester New York and Silver Spring. I’m a believer in this segment, in this category. This is a platform that I am very happy that we’re in. It’s small but I think Drew who is our CEO, is doing a great job managing it. There is cash on the balance sheet there. But I think the opportunity set here is really fantastic and I ultimately see this thing because it’s very real-estate related, building a CNG station in an industrial center with an Anchor tenant, and despite diesel prices down at $2.40, you still have cost savings. I know by the way you have a green perspective when it comes to the environment. So, you have a kind of dual move here and I’m not going to predict where oil prices are going to be but with the drop in oil prices, there is also a drop in natural gas prices. So there is, it’s not just one way here. And we’re trying to figure out how and what we can do with this sector as there continues, as you continue to see some build-out. And I think you absolutely will see quite frankly some real growth in the industry. And we just want to make sure we are at the cutting edge of that. These are, this is the situation where you’re focused on distribution centers that have diesel trucks that want to convert to compressed natural gas going out in the morning, back at night, putting on 125,000 to 150,000 miles a year, 5.5 miles per gallon, you’re getting cost savings there. If you’re a distributor, one of your big line items is fuel. You want, this is a fantastic area for cost savings if you’re a distributor. We’re very focused on the Northeast, and the Northeast Hub. This is not a business where you’re going from Maine to California. We got a lot of wood to chop here. I think we’ve got the right team we’re looking at picking up individual stations in the marketplace opportunistically, also looking at acquisitions. But it’s early industry. We are going to manage this and really watch the cash that goes into here. But I would suspect that you will see some real good growth over the next couple of years in this business. And it’s really, really managing the nickels and dimes here and Drew, who has really started this thing is really doing a great job. And he’s positive EBITDA with just 10 stations. I ultimately think that because as I mentioned, because of real-estate play, in the real-estate aspect you could ultimately see this as a re-tour and MLP structure at some point down the road. Fairly too early for that but as we get to 20, 25, 30 stations, I think there is an opportunity there. And it’s like not exactly like a Starbucks for your first market and building the first Coffee Shop on the corner but this is not rocket science. I don’t want to take away from what these guys do and what they have done as it relates to building out a filling station. But we’re canvassing the Northeast and we’re going to grow this business. And I do think that the margins are there. And I think the payback if you look at our payback on some of the recent stations from building a station of $1.5 million, your payback on with the right contract is very quick. And everything that drops line below that is really gravy. So, obviously we got to manage our cash effectively. But I think we’re looking at this sector as being a good value added proposition for our platform going forward. Just quickly moving on, we have Pansend, which is another our life sciences division that’s run by David Present and Cherine Plumaker, who have done a very fantastic job of building and investing in some of those very, very exciting categories in this area. It’s not a revenue producer now, we like the platform. We obviously again have to be cognizant of cash going out the door, that is not accretive from a cash flow perspective. So, we’re, crossing the Ts and dotting the Is as we look at continue to building out this category. But I think we’ve got two of the best people in the business. They’re very exciting industries that we’re involved in. And I think if you look at the detail surrounding the amount of work and the opportunities that for each of the businesses that they’ve invested in, you would be pleasantly surprised especially thinking about the possible upside. We’re not looking at these investments as binary by any stretch. These are of the four investments three are device manufacturers, device companies that we think will perform and be very accretive to our portfolio down the road. We have to as a company, however make sure we are again watching the cash going out the door, and focusing on being opportunistic. One thing, now if you turn back to Page 6, I think this is a very key slide here that I want to walk you through. And why, I think our numbers are actually better than what you see on paper. If you look at our Q3 2015, you’ll see manufacturing $4.4 million of EBITDA, Marine Services $10.3 million, and that’s down from the seasonally high $16 million but up nicely from $5.3 million. Telecom as you see turned around. Now, I already heard it this morning like, or other incorporate, that’s a lot of money, yes it’s a lot of money that we are spending but we’re not really spending that money. So I think it’s important that you zero in on that $11.4 million as I walk you through what that number is. And why it’s somewhat from an accounting perspective doesn’t necessarily equate to how I think of EBITDA but obviously we have to stay within the four walls on how the accountants are looking at it. But, so the other of $6.1 million is consolidated, if you look at our consolidated entities of Pansend, DMR and Continental Insurance that we’re including in there, that $6.1 million, $3 million of that is losses from our Dusenberry Martin Racing division, $1.8 million is losses from the Pansend just from the method that we’re using as we roll-up the accounting, positive $2.68 million from American Natural Gas. And we have a structure kind of a super-holding company structure of Global Marine which is minus $1.84 million and minus $1.60 million from Continental Insurance expenses. So that totals $3.28 of losses. So when you think about how are we spending money or what are we spending money on, it’s not like we’re burning cash, some of these start-ups are costing a little bit money, quite frankly more money than I’d want to see that go out the door. And we are, if you look at our Dusenberry Martin division where we acquired 100%, and this is a small acquisition. But that’s minus $1.1 million for the quarter and minus $2.8 million for the year. Pansend is minus $1.8 million and minus $1.7 million for the year. So, it detracts from our EBITDA, we’re still very positive on these businesses. But just so you understand from a cash expense perspective, it’s not like we’re throwing money out the door. And I will talk about this a little bit later but and I know some people have expressed some frustration over some of the smaller businesses clearly we’re going to focus on accretive cash flowing businesses. We continue to believe in our platform and continue to believe a lot in Pansend, we are keeping a close eye on Dusenberry Martin racing. But Pansend, we’re very, very excited about the prospects there. So, $3 million of that $6 million that you see in other is some of the cash expenses in those subsidiaries that have rolled on a consolidated basis. And I think more interestingly when you think about the $6.1 million, $2.8 million or I’m sorry, $2.4 million is on minority equity investments. $2.4 million of the $6 million is a Novatel expense. Now, I don’t quite understand how the accountants are looking at that but that’s a Novatel Equity pick-up expense that we had to incur as a result of our 23% ownership. $405,000 is a Nerve-technology equity pick-up and that’s a 35% owned sub. So, between those two, that’s $2.8 million of the $6 million, Novatel equity pick-up and Nerve equity pick-up, those are essentially non-cash but I believe from an accounting perspective, we had to include them and therefore deducted from EBITDA. So, I think you can kind of get a quick picture that it’s not just $6.1 million of other expenses going out the door $2.8 million for all intents and purposes was non-cash. And then the $3 million was DMR and Pansend expenses. So, it is a little bit kind of confusion as to how the accountants wanted us to account for this. But I think it’s very promising when you kind of see the detail behind it. Now, the corporate expense is just the standard Salary and benefit, rent, legal, accounting, our legal bumped up to $1.1 million for the quarter and a lot of that was a result of the accounting or the legal that we had to spend on the HRG block sale. We also have some legacy cost built into that $5.3 million, of $200,000. So, it’s not when you kind of first look at it, you say wow, $11.4 million of cost, that’s high. Yes, it is high but it’s not the cash burn that you kind of think when you think of traditional corporate expenses. And especially if you think of like Novatel, year-to-date we’ve had an equity pick-up, equity essentially an expense of $7 million. That’s not a, cash cost but that’s just a detractor of our EBITDA just by virtue of owning 23%. So, our year-to-date $6.7 million of other expenses, $7 million is a Novatel equity pick-up expense, which again you can kind of look at it as saying, should that really be an expense or shouldn’t it. I guess, from a GAAP perspective it is, but from a real cash perspective it’s not. So, you can kind of do the math between Novatel of $7 million year-to-date, Nerve of almost $1 million year-to-date, and then Dusenberry Martin of $2.8 million year-to-date and Pansend of $4.7 million year-to-date. So, key part of this is our controls and it is I’m sure that now that you see what the real cash cost are, you will be, you were somewhat pleased knowing that we’ve got our arms around this business. And continue to monitor and manage our cash effectively. So, I kind of moved around a little bit but I thought that it was important, very important that I go through this slide on Page 6, so you see what the real numbers look like, I shouldn’t say real numbers, but what the numbers look like when you really get down underneath them. CapEx continues to be quite low and quite manageable. We don’t see any major uptick there. So, we’re overall I believe in very, very good shape here. I’m going to now hand it briefly over to Mike Sena, he can kind of walk you through the financials. And then I’m going to hop back on and tell you a little bit about what our goals are as we are coming up on the end of the first year. And where we expect to go, what we want to focus on and really what we want to be. So, with that I’ll hand it over to Mike, and he can kind of walk you through some of the numbers quickly. And then open it up to Q&A. So, Mike, Keith and myself will be available to answer any questions. So, Mike, you want to pick it up from here?

[Michael Sena:]

Thanks Phil and good morning everyone. I wanted to just take a few minutes to break down our results for the quarter. Book value [ph] continues on similar trends for the year-to-date trends covered earlier. I’ll start off with a discussion around net revenues for the quarter as compared to the prior year, and then as compared to the second quarter. Moving on to Slide 11, net revenues increased $98 or 54.6% to $277.5 million for the three months ended September 30, 2015 from $179.4 million for the same period in 2014. On a pro forma basis, assuming the Global Marine acquisition occurred at the beginning of the quarter, revenues increased $53.5 million. This increase was primarily due to the expansion into the Latin America and other emerging markets in our Telecommunication segment and was offset in part by declines in our manufacturing segment due to projects in the Midwest and Gulf Coast regions of the United States, particularly in the industrial market. And a decrease in installation projects as compared to the prior year period along with an unfavorable impact of exchange rate fluctuations for our Marine Services segment. Turning to the next page on Slide 12, net revenue for the third quarter of 2015 decreased $3.5 million or 1% when compared to the seasonally high second quarter of $281 million. The declines were driven by the same factors described above in manufacturing in the Marine services segment and were largely offset by the continued improvements in our Telecommunications segment. Moving on to Slide 13, income from operations for the third quarter was $2.4 million compared to $3.3 million during the second quarter of 2015. The decrease in operating profit was largely the result of an increase in acquisition cost as we look to close the insurance transaction in the fourth quarter along with lease termination costs in our Telecommunications segment as they continue to consolidate operations into low-cost countries. This was offset in part by cost savings in our Pacific region and favorable mix in higher margin projects in our manufacturing segment. With that, I’ll turn the call back to Phil for closing remarks.

[Philip Falcone:]

Thanks Mike. Again, some of the things that I want to just kind of close out the call on is, goals. What do we want to do, what do we want to be and what’s important to us. I’m very happy and very pleased with our platform right now. We’ve got essentially four platforms that we that are all EBITDA positive that we believe will continue to provide value. We’re clearly going to look at and be acquisitive on these various areas. And we’re also going to look at other platforms, we’re very keen on the Ag space, we’re very zeroed in on that. But the important thing for us going forward is now that we have our platform set let’s focus on accretive cash flowing acquisitions. You’ll see more of a focus on possibly larger transactions we do and we continue to see or we continue to feel good about some of the smaller investments we’ve made. But as everybody knows, they take a lot of, just as much time on some of the smaller things as some of the larger things. So, as we move forward you will see us less focused on smaller start-ups and quite frankly I find it hard to believe we’re going to focus on a lot more start-ups. What I want to do and what I want to focus on is the larger transactions, get back to our bread and butter. Focus on some of the bigger accretive deals that are coming across our plate as we, as this market disruption continues. Cost controls, very important but I think as I walked you through those numbers, you’ll see that our real corporate overhead at HC2 is still pretty low. And I think that’s very good news, we saw a little bit of a spike in our legal cost because of one-off transactions. There is, clearly some deal related expenses as well as Mike mentioned. But I think in general, the real corporate SG&A how I look at it is still in good shape, we could squeeze out a little bit more but it’s not unveiledly or out of control. The third thing is, for us is really cost of capital, I want to reduce our cost of capital. How do we do that? Well, it goes back to accretive acquisitions and cash flowing businesses and finding companies where we can pay dividends in getting more dividends out of our subsidiaries. So that’s a focus of ours. And it’s also going on the road and explaining our situation because I think as people see and understand what we do and how we do it, they’re pleasantly surprised. So I guess, I’d just like to sum up by saying very good quarter for us, in-line with what we expected. CapEx under control and again, I just really think it’s important to emphasize that EBITDA number and how we arrive at that versus I don’t want to say true EBITDA number. But there is some noise in there that I hope I have explained to you guys so you can maybe even back some of that to get the number that we most normally think about and how we think about EBITDA. But very pleased with our platform and very pleased with where we are right now. So, with that, I’d like to turn it over to the operator for Q&A. And hopefully we can ask some questions, or answer some questions. And give people more clarity if need be.

[Operator:]

[Operator Instructions]. Our first question comes from the line of Bradd Kern with Armored Wolf. Your line is open.

[Bradd Kern:]

Hi guys, thanks for the call. Good quarter. How are you thinking of the capital vision of the company and the debt capacity, just give an ongoing progress at the operating level?

[Philip Falcone:]

Well, we always want to think about keeping our debt as obviously as manageable as possible. We have some pretty tight covenants which is I don’t want to say limiting our flexibility but we don’t have a lot of flexibility on the debt side. But I think in terms of taking a step back, we want to continue to push to lower our cost of capital, lower our debt. And I don’t want to say de-lever or balance sheet but we will continue to look opportunistically for acquisitions that will lower our total indebtedness to equity. There are situations out there that we can, we feel like we can capitalize on without a lot of cash. We have zeroed in on a number of these. But there is a delicate balance. And the covenants in profit and debt are, don’t give us a lot of flexibility but give us enough to do some pretty interesting things. So, I don’t know if that answers your question but I think it’s important for us to get our cost to capital down and continue to expand our platform. And as we did at HRG, focused on getting dividends out, when I was first there and started building that Spectrum brands were just coming out of bankruptcy and fidelity and guarantee was distressed. So there were no dividends coming out. So, that’s a very important thing for us to be able to generate and focus on companies where there is, dividends. And I think we’ve established our ability to do that and with our dividend that we expect in the fourth quarter will get us to mid-20s in for first full year, which I think is pretty darn good.

[Bradd Kern:]

Okay. Thanks for that.

[Philip Falcone:]

Yes.

[Operator:]

Thank you. [Operator Instructions]. And I’m showing no further questions at this time. I’d like to turn the call back to management for further remarks.

[Philip Falcone:]

Okay. Listen everybody thanks again for taking the time. We’re very pleased with this quarter. I hope we’ve explained it in detail as you would have liked. If not, clearly we’re here to answers questions going forward. Communication is obviously very important, both communication on the numbers as well as communication about our strategy. And hopefully we’ve been very clear with how we’re going to run this business going forward. So, with that, thanks again and thank you operator. And everybody have a good day.

[Operator:]

Ladies and gentlemen, thank you for your participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone, have a great day.