HC2 Holdings, Inc.
Q4 2015 Earnings Call Transcript

Published: 16 Mar 2016

[Operator:]

Good day, ladies and gentlemen and welcome to the HC2 Holdings Q4 and Full Year 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 instructions will follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference Ms. Ashleigh Douglas, Director of Investor Relations. Ma'am you may begin.

[Ashleigh Douglas:]

Thank you, Kelly 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; Mike Sena, Chief Financial Officer; and Keith Hladek, Chief Operating Officer. 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 discuss 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 the forward-looking statements. During the call, management will provide certain information that will constitute non-GAAP financial measures under the SEC rules such as pro forma 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:]

Thank you, Ashleigh, and good morning, everybody and thank you for joining the call today. 2015 was a year of significant milestones for HC2. We are pleased to update you on the continued progress we've made building out our diversified holding company. On the agenda today I will start with a brief recap of the results for the quarter and for the year and we will also provide a few operational highlights from our primary operating subsidiaries and we will then finish with the Q&A. I am assuming that people have the presentation in front of them, so I'll be walking people through the presentation this morning that we put up on the site. So if you turn to Slide 4, which is the beginning of our presentation today, the year ended very strong. We are very happy about where we are and about what we've done for the year. The net revenues totaled $361 million for the fourth quarter and we reached a milestone of over $1.1 billion for the fiscal year, net revenues for fiscal 2015 increased nearly 105% when compared to fiscal 2014. And I think it's important for people to understand is how we think of our businesses and the key focus for us is the adjusted EBITDA from our Core Operating Subsidiaries, which totaled $26.7 million in the fourth quarter and $96.9 million for the full year. Those Core Operating Subs include Schuff which is in the Manufacturing segment, the Global Marine which is in Marine Services, ICS which is in Telecommunications, American Natural Gas which is in the Utilities and Continental which is in the Insurance. We view that as our core platform and of course we expect to expand on that platform over time. We do have Early-Stage, the Early-Stage investments which will also get through, but I think what people have to think about from a core perspective and how we are doing from a operational perspective is to focus on these core platforms. Balance sheet remains very strong with total consolidated cash, cash equivalents and investments of $1.5 billion. Keep in mind that that -- a big chunk of that is the insurance portfolio that we acquired. Corporate cash at $41.2 million as of December 31, 2015, which does not include any securities that we may have in the Holding Company. Finally in December 2015, we completed the acquisition of United Teachers Associates Insurance Company and Continental General Insurance Company from American Financial. This is forming the LTC division of our insurance platform, Continental Insurance Group. This is a very key acquisition for us. We felt our timing was right. We have a certain theme and philosophy here that we plan to build on. So this is a good acquisition we got under our belt. It took us a while but -- and had a lot of Ts to cross and Is to dot, we got it done. I think it's also important to understand that we hired to run that unit, individual by the name of Jim Corcoran. Jim joined the team and brings an incredible wealth of knowledge and relationships in the -- from the insurance industry to the team. Jim was Superintendent of New York State Insurance from '83 to '90. So it should give you some indication of his experience in that, in the industry and his relationships and is clearly opening up a number of doors for us to build on that platform. And clearly he was very instrumental in bringing this one home. So we are very excited about this unit and feel like we have got the right team in place with Jim leading the way. Turning to Slide 5, a quick snapshot of again how we are looking at our reportable segments. On this page we have summarized the segments to show how we think about and how we manage our business. Within our Core Operating Subs we include Manufacturing, Marine Services, Telecom, Utilities and of course the newly acquired Insurance segment. All of these segments are majority-owned with proven operating histories. With the exception of the recently formed Insurance platform all of these segments generated positive EBITDA in 2015 which I think is a very good step for us. When we acquired the company in 2014, the PTGi business with negative EBITDA and that's turned around and as un sexy as that business is, there is an opportunity there and we expect to continue building on that and the good news is that it is now EBITDA positive. Of course American Natural Gas which we will get into -- we could get into a bit later is now positive EBITDA and we continue to build out in that area and despite oil prices we are finding opportunities in that area. And I say despite oil prices because obviously there is -- with the drop in oil price comes a drop in diesel but there is a drop in NatGas. So we are -- we continue to be excited about opportunities in that segment. Below that, below our Core Operating Subs, we list Early-Stage and other holdings consisting of our Life Sciences and Other segment. I think in walking through this quickly you'll see a number of different things that we've got in Life Sciences unit, that is, I continue to be a big believer in that area. We've got two great people running that unit, very knowledgeable. It does cost a little bit of money to operate and to run but there are some very, very exciting things happening in that portfolio with some of the companies that we've been involved with and some of the companies that we are controlling. So I am expecting big things from that unit and even though it is a bit of a cash drain for us, we continue to be extremely supportive and excited about what's happening there. The Other which is on the right side of the page includes Novatel, Gaming Nation, Dusenberry Martin Racing and Nervve and we are hoping that one of these can be -- kind of move up to that Core Operating Sub platform at some point. We own right now about between the insurance company and us and the holding company about 20% of Novatel. They recently filed and I think things are turning around there and we are happy with what we see so far. Gaming Nation, Dusenberry Martin and Nervve are kind of small investments for us and we continue to try to push those forward at the same time. Let's move on to the next page, Slide 6, where I'll discuss EBITDA for each of the segments. So as you can see, the Core Operating Subs looking on the left-hand column of quarter four 2015, $26.6 million, fiscal year 2015, $96.9 million, adjusted EBITDA for our Core Operating Subs and as I mentioned earlier Telecom and Utilities achieved positive full year EBITDA. Clearly the growth was driven by Manufacturing, Telecom and Utilities, but in the Marine Services despite some of the margin pressure in the shipping business with more ships coming onto the market these guys have done a super job. And one of the keys with Marine Services is there are maintenance contracts which again doesn't fluctuate and keeps that business relatively stable. So there was a lot of questions and concerns about the pressure in that area and we have held up very, very well. Very happy with how these guys have managed the business. Full year EBITDA in that unit is $42.1 million. And one of the things that I have not talked about and we have not discussed is some of the JVs that these have got, that Global Marine has which I will get to a bit later in the program. But extremely valuable and one notably is the JV with Huawei Marine or with Huawei Technologies. Keep in mind that Global Marine owns 49% of a unit, a JV called Huawei Marine Networks and this is Huawei's subsea cable business. That business has grown dramatically over the last number of years and we have seen operations improve. We don't disclose a lot of the numbers on it, the numbers have been disclosed by Huawei in their 10-K. So I think that is kind of the [sleeper] for us that unit in Global Marine that we -- when we first acquired Global Marine, quite frankly valued at zero and that would not be the case today. So we are very excited about what we are seeing in that area. Turning to the Early-Stage and Other Holdings, again as you look at our numbers, it's very important to understand how the business is developing and where we are seeing some, I will say, I guess cash uses and it's important that it's not -- understand that it is not in the Core Operating Subs. As you look at Early-Stage and Other Holdings, the Life Sciences for the quarter was negative $1.9 million and negative $7.2 million for the year. And again these are majority owned or corporate holding -- corporate expenses that we have to roll up, companies that we have invested in, that we own more than 50% that we have to roll up into our financials and we think it's important to give people a bifurcation of these Early-Stage versus Core. So Life Sciences is $7.2 million and the Other of $18.3 million for the year is again rolling up the investments in subsidiaries that are not part of Core. For instance of the $18.3 million over $12 million of that is a Novatel, not a cash expense. But the way we have to account for it from a GAAP perspective is, if we own 20% and we are considered an affiliate, of that $18.3 million over $12 million is Novatel and clearly we are not funding Novatel's operating losses but we have to include them in our income statement and in our adjusted EBITDA. The additional Other expenses include the investments in DMR and Nervve and again because they are affiliates or greater than 51% we have to roll those up. So it is not indicative of our core operating EBITDA and is more from a GAAP perspective how we have to report our financials. So that total Early-Stage and Other is a drag but again it's not like -- it's not as if we are running our -- it's not as if it's a drain on our Core Operating Subs. The non-operating corporate is -- I think this is a key number for us. It's less than negative $19.5 million and that's really the cost of running our business. That's really our corporate Holding Company expense and it's been around between $4 million and $5 million a quarter. We are taking steps to get back down, of that $19.5 million for the year 2015. Keep in mind that also includes legacy expenses of $1.6 million. But that is what makes up that $19.5 million of non-operating corporate is salary, rent, legal and accounting, insurance, T&E, PR, et cetera, and that -- the run rate is then again between $4.5 million and $5 million a year. I need to get that down focused and we have I believe the right measures in place. I would like to see that number below $18 million. We had just by virtue of a number of things that we were doing this year, legal and accounting accounted for over $6 million of that $19.5 million in and of itself. So I do expect that number to -- and I am pushing to get that number down. But I thought it was important to walk everybody through that, so people could see how we are looking at the business and how I believe people should look at the business. Let's turn to Slide 7, I will go through a little bit of detail on the underlying operating entities beginning with Manufacturing, Schuff International, Rustin Roach and his team, Rustin is the CEO and his team have done a phenomenal job of moving this to one of the premier fabricator designers in the steel space. They continue to see a tremendous amount of business. You have seen some of the -- and you have talked in the past about some of the different projects that these guys have worked on. Again this is not building up, not fabricating and erecting a target distribution center. This is -- these are complex projects, very highly engineered and Rustin and his team have really brought this company to the forefront and continue to see a lot of growth. When people talk about the slowdown in the industry or construction these guys and we are not seeing it. So adjusted EBITDA is several major -- adjusted EBITDA grew by more than 13% to over $52 million in 2015. When we were first looking at this company and when we first acquired it, it was -- the EBITDA was in the 30s. So we continue to see growth here. The growth in EBITDA was driven primarily by increasing profit margins which is always good to see and as it continues to focus its strategy on higher margin projects. Schuff will remain focused on bidding on the right jobs and not all jobs of course. New projects include the Volvo facility outside of Charleston, South Carolina, Anaheim Convention Center, Loma Linda University Hospital in L.A. The hospital project alone will utilize over 16,000 tons of steel. Ongoing projects include the Apple world headquarters in Cupertino, Wilshire Grand in L.A. and when completed will be the tallest building west of the Mississippi. These are very high profile projects which I think will continue to move Schuff in the right direction. As I mentioned earlier Schuff continues to drive their growth while maintaining an impressive backlog. We recorded $381 million of backlog at the end of Q4 which is up about 7% from year-end 2014 and the company has seen continual growth in year-end backlog and at the moment is clearly looking to increase that number. But we are very pleased with what we've seen and what we have right now at the moment. Looking ahead the company continues to increase and diversify its sales pipeline and we anticipate growth being driven by commercial healthcare and the industrial market sector in particular. So that was a quick snapshot of Schuff, very happy with what's happening there and we continue to see good things happen and expect a good year in 2016 from Schuff. Moving on to Global Marine, we have experienced some critical milestones at Global Marine over the past few months as this company continues to win business and expand our relationships. A very solid management team. Team has been around for a while, again one of the individuals that we brought on board comes with a tremendous amount of experience in the shipping industry, Dick Fagerstal who was at Seacor. Dick is really running that unit not the necessarily the day-to-day but really building and he is the visionary behind that and the team on the ground is led by Ian Douglas who is phenomenally solid and he continues to do a masterful job. So we have got that. We are very comfortable and solid, very comfortable and happy with the management team. The one of the other key things here is the offshore power non-compete with Prysmian expired in November and Global's reentry into this market was incredibly successful when we were rewarded the Wikinger wind farm contract, first major win in the sector. Just to give you guys some background, when we bought the company we couldn't compete in the offshore power market because of this sale to Prysmian and we think and we believe and we are seeing a lot of growth in that area and we couldn't compete in that area for quite some time and had to wait for this non-compete to runoff. So now that it's runoff we believe and we think and we are seeing opportunities in this market and getting this Wikinger wind farm contract was a big coup for us. Additionally the acquisition of CWind Limited, a leading offshore renewable specialist was completed in February, demonstrating Global's commitment to the offshore renewable sector. It was a great acquisition for us. We feel like we bought it right and are looking at good things from CWind. Global Marine also secured a maintenance contract renewal with NAZ which was extended through 2024. This is a very important milestone and one we will work to replicate with our other partners. But when I talk about volatility you get contracts like this and these guys get contracts like this. The fact that we got a maintenance contract and this is a very big, very sizable contract, a very key contract for us extending to 2024 clearly stabilizes -- will stabilize any volatility and help stabilize any volatility that people might think is in the subsea space. So that's a great part of the business in the maintenance area. Finally we remain very encouraged with Global Marine's JVs. As I mentioned earlier Global Marine's JVs with Huawei generated north of $200 million of revenue in 2015 and the JV with SBSS contributed more this year than ever before. In fact I think and just to make a point that Huawei in integrating this JV that's 49% owned by Global Marine, recently secured a contract to build the Cameroon-Brazil Cable System connecting Africa to Latin America. Huawei Technologies is quite powerful and the fact that we own 49% of this thing that we valued essentially at zero when we bought the company is really turning out to be a diamond for us and as they say sometimes better lucky than smart. But I'd like to say that I believe that that was a crown jewel but I didn't put a lot of emphasis on it and now I'm looking at it as a unit that could generate and could create a tremendous amount of value for us. Macro conditions in the oil and gas market continue to weigh on the installation business in the second half of 2015 and Global Marine is seeing increased pricing pressure in this segment. The outlook for Telecom and offshore power installation remains robust. The competition is growing. Unit capacity in this market is about ships and of course with what we're seeing in the shipping -- in the oil and gas market one would realize that there are some of these ships that can move into different parts of the market. I think one of the beauties of trying to take advantage of that part of the business is, there are some of our -- the opportunity to increase our capacity with acquisition of capacity via a downturn in shipping prices. So we are looking at and have looked at and have made some inroads on increasing our capacity and replacing a ship or two and taking advantage of the downturn in the oil and gas market by -- and trying to take advantage of it by capitalizing on some of the shipping costs and what's happened there, or the shipping prices I should say. Despite increased competition Global Marine's backlog stands at $255 million as of the end of 2015, which takes into account the most recent NAZ contract extension. This is up 29% to more than $50 million from year end 2014. This number does also not include the CWind backlog. So we have really made some great progress here and I really commend the team for continuing to bang away and build that business. The CWind backlog is over $20 million. So, kind of collectively between the two you get $275 million of backlog. So we are very happy about what's happening there. We have clearly great confidence in Global Marine's ability to execute and win business across its diversified core markets and looking to create additional value with our JV partners. And very focused on renewing the long-term Telecom maintenance contract which again really flattened out any volatility that you would think could exist in that marketplace. And in the offshore power space we will look for more opportunities to sell [cross win] and we think that that business will lead to continued growth across the entire Global Marine System marketplace. And clearly we continue to evaluate various M&A opportunities to strategically add capacity over time. So very happy with and very pleased with Global, again coming in at $42 million of EBITDA for the year is a I think a big plus for us and [indiscernible]. Now looking at -- turning to Insurance which I think is a little bit misunderstood, that Long-Term Care space we continue to think selectively there is opportunity here. This has been -- we have received a lot of questions on this. We spent a lot of time looking at this, a lot of time analyzing it. I think we have bought the right portfolio, we bought the right platform. Keep in mind this is -- we just didn't buy a portfolio, we bought a platform that can do the servicing which again is very important. This servicing group was part of American Financial and that team is down in Austin, it's about 75 to 80 people. This will serve as a platform for other Long-Term Care books of business that we can acquire and service. CIG is led by the industry veteran Jim Corcoran who serves as the Executive Chair of CIG. As I mentioned earlier, Jim has extensive experience in the insurance industry on both the corporate and regulatory side, as a former Superintendent of Insurance of the State of New York. Jim shares our vision for the platform and we are very, very happy to have him on our team. Jim and I have been talking for a long time about different things and different opportunities in the space and we are kind of serendipitous that he was available and this acquisition was available at the same time. In conjunction with the acquisition and formation of CIG, HC2 also formed Continental Insurance Inc., CII, which is a wholly-owned sub of CIG and this will be solely dedicated to the Long-Term Care insurance sector. We believe CII is uniquely positioned to service solution to address some of the key challenges faced by multiline insurance insurers. Recognizing the losses from legacy LTC books and transferring LTC business can allow these companies to realize gains similar to AFG and pursue better corporate ratings and market sentiment in order to move on to more core areas of focus. And that's where we think the opportunity is for a group like ours who is not focused on other insurance areas, who is not writing new business. There's a real opportunity for us to acquire the right legacy LTC books. As you have seen out there, there is a lot of pressure on the marketplace. We look at that as an opportunity. Our plan for CII involves the following. Its concentrated focus on evaluating and acquiring LTC books to run our business and enhancing efficiency and effectiveness through scale to the extent that rate increases can be mitigated through cross savings. I think another and one other point, as of December 31, 2015 the acquired insurance companies with CII had $80 million of [GAAP] surplus capital and $1.9 billion in total GAAP assets. That $1.9 billion of GAAP assets includes the insurance portfolio that we acquired. One of the -- just one quick comment that I want to make about Long-Term Care and how we're thinking about it and how I am thinking about it, is there's been a lot of criticism but I think that -- by not criticism of us but I think of the industry and people are not looking at the opportunity where in the Long-Term Care space people are concerned that people are living longer and as a result your claims, you will have more claims. Well there is a theory of morbidity versus mortality and how morbidity is more important than mortality and what I mean by that is that people may be -- they are healthier longer today. The average 85-year-old is healthier today than they were 10 years ago and guess what, over the next five or 10 years ago they are going to be healthier. What does that mean, potentially less claims, as an 85-year-old you are not in-home care, you are not in a nursing home today or less likely to be today in a nursing home versus 10 years ago where you were in a nursing home. The mortality rate hasn't necessarily changed all that much. As you are getting older, you are getting older but you are healthier. It doesn't necessarily mean that you're living until 105. So we kind of take a different approach and different thought process behind this and as people are more healthier that means they are paying their claims longer and less -- or paying their premiums longer and less likely to file a claim. So and that's -- those are factual issues that I think people will continue to see and continue to realize as they look at the Long-Term Care space. So we may be unique in that approach but that's how work we are kind of looking at it and we are pretty excited about the opportunities out there. But the plan is you got to do a lot of work on the portfolios and we've got a couple of people here that are, including Jim, including the team down in Austin, that are continually picking through opportunities in the marketplace. So moving along and I will try to speed up the pace here. I know it's slowing down a bit, but just moving quickly through Slide 10, PTGi the ICS business delivered a solid quarter four and overall vastly improved year-over-year result. Company delivered $192 million in sales in quarter four with annual sales of just over $460 million. Wholesale telecom division continues to improve, delivering $2 million in adjusted EBITDA following the overall restructuring plan which was completed in early 2015. The annual adjusted EBITDA of negative -- of $2 million positive $2 million is much improved relative to the 2014 adjusted EBITDA loss of $1.2 million. One of our key objectives here is to continue to leverage the assets within this industry. The fact that we connect landline and mobile carriers worldwide with over 800 plus wholesale interconnections globally provides us with a great opportunity to continue to leverage these existing cost effective infrastructure and are looking to bolt-on higher margin products and other M&A opportunities in this space. These guys have done a very good job, led by [Craig Benson] of turning around this business and keep in mind again this was a discontinued negative EBITDA company when we bought it. We could have continued to look to sell it but we made the decision in-house that there was an opportunity there as [un-sexy] as the business might be we like things like that and are trying to take advantage of it. Quickly to Slide 11, American Natural Gas. American Natural Gas continues to expand its network of fueling facilities and achieved positive EBITDA for the year ending 2015. ANG commissioned a fueling facility at Tops Friendly Markets distribution center in Lancaster, New York. Tops fleet of 55 tractors is now fully operational and was currently exceeding its contracted take-or-pay quantity of fuel on an annualized basis. The company completed a construction on a design and build project in Buffalo for which ANG will operate and maintain the facility for its owner We-Care Transportation. ANG broke ground on new facilities in Rochester, New York, Saratoga Springs and Georgetown. All three facilities will be fully publicly accessible CNG fueling stations that are capable of handling Class 8 vehicles and scheduled to be commissioned in 2016. In December Congress again retroactively extended the VETC federal alternative tax -- alternative fuel credit for 2015, but this time extended it out a year to 2016. We do expect to receive our VETC refund in the second quarter of 2016. Just a couple of comments here that -- of this business and why we are focused on it and why we continue to think that there's an opportunity here. This is a very I don’t want to say Early-Stage but there's a tremendous opportunity for growth there despite diesel prices being where they are as a result of oil prices. Guess what natural gas prices are low as well and we are still seeing a very good cost savings between diesel -- the gallon equivalent of diesel and gallon equivalent of compressed natural gas. So as we think the market becomes more educated, we think that opportunity -- you'll continue to see transportation companies who have very low margins to begin with realize that, by the way I can get an additional ramp in my margins if I go to compressed natural gas, which is incredibly plentiful in the U.S. and that's one of the beauties of it. And aside from the fact that there is less emissions you kind of look at those two things together and realize that while this is not an overnight situation where you are going to see our stations go from 14 or 13 to 23 or 53. There is a real opportunity to grow this business and to really extract and to see value creation. We have got a young guy running it that is -- really minds his nickels and dimes and that's how you have to run this business. Drew West is the CEO and is an owner. When we bought the company, just a little tidbit, I really like the fact that this guy mortgaged his house because he believes in building out the business and you get somebody like that running your business you feel pretty good at night that he is really again mining the nickels and dimes and he has done a very good job despite oil prices coming down and continue to plod forward and I think you are going to see good things from this unit. Just moving on quickly again to some of the Early-Stage holdings and some other highlights. First Genovel Orthopedics, one of Pansend's investment partners recently signed a second license agreement with an NYU. We are very big believers as I mentioned in this space and David Present and Cherine Plumaker being the two that we brought on board to build out this unit and they are very methodical about their approach. We are continuing to see a number of opportunities in this space, but they are very selective and I think that the four that we have under our belt right now, BeneVir, R2, Genovel and MediBeacon are nothing short of I think excellent opportunities and I think you would see and hopefully will see some continued developments here in short order with these acuities working out in the very short term. But just a quick overview of each of them. BeneVir is a oncolytic virus patent in preclinical trials. R2 Dermatology is novel skin lightening technology, it's a real machine, it's not a cream or anything like that with a fantastic partners. Genovel is the late stage development of patent protected a Mini Knee Replacement and Anatomical Total Knee Replacement and again the people behind this and the groups they are working with are first class. And MediBeacon is noninvasive real-time monitoring system for kidney function, nothing like it in the marketplace. So very excited about that. Some people look at it, and say, why you are spending money on this? Well we are spending money because we are believers in it. We believe that these things will turn out. Now in the Other, we are a little bit disappointed with what's happened in some of the situations that we have in the Other, but we continue to support them and are believers that these situations will perform for us. But if I were a little bit -- I guess one area that I am not 100% pleased with is the some of the investments that we've made in this area, but they are small, but I don't like losing money and we are kind of figuring out what we are doing with some of them. But the good news is that they are relatively small. I do think one or two are going to be fine and Novatel of course is public and with the addition of Sue Swenson there as the CEO, I think she's an acquisition of the South African business. I think that's going to turn out okay and she's crossing all the Ts and dotting the Is. I think that company is a little bit misunderstood, but I don't want to spend too much time on it. But I think she's doing the right thing and you will see some results there. And we have got our work cut out for us on a couple of other things -- a couple of the other names. But again there -- we are struggling a little bit with them but the good news is that they are small, they are not core and we are either going to fix them or exit. But I don't think -- I think it's important to understand we are not focused on continuing to look at the Other in the category. We are focused on bolting-on acquisitions in our core strategy, cash flow businesses. We are looking at adding other platforms or segments in the core, that could be good fit for the core strategy and clearly we continue to be behind Pansend. So I think that is really important to understand that we are acquisition focused on bolt-ons and adding to our platform on the core. Now just moving on to Slide 13, just a quick financial summary. We believe we are still in the beginning stages of building a dynamic and very exciting business. The strong performance of our Core Operating Subs underscores the strength of the foundation we have worked to build over the past couple of years. We've only been out this two years and where the company didn't have revenues, when we took it over and had the discontinued business now generating in our core operating strategy almost $97 million of EBITDA in those businesses that's a huge, huge step forward and you will continue to see us push in that area. Early stages I mentioned not yet cash flow positive but I think there is some excellent upside. As you can see by our cap structure today laid out below, our current market cap combined with our net debt results in an enterprise value of $452 million. I don’t want to tell you that -- trying to do the math but we are believers in what we see. We are well-positioned to continue to search for cash flowing, cash generating businesses and we will pursue our strategy to execute on the opportunities that we believe will deliver sustainable long-term value for our shareholders. That's the name of the game. We are here to build. We are here to generate value. We are here to see that stock go higher. Now it's one area I am -- one thing I'm not happy about is the stock dropping from where it was to where it is today. I think there's certain technical factors in the marketplace that I'd rather not go through right now, that have pushed us to -- pushed the stock a little bit lower. I believe that at least internally we have fixed everything or gotten to a point where we can really now move forward and really step on the gas pedal. We need to improve our shareholder register, there's no question about it. With the marketplace somewhat unraveling with some of the smaller cap stocks over the last two, three, four months, I'm not happy about it. I'm -- we see that stock price every day and that's not indicative of long-term value and I keep thinking that it's a marathon, it's not a sprint. But at the same time I realize that you guys are not here to think a little how of what the stock is going to be like in 2015. So we are very focused on this. We have to be methodical however or we can't -- we have to be disciplined. But we are very focused on it and hopefully you will have the confidence that we can continue doing what we are doing and continue improving. There is always room for improvement as I said. But we are exceedingly happy with where we are. I don't think the stock price reflects it. That will change, I believe. The proof will be in the pudding and the proof is in the pudding. So we are -- this management team is aligned. I am aligned. I am focused. And we will continue to perform and I'm optimistic that the stock price will perform accordingly. But it's all about driving value. In the end value will win. So with that thank you for your time. We will open it up to Q&A. So operator please open up the line for our Q&A. We will try to answer what we can. Obviously there are certain sensitivities around certain things, but we will try to be as open and transparent as we possibly can. So with that thanks again and let's open it up to Q&A.

[Operator:]

[Operator Instructions] Our first question comes from the line of Umesh Bhandary with Jefferies. Your line is open.

[Umesh Bhandary:]

Thank you for taking the questions. Maybe on the first and fourth operating businesses there, it obviously seems like those businesses have performed very well. Focusing on Schuff, you said the backlog is kind of flat sequentially, your revenue was pretty strong in the quarter. So can you maybe talk about a little bit in terms of the trends for booking in the quarter and how do you see that trend going forward in terms of bookings?

[Philip Falcone:]

I think the guys will tell you there's more opportunity than you can kind of shake a stick out there and we are looking at and we continue to book as we moved into 2016. I think one of the beauties of this is that these guys have a successful track record of stadiums, focusing on stadiums and if you think of opportunity set in and of itself of stadium builds there is only a few people that can do that. I heard the other day or was reading the other day that the Phoenix Suns are looking at building a stadium in the Arena. The Sacramento Kings building, the Golden State is building, the new Los Angeles Rams are building a stadium. So just in that entertain -- sports and entertainment segment alone there is huge opportunity. We are seeing some movement in Las Vegas and these guys cut their teeth in Las Vegas in the 80s. We are seeing some opportunities there. And the technology in healthcare market is strong as -- is extremely strong. Now that they are focused on building the right projects, they are focused on building and bidding on the right things. So we are exceedingly happy with that pipeline there and we also are looking at expanding into different parts geographically. We are typically not as strong in the Midwest. We looked at some acquisitions in the Midwest but people want too big a multiples. We are trying to be disciplined. We don't need to do that. We can build organically if we can't buy right. So the combination of moving into areas geographically as well as some of the very high-end projects that we are seeing is very, very exciting. So we are pleased with the opportunity set there and look forward to a big 2016 from these guys.

[Umesh Bhandary:]

Got it. And one other thing that you guys have done well in that business is obviously in terms of expanding the margins. So how should we think about the margins going forward and what kind of hedging do you have in terms of EBIT and net margins?

[Philip Falcone:]

Historically these are not super high-end margin -- it's not a super high-end margin business. We're just bidding on the right projects. You can -- I guess you can -- it depends on which project that you are focused on. The more design and engineering and complicated the project you are going to see a little bit higher margin. We like to think that we can continue with these types of margin businesses, but -- and we are optimistic on continuing with this trend. But it's all about the project that we are bidding on. You are not going to get this kind of margin building the distribution center in the middle of nowhere, but the more complicated projects they are there. I mean you are not going to -- I don’t want to say you are not going to see margins go to 20% but we are very happy with and think that we can be at or close to where we are plus or minus a point or two. I think these guys have no -- they are very technical in how they look at some of these things and pass on a lot of projects because of the margin. So we feel pretty good about that.

[Umesh Bhandary:]

Got it. Then just quickly switching over to the Marine business. You have been obviously you are talking about some of the slide coming in from the weakness in the oil and gas industry there. But I'd like to know, should we think of sort of like this $40 million of EBITDA is kind of the trough in that segment or how should we sort of think about that into the potential downside in that business?

[Philip Falcone:]

Well we don’t want to give forward projections and I want to be upfront about that. But we think with the addition of CWind and with the contracts that we have in place that we could be close to those types of numbers. There is -- one of the areas of growth that we expected when we first bought it was the oil and gas -- obviously the oil and gas offshore market and it's not there. And we had made up for it I think with -- not I think, we have made up for it and have seen improvement in other areas, i.e., the offshore power which is more up -- we think there is more opportunity there than we believe. And also this -- again I don't want to see [parking] on it, but the opportunity set in Huawei and Marine Networks and our relationship there, we could see some pickup and continued pickup there and we expect continued pickup there. So I don't want to tell you that, yes, we are going to be at or close to but I think we believe we should be within a stone's throw. It could be some little bit of volatility there but we are cautious. But we are cautiously optimistic I guess I would say.

[Umesh Bhandary:]

Got it. You seem pretty excited about the potential value within the JV. How should we sort of think about it? Is there kind of a framework that you can provide in terms of how to think about the value from that JV?

[Philip Falcone:]

Well I would encourage you to look at -- I think I can disclose this. The revenue base was like $200 million, almost up from, I don’t want to say nothing, but there -- the numbers were disclosed and we don't disclose the numbers. The numbers were disclosed in the Huawei 10-K, under Huawei Marine Networks. But this business just got started and the -- Huawei is a massive company and they are not doing this to the small players in this industry. So we have a very good -- I believe we have a very good relationship with them and are working very closely with them and they value our approach and our management team and the services that we provide. So we are very value-added to that but we are very excited about it. And believe that they are going to really drive that business. I can't really go into any more details than that, but you can kind of see what they -- how they are looking at the business from their 10-K that is disclosed.

[Umesh Bhandary:]

Got it. One final question for me, obviously the Insurance business is somewhat new to the platform here. How are you sort of thinking about how that might contribute this year's earnings and profits maybe especially in '16? I don’t want you to provide the guidance but just maybe just to thinking about that you do expect that to be a somewhat material contributor or is that not going to be the case?

[Philip Falcone:]

We look at the Insurance business as being as kind of [Biggie the dog] contributor but we fully expect that we will be able to gross that capital which is really the name of the game there and we are doing things in -- I should say the team is doing things a little bit differently and we are seeing some savings and I think it's all about the platform and the synergies of additional books of business. But there is a real opportunity here to really build the value in that unit and also to not only build the value for us but I think as we look at the business differently, I think the people that are on the other side from a claims perspective. Our objective is to really run the business so you don't have to have rate increases. That's that crux of how we are thinking about it. We want to bring something to the table. How can we bring something to the table, we are focused on it. We are doing things a little bit differently but when it's not a core focus you don't pay attention to it. Now I will just have to go back to the regulators and ask for a rate increase. We don't think that should be the case. We are not quite there, but we think that there is an opportunity for us to bring something different to the table. So for us it’s all about building the capital base. That's how we think we can build value and of course we are -- our focus there -- our focus as well on net income with this particular entity and we think we will get there. But it's definitely going to be I think an exciting opportunity because of some of the dislocation in the marketplace. And I like situations like that. I don’t mind volatility, because with volatility comes opportunities.

[Umesh Bhandary:]

Got it. Thank you for taking the questions, I will step back in queue.

[Operator:]

Our next question comes from the line of Bradd Kern. Your line is open.

[Bradd Kern:]

The first question is also on GMSL, on China Telecom JV with Huawei. How do you think of that asset being the path there, seeing you are the minority. So you are at 49% as it produces a lot of cash for a lot of the activity there. How do you -- I reckon you can talk about how much actual cash is on the balance of [indiscernible], but how do you actually access that cash balance? First question.

[Philip Falcone:]

Yes. I mean I can't really talk about how much cash is on the balance sheet, but there is a decent amount of cash on the balance sheet. It's all about from a budgeting perspective we have -- we are not a -- I don’t want to say a silent partner with them. So we have an active say in the business. Clearly we want to continue building that business over the long-term. We never expected to see major cash dividends coming up and now we are in a position where we think over time we could see a lot of value there and you have to be -- believe me you asked a good question, you have to be able to extract it. And we think working closely with Huawei at some point we will be able to. I don’t think that's a concern of ours. But it's not something that we are very focused on now because of the growth that we are seeing and we don’t want to stifle that business. We want to make sure that there's a lot of fuel there and that they have the appropriate flexibility and from a cash wherewithal. So maybe at the right time, I haven't really discussed in detail with Dick and Ian. But we are kind of looking at this long term building value and I guess at the right time you will see some dividend, if that's the way they look at it, but for the time being we are seeing enough growth there where -- and it's something that we didn't expect. We didn't focus on, maybe it's just me. I didn’t really put a lot of value on it in the couple of years ago when we first started looking at this. But I'm not thinking about okay, there is cash there let's take it out. Yes, there is cash. The cash is instrumental in building that business. My guess at some point we will, probably Huawei and the team will be kind of looking at each other, okay, so maybe it's time to take out a dividend or something like that. So I think that's -- I don't know if that answers your question, but that's how I am thinking about it.

[Bradd Kern:]

That's very helpful. And then moving over to the Life Sciences businesses. When do you expect that value to show up within HC2, where it gets to -- at some point you get to provide people data that that, I mean how would you expect to, nothing [indiscernible] but biotech analysts are waiting to invest, but then you have to hire a biotech analyst. I mean at what point you will be able to say [indiscernible]?

[Philip Falcone:]

That's a very good question. I am not a biotech analyst, which is why I brought in two people who are clearly smarter than me when it comes to that type of business. But I understand the value when I see it and I am hoping that you will see something in 2016. You can't push these things but -- and without going into too much detail I would suspect that you will see something, one of them in 2016 start really developing and moving and moving pretty rapidly. And there's others that are going to take a little bit of time. But there's one in particular that we are very excited about and ahead of where we thought we'd be. So I'm -- I would suspect you will see something in 2016. I believe by the third quarter.

[Bradd Kern:]

A couple of housekeeping questions. Can you -- maybe on this, but can you share what the year-to-date [indiscernible] is at Schuff?

[Philip Falcone:]

I don’t think I can go into that detail, but there again based on what I have said I think we are in very good shape. My guess is it's probably close to what you're seeing, what the fourth quarter was just by virtue of burn and additions. So it's not -- without giving you a number it's not dramatically different and we are -- if you put the existing year-end number as a plug you are not going to be far off.

[Bradd Kern:]

Then final question, just on adjusted EBITDA for the quarter. What is the $2 million other asset that's in there, sort of the balance?

[Philip Falcone:]

Which slide is that?

[Bradd Kern:]

That is -- I am digging out of the press release. It's Slide 16 really at the bottom of that?

[Philip Falcone:]

That's the $1.9 million.

[Bradd Kern:]

The $1.93 million.

[Philip Falcone:]

That's the -- so Life Sciences is obviously a unit and within that unit we have four investments. The non-operating corporate overhead is the $2 million. So it's almost like you have to think of it’s a couple of million bucks a year to run that business, not taking into consideration the EBITDA of the underlying subs. It's almost like a Holding Company for the underlying Life Sciences subsidiaries. That's what that is.

[Bradd Kern:]

So why is that -- why doesn't that add back [indiscernible] quarterly costs to the subsidiaries?

[Philip Falcone:]

Well we didn’t look at it as an add back. We are actually netting it out of just a -- we're actually netting it out as an expense.

[Bradd Kern:]

I am sorry, the $2.193 million on Page 16 at the bottom.

[Philip Falcone:]

Page 16 of the press release or Page 16 of the slide.

[Bradd Kern:]

Of the presentation.

[Philip Falcone:]

Yes, I am looking at $1.944 million.

[Bradd Kern:]

The last line of the quarterly -- of the fourth quarter adjusted EBITDA breakdown.

[Philip Falcone:]

Sorry, I was looking at the $1.944 million, sorry my mistake. Mike do you have the detail on that or can you?

[Michael Sena:]

Yes. Those are restructuring related costs related to the layup of vessels for the first part of [2015] that won't recur. So they are non-recurring costs.

[Bradd Kern:]

Okay. That's helpful. All right. Thanks guys.

[Philip Falcone:]

Sorry Brad I was looking at the wrong number.

[Operator:]

Our next question comes from the line Daniel Gurvich with Beach Point Capital. Your line is open.

[Daniel Gurvich:]

Thanks for taking my question. A couple of quick ones. So for Global Marine it seems that this is the second quarter at least according to my calculations that revenues trending down but EBITDA is trending up. Could you give us a little bit of color just on a quarterly, Q4, like what's going on there and what's causing the margin expansion?

[Philip Falcone:]

Well, you have to think of, when you are looking at the Global Marine business typically in maintenance you are getting slightly better margins and over time you don't have the OpEx associated with actually installation. So you will see a stronger margin business from just the standard maintenance contract that you allocate over time. It's a little bit different than when you're out trenching or drilling where you can run into slowdowns or issues. So I think that mix of business is the rationale for the difference in margin. It just brings up the other point of what I was saying that the installation business has slowed and the maintenance business continues to improve and be strong. And you will see -- if you that trend continuing you will see the top line go down but you'll see margin improvement as a result because of the difference in margin between installation and maintenance.

[Daniel Gurvich:]

In terms of the maintenance contract, so should we think of it as kind of substantially replacing the weakness in installation or is that should we think of it more of as an incremental to the current revenue base, like what's the trajectory in terms of the process going off and this one coming on?

[Philip Falcone:]

Yes. No question about it, it is a very good question. We are a little bit disappointed with the installation and I think that part of the business is still under a little bit of -- I don’t want to say, pressure is probably too strong of a word, but it is not as robust as we expected. I'd like to think that the maintenance contracts that we get and we have received will make up, they are clearly making up for it. We are not quite 100% making up for it. If that makes any sense. So if you lose a $1 from not installing, we like to think that you can make it up with $1 of installation -- maintenance. We are not quite there. We are not quite there. We are close and I think with some of the things that we are seeing in CWind we are going to be close, but we are not quite 100% there. Not awful lot but not quite there.

[Daniel Gurvich:]

And when you say replace -- the $1 to $1 replacing is that on top line or is that on EBITDA? Those actually will be -- the maintenance contracts should be very helpful in terms -- more helpful in EBITDA?

[Philip Falcone:]

Yes. You are 100% right. Not quite there on EBITDA. I think we are pushing hard to get there but we are not quite there.

[Daniel Gurvich:]

Last question I had on Global Marine, with the Huawei JV do you currently recognize that EBITDA in the balance sheet or do you not consolidate it and so it's not there [on adding back]?

[Philip Falcone:]

We have to consolidate it, so we consolidate a piece of it.

[Operator:]

Thank you. [Operator Instructions] We have a follow-up from the line of Umesh Bhandary with Jefferies & Company. Your line is open.

[Umesh Bhandary:]

Just one quick housekeeping question. In terms of the cash balance seems like the holding company is about [$142 million] but in the balance data you just number of a $158 million and that went up from $81 million last quarter. So how should we sort of think about that cash?

[Philip Falcone:]

The $158 million is inclusive of cash at the consolidated subsidiaries.

[Umesh Bhandary:]

And then really just [indiscernible] amount of cash sitting on the balance sheet, how do you -- I mean I am sure you guys are looking at several potential investments or potential M&A. what is really the kind of minimum cash you think you need to keep on the balance sheet?

[Philip Falcone:]

We -- its just kind of -- it varies. We obviously need cash to fund our operations and we are comfortable where we are now. We will look to building a little bit more cash over the next few months, number of months. But we don't need to sit on a $500 million cash balance, or $100 million cash balance, I think. I tend to try to run as lean as possible and depending on the opportunity set we will look to raise cash by opportunity. But we will look to raise a little bit of cash over the next three, four, five, six months and are kind of looking at a different -- couple of different things and couple of different alternatives. But we also have to make sure that the subs have adequate cash. So it's a delicate balance between extracting cash and making sure that they can run their businesses and don't forego on opportunity because we need to raise -- we need to have cash to be something else. It's accretive for us to think that we could make an acquisition in steel versus going to do something else. It's -- we balance -- that's a constant balance for us because a very important part of our business is going to be bolting-on acquisitions, because that's where -- once you get the platforms then you can steamroll ahead. And we are very focused on that. So the cash is not quite fungible in that sense but it is in a certain -- to a certain extent it is. So it's a little bit of a delicate balancing. We are constantly monitoring it. But it's not like we need cash to go out and make acquisition like the second. Some of the acquisitions, some of the things that we are doing are not small and looking at are not small, so whether we have an extra $20 million or $50 million in cash on the balance sheet is I think for me is kind of irrelevant and doesn't get me where I want to go anyhow.

[Umesh Bhandary:]

You alluded to potentially raising some cash opportunistically. Any sort of indication on how you might do that?

[Philip Falcone:]

I wanted to get this -- our 10-K is done and we had a lot of cleaning up to do. And we have been very varying on this. But now that we have -- now that we can start, I don’t want to say, forward-looking, we are always forward-looking but now we can spend a little bit more time thinking about it and thinking about the right way of doing it and looking at what we have on the table in terms of opportunities and what we need, what we don't need. I don’t want to just go out and raise cash for the sake of raising cash. I do like to think that we -- and you always need some cash to fund your operations. But for the right situation I’d like to think that we could come to the market for the right situation and kind of do a combination. So we are looking at a number of things right now and are kind of balancing the timing of do we go out and raise $5 million or $10 million or $20 million or do we need to look at one of the acquisitions and figure out we need $50 million or $100 million. I am just being theoretical but that's how we kind of look at it. So we try to run it a little bit lean in the short-term just because of the cost to capital.

[Umesh Bhandary:]

Thanks so much for taking my questions.

[Operator:]

Thank you. Our last question comes from the line of Kurt Hoffman with Imperial Capital. Your line is open.

[Kurt Hoffman:]

Can you share any thoughts you might have about timing of when the Holding Company could achieve kind of free cash flow either positive or neutral and do you think you can do that with the current spread of assets or is that you are going to require an additional kind of free cash flowing subsidiary?

[Philip Falcone:]

It's going to take a little bit of time. We went kind of through this same, I don’t want to say, growing pain, here at HRG, but it just takes time and we have a little bit different cap structure there than we do now. But clearly that is the objective. We are probably one acquisition away from doing that. But we have that on our bulletin board zeroing in on that as a key next step for us. We are not quite there but we have adequate resources, so that we don't have any problems, but ultimately how you want to run this business is dividends or other matching and exceeding your day-to-day liability. So that's one part of running the business that we are very zeroing on and we are not quite there, but I am confident we'll get there. But that's clearly a top priority for how I think about running the business. And you bring up a good point that, one of the criticisms of how we built this thing is we spent too much money on some of the non-cash flowing entities. So -- and that's why as I mentioned kind of that Other, we are not focused on that. We have our kind of just [indiscernible] the water. The focus for us now is we are looking at one or two other things in Healthcare and Life Sciences and I think what those guys are doing is fantastic and hope to be able to extract some value, that will possibly get us to what you’re the point of your question. But from a dividend perspective we are -- from a core perspective we're getting closer but we are not quite there. And how I think about like the next acquisition and the next thing that we are working, we have got of things that we are zeroed in on, that is a key and critical component.

[Kurt Hoffman:]

Well best of luck and thanks.

[Philip Falcone:]

Okay. Thanks.

[Operator:]

Thank you. I'd like to turn the call back over to management for closing remarks.

[Philip Falcone:]

Okay. Well thank you for your time. I know it's taken a little bit longer than we had hoped, but thanks again for your time. We are glad and sorry we waited until the last day, as you know we have a lot of housecleaning to do and we have really taken I think some right steps there and the team has done a super job. We are in a good spot now and thank you for your time. If you guys have any ongoing questions just feel free or give us a shout and hopefully we can help you with any additional information or questions that you have. So thanks again everybody and hopefully we will continue our dialog as we move forward building this business. Thanks.

[Operator:]

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