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Edited Transcript of HCHC earnings conference call or presentation 8-Mar-17 10:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 HC2 Holdings Inc Earnings Call

McLean Mar 11, 2017 (Thomson StreetEvents) -- Edited Transcript of HC2 Holdings Inc earnings conference call or presentation Wednesday, March 8, 2017 at 10:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Andrew Backman

HC2 Holdings Inc. - Managing Director, IR

* Philip Falcone

HC2 Holdings Inc. - Chairman, President and CEO

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Conference Call Participants

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* Sarkis Sherbetchyan

B. Riley & Co., LLC - Analyst

* Kurt Hoffman

Imperial Capital, LLC - Analyst

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Presentation

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Operator [1]

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Good afternoon. Welcome to the HC2 Holdings fourth quarter and year end 2016 earnings call.

(Operator Instructions)

Please note this call is being recorded.

I would now like to turn the conference over to Mr. Andrew Backman, HC2's Managing Director of Investor Relations and Public Relations. Please go ahead.

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Andrew Backman, HC2 Holdings Inc. - Managing Director, IR [2]

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I thank you for joining us to review HC2's fourth quarter and full-year 2016 earnings. With me today are Philip Falcone, Chairman, President and CEO of HC2; and Michael Sena, our Chief Financial Officer.

This afternoon's call is being webcast on our Web Site at hc2.com in the Investor Relations section. We also invite you to follow along our webcast presentation, which can be accessed on the HC2 Web Site again in the Investor Relations section. A replay of this call will be available approximately one hour after the call. The dial-in for the replay is 1855-859-2056 with the confirmation code of 71926737.

Before I turn the call over to Phil, I would like to remind everyone that certain statements and assumptions in this earnings call, which are not historical facts, will be forward-looking, and that are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to certain assumptions and risk factors that could cause HC2's actual results to differ materially from these forward-looking statements. The risk factors that could cause these differences are more fully disclosed in our filings with the SEC.

In addition, the forward-looking statements included in this conference call are only made as of the date of this call, and as stated in our SEC reports. HC2 disclaims any intent or obligation to update or revise these forward-looking statements, except as expressly required by law.

During the call, management will provide certain information that will constitute non-GAAP financial measures under the SEC rules, such as pro forma net revenue, adjusted EBITDA and adjusted operating income, or AOI. Certain information required to be disclosed about these non-GAAP measures, including reconciliations with the most comparable GAAP measures, is available in the most recent earnings press release, which is available on our Web Site.

And as a reminder, this call cannot be taped or otherwise duplicated without the Company's consent.

Now, let me turn the call over to HC2's Chairman, CEO and President, Philip Falcone.

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Philip Falcone, HC2 Holdings Inc. - Chairman, President and CEO [3]

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Thank you for joining us today. On the agenda today, I will start with a brief recap of the results for the quarter and the year, provide a few operational highlights from our core operating subs, and then finish up with a Q&A.

Turning to Slide 4, I'll start with a review of the quarter. As a general comment, I'll say. I'm very happy with our performance across the Board for the quarter and for the year, hats off to the operating teams at each of the subs, they did a super job. We again saw very solid results from DBM, including improved margins during the year and ending the year with a record backlog and a strong pipeline of opportunities.

So that that business continues to perform very well. Our timing and our geographic presence is really in the sweet spot of what's happening right now. So we're very excited about DBM and the job that Rustin and his team are doing.

Global Marine saw very strong performance from its JVs, particularly the Huawei Marine and SBSS JVs, as well as new contributions from offshore power as they recently reentered that market in the third quarter. Keep in mind, just to refresh everybody's memory, as I mentioned in the past that the Company had a non-compete in that offshore wind market, and now are able to compete and are getting contracts.

So that we look forward for that part of the Global Marine business to start contributing and becoming a real factor in the marketplace is, there are some really exciting opportunities there. In the telecom sector, PTGi-ICS continued its resurgence posting its 7th continuous quarter of positive EBITDA contribution. Those guys are doing a super job and we continue to see growth opportunities there.

And as I've said on every call and I'll probably say it on every future call, it's not exactly the sexiest thing, but that's fine with us, and we continue to perform and get dividends out of that Company. And keep in mind that this was an asset held for sale when we acquired the Company and the holding Company a few years ago. So the turnaround and the focus that we've had in PTGi has been fantastic.

American Natural Gas, very busy during the fourth quarter and the year, as they expanded their footprint to become a national player with the acquisition of 18 fueling stations, bringing the current footprint to approximately 400 stations across the country, a very long way from the two stations they had at the time of our initial investment.

So you're going to continue to see very good things from American Natural Gas. This is a Company where we see fantastic growth opportunity and we are really doing this methodically and I think doing it very smartly. And we expect to continue growing this business, as we think it's a very value-added proposition to our overall platform, as well as a opportunity in the marketplace to really continue growing on a national basis. So again, another one of those platforms that we're very excited about.

Looking at adjusted EBITDA from our core operating subs, we posted nearly a $38 million for the fourth quarter, up over 20% from the prior quarter and $109 million for the full-year of 2016. That's up 12% versus the full-year 2015, of course, due to improvements really across the Board, DBM, PTGi, and American Natural Gas.

So some very, very solid performance across all of our operating subs into now be up over the $100 million mark for EBITDA for the core operating subs, I think, is a real, real big plus for us. Consolidated cash and investments remain solid at a $1.5 billion inclusive of our Insurance segment and $91 million of consolidated cash, excluding insurance.

And finally, as we discussed on the last call, during the fourth quarter, we continued our four on adjusting our capital structure by reducing the outstanding amount on our preferred. This is continues to be a important thing for us. Clearly, over time we fully expect to lower our cost of capital. And I think that what drives that is operating performance.

We're getting our operating performance, and as a result, it is really contributing I think to some very strong investor interest across the Board. And again, it's critical for us to continue focusing on reducing our cost of capital, especially obviously, our debt cost of capital.

Quickly on Slide 5, this is again, how we lay out the portfolio. I'll dive into each segment in a few minutes, but we wanted to give you the quick snapshot. Key is building on this core, as well as, of course, addressing other potential platforms with a key and main focus on building cash flow and creating cash flow, or focusing on the cash flow aspect of the overall operation.

We have made some investments in the past and what we call the other category. And right now and we continue to think that going forward, our focus is going to be on really building on the platforms that we have of our core operating subs and trying to continue to improve and increase that that cash flow, that's the name of the game for us.

Turning to Slide 6, the segment financial summary. So, a quick summary of adjusted EBITDA by segment for the fourth quarter and the year. As I mentioned, core operating adjusted EBITDA for the fourth quarter and full-year were up 20% and 12%, respectively, again solid performance from really the key guys and as well as ANG and PTGi, still early stage, another holdings I think is a perfect category for them.

We do believe that there's some very exciting upside in the Life Sciences segment, and the way we have categorized this in a way we've looked at it from an adjusted EBITDA perspective, we think it's important for people to understand that that the life sciences and the other are still part of the adjusted EBITDA, but we wanted to break that out. So people get an idea as to what the underlying core businesses are doing from an EBITDA perspective.

And as you can see in Slide 6, the strong performance on the core operating subs. Now, one thing I think that is important to mention is that, of the $23 million negative early stage another holdings number as part of the adjusted EBITDA, the way we account for it is, we've included the minority interest that we have in names like, MediBeacon in Inseego, which is a NovAtel stake. And those two names as a for instance of that $23.2 million are over $8 million themselves.

So while we don't control, obviously, don't control Inseego and had a 22% or 23% interest there. The way we've accounted for it is, we've been, I think, relatively conservative and included a portion of their unfortunately negatively EBITDA. But from an accounting perspective, it's really a non-cash situation for us, but we like to include it to give people a very clear picture and break it down by category.

So, as you can see there, again, core operating EBITDA of $109 million. The non-operating corporate expenses at $25.7 million. We're obviously keeping a very close eye on this, but it's a growing business, and this includes compensation expenses associated with headcount additions, which we've done this year and we've filled some key executive team roles and bonus expenses associated with 2016 performance.

So, keep in mind that that number is all encompassing of what we're trying to do here at the corporate level, but does include compensation and bonuses and included some starting bonuses for a couple of people that we brought on board. But I think overall, just to clarify again that, we're very, very happy with how these subs ended the year and just continued very, very strong performance from our key cash flow operating subs.

Just zeroing in on DBM, Slide 7, again, very solid quarter. Adjusted EBITDA coming in at nearly $21 million for the quarter and $60 million, respectively, for the year. As you will see the increase in full-year adjusted EBITDA was up despite a slight decrease in revenue due primarily to the large projects in the Pacific region fully underway in 2015, and some delays on some starts for the other certain large projects in the Pacific and Midwest.

I think it's a testament to the team and how they're looking at the business and not going out and really trying to grow revenue at the expense of weak projects or poor margin projects. There's a lot of good solid business out there that the team has cornered. And they continue to focus on doing, of course, growing revenue and maintaining and building on that top line. But they're doing it, I think, very smartly and not trying to just go out and capture revenue at the expense of gross margin.

Margin improvement, which is typically due to better than bid performances is really, I think, again a testament to Rustin and his focus on more of a specialized jobs that requires DBMs extensive experience and expertise. As I always tell people this is not just the steel fabricator.

These guys have really changed the business around and are focusing really on phenomenal projects, but very complicated projects. And I think, as a result, you're seeing a continued improvement in margin, but they continue to do a very solid job there.

As you will see in the recent performance graph at the bottom of the slide, the revenues have consistently been above $500 million over the past three years. But again, a increasing adjusted EBITDA and an approximate 300 basis point expansion in EBITDA margin since 2014. We continue to think that that's the right approach, the more complicated projects, and I think that's a very key part of DBM selling point is that, they have the capability, they have the wherewithal to do these very complicated projects, and I think it makes them a very unique player in the marketplace.

At the end of the quarter, DBM had a record backlog of over $500 million versus $318 million at the end of last quarter. During the fourth quarter, all of the adjusted backlog, meaning, backlog or contracts or LOIs were not signed at the end of the third quarter 2016 was turned into backlog in the fourth quarter, including two key projects Loma Linda Hospital and the Google headquarters.

So that number is a record, again, I want to emphasize that. And there is a very good solid pipeline of potential opportunities in addition to that record backlog, including $400 million in potential project value that could be awarded over the next several quarters, including a number of new sporting arenas, stadiums, healthcare facilities, commercial office buildings.

So we fully expect that that you're going to see that that number increase. And I think that's a very good sign as to the strength in the overall industry. And you talk to Rustin and team about it, there is a good deal of business out there to be had, and we are on the doorstep of a number of those projects. So not only do we have that $500 million backlog today, but we expect to see that thing grow.

Turning to Slide 8, Global Marine. Overall, a good year for Dick and the team at Global, and long-term prospects remain intact for the business. For the full-year, Global Marine revenues were up nearly 20% to $162 million, primarily due to the inclusion of CWind maintenance revenues. This is the offshore wind market that I mentioned that the Company was now moving back into.

For those of you who don't remember, this is an acquisition that that the Company completed and very excited about the opportunity set there. And the growth opportunities considering that the Company was virtually shut out of the market for a couple of years by virtue of the non-compete.

Installation revenues were essentially flat, as increases from telecom and offshore power installations were offset by year-over-year decreases in oil and gas. Adjusted EBITDA $41.2 million for the full-year was essentially in line with fiscal year 2015 and was driven by the continued growth from Global's joint ventures, particularly Huawei Marine, as I mentioned earlier. Steady margin contribution for maintenance offset by loss reserves on telecom installed projects, increased unutilized vessel costs as a result of projects being canceled or slipping.

Global Marine backlog at the end of 2016 was $348 million versus $227 at the end of the third quarter, primarily due to the renewal of the ACMA maintenance contract we announced earlier this year, and I'll discuss a little bit about that shortly.

Going forward, we remain very optimistic about Global's long-term opportunities and for a number of reasons. First, the installation telecom backlog at HMN, which is the 49% on JVs currently at its highest level and we continue to position ourselves where we could see significant growth out of that entity.

As you may have seen earlier today that Global announced they had entered into an agreement to charter the Maersk Recorder with options to purchase the vessel over the next five years. This vessel will be renamed the CS Recorder and will enter the Global Marine fleet this quarter. And it's positioned to not only support expected growth in the HMN JV, but it's capable of undertaking operations in offshore wind and oil and gas.

While we do not expect to see significant telecom installed projects through throughout 2017, we do expect based on our current visibility meaningful activity in 2018 and 2019 through not only our HMN and our SBSS JV, but through our core GMS telecom installed business.

As I've mentioned over the past calls, there has been a bit of margin pressure just by virtue of what's happened in the oil and gas market. I think the fortunate thing here is that, we've done a phenomenal job operating around some of those pitfalls and also as well the performance that we've seen out of the 49% owned JV, while we Marine especially has been phenomenal. And keep in mind, that JV was a nonevent when we acquired the Company in September of 2014.

So we are very, very excited about the value proposition in that entity, very solid backlog in that JV. And again, it's been a value proposition that has really created some excitement here internally. And by the way, it is an opportunity for us to continue to grow the overall business and not just benefit from Huawei going out and building that that JV.

There's an opportunity for the Company to do the installation of some of the contracts that the JV has acquired. And the fact that we are now contributing a vessel to that JV. I would suspect that you will see the actual, there's certain revenues that we're going to be able to generate from the contribution of that vessel that we otherwise would not have received. So very happy about what's happening there.

Over the past 12 months, Global secured two of the three telecom maintenance renewal contracts. For example, earlier this quarter, Global was awarded a five-year contract extension for the Atlantic Cable Maintenance and Repair agreement, or ACMA, which expired at the end of December 2016. The contract extension now runs through 2021. The second zone in the North America Zone Cable Maintenance agreement was renewed in January of 2016 and runs through 2024.

The third zone called the SEAIOCMA, expires at the end of this year with negotiation set to begin in the coming months. And as I've said before long-term maintenance contracts historically have high renewal rates with contracts tending to be five to seven years in term. And we believe with Global's history operational performance and long-term relationships leave it well positioned for ongoing renewal, but it was a real feather in the cap of this Company to secure these two contracts.

This is a fantastic business for the Company. And I think again, it's a testament to the reliability and capability of the team and the confidence that these entities have in the team at Global to have five to seven-year of contracts in place with two of the three. And we are in a, I think, a pretty decent position, or in a SEAIOCMA, contract, which we are focusing on right now. But very, very positive move with getting, or positive steps forward getting those two locked up.

Third point, we continue to see optimism in the offshore power market underpinned by the visible industry growth as a result of government policy and increasing cost reductions that bring offshore wind closer to par with other sources of energy.

As I mentioned on our last call, Global reentered the power market with a new intra-array install project that began in the third quarter with that we're continuing in the fourth quarter. Over the next decade, energy production for renewables is expected to grow substantially with significant growth, in particular, from the APAC region.

Within the offshore power market, the North Sea is a pioneering region in East Asia, in particular, China forecast to see strong demand for offshore power cables. Global is very well-positioned now to participate in that growth of these two markets with ongoing contracts. In the North Sea and be it Asian presence and the SBSS JV, which is the leading Chinese cable installer.

So again, very well-positioned with what's happening in that marketplace. Going forward very excited that that we were able to complete that acquisition of CWind, which is more on the transportation side as opposed to the installation. But again, we think that there's opportunities for growth there. We're seeing that market pick up just by virtue of Global's expertise and credibility in that marketplace.

We've seen an increase in backlog in CWind since we've acquired it. This was a standalone entity owned by a family. And the fact that that Dick and Ian were able to pick this up and really position it as a corporate entity. I think they're going to really enjoy the fruits of doing that and having that as part of the Global Marine arsenal.

While we believe the overall markets Global serve has and will continue to see a bit of margin pressure just by virtue of the number of vessels out there. We continue to be pleased with the performance of Global over the last year and continue to believe, we're well-positioned to take advantage of market opportunities through competitive positions we hold within each of these market sectors.

And just by virtue of the Maersk Recorder deal, I think again, waiting for the right moment has put the Company in a very, very strong position versus having possibly acquire that that vessel a year or two earlier. I think the timing was right and we continue to look and to be very opportunistic, because your capacity or your ships, your vessels.

And picking vessels up in this market at the right price, I think is something that we are very keen on. So we continue to focus on that and to search for opportunities and there are a few out there.

Just moving quickly to Slide 9, on the energy side, American Natural Gas, very good progress from June team at ANG in 2016. In 2016, American Natural Gas planned an intentional reduction in lower margin design and build project revenues, largely offset by increased sales volumes, including sales and newly developed and acquired stations.

Adjusted EBITDA for the full-year came in at $2.5 million, up nearly 300%, mainly due to a shift towards higher margins in ANG sales, as a result of the increase in number of owned and operating fuel stations.

While we did see an increase in gasoline gallon equivalent each quarter, it's important to note that not all of the stations within the ANG portfolio were operating for the full-year, certain stations were acquired, or came online throughout different parts of the year. I think that's a real important thing to think about. It's not like we started the year with 40 stations.

We announced in December that American Natural Gas acquired the 18 stations from Questar and Constellation, giving ANG a true national footprint with 40 stations currently owned and operated, opening the door to new potential customers with coast-to-coast fueling needs. We financed these acquisitions with a short-term bridge note in December, used proceeds from the tack-on offering we just completed in January to take out that bridge.

Based on the recent acquisition multiples in the sector, we believe our increased scale will unlock significant value. We have seen a few stations trade in the marketplace and as people realize the economics behind what's happening here and the opportunity set, you are getting a bit more and more focus and the reality of it is, there is plenty of opportunity to go around and there is just very solid growth and Andrew and team have done a very, very good job of really staying on the cutting edge there.

And of course with scale will come increased profitability. We see 2017 as really a breakthrough year for ANG compared to prior years. One thing about the team is, they are always very focused on nickel and dimes and making sure that not only monitoring cost. But really doing the right thing from a structural perspective, building and creating the right design is very important and really operating effectively.

You are dealing with some very bog clients who want efficiency and if there is one thing that the team has done very well is, the very effective and proving that they know what they are doing when it comes to operating a station, because you don't want to have no gas when you go to fill up your Class A truck in the morning and you got to go on a run. So that, believe it or not, is very important and it's something that ANG really prides itself on in pitching that business.

Just moving quickly onto Slide 10, the telecom sector, PTGi again delivered another very solid quarter, making its seventh consecutive quarter of positive adjusted EBITDA. The European regulatory changes and improved sales performances have driven an increase in wholesale traffic volumes in general, including higher-margin traffic in the Middle East and African markets. PTGi revenues came in at $735 million for the year versus $460 million. Adjusted EBITDA came in at $5.6 million, up $3.6 million versus the $2 million reported in 2015.

We continue to believe that we will continue to see margin improvement here. And there could possibly be some tack-on opportunities here, but again, we're being very methodical about this, making sure that they were the right deals and not forcing an acquisition on anything that we have in our portfolio.

If it works, if it fits, we will look at it, but the key is buying right and I think we've been very disciplined on that and up and down our core platforms and we will continue to make that be the key for us and to really focus on buying right.

On Slide 11, Continental Insurance Group, 2016 has been a very successful transition year for the insurance business. As we continue to look again for the right tack-ons for the platform, we've continued to transition legacy shared services in augment team in Austin, Taxes.

Again, it is a runoff book, we bought a platform, we bought a business and the beauty of it is, as you go to acquire runoff books from other insurance companies, it's important and really I think gives us a leg up of competition as it relates to long-term care for people to understand and to know that their portfolios will be run in-house and not be outsourced or and serviced outside the business, so that was one of the big pluses for us.

We've got a very solid team in Austin, Texas, a team that we continue to build on in anticipation of additional acquisitions of runoff books.

We also completed some housekeeping items that we had originally identified at purchases benefits, like the merger of our Ohio and Texas entities into one. We completed the merger in the fourth quarter and as a result we expect to be able to pull some operational and administrative costs out of the business and meaningfully improve the regulatory capital efficiency of the business, which has really benefited our RBC ratio, which is a closely watched metric, it's a measure of how well-capitalized the businesses is.

And just looking at what's happening with CIG and what we've done. Our RBC ratio at the end of December exceeded 500% versus our agreed to minimum with the Texas regulators of 400%, so we continue to build up that cushion and continue to be very focused on that and making sure we're crossing the T's and dotting the I's there.

We continue to strengthen the regulatory relationships and think we can feel the shifting regulatory environment which is a tailwind for the Company's planned rate increases which is and could be a very positive for us.

We mentioned previously actuarially justified rate increases remain a meaningful piece of the business and our traction in 2016 has exceeded our expectations, so the fact that we have an operating team with a very good handle on what's happening on the regulatory front and really running it like a business is really proving to be a value added proposition for us in the insurance space.

Looking at the platform as of December 2016 year-end, CIG had approximately $2 billion in total GAAP assets and approximately $77 million of stat surplus and $93 million of total adjusted capital which is the stat surplus plus ADR, so this is a nice increase from when we bought the Company. And again, I think it's a very important metric that we keep a close eye on and I think it's one of the metrics that the Company or the industry follows as well, pretty closely, so it's nice to see that moving in the right direction.

Turning to Slide 12 and Pansend Life Sciences, extremely pleased with the progress, David and Cherine and the companies within Pansend made over the past 12 months with two of the operating companies hitting major milestones we laid out in the first quarter earnings call last year.

More specifically, we previously announced during the fourth quarter, R2 Dermatology received FDA approval for the R2 Dermal Cooling System. R2 is currently being released to nearly 50 key opinion leader dermatologists, otherwise known as KOLs with a soft launch of the machine expected towards the end of this year.

That was a very, very key event for us. It allows us to really make a big push in the commercial, and again, from a opportunistic perspective, I think we are at the forefront of something very unique here. This is a real system with real people behind it, so we're thrilled with what's happening there.

The second major milestone for Pansend was announced last week when MediBeacon, a technology Company that has developed a unique real-time kidney monitoring system announced that they had successfully completed their Pilot Two clinical study at Washington University in St. Louis.

Just to give you an idea of what I'm talking about here, during this study kidney function was measured in approximately 60 subjects ranging from normal to impaired Stage IV chronic kidney disease, included other subjects at the St. Louis University Hospital and successful completion of the Pilot Two clinical study on patients with impaired kidney function represents an important milestone for Pansend as the data approved MediBeacon technology and system works and could represent a major breakthrough in measuring kidney function.

That may be a little bit confusing for people, but this is the only technology out there that when you think about measuring kidney function today, you have to take your blood or the nurse takes the blood and brings it to the lab and waits.

This technology and this device which, again has been in the works for a number of years is a possible breakthrough in terms of being able to measure your kidney function without having to take the blood. MediBeacon will continue with its clinical studies as they begin Pilot Three and then a pivotal multicenter test in U.S. and Europe starting in the fourth quarter of 2017, so a very positive momentum in both MediBeacon and R2.

And while we have nothing to announce today, this milestone we believe could possibly attract significant interest from third parties interested in this groundbreaking technologies. Some of these big device companies don't like to incubate these things, they like to and don't mind when somebody else develops them and really incubates them and then will get more involved when the projects are proven and we are very well on our way with both R2 and MediBeacon, so very excited about what's happening there.

Just quickly now, notable financial updates. Given the value of the HC2 -- this is Slide 13 -- the value of the HC2 portfolio, we continue to exceed the two times collateral coverage under our 11% senior secured notes at the end of the fourth quarter. Over the past several quarters, we've had continued strong growth in collateral coverage.

Because that collateral value and coverages our subsidiaries have continued to meet and sometimes exceed expectations and drive value, in addition, several have been able to close accretive tuck-in acquisitions such as DBM and ANG.

Excluding our insurance segment, consolidated cash was over $90 million at the quarter end with approximately $22 million at the corporate level. In 2016 we continued to utilize the various sources of cash from our subsidiaries, mainly from the tax sharing agreement with DBM and from dividends. Specifically, we received $41 million in tax share and dividends in 2016 consisting of $39.9 million in tax share from DBM and $1.5 million in dividends from PTGi.

In addition, subsequent to quarter end, we received $9.2 million in dividends as a result of the special dividend DBM announced in December. So, that's the key for us to be able to look to our subs to as dividend generators, as cash generators and hence our focus on entities and accretive acquisitions that we believe will be cash generators for us.

As we discussed before, during the fourth quarter we further reduced the cumulative outstanding balance of preferreds to approximately $30 million from approximately $53 million at the beginning of the third quarter.

And finally subsequent to quarter end, we completed a $55 million, a 11% senior secured note offering, which was used primarily to repay a bridge loan that was used for ANG's acquisition of Constellation and Questar. We're very pleased with not only the demand for the offering as it was well oversubscribed, but the quality of accounts bringing this into their portfolio, I think that's a very key focus of ours is continuing to expand our, both shareholder register and bondholder register.

Going forward, as I mentioned, we continue to look for ways to improve our capital structure and optimize our liquidity, while of course balancing accretive acquisitions that add to the overall value of the portfolio. That's the key for us, growing cash flow, growing now. It's no more complicated than that. We will continue to make sure that we're crossing the T's and dotting the I's on moving forward with the right acquisitions if they fit with the model.

So in summary, a very, very good year for HC2, super operating quarter for us. Core operating subs performed at or above expectation. DBM completed the accretive cash acquisitions of PDC Global and BDS VirCon. American Natural Gas came to national footprint through two key acquisitions. R2 Dermatology received FDA approval for the R2 Dermal Cooling System. MediBeacon recently completed Pilot Two and not to forget that also received a grant from the Gates Foundation, so I think that's indicative of the super high-quality technology that MediBeacon has.

Global Marine continues to experience solid performance from his maintenance business with the JV's performing better than expected with good long-term opportunities in telecom and offshore power installation. Insurance business merged into one entity ending the year approximately $2.1 billion in GAAP assets. PTGi experience a record year of the adjusted EBIT.

And at the corporate level, we strengthened our executive team and focused on managing the capital structure to increased financial flexibility, continue to seek out opportunities to acquire a controlling interest and stable cash flow in businesses. I believe we are well-positioned to continue generating long-term value for our shareholders that's what our focus is and we are very pleased with how we are starting the year and feel like we're pretty well positioned.

With that, let's move on to the Q&A, as I know I've probably taken longer than expected, so operator, if you could please open up the line for Q&A that would be great.

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Questions and Answers

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Operator [1]

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We'll now begin the question-and-answer session.

(Operator Instructions)

Sarkis Sherbetchyan from B. Riley Company.

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Sarkis Sherbetchyan, B. Riley & Co., LLC - Analyst [2]

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Yes, good afternoon and thanks for taking my question here. So first, with regards to the construction business, Phil, I think you mentioned the record backlog of over $500 million and also the opportunities exceeding $400 million in new projects. Maybe if you can give me an update if the LA Rams project that we've kind of talked about in the past few quarters are included in backlog or if it's going to be in the potential new awards?

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Philip Falcone, HC2 Holdings Inc. - Chairman, President and CEO [3]

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Well, that entity and that project is not included in the backlog as of year-end. And while we are not able to announce anything formally regarding the LA Rams, we do feel very comfortable with our position regarding the project.

As of for instance, we've been working on-site with project team for the past couple of months as the design and building plans are being finalized. Our role has been focused on construction scheduling and constructability. And just a little bit of background, this wouldn't be the first stadium that we've done, DBM Schuff has worked on a number of large stadiums and other specialized project.

I think just to name a few, the Denver Broncos Stadium, Golden 1 Center, Loma Linda Hospital, I believe the Arizona Cardinals Stadium, so the Company clearly has the wherewithal and clearly has the capability and again, is not part of that backlog, but we're working very hard to make sure that it becomes part of that backlog, and increasing from the $500 million number.

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Sarkis Sherbetchyan, B. Riley & Co., LLC - Analyst [4]

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That's helpful.

If I may move on to the Global Marine piece of the business, I think you mentioned in fiscal 2017, you do expect at least a little bit of softness from the telecom install market, although you do anticipate fiscal 2018 and 2019 to kind of shape up better than that.

Can you maybe give us a flavor of what inspires confidence? Are you seeing either awards or potential business kind of come in the pipe there?

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Philip Falcone, HC2 Holdings Inc. - Chairman, President and CEO [5]

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Yes. Well, I think the telecom installation business has been a little bit slower than what we expected. The good news for us is that, we've been able to make up for that with the performance of the JV.

But the good news is that, we do see a resurgence in that market and do based on what we have on the table right now fully expect that we will see that resurgence start to kick in 2018 and 2019. But I think coupled with the maintenance contracts that we had signed up. We should be in pretty good shape.

And there has been some as part and parcel to the installation market. If these guys are running the business like Schuff is running the business, they're going to do the job if they find the right job at the right margin. And with the vessel capacity having increased in the early part of the year, the Company more or less stayed away from a few opportunities just by virtue of not willing to do it at the margin. And again, it's tied up some capacity for others, which is will give global the opportunity to participate as that market starts to pick up again.

So we're in a very good shape. These guys are good operators. They have done a super job of paying down debt. I think that's one of the important thing to think about over the past couple of years alone. When we bought, Global had about $130 million of debt, which is inclusive of the pension. On an apples-to-apples basis, that's right around $71 million right now.

So it's almost a $60 million pay down. And I think that's a testament to the cash flow generating capability of this Company and what it can do. You might see and have seen a little bit of softness in installation. But just the fact that we've got a different debt capital structure in that sub. I think and or by the way, the maintenance contract has been signed up, have put us in a pretty good position to really recapture what we may have lost in the previous year.

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Sarkis Sherbetchyan, B. Riley & Co., LLC - Analyst [6]

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Yes. It certainly seems exciting and then shaping up nicely down the road there.

Moving on to the Energy segment, you did acquire 18 additional stations and I'm not sure if the kind of benefits of the acquisition were reflected here in Q4, at least, marginally. Maybe can you set up some expectations for fiscal 2017 kind of going forward? Does it kind of look similar in operating or financial profile to the existing stations, maybe you can talk about that a little bit?

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Philip Falcone, HC2 Holdings Inc. - Chairman, President and CEO [7]

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One thing we haven't done is to make a projection. And the fact that these were late in the fourth quarter. I think you can surmise that nothing meaningful was included from those stations. We did buy them as part of our overall philosophy. We're looking at accretive acquisitions.

So without going into too much detail, I would think you could maybe extrapolate a little bit and make the assumption that we should have a better year in 2017 than we did in 2016 for ANG. It's a great business. This is I think it's one of the sweepers in our portfolio that quite frankly, I think, going to surprise everybody on the upside over the next two to three years with not only the growth potential, but how much value we will create.

We are not where we want to be. We are very happy being at 40 stations, but not fully at. So we will continue to focus on building that from 40 stations and up to 50 to 60 to 70, that's our goal with this thing, really getting to some real critical mass, where I think we will really see that value kick in for the overall entity.

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Sarkis Sherbetchyan, B. Riley & Co., LLC - Analyst [8]

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Great. And one final one for me and I'll hop back in here. So with respect to the life sciences, obviously, some good progress here with respect to the milestones made on R2 and MediBeacon.

And you did mention that there could be possibly some interest from third parties there. Can you maybe help us understand whether you'd go in with those partners for commercial pursuit, or if you would kind of step away and maybe sell a peace or monetize the asset, just kind of gives us a flavor of how you're thinking about that?

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Philip Falcone, HC2 Holdings Inc. - Chairman, President and CEO [9]

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Yes, good questions. There has been a lot of questions around the capital that we had committed to that entity, which I think it's around $15 million right now. We have made it a point to make sure that people realize it's not a black hole, we're happy with where we are with those investments. I think you guys have done a super job in bringing those and bringing those investments to the table.

We have to make sure, we don't make a hasty decision and sell too soon. At the same time, we don't want to put ourselves in a position where we are funding a commercial roll out of something. So it's kind of a little of a delicate balance there, because both R2 and MediBeacon, which are really right around the corner or could be substantial value and upside in those.

And there is part of us that that yes, we do want to bring in the right partner, and I think that's the important thing, we want to bring in the right partner that proves that we incubated these things properly, and that could be a value-added strategic.

I think that bringing in that right partner means a lot. So we're really taking our time. These are potentially substantial value adds for our overall portfolio. And we do think it's important at the same time though to prove our model out and to prove that we did create a lot of value here. So there's that delicate balance and there is kind of a walk before you run approach.

But again, we will probably have to make some decisions over the next four, five, six months, quite frankly. But I think it's a no-lose situation. I don't want to speak too soon. But we are making sure that we get the right partners in here, because they are two phenomenal projects.

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Andrew Backman, HC2 Holdings Inc. - Managing Director, IR [10]

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Finally, we have time for one more question, please.

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Operator [11]

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Kurt Hoffman from Imperial.

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Kurt Hoffman, Imperial Capital, LLC - Analyst [12]

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Amazing quarter, a great year for the Company. I had a few questions here though as we're starting off with DBM, EBITDA continues to ramp up $60 million this year. And I think going back at the peak of the last cycle, Company did over $100 million of EBITDA. Is that something we can see in the near-term with the Company today?

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Philip Falcone, HC2 Holdings Inc. - Chairman, President and CEO [13]

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We do think that there is a lot of potential left or that we're at, I don't want to say the early stage. But there's a lot of upside left in this Company. I think that if you talk to the team internally and talk to Rustin, his objective and our objective is to get this Company to a $1 billion top line, that's how we see it. And we don't want people to think about this as being a cyclical situation and that's a critical focus of ours. Hence those acquisitions that we may to really diversify the customer base a bit, give us a different avenue.

And we don't want to look at it is peak to trough. And our goal if anything is to get it to a point, where we are consistent in stable now granted just by virtue of the industry you'll see some cyclicality. But our goal is to get to move away from that, that doesn't happen overnight. But that being said, we're still just based on what we're seeing in the potential backlog and what's happening in the industry from a specialization perspective, there's not a lot of people that can do some of these jobs quite frankly.

So I think it puts DBM in a very unique position and a very unique position, that he's different than the cyclical market that people saw a number of years ago just by virtue of the, I think you could name, the opportunity set in the sports business alone is pretty phenomenal, let alone that the growth in the tech market and the healthcare market.

So it's a little bit different today than what it was a few years back. But and again, I don't want to put us in a spot, where we're making projections. But listen, our goal is to build this thing to a $1 billion top line and the margins are 10%. I don't necessarily think 10% is the right type of thing to focus on. But as part of growing that top line, I would fully expect to see our EBITDA line continue moving up along with that top line.

But we are again, we feel like we're early in the cycle just looking at some of the opportunity set out there and or by the way continue to look at acquisitions that are not only accretive, but diversify the business and any volatility that one would think is out there. So that that's really our goal that answers the question.

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Kurt Hoffman, Imperial Capital, LLC - Analyst [14]

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Yes, well, you mentioned a stream of large construction project, one large construction project kind of in DBM's backyard, is this what Trump is talking about? Is that something DBM would be able to add value on or has talked about Trump become involved with?

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Philip Falcone, HC2 Holdings Inc. - Chairman, President and CEO [15]

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Boy, I don't want to get any people upset from a political basis. But if there's a vault we've built and we can build it, I'm sure DBM by virtue of the project that they've done in the past, is right up their alley, put it that way. And not only right up their alley from the capability, but from a geographic perspective.

So we're trying to service shareholders and if we think we can get involved in a business that will create value for our shareholders, we will go down that path.

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Kurt Hoffman, Imperial Capital, LLC - Analyst [16]

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Yes. Good. And then Global Marine, your comments were helpful there, in the past we've talked a lot about this Huawei Marine joint venture. Is there any update on the Global Marine's ability to take dividends out of that entity?

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Philip Falcone, HC2 Holdings Inc. - Chairman, President and CEO [17]

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Yes, those are discussions that are ongoing. There is a pretty decent cash position out at Huawei Marine. There hasn't been any decision yet, but we're hopeful that that discussion will continue and end up in a positive result for both us and Huawei Technologies. I think the fact that we've made Maersk Recorder acquisition and we'll look to service the HMN JV business, I think it goes a long way to show our commitment and ongoing commitment to that. So we're optimistic, but nothing has been decided yet.

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Kurt Hoffman, Imperial Capital, LLC - Analyst [18]

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Okay. So are there any updated metrics around Huawei you can provide in terms of revenue or profitability?

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Philip Falcone, HC2 Holdings Inc. - Chairman, President and CEO [19]

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No. That's whatever they report and there's typically numbers in their annual report, but I guess I think one thing to think about there is that. This business has really turned around in the last year and a half, two years. I wouldn't want to say turn around, but it just become a focus for Huawei.

When you think about it, Huawei, this HMN subsea businesses laying the cable for and connecting countries. And then it gives Huawei the opportunity to really expand internally into those countries where they're landing the cable and building the landing station.

So that's how you have to think of it from, I believe, from Huawei's perspective is that it could give them a leg up on building out that country using their equipment. Now we don't benefit in that, but clearly with the focus on their corporate business of selling equipment, and if their subsea business is an avenue for them that's fantastic and quite frankly I think that's why you're seeing the focus and the numbers that you're seeing. So we don't think that they will subside any time soon, put it that way.

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Andrew Backman, HC2 Holdings Inc. - Managing Director, IR [20]

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I want to thank Phil and Mike and thank everybody out there for joining us today again. As always our management team is available to speak with you should you have any follow-up questions. Please do not hesitate to call me directly at 212-339-5836.

Brian, could you please go ahead and provide the conference call replay instructions once again? Have a great day, everybody.

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Operator [21]

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As a reminder, this conference call will be available for replay beginning approximately one hour after this call. The dial-in number for this replay is 1-855-859-2056 with the confirmation code of 71926737. Once again, the dial-in number for this replay is 1-855-859-2056 with the confirmation code of 71926737.

This concludes your call. You may now disconnect.