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Edited Transcript of HCHC earnings conference call or presentation 12-Mar-19 9:00pm GMT

Q4 2018 HC2 Holdings Inc Earnings Call

McLean Mar 21, 2019 (Thomson StreetEvents) -- Edited Transcript of HC2 Holdings Inc earnings conference call or presentation Tuesday, March 12, 2019 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Michael J. Sena

HC2 Holdings, Inc. - CFO

* Philip Alan Falcone

HC2 Holdings, Inc. - Chairman, President & CEO

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Conference Call Participants

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* Kurt M. Hoffman

Imperial Capital, LLC, Research Division - MD of Institutional Research Group

* Lauren Gallagher

Angelo, Gordon & Co., L.P. - Director of Performing Credit

* Sarkis Sherbetchyan

B. Riley FBR, Inc., Research Division - Associate Analyst

* Garrett Edson

ICR, LLC - SVP

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Fourth Quarter and Full Year 2018 HC2 Holdings, Inc. Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to Garrett Edson, Senior Vice President of ICR. You may begin.

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Garrett Edson, ICR, LLC - SVP [2]

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Thank you, and good afternoon. We'd like to thank you for joining us to review HC2's fourth quarter and full year 2018 earnings results. With me today are Phil Falcone, Chairman, President and CEO of HC2; and Mike Sena, HC2's Chief Financial Officer.

This afternoon's call is being webcast on our website at hc2.com in the Investor Relations section. We also invite you to follow along with our webcast presentation, which can be accessed on HC2's website, again, in the IR section. A replay of this call will be available approximately 1 hour after the call. The dial-in for the replay is 1-855-859-2056 with the confirmation code of 3480439.

Before I turn the call over to Phil, I'd like to remind everyone that certain statements and assumptions in this earnings call, which are not historical facts, will be forward-looking and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to 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 discussed 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 but not limited to adjusted EBITDA, insurance operating income, and insurance pretax adjusted operating income. 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 also available on our website. And finally, as a reminder, this call cannot be taped or otherwise duplicated without the company's prior consent.

Now I'd like to turn the call over to HC2's Chairman, CEO and President, Phil Falcone. Phil?

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

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Thank you, Garrett, and good afternoon, everyone. Thank you for joining us today. We're going to change things up a bit on how we present this quarter and moving forward. I'm going to deliver a more high-level overview of the quarter and focus on our strategic goals and vision from both a near-term and longer-term perspective. Our CFO, Mike Sena, will then discuss the quarter's financial performance in more detail, and then we'll open up the call for your Q&A.

Overall, we had a very busy fourth quarter across the portfolio and, for that matter, an extremely active and transformative 2018. In the fourth quarter alone, our Construction segment performed well and we successfully acquired GrayWolf Industrial in late November. One of our Pansend Life Science investments, MediBeacon, received breakthrough device designation from the FDA for its real-time kidney function measurement system. This means that the FDA will be working with the company to provide an expedited regulatory review process, providing greater potential for meaningful upside from the investment. Our Broadcasting segment continues to expand its operations, completing strategic station acquisitions in key markets. We recaptured another of our reinsurance treaties and booked a significant gain in the quarter and added over $2.4 billion of assets to our insurance investment portfolio with the Humana transaction. We also completed the refinancing of our senior secured debt and, with the new secured notes, extended our maturity to the end of 2021. And we announced that we were seeking strategic alternatives, including a possible sale of Global Marine in our Marine Services segment. Specifically, in terms of the strategic alternatives process for Global Marine, the process remains ongoing and we expect it will continue to take time as we pursue multiple caps to maximize value. If and when we receive an appropriate price for Global and have a definitive agreement, we will certainly share that information. As we noted previously, proceeds from any sale would be utilized to reduce debt at the HC2 level. Beyond that, we cannot comment further or answer questions at this time given it is still an active and ongoing process.

As we look at 2019 and beyond in regard to our portfolio, I want to take a few minutes to speak to the further transformation of our business that will position us to drive shareholder value over the longer term. Our longer-term strategy is a hybrid. We've built a portfolio of strong cash-generating businesses over the years led by our Construction and Insurance businesses, and they will be an important driver for us in the near term while we focus on delevering HC2. Beyond our cash-generating segments and focusing on the mid- to longer term, we have our growth engine that is our Broadcasting segment and the ability to unlock significant value at our Pansend Life Sciences segment.

First and foremost, among our cash flow generating segments is Construction anchored by DBM. The team there has done an excellent job in building their business, winning new contracts and filling up its robust backlog. And in 2018, it generated adjusted EBITDA of approximately $61 million. It has been doing a great job working toward completion on large projects, such as the new LA Rams/Chargers stadium in Inglewood, which is slated to open in 2020; as well as Loma Linda Hospital near San Bernardino; and Google Bayview just outside of San Jose. Importantly, DBM has been a stalwart investment for HC2 and a great example of the value we've been able to create over the past 5 years.

In addition to a successful 2018, DBM also had a strong start to 2019 with a couple of major midsize project wins for the business. As we noted on the prior call, our objective at DBM was to target a backlog mix that focuses more on the small to midsize projects as we work up a larger LA Rams type project, which tend to create more lumpiness and tie up more working capital. That said, we will still pursue large projects that we believe we can execute on profitably. Ultimately, this approach that we are taking today will provide more stability in the business.

Our initiative to further expand the DBM business and our push to our goal of $1 billion revenue and $100 million adjusted EBITDA entity continued with the acquisition of GrayWolf late last year. This acquisition will expand our Construction segment capabilities into heavy maintenance and repair, which should minimize some of the cyclicality inherent in commercial construction given GrayWolf's longer-term, recurring contracts. It also provides a potential opportunity for cross-selling, which ultimately gives us another opportunity at building stickier, longer-term relationships and reoccurring streams of revenue. Overall, we expect DBM to continue to be a major driver of consistent, strong cash flow generation for HC2 for years to come.

In addition, we've significantly built up our Insurance segment over the past several quarters most notably through our recent acquisition of Humana's long-term care business, which increased our Insurance asset base to over $4 billion, 169% increase from year-end 2017. Total adjusted capital increased as well and was approximately $289 million at year-end. As a reminder, HC2 receives an investment management fee from the investment portfolio, which provides us with a strong, reoccurring cash flow stream, while the portfolio also has a potential to achieve additional positive returns on investment. Also, as a result of the transaction with Humana, there were significant NOLs generated, which will shield the Insurance subsidiary from future tax payments for the next few years. Mike will touch upon that in more detail in his remarks.

Two of our other business that are also positively generating cash are our Energy and telecom segments. While we expect telecom's contribution to slow and most likely run off in the coming years, Energy remains a solid, little contributor, which has the potential for significant upside over the longer term.

Turning to Marine Services. We were certainly disappointed with its performance during the fourth quarter. Specifically, we can point to several discrete timing shifts and other unanticipated events that impacted adjusted EBITDA, which Mike will address in his remarks. The challenges at Marine in the fourth quarter will also underscore one of the advantages of our diversified strategy. When our -- one segment is challenged, our other segments can be an effective counterbalance. Even with the decline in Global Marine, our Core Operating Subsidiaries adjusted EBITDA was essentially flat year-over-year. Furthermore, we remain confident in the Marine Services cash-generating abilities given their significant backlog at the end of 2018 and we are continuing, as I stated earlier, to engage in the strategic alternative process for the company.

I talked about our strategy being a hybrid, and the second part of the strategy is the significant long-term potential for our growth investments. First, as I have discussed on previous calls regarding our strategy for the Broadcasting business, we have invested in and acquired over the last 1.5 years a very strong and diversified portfolio of stations and licenses. To that point, as of March 6, 2019, broadcast portfolio, including completed and pending transactions, comprised 176 operational television stations, including 15 full-power, 58 Class A and 103 low-powered TV stations. We also own 385 silent licenses and construction permits, leaving us an enviable position to grow for the long term. We now reach approximately 60% of the U.S. population, having added key MSAs in the fourth quarter. And our longer-term goal, by lighting up many of our silent licenses, continues down the path of reaching our -- 80% of the population with our over-the-air network. As people continue to cut the cord, Broadcasting has the potential to become a much more attractive alternative distribution option as we build out the platform. In addition, with the advent of new technology, we anticipate the ability to broadcast directly to mobile devices as another opportunity for us to realize moving forward.

As we look into 2019, we're beginning to approach the home stretch of our overall investment plan for Broadcasting. We will look to add Broadcasting assets where necessary to further build out our platform, and the remainder of our investment efforts will be focused on upgrading our technology and infrastructure. And as we integrate the assets we've acquired, we should be able to combine efficiencies and thus create a more streamlined platform. We do want to note, given our ongoing investment effort and expansion, that it may take a little longer than initially expected to become run rate adjusted EBITDA breakeven. We expect the growth trajectory and value of Broadcasting to become readily apparent once the platform is fully built out. With a large amount of Broadcasting platform expenses being fixed once we have completed our investment program, we will be squarely positioned for margin expansion and profitability in the mid- to long term. This will then provide us with significant free cash flow per year. We believe there is significant amount of value to be unlocked at Broadcasting, and as we complete our build-out, that will become much more apparent to the investment community.

Turning to our Pansend Life Sciences segment. We completed the successful monetization of BeneVir during 2018, driving significant value for shareholders. By structuring the sale the way we did, HC2 will be able to receive up to approximately $140 million net additional cash payments should BeneVir secure FDA, EU and Japanese approvals and over the long term an additional $370 million net from sales milestones. But as we look forward, we're very excited about opportunities for 2 of our other Pansend portfolio companies that I would like to discuss. First, MediBeacon, which has developed a real-time kidney function measurement system, recently was granted breakthrough device designation by the FDA, which accelerates the FDA approval process and validates how important and necessary to the market MediBeacon technology is in addressing patient needs. We've invested $24 million in MediBeacon thus far. We are very well-positioned to attract significant value from that investment via monetization. We will continue to keep you apprised of the progress of MediBeacon in future quarters. The second company, R2 Dermatology, has already received FDA approvals in 2016 and '17 for its skin lightening and evening product using cold technology, which we've noted in previous calls. This is an investment where we've put to work just over $26 million and own a majority stake in the company. We're very excited about its significant potential in both the U.S. and Asian markets. R2 is currently looking to position the product for commercialization through various strategic partnerships. Hence, we continue to evaluate opportunities to properly commercialize R2 and position it to generate growing and sizable profits over the mid- to long term.

Let me briefly touch on our balance sheet. While we are clearly dissatisfied with the outcome of the refinancing, it unfortunately was a necessary step that we had to take. As the Chairman and CEO, my priorities are to delever and improve upon our execution of the business, and I am confident we will accomplish this. While our near-term and top priority is reducing debt at HC2, we will be remiss if we did not highlight the strong portfolio of businesses that we have built. This will no doubt help us win over the long term. With strong existing cash flows coming from our Construction and Insurance businesses and potential meaningful value creation at Global Marine, Broadcasting and Life Sciences, we are positioned well to unlock significant value for our shareholders over time.

With that, I'll now turn the call over to our CFO, Mike Sena, who will discuss some of the -- of our fourth quarter and full year 2018 financial highlights. Mike?

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Michael J. Sena, HC2 Holdings, Inc. - CFO [4]

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Thank you, Phil. And let's get right into our fourth quarter performance. Consolidated total net revenue for the fourth quarter of 2018 was $524.9 million, a 14.5% increase from $458.5 million in the prior year period, driven by higher revenues from our telecom, Insurance and Construction segments as well as from the inclusion of our new Broadcasting segment. For the full year 2018, revenue grew 21% to $1,977,000,000.

Net loss attributable to common and participating preferred stockholders for the fourth quarter of 2018 was $16.1 million or $0.36 per fully diluted share compared to a net loss of $9.2 million or $0.21 per fully diluted share in the prior period. For the full year, HC2 reported net income attributable to common and participating preferred stockholders of $155.6 million or $2.90 per fully diluted share compared to a net loss of $49.7 million or $1.16 per fully diluted share in the prior year period. There were a number of one-time transactions during 2018 which contributed to net income, including $102 million gain from our sale of BeneVir, $115 million bargain purchase gain related to the acquisition of Humana's long-term care business, KMG, a $47 million gain related to the recapture of 2 of KMG's reinsurance treaties, and a $34 million gain from the sale of the company's investment in Inseego.

At the company's Core Operating Subsidiaries, which comprises HC2's Construction, Marine Services, Energy and telecom segments, adjusted EBITDA for the fourth quarter of 2018 was $28.5 million compared to $32.4 million in the prior year period. For the full year 2018, adjusted EBITDA of the Core Operating Subsidiaries was $104.4 million versus $105.5 million in the prior year. Total adjusted EBITDA, which excludes our Insurance segment, was $15.1 million in the fourth quarter of 2018 compared to $19.7 million in the prior year period. Lower contributions from our Marine Services and Telecommunications segments were partially offset by improvements at Construction, Life Sciences and lower recurring corporate expenses. For the full year 2018, adjusted EBITDA, excluding Insurance, was $44.5 million compared to $50.8 million for the prior year.

Let's just take a couple of minutes to go into the -- a bit more into the detail at our largest segments. At Construction, we recorded adjusted EBITDA for the fourth quarter of 2018 of $19.4 million and for the full year 2018, generated adjusted EBITDA of $60.9 million. We're pleased with the performance of our Construction segment, which was driven by several large-scale DBM Global commercial fabrication and erection projects in the Western U.S., most notably the new LA Rams and Chargers Stadium, Loma Linda Hospital and Google Bayview projects. At the end of 2018, backlog was $528.5 million, which was comprised of $463.5 million of backlog at DBM and $65 million of backlog at GrayWolf. Adjusted backlog, which takes into consideration awarded but not yet signed contracts at DBM Global and GrayWolf, was approximately $707 million, which comprises $560 million at DBM and $147 million at GrayWolf.

Meanwhile, at Marine Services, we recorded adjusted EBITDA for the fourth quarter 2018 of $6.9 million and for the full year 2018, generated adjusted EBITDA of $32.7 million. Clearly, we are disappointed in the performance in the quarter as we were unable to reach our adjusted EBITDA goal for this business for 2018. The items that primarily impacted us as we moved through the quarter included the following: $4.4 million was attributed to turnkey project shifting out of the fourth quarter into 2019 at our HMN equity investment; $3.7 million in rejected customer claims and receivable write-downs; and $3 million was attributable to additional unutilized vessel cost as a result of project shifting into future quarters. The projects that shifted out of the fourth quarter are not expected to begin to contribute to marine until the second quarter of 2019. Thus, we are expecting marine to be additionally impacted for at least the first quarter of 2019. However, marine continues to maintain a robust backlog of approximately $483 million as of the end of 2018, thanks to a recent major offshore power installation project win, which positions the company well to grow adjusted EBITDA over time.

Finally, at Insurance, we generated pretax adjusted operating income of $9.3 million for the fourth quarter of 2018 and $0.6 million for the full year 2018. The full year results were driven by the addition of Humana's long-term care business and higher net investment income, offset by an increase in reserves from Humana's long-term care business caused by a higher proportion of new claims. We expect insurance will be strong -- a strong driver of cash flows for HC2 moving forward, as Phil noted. HC2 already receives a recurring investment management fee stream for the investment portfolio. As part of the acquisition of Humana's long-term care business, there were changes to certain actuarial assumptions utilized for the long-term care statutory reserves to be more in line with the acquired blocks' historical experience and to bolster reserves consistent with our more conservative underwriting. These actuarial changes comply with the Texas Department of Insurance regulatory guidelines. For tax purposes, which largely resulted from changes in tax reform, tax reserves were similarly adjusted to mirror statutory filings, which ultimately resulted in a large net tax operating loss for the current year. We anticipate that this will shield any future cash tax payments for at least the next few years. As a reminder, last year, we paid approximately $16 million in cash tax payments at the Insurance subsidiary. So this has a very positive effect on the statutory surplus available.

At the end of 2018, HC2 had consolidated cash, cash equivalents and investments of $4.1 billion, which includes cash and investments associated with HC2's Insurance segment. Excluding the Insurance segment, consolidated cash was $42 million.

We also announced today the initiation of guidance at our Construction segment. For the full year 2019, we are projecting adjusted EBITDA for the Construction segment of between $75 million and $80 million. Due to ongoing strategic alternatives processed for Global Marine, the company has elected not to provide adjusted EBITDA guidance for that segment at this time. We thank you for your time today.

And now I'd like to open up the call for your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Sarkis Sherbetchyan of B. Riley FBR.

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [2]

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So first question relates to the guidance. Obviously, you provided the guide for Construction. I think it was $75 million to $80 million. Can you maybe break out the expected contribution from GrayWolf?

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

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I think at this time, we're not -- we're looking at it more on a consolidated basis. Again, it's just a guidance. And as we walk you through the numbers, the backlog is still extremely strong at that company. Things are going well but we're not breaking it out between GrayWolf and DBM.

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [4]

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Understood. And if you kind of think about the business environment, any kind of puts and takes for Construction, anything positive, anything negative? Just kind of a little update there.

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

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Yes. Again, this is not residential construction. These are sizable projects, and we're still operating at a very strong capacity level, in fact continue overcapacity. And with the number of jobs out there, there's a lot of things to look at. I think the visibility is still no different than previous quarters in terms of 18 to 24 months. We -- quite frankly, we're not seeing a slowdown at all. And as we also discussed, the job type is changing a bit for us, which is good news because you're probably going to see the inventory turn a bit more and not be kind of wedded to the large LA Rams type jobs. But there's been no real slowdown at all. And one of the reasons why we looked at GrayWolf and we're so keen on that is the additional stability. This is a maintenance business. We believe that there's going to be cross-selling. We're already looking at that. And from a maintenance aspect, this is -- it's an ongoing thing and it's not something that you typically cut back. So we like the business. It's complementary. We think there's going to be many sales process that we can really connect on between the 2 entities.

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [6]

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That's super helpful. I guess, moving on to the Marine Services segment. I understand you're not providing guidance for '19 at this time, but if we kind of look at the fiscal '18 guide and try to bridge the gap between the second half of '18 delivery versus actuals and kind of some of the numbers you provided us with respect to the shift out from 4Q and into '19, et cetera, just kind of help us establish a frame of reference as to -- if anything has changed from the business as far as the macros are concerned or anything that's from a customer standpoint or just trying to understand the puts and takes there, right?

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

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Yes. As Mike kind of laid out, the $4.4 million, the $3.7 million of receivable write-down, the $4.4 million especially is -- that's out of our control. That's an HMN project shifting issue. And again, if you look at the backlog, I would -- listen, there's no question we were disappointed in the end result but the business has not changed. And hopefully, people will realize that this is a strategic business. The backlog, quite frankly, is at an all-time high from when we bought the company and Mike -- as Mike mentioned, it's up over $480 million. And there's no reason to believe that these guys can't continue what they have been doing in the previous quarters. This is -- unfortunately, it's a lumpy business. And I wish that was different but it's not, but by no means is it a reflection of the overall business environment for Global at all.

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [8]

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No. That's helpful. And I think the backlog in the prior Q was like $360 million. So it's nice to see it above $480 million. And I guess, if you can kind of maybe help us understand if there's any impacts from the headlines that a lot of the investment community is reading with regards to Huawei, does it impact the Global Marine business? I just want to get a better understanding and handle around that.

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

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It's a headline. It hasn't really changed our sales process quite frankly. I mean, keep in mind, we only went out mid-December with the books. This is a relatively complicated business where -- that's global in scope. So -- and it's just a longer -- long process, but by no means did we expect this business to be sold by now. So it's -- and as we've said, both Mike and I, it's just an ongoing process.

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [10]

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Got it. And I think you mentioned the MediBeacon asset and R2 Dermatology as well. I know you mentioned the kind of the total cost you've invested so far. Maybe kind of an expectation for what you hope to accomplish from the monetization potential or just kind of the strategic partnerships you've outlined on the call. Just kind of help us establish a frame there.

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [11]

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Yes, I mean, I talked about Pansend a number of times and I think if anything, I might get not too excited but kind of very excited on timing. And when you're dealing with products like this that are very, very sophisticated that will be in the OR and the ICU, the diligence associated with these types of situations is probably longer than what we hoped. But it is -- as we've said and I think as indicated by the FDA, this is a product that is -- we think, is very unique. And by virtue of the number of people out there that are -- that we've been in discussions with, it is a super high-quality product, but again, these things just take time, unfortunately.

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Operator [12]

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(Operator Instructions) Our next question comes from Kurt Hoffman of Imperial Capital.

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Kurt M. Hoffman, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [13]

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A question on the corporate-level cash at year-end, $6.5 million. That's quite a bit lower than it's been historically. Can you talk about kind of what the liquidity situation is in the holdco as it stands today and kind of the sources and uses to get through the next year?

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [14]

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Yes, the reality of it is we do have a number of different levers to pull. It's kind of up and down quarter-to-quarter-to-quarter depending on the dividend aspect, but there is -- we are not, quite frankly, concerned about this at all. And one other interesting thing to note is that when we acquired the insurance company, there was a 3-year moratorium on dividends. That 3-year moratorium was up 12/31/18. So as we look at the cash process or the cash as a holdco, it ebbs and flows. And by no means are we even kind of thinking twice about that as a result of the different levels -- levers that we have and the performance of the underlying subs and the dividend streams, et cetera. So it's not something that we're thinking about at all, quite frankly.

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Kurt M. Hoffman, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [15]

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What type of magnitude of dividends can you get out of the Insurance sub?

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [16]

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What is that number, Mike?

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Michael J. Sena, HC2 Holdings, Inc. - CFO [17]

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There's statutory limitations on what you can pull up but ours -- it's based on surplus. It'd be limited to 10% of surplus. That's about $25 million.

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [18]

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Yes, the surplus has kind of moved up and down between $250 million and $280 million.

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Kurt M. Hoffman, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [19]

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Okay. Do you have an expectation of what the cash needs will be at Pansend and Broadcasting?

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [20]

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The cash needs at Pansend are de minimis at this point. There's no commitment on our part for contributing additional cash. And I think that's very important and we've made that point a number of times. And as it relates to broadcast, that's something that we're going to finance at broadcast. If anything, we should be getting cash back from broadcast. That was the objective with this. And when we did the bond deal, that's the way we structured it. So it's not incumbent on holdco to be funding broadcast build-out nor is there additional written commitment to continue with the various investments at Pansend.

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Kurt M. Hoffman, Imperial Capital, LLC, Research Division - MD of Institutional Research Group [21]

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Right, okay. Last one on Global Marine. Can you refresh our memory in terms of the EBITDA that's contributed from the maintenance contracts?

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [22]

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We have never broken those out, but I think without going into detail, they are very attractive contracts. But again, it's not something that we've broken out in the past.

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Operator [23]

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And we do have a follow-up question from Sarkis Sherbetchyan of B. Riley FBR.

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [24]

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Just want to come back to Broadcasting. You mentioned, I think, on the prepared remarks that breakeven may take longer than expected. Is that a shift in strategy? Or did you see something that's kind of attractive from the investment angle or just integration sticking a bit longer? Maybe some more color around there, please.

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [25]

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Yes, no, it's -- when we acquired Azteca, that's where the bulk of the losses were based. And it's just taking a little bit longer. And sometimes, when you think of longer, you think of years. This is not. This is just -- I don't want to put a date on it, but it's not monumental in terms of time and it's not material in terms of movement from a cash perspective.

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [26]

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Understood. And if we kind of look at the, call it, EBITDA loss this quarter, is that kind of the appropriate expectation maybe, call it, for the first half of the year?

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [27]

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You'll see that as we mentioned -- are you talking about broadcast?

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [28]

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Yes, broadcast, specifically.

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [29]

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That -- we haven't given any guidance on that, but we, with our business model and business plan, we fully expect that to change. This is an integration process that -- keep in mind, we just -- our first acquisition closed in November. Now we have 176 operating stations adding people. It's really just an integration aspect and we haven't gone into detail on contracts that we've signed and what we've done but it's -- we're very excited about it, huge opportunity here.

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Sarkis Sherbetchyan, B. Riley FBR, Inc., Research Division - Associate Analyst [30]

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That's helpful, Phil. I think if I were to pick your brain a little bit more there, I mean, when you get through the integration, do you have plans to maybe give us a sense for what the target financial model looks like there? Or just kind of an update on -- post integration, where you see that business going.

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [31]

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Yes, well, we haven't decided on how we're going to really report on that specific industry or that business, but I think when you look at it, keep in mind there's a couple of different avenues that you have to think about and you can be a -- you can either lease the capacity on the stations from a whole host of people, and it's essentially the tower -- a tower model per se. And the other dynamic is a -- getting into partnership with various programming entities where there's revenue share, where you're hosting specific programming channels and sharing revenue that's -- you're more focused on the ad base model there. So there's 2 different aspects there that are both extremely attractive and you'll see a mix of that, but at this point, we haven't gone into detail as to where we think we will take it and -- from a financial perspective.

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Operator [32]

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And our next question comes from Lauren Gallagher of Angelo, Gordon.

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Lauren Gallagher, Angelo, Gordon & Co., L.P. - Director of Performing Credit [33]

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A question a little bit on -- following up on the last one with Broadcasting. I understand you're not kind of giving a new time line for when the business will become breakeven. But has anything kind of materially changed over the last quarter? I guess, what's kind of caused a little bit of the integration delays? And have there kind of been any new contract -- content contracts signed?

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [34]

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There's been contracts that have been signed. The timing is really a function of the integration process. Again, it's not material from our internal perspective and we don't see it as something that is going to inhibit us from moving forward. It's just -- really, there's a whole heck of a lot of things to do. We've got the -- with the pending acquisitions that we're looking at or that we have, I mean, -- I'm sorry, let me take that back. With the stations that we've acquired and the additional pending acquisitions, we'll be up to 176 operating stations. Keep in mind Sinclair is 190 and they lease, I believe, 40. In addition, we've got 180 licensed and silent stations that we're in the process of determining which ones we build out and not. And over -- above that, we have about 300 -- 350 construction permits. So we're kind of circling our arms around this thing, but from an operations perspective, it's just kind of deploying people where we think the best to -- without really hiring too many people, it's just taking a little bit more time, but the opportunity is every day that -- if you ask if one thing's changed, yes, I think every day that goes by, we're more excited about the opportunity.

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Lauren Gallagher, Angelo, Gordon & Co., L.P. - Director of Performing Credit [35]

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Okay, great. And then on Global Marine, I guess, can you explain a little bit more about what's caused the delays on -- whether it be weather or delays in timing of contracts, kind of projects starting. Just a little bit more about what's caused each of those issues.

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Michael J. Sena, HC2 Holdings, Inc. - CFO [36]

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Yes, I think starting with HMN, I think they recognized the revenue on certain milestones, and some of them that they expected to complete by the end of the year didn't hit until 2019. And so that's one of the biggest pieces there. I think when we go through year-end and we had some receivables, unfortunately, that we wrote down from some aged projects, that's creating a big piece there. Some of them were weather claims that didn't get approved by the customer, and so that's the biggest piece. And the rest, really, these are very big, complex projects that -- the permits can get delayed, things like that. And that's really moved out the piece that was at the core of Global Marine business. It's moved that out into later time periods. So there's various different factors on that aspect.

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [37]

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And just to add to that, when your -- as we've always said, your vessels are your capacity. Your vessels are your plants per se. If you're not starting a project that you expected, you still have to reserve that vessel. And it's maybe delayed by a month or 2 months. So you're sitting with this vessel that should have been operating because of the contract that you signed but it's not, and you've got to take that expense. So that's the nuance of this business that can create the lumpiness sometimes.

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Lauren Gallagher, Angelo, Gordon & Co., L.P. - Director of Performing Credit [38]

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Got it, understood. And I guess what, generically if you could comment, has caused kind of a continued delay into -- pointing to 2019?

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Michael J. Sena, HC2 Holdings, Inc. - CFO [39]

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It's really just other projects have slipped out further. So some of the other projects that were slated for Q1 have slipped out to later in the year.

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [40]

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It's not like we've lost contracts or anything's changed on that. It's just timing, quite frankly.

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Lauren Gallagher, Angelo, Gordon & Co., L.P. - Director of Performing Credit [41]

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And what's the underutilized ship time? Remind us. Can you bill that back to the customer?

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Michael J. Sena, HC2 Holdings, Inc. - CFO [42]

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So there's 2 components to the business. So from a maintenance perspective, we get a standby rate, and that rate goes up when there's actually a breakage in the cable. The install part of the business, which is where you're seeing the unutilized cost that is flowing through, it's not -- this is about when we start the project and the timing. And so those can't be billed back unless you're in a contract that you've committed to and the reasons of the delays are on the customer, which isn't the case here.

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [43]

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Yes, it's probably a contract-to-contract or job-to-job specific issue and it's the -- one of the unfortunate aspects of the business that hasn't changed over the last 50 years. I think any shipping company has the same nuance when you're dealing with projects like this, and I guess it depends on your client and your expectation with that particular project or job or contract.

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Operator [44]

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And our next question comes from [Rick Urias] of Jefferies.

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Unidentified Analyst, [45]

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Can you walk us through growing the insurance management fee over time and thoughts around how long that can take and what needs to happen to realize those fees?

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [46]

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When you say realize, we're already getting the fees. That is a -- that's moved up from 0 to where we are now on a run rate. And as the business grows, as we expand that asset base, which we fully expect to do, there's fees associated with every dollar that we bring onboard.

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Unidentified Analyst, [47]

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Right. I see the existing fee. So I guess the question is that, are we fully run rated right now for the asset base? In other words, do you need to grow the asset base for those fees to grow?

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Michael J. Sena, HC2 Holdings, Inc. - CFO [48]

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Well, the run rate basis isn't fully reflected yet as we acquired a sizable amount of cash in the Humana transaction as that gets fully invested, which is only was for part of the fourth quarter. That fee will continue to earn on those new investments that we make. And you also see that we had about $280 million of cash at year-end, which was from recapturing some reinsurance treaties, and that will get invested in the first quarter and beyond. So as you get fully invested, the fee will get to a more run-rate basis based on today's business. And then to the extent we're able to recapture more reinsurance treaties or acquire other blocks of business, the fee can -- will grow.

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [49]

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Yes, but it's not like we have booked a fee and not performed a pass yet. It's -- we'll increase accordingly as the assets grow.

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Unidentified Analyst, [50]

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Okay. And then do you mind providing an update on the timing of the $9 million escrowed with BeneVir?

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Michael J. Sena, HC2 Holdings, Inc. - CFO [51]

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It will come in September, so 15 months after the deal closed, which was last June.

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Operator [52]

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And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to management for closing remarks.

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Philip Alan Falcone, HC2 Holdings, Inc. - Chairman, President & CEO [53]

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Once again, thank you for your time today. And as we'd mentioned, we continue to be very excited about the business. We are here if you have any additional questions, and we appreciate you taking the time this afternoon and thank you again.

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Operator [54]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes this program. You may all disconnect. Everyone, have a great day.