Spectrum Brands Holdings Inc (SPB) 2014 Q3 法說會逐字稿

Good morning. My name is Phoenix, and I will be your conference operator today. At this time I would like to welcome everyone to the Harbinger Group Inc. third-quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) I would now like to turn the call over to James Hart, Senior Vice President Communications.

Thank you, Phoenix, and good morning, everyone. Welcome to our quarterly conference call. With me today are Phil Falcone, Chairman and Chief Executive Officer of Harbinger Group; Omar Asahi, President of Harbinger Group; and Tom Williams, our CFO. During today's call a presentation will accompany our remarks. This presentation may be accessed through the webcast that is available from the investor relations section of our website at HarbingerGroupInc.com. As a reminder, this call cannot be taped or otherwise duplicated without the Company's prior consent.

Before we begin, I would like to remind everyone that this call may contain statements that are forward-looking as that term is defined by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include but are not limited to discussions regarding industry outlook, opinion, expectations regarding the performance of the Company's business, its liquidity and capital resources, and other nonhistorical statements in the discussion and analysis. These forward-looking statements are subject to certain uncertainties, risks, and assumptions including risks related to the general economic and business conditions and are based on management's beliefs as well as assumptions made by and information currently available to management.

When you listen to this call, the words belief, anticipate, estimate, expect, intend, and similar expressions are intended to identify forward-looking statements. All forward-looking statements made today reflect the Company's current expectations only. And although management believes that its expectations reflected in these forward-looking statements are reasonable, the Company undertakes no obligation to revise or update any statements to reflect events or circumstances that occur after this call. Important risks, uncertainties, assumptions and other factors that could cause actual results to differ materially from those in these forward-looking statements are identified and disclosed in our reports filed by Harbinger Group with the SEC.

During the call management will provide certain information that will constitute certain non-GAAP financial measures and (technical difficulty) adjusted EBITDA and adjusted operating income. Certain information required to be disclosed about these non-GAAP measures, including reconciliations of the most comparable GAAP measures, is available in the earnings press release that we issued this morning. With that, we will begin by turning the call over to Phil.

Good morning, everyone, and thank you for joining us today. I'll begin today's call by touching on some of the key accomplishments we made during the quarter. I will then turn the call over to Omar Asali, who will describe some of the highlights in our operating performance this quarter, and then Tom Williams will join to provide an overview of our consolidated financial results. We will then open up the call to take your questions.

So to begin with, just a quick snapshot -- this was a very, very solid quarter for us, highlighted by our largest-ever quarterly performance for both revenue and operating income. As Omar will describe to you, the collective strength we are seeing at Harbinger Group reflects contributions from all areas of our business. For example, Spectrum Brands delivered record third-quarter revenue in its 15th consecutive quarter of year-over-year growth and adjusted EBITDA, which is its primary measure of profitability. We also saw strong gains and profits across our other segments as well.

We designed Harbinger Group as a permanent capital vehicle that would invest in diverse and uncorrelated sources of long-term cash flow growth. By design, we don't need all these parts of the business to be moving in the same direction at all times to achieve our ultimate goals. However, when that does happen, as it did for the most part this quarter, we have the capability of setting new performance thresholds. And as pleased as we are about our financial performance this quarter, we also accomplished a great deal with our capital structure as well.

I will walk you through the highlights momentarily, but to put it very simply, with the actions we've taken over the past few months we have simplified our capital structure and created sufficient flexibility for ourselves as we continue to pursue our strategy of acquiring undervalued or fairly valued assets that possess attractive financial or strategic characteristics. In short, we believe that our capital structure has matured and meaningfully evolved from where we began just a few years ago, and we are very well positioned as we look into the future.

The first action that we took this quarter was to exercise our option to convert what has been our Series A and Series A-2 preferred interest into common stock. This was a key aspect for us or a key step for us. The preferred provided the initial funding for us a number of years ago, and we feel like we have really taken steps, the right steps, and to be able to convert this preferred was a big accomplishment for us.

Number one, it provides the clarity that capital markets were looking for by removing any overhang associated with the dilutive impact from the issuance of nearly 60 million new shares of common's talk. As many of you know, there were a number of questions regarding what was going to happen with this common stock. Were the preferred holders going to convert? What were they going to do? And it was very important for us and it was overhanging our stock for a while. So it was very critical for us to clean that up.

Number two, it meaningfully reduced our cash obligations, giving us additional resources to use in building long-term shareholder value, which could help offset the dilution caused by the new shares. Clearly, we were paying a coupon on that, cash coupon. So, we looked at it as a meaningful and substantial cash savings.

And it created greater liquidity in the trading of HGI, which should help lessen the volatility in the day-to-day pricing and increase our attractiveness to certain types of institutional investors. There had been a number of people that were interested in buying the stock but felt like they couldn't get access to new -- to the stock. So again, converting this preferred helped us partially solve that problem.

We are very pleased to see that the market absorbed the issuance of the new shares very well, without any real volatility or increase in meaningful volatility. HGI shares from the date of the conversion to the close of the quarter increased by nearly $1 or about 8.5%, which was well above the performance of the S&P 500 over that same period. We believe that this indicates that a majority of the holders of the preferred retained their equity interest after the conversion to common, which helped lessen any disruption to the trading or pricing of our securities.

The second action we took to support our capital structure this quarter was an amendment we secured to our debt agreement permitting us to expand the buyback program for our common stock. We are strong proponents of what we are building here at Harbinger Group and we like using our cash to pursue the highest and best available returns. By nature, we are an acquisitive company. And we would prefer using our resources to accumulate additional assets capable of producing long-term value and free cash flow, which I will come back to in just a moment.

However, as we look across the landscape of the current M&A opportunities, by and large multiples in a lot of the areas are higher now than what we believe would provide us with a sufficient return. As Tom will describe to you later, when looking at the sum-of-the-parts valuation there's clearly a gap between our intrinsic value and our trading value. This presents us with an attractive opportunity to use our cash to earn a strong return through the acquisition of our own common shares. During the quarter we used about $12 million of our cash to acquire 1 million shares of HGI. By doing so we injected additional liquidity into the market for HGI shares while also sending a strongly positive signal to the market that we believe we are undervalued.

But we also kept enough dry powder on the balance sheet to reserve optionality for the future as well. We have sufficient flexibility under the existing program to opportunistically support the stock, subject to the ongoing discretion of management.

So to come back to the state of the M&A environment, as discussed on our last call, we look for investments that provide attractive synergies for existing businesses that have sound fundamentals but may be in need of a financial restructuring or operational turnaround, that have management teams capable of creating long-term value for long-term cash flow positive businesses where we can continue to look to build book value.

We follow a rigorous, disciplined process and we don't feel pressured to use our capital when valuations don't support our long-term value thesis. Broadly speaking, we believe valuations continue to be high in this market. So we expect to maintain our discipline and not transact at an uneconomic price.

We were somewhat active in the quarter acquiring assets that help diversify our business mix while also complementing our existing verticals. Let's briefly touch on those right now. This chart should be familiar to many of you, as it shows our five primary verticals -- consumer products, insurance, energy, asset management, and minority investments and assets we hold within each of these silos. We've highlighted in green the new additions to our portfolio this quarter, CorAmerica and Frederick's of Hollywood.

CorAmerica is a real estate lending company focused on originating and acquiring commercial mortgage loans and making select equity investments in many different types of real estate including office parks, industrial complexes, retail shopping centers, apartment buildings, and hotels. We acquired a controlling interest in CorAmerica during the quarter, adding it to our asset management segment, where it is expected to further diversify the segment by providing attractive new areas for investments that have not previously been addressed by the segment.

Frederick's of Hollywood is a well-known retailer of women's apparel and related products. We previously had a minority investment in the firm but acquired a controlling interest during the quarter. We believe that this is an asset that can benefit from additional resources and fresh management, and we look forward to reporting on its progress to you in the coming quarters.

Before I turn things over to Omar, I wanted to touch on just a few other noteworthy highlights during the quarter. In May, Harbinger Group was named to the Fortune 500 list for the first time. Considering how we built this business from the bottom up just a few years ago, we think this is a testament to both the business model we have built as well as the people who have worked extremely hard over the years to build what is now one of the largest businesses in the United States.

Second, in line with the maturation of our capital structure, we have expanded the capabilities and expertise of our Board through the addition of two new outside directors, Joe Steinberg and Andrew Whittaker. Both Joe and Andrew bring considerable expertise to the Board and have substantial track records of success in investment management. We welcome Joe and Andrew and know their contributions will help in the ongoing evolution of Harbinger Group.

With that, I would like to hand the call over to Omar Asali, the President of Harbinger Group, who will cover the operational highlights at HRG this past quarter.

Thank you, Phil. Good morning, everybody, and thank you for joining us. I'm going to start on your slide 12 in terms of third-quarter highlights. Just to give you a snapshot that spans our whole business, we had an outstanding quarter for Harbinger Group with record results on both the top line as well as total operating income. As Phil indicated, all of our segments performed very well, and we are very pleased with those results.

Just to hit on some key things, in consumer products we have had our 15th consecutive quarter of year-over-year growth in adjusted EBITDA. In insurance we had nearly 45% growth in our annuity sales while also trending adjusted operating income upwards. In energy our quarterly production is on track, and our cost initiatives as well as CapEx spending are performing better than we expected. And then lastly in our smallest segment, in asset management we can almost 60% revenue growth in addition to, as Phil mentioned, adding CorAmerica as part of our real estate platform. So, in short, a very nice quarter for us, and we are pleased to report those results to you.

If we turn to slide 13, let me just to delve into a bit more detail in each of our segments, starting with consumer products. As many of you know, that's our 59% interest in Spectrum Brands. Over the first three quarters of our fiscal year shares in Spectrum have outperformed the S&P by approximately 1400 basis points. Spectrum is well on its way towards achieving its third consecutive year of meaningfully outpacing the market as well as its peers.

This sustained level of success that we are seeing in SPB is frankly due to several factors that are some of our key principles in this segment. One, very strong business fundamentals and sound strategy, which is Spectrum's value model. And that's the core of our business. The strategy of same performance, less price continues to resonate with consumers and continues to be the right strategy in this marketplace.

Second, we obviously have solid and great relationships with our key retail distribution partners and continue to invest in those channels. We also continue to focus on our cost initiatives and cost improvements, and that is evident in our key metrics including our adjusted EBITDA numbers as well as free cash flow and operating margins. We have a strong management team that is executing and we also have a great business that knows how to integrate tuck-in acquisitions as well as larger acquisitions. And we continue to look to identify synergistic acquisitions that we can integrate successfully in our platform.

In terms of specific results for this quarter, that's your slide 14. Spectrum Brands reported across-the-board increases in revenue, EBITDA, free cash flow, and EPS as compared to prior year. And we had a record best-ever third quarter of revenue of approximately $1.13 billion, which was up 3.6% from a year ago. But, more importantly, EBITDA or adjusted EBITDA was up more than double that, reaching $202 million. The Company is on track to achieving its seventh consecutive year of adjusted EBITDA margin growth.

On gross profit margins we have expanded those to roughly 37%, and on adjusted EBITDA margins we reached 17.9%, which is roughly 60 basis point increase from last year. These numbers are very, very important numbers that we are very proud of in terms of continuing to push the profitability of the Company and the margin expansion.

Obviously, the outcome of all that is the strong cash flow generation of the Company. In fiscal 2013, the Company generated about $254 million of free cash flow. This year we are on track to generate at least $350 million of free cash flow and to also reduce our debt by approximately $250 million, and this fiscal year, to reduce our leverage to roughly 4.2 times or less.

This cash flow generation in Spectrum Brands is obviously very important for us and continues to help us to invest in the business, support dividend policy, pursue accretive M&A acquisitions when they exist, and continue to allocate and deploy the capital in smart ways that are enhancing our asset value. Going forward, you can expect us to -- and the management team at SPB to focus on the value model; invest a little bit more in e-commerce strategies; expand geographically in Europe and internationally in new channels and with new products; and then, of course, where it makes sense continue to look for the right M&A targets and continue to execute on the M&A front.

Moving on to slide 15, which is our insurance segment, we also had a very strong quarter in this segment. This is represented by our 80% interest in for the Fidelity & Guaranty and our 100% stake in Front Street Re, which is our reinsurance business. To give you some key stats, here total assets under management are roughly about $18 billion. GAAP book value for FGL increased 31% to $1.7 billion, and that includes AOCI. Excluding that, it increased to $1.3 billion, which is a rise of roughly 18%.

We had a very strong quarter in terms of our sales. As many of you have heard from the management team during the IPO road, increasing our market share and building our sales was a key initiative of ours, very important. We want to do that as we are also improving profitability and we believe the Company continues to execute on that strategy.

In our market, in the fixed index annuity market we continue to see favorable demographics and very favorable competitive landscape, and we believe that we will continue to execute on profitably increasing our market share as well as our sales.

On the investment side, the average yield earned on assets that we purchased during this past quarter was roughly 5.29%. Across the whole portfolio the average earned yield was about 4.63%, which is an improvement of 26 basis points from last year. And that is largely driven by the repositioning of the FGL portfolio that the management team has embarked on, and that repositioning is predominantly behind us, i.e., we executed on it. The portfolio continues to be in pristine condition. And the average NAIC rating is approximately 1.4 times.

If we go to our next segment, which is your slide 16, that is the energy segment. Just as a reminder, this is the joint venture that we owned with EXCO Resources. And our strategy in this space is to focus on long-lived assets, low-decline properties with low geologic risk. The JV strategy continues to work very efficiently for us and we continue to sort of maximize cash flow in this business.

On the production side this past quarter, our production was consistent with our expectations, yielding roughly 103,000 barrels of oil, about 125,000 barrels of NGL, and 5.25 billion cubic feet of nat gas. Important to the production numbers as well is some of the cost initiatives that have been taken in the JV under the leadership of Matt Grubb, who is our CEO. And we continue to deliver attractive EBITDA numbers. This past quarter we delivered $20 million of EBITDA in this business, which is more than double from where it was in 2013. Matt and his team have also been leading an initiative in terms of our capital investments and spend, and this past quarter there has been a big focus on re-completions and workover projects as opposed to new drilling, and those have yielded very attractive rates of return.

One other thing just to mention in our energy area is we renamed the JV to Compass Production Partners. We believe this is an important step in helping the management team there build their own standalone viable entity with our support and EXCO's support going forward, so we continue to help them develop their own, if you will, company and vertical in that space.

On slide 17, which is our last segment and I will touch on it briefly, that's the asset management area. Phil mentioned the CorAmerica acquisition. Today our suite in asset management is complete with four key businesses. That's Salus, which is our asset-based lending middle-market business; Five Island, which is our high-yield manager; EIC, which is our energy and infrastructure lender; and CorAmerica, the recent addition, which is our real estate lending platform. All these businesses, in some cases like Salus and Five Island that have been around for a while, continue to perform. And then our new businesses that we have in here, they're on track to perform going forward as we deploy capital in their respective markets.

So we continue to feel good about this area, and we look forward to updating you on our progress in all four segments of asset and, in particular, the new additions, EIC and CorAmerica, in the upcoming quarters.

On slide 18, which is right before I turn it to Tom, I wanted to touch on our cash structure little bit. This is something that Phil mentioned. This is something that we discussed with you in our last quarter. Today what we have a simple and balanced capital structure. The balance sheet is healthy. It is a flexible balance sheet that reflects our ability to access capital across the different securities in this cash structure. So the debt is roughly balanced between senior secured debt and unsecured debt. And then obviously we have common stock. And this simple capital structure is really important because it showcases our ability to access capital and will enable us to execute on M&A when the environment is right.

Now, as Phil mentioned, in today's environment we are being patient and disciplined. Many businesses are going for high multiples and we are seeing elements of froth in the M&A market. We will continue to execute on what you guys have seen from us, which is being a patient allocator of capital. When the opportunity arises, we look forward to reporting to you on deals that we would be executing on, but very important to highlight that our balance sheet today is an asset that enables us to go and execute on that M&A strategy.

So with that, let me turn it over to Tom Williams, our Chief Financial Officer.

Yes. Thanks, Omar, and good morning, everyone. Before we open up the call for your questions, I will briefly hit highlights of Harbinger Group's consolidated results for this quarter. I will also provide you some context for the impact to our financials from the capital structure actions Phil and Omar just described. And as usual, I will update our sum of the parts calculation to reflect our performance for the third quarter.

With that, let's begin by looking at revenues. We reported $1.59 billion in consolidated revenues this quarter. This is an all-time quarterly record for Harbinger Group, reflecting an increase of more than 13% from the third quarter of 2013. Our growth in the quarter was driven by all lines of business except energy, where year-over-year revenues will always be somewhat challenged, given the natural production declines that are inherent in the underlying oil and natural gas assets presented that are presently owned by our JV.

Looking across the segment, it is worth calling to your attention the 3.6% growth in consumer products, which is consistent with its performance all year and indicative of Spectrum's solid execution of its strategy. The strong growth in insurance revenue, with or without net investment gains, as FGL continues to see strong consumer receptivity for its core products and continues to manage its investment portfolio very well. This strong performance on the top line helped to translate to record consolidated quarterly operating income at Harbinger. Overall, our operating income of $229.1 million was up more than 25% or $46.5 million from the third quarter 2013, driven by growth in all business segments with particularly strong performances from consumer products and insurance.

In looking at the preferred measures of profitability for each segment, such as adjusted EBITDA or adjusted operating income, as appropriate, as this slide shows, we reported increases in all segments except energy, which modestly declined by less than $1 million. Consumer-products reported its 15th consecutive quarter of year-over-year growth in adjusted EBITDA. Our adjusted operating income for insurance more than doubled from last year, and asset management continues to operate profitably even as we make start-up investments to build out and diversify our capabilities in this vertical.

These increases in operating income resulted in an increase in diluted net income attributable to common and participating preferred stockholders of $0.28 per diluted share as compared to $0.25 per diluted share a year ago. To provide you with more details on the income statement, there were two impacts to our financial statements for the conversion of what had been our Series A and Series A-2 preferred shares into common stock this quarter. First, we recorded a $38 million non-cash gain from the typical mark-to-market of the equity conversion feature. The relevant period was from the start of the quarter through May 15, which was the day of the conversion. This is the same entry we've made each quarter since the preferreds were issued and reflects the inverse relationship between the movement of HCI's stock price during the quarter and the value of the preferred equity.

Second, this gain was offset by a non-reoccurring non-cash charge of $44 million in the quarter to reflect the loss on the conversion itself. This loss is reflected in the $49.3 million that was recorded in the preferred stock dividends and accretion line. The approximately $5 million difference reflects the actual cash dividends that were paid to holders of the preferred equities prior to conversion as well as some amortized expenses for the original transaction fees.

We believe this transaction has several benefits. It meaningfully reduces our cash interest obligations as the preferreds were a cash cost of more than $33 million last year. It creates greater liquidity, which we would expect make our equity a more attractive investment vehicle for certain types of investors. As Phil and Omar discussed, during the quarter we also successfully completed a debt exchange offer. $320.6 million of senior secured notes were exchanged for $350 million in aggregate principal of new senior unsecured notes.

This transaction, which was heavily oversubscribed, extended the maturity of the exchange portion of the debt by three years from 2019 to 2022. It shifted more than $300 million of debt to a slightly lower interest rate, continuing are multiyear trend of reducing what had been a 10.625% blended cost of debt in 2002 to approximately 7.8% as of today. Increased flexibility at the secured level of the capital structure, should future transactions contemplate using debt financing.

Turning to our cash position, we ended the quarter with corporate cash and investments of more than $417 million at the Harbinger Group and Harbinger Group funding level. This was a decrease from the second quarter balance due to several investments in acquisition activities including the repurchase of 1 million shares of HGI at a price of $12.10; the reclassification of what had been a $12 million investment in Frederick's of Hollywood, now that we have begin to consolidate that entity as part of our corporate and other segment; also investments in Central Garden & Pet securities, investments in other toe-hold positions, and the acquisition of a controlling interest in CorAmerica. With our cash and investment positions of $417 million, we believe we have sufficient dry powder to meet our operating investment needs but also remain comfortably within our ability to access capital markets if and when we need to.

As the results clearly show, it was a very strong quarter for Harbinger. And given our stated goal of creating long-term shareholder value, our achievements shouldn't be measured by the financial statements alone. And accordingly, we calculate the estimated net value of our sum of the parts. And we do that on a regular basis. Though the valuation in any quarter may fluctuate due to certain macro factors that are beyond our control, we believe our long-term performance can be adequately measured by the creation of this net estimated value.

Given their status as long-term investments with public it, our holdings in Spectrum and Fidelity & Guaranty Life are based on the volume-weighted average price for the 20-day trading period ended June 30. All other securities held at HGI Funding are valued using market prices. Everything else, including our cash, cash equivalents and corporate debt, are measured on book value. Taken together, and our estimated value as of June 30 is $15.16 per share. Relative to our March 31 valuation, this reflects an increase of 2.3% or $0.34 per share of additional value created.

Although we aren't managing this business on a quarter-to-quarter basis, we are pleased to see this type of steady increase in our sum-of-the-parts valuation. The 16% discount in our June 30 common stock price is higher than we would like but a bit lower than it had been in recent quarters, demonstrating progress in closing the gap.

We will continue to work with the investment community to better educate investors about not only the value of the assets we manage and hold but also the philosophy and processes that guide our investment decisions. This is because we believe that a business with sustainable free cash flow generating assets, a strong management team, a disciplined approach to acquisitions, and a clear commitment to long-term value creation merits a valuation that reflects both the market value as well as the premium for expertise that we bring to the table in identifying undervalued assets and taking the time to build sustainable free cash flow over the long-term.

Thank you for joining us today. We would now like to open up the call for your questions. Operator, please provide the instructions.

(Operator Instructions) Charles Frischer, LF Partners.

Congratulations on a very solid quarter. Spectrum continues to operate at a very high rate, but I was most impressed with the strong results at Fidelity & Guaranty this quarter. Can you talk about the sustainability of those results as we move through 2014 and 2015?

We continue, as I said a bit in my remarks, to feel pretty good about the outlook for the space that we are in. And that's driven by the demographics that we all know, 10,000-plus people entering retirement age, many people being underinvested and under saved in today's market, plus the competitive landscape where we are seeing some volatility, whether due to M&A or to strategic initiatives from some of our competitors, where we are seeing them sometimes press on the sales gas pedal, sometimes on the brakes and creating issues with the marketing organizations and the agents and the distributors. Where we have been successful in our relationships with the distribution channel and engaging them in selling our products at a steady pace but also at a pace where we are comfortable with internal rate of return.

So we are focused on the top-line growth that is helped by some of these macro and micro factors I mentioned as well as, certainly, the bottom line profitability. So on the sales front we believe and management believes at FGL that we will continue to see a nice run in that area.

Now, on the asset side, and that's another reason why you are seeing asset some nice AOI numbers, is the repositioning of the portfolio that has helped increase our yield. So, for example, this past quarter we put money at work at 5.29% to increase the yield of the whole book to 4.63%. And the way we are doing that is we are investing more in the areas that we like, like emerging markets debt, and certain private placements, and some highly rated structured securities. We continue to be disciplined on duration. But where the market gives us the opportunity, we are, I think, out there trying to capture that opportunity. And that will depend on the market conditions.

So the profitability that you've seen, Charlie, and the trend that we think will continue is driven by both the top line, the increase in sales that we think can be with us for a while as well as how we repositioned the portfolio, which now, we think, is in a much better spot.

Terrific. If I could switch over to Salus, could you talk about the credit metrics and how you are seeing the business today for new loans?

Yes. So in Salus our focus is on middle-market companies that are in need for asset-based lending. What we've seen when you talk about credit metrics is we continue to see a very robust pipeline with companies that we are very comfortable with in terms of the collateral value, whether it's inventory, receivables, or other assets that we are comfortable taking as collateral. We see very strong credit metrics on that front. We continue to see a pipeline that is robust from a pricing standpoint. So these companies are coming to us sometimes because of relationships, sometimes because of quick execution that we can do, our reputation in the marketplace. And we continue to see pricing that we are very comfortable with both on the [near] front as well as in terms of the coupon of some of the transactions.

The companies themselves obviously -- on a cash flow basis many of them can be in a challenged position. But really our bread and butter in that business is the value of the collateral, understanding that using our own conservative estimates on that front -- and, Charlie, what we are seeing is still a very strong pipeline with very healthy metrics on that front.

Terrific. If I could ask another question or so, can you talk about one of your two -- regarding Frederick's, how you see this turnaround and what are the couple things that you are hoping to accomplish there to make it a better business?

Sure. We believe that in looking at this business the gap -- one of the things that really attracted me to Frederick's was the gap between the top producer in the industry and everyone else. There's no real solid number two. That in and of itself presents an opportunity. Clearly, this company has been run on fumes the last five years. And they haven't been able to do much of anything from a marketing perspective. That being said, the company still managed to keep a pretty decent top line without introducing any new products, without advertising, without spending any money on marketing. And I think that's indicative of the brand name, how long it's been around, and the metrics associated in the industry and how important branding is.

That being said, we felt like that this needed to -- there needed to be a couple of things that were changed within the company. We are working on bringing in new management. We do have a number of people that we are in discussions with. We have essentially signed somebody up as the CEO, which has not yet been announced. I think that you will find that this person comes with a phenomenal pedigree. She is in the process of building her team. She is talking to a number of other different people to bring onto the team. But before we announce who that person is, we want to make a couple of additional changes within the organization.

But that was the key for us, was to bring in a new leader. And with all due respect, the former CEO had a pretty tough job, considering that he didn't have much capital to work with. This is going to take a little bit of capital because there are, as I mentioned, a number of things that need to be changed. But we believe that there is a phenomenal opportunity to turn this thing around. And again, the key for us is to get the right leadership. We believe that this person that we did sign up to be the Chair and the CEO is probably second to none when it comes to -- when it came to possible partners for us. So we are very thrilled about that.

We do have our work cut out with this company. But again, we believe that there is -- just because of the market in and of itself, that there is tremendous opportunity as we look to build this category out.

That's great, Phil. And if I could ask one more question -- I know I'm taking up a lot of time. But how do you think about the timing of the CorAmerica investment, given where we are in the real estate cycle?

Yes, Charlie, this is a long-term play, if you will. This is not an opportunistic transaction where there is a dislocation in real estate lending that we are trying to capture. What we are thinking is building a real estate lending platform that it mix up and down the capital structure and the rating environment, meaning home loans, CMBS, mezz capability as well as opportunistically investing in equity and real estate. So expect that that's a business that we will grow, depending on market conditions and depending on what happens out there in the real estate market over a period of time. But today the business that we acquired already has some assets, is already profitable. So it's a nice platform that we can build on when market conditions are right.

Terrific. Thanks, Omar. Thanks, everybody, for a great quarter.

Majid Khan from Tourbillon.

Congratulations on the great numbers. Just maybe one quick clarification -- in the presentation, which was hard to catch because of the speed, it seemed like it showed about 28 million shares of Spectrum Brands owned by HGI. And according to a Form 4 filed, it seems like Harbinger Holdings owns 31 million shares. Could you just explain what the difference is?

Yes. In the sum-of-the-parts chart you will see the footnotes where we do have $27.7 million that is held as collateral against our debt obligations. But you will also see in the footnote inside of HGI Funding that we hold another 3,186,000 shares. So together we own roughly 31-plus million shares, approximately 59% of the equity. So you will see it in two buckets in the sum-of-the-parts chart.

So one bucket is Spectrum Brands. And where are the remaining 3 million shares?

The remaining piece is in the fourth slice of the pie, called HGI Funding, where we hold not only Spectrum Brands common stock but we also hold other positions.

Got it. And then obviously you guys bought back 1 million shares at a pretty significant discount to your NAV. That leaves a lot of authorization remaining, and your stock trades at a very significant discount to your NAV. You guys obviously and I think a lot of Spectrum shareholders believe there's a lot more value there to be had. What are your thoughts on accelerating the buyback and being more aggressive and potentially doing a Dutch tender to fix the valuation of the stock somewhat?

We agree that there's an opportunity from a valuation perspective, and we continue to look at it as something that our objective over the long-term is to close that gap. We haven't made any final determinations or announcements regarding any accelerated buyback. As we mentioned, we do have a $100 million -- we did incorporate a $100 million buyback plan, of which we executed $12 million in the recent quarter. That is still open. We will continue to be opportunistic as we see fit but have not made any announcements regarding any changes in that. That being said, we do believe that -- and our objective over the long-term is to get to trading at book value and even a premium. That comes with time. We have to be patient. But it is clearly an important part of the way we think about things here.

That's fair. Have you guys been blacked out at all during any period of time over the last quarter? And if so, when can you possibly be back in the market repurchasing shares?

Certainly, with the release of the financials there would be no material nonpublic information that would prevent us from continuing to opportunistically execute against this buyback plan.

Got it. Okay, fair enough. All right, thank you guys. And congratulations again; the results were fantastic.

There are no further questions at this time. And this concludes today's conference call. Thank you.

Well, just to end up, wrap up the call, thank you very much for your participation today. We do appreciate your support and look forward to talking to all of you again in the coming months. Thank you very much.