Innovate Corp (VATE) 2016 Q2 法說會逐字稿

Good afternoon and welcome to the HC2 Holdings Second Quarter 2016 Earnings Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this call is being recorded.

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

Great. Thank you, Valerie. Good afternoon, everyone, and thanks for joining us this afternoon to review HC2's second quarter 2016 earnings. With me today are Philip Falcone, Chairman, President, and CEO of HC2; Mike Sena, our Chief Financial Officer; Keith Hladek, our Chief Operating 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 our webcast presentation, which can be accessed on the HC2 website and in the Investor Relations section. A replay of this call will be available approximately an hour to two hours after the call. Dial-in for the replay is 1-855-859-2056 with the confirmation code of 49610865.

Before I turn 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 detailed in our filings with the SEC.

In addition, the forward-looking statements included in this conference call are made only as of the date of this call and as stated in our SEC report. 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 rule 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 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, Philip Falcone. Phil?

Thank you, Andy, and good afternoon to everyone and thank you for joining us on the call today. On the agenda today, I will start with a brief recap of the results for the quarter, provide a few operational highlights from our primary operating subs, and then finish up with a Q&A.

So while looking at slide 4, which you'll see the heading second quarter highlights and recent developments, overall, we executed extremely well during the second quarter as evidenced by the strength and stability of our core operating subs driving sequential growth. During the quarter, we saw very solid performance in our Manufacturing segment, which is Schuff due largely to margin expansion and strength in the Midwest and Southeast regions; stable maintenance results in Marine Services, along with strong performance from our JVs, the HMN and SBSS; and continued growth and scale in customer relationships in the Telecommunications segment; and continued expansion of compressed nat gas fueling stations in the American Natural Gas segment.

The adjusted EBITDA from our core operating subs, which includes Manufacturing, Marine, Utilities, and Telecom, totaled $27.1 million in the second quarter versus $12.7 million in the first quarter. Consolidated cash, cash equivalents, and investments were $1.6 billion at the end of the second quarter which, of course, includes our Insurance segment. Corporate cash was essentially unchanged from the prior quarter at $40.3 million as of June 30, 2016. And one other line item that I wanted to highlight is the consolidated cash net of Insurance, which is $134.5 million, so that's essentially the corporate cash at the holding company, the cash at Schuff, Global Marine, et cetera.

I want to turn to slide 5 which will give you the segment overview as many of you are, have seen and will continue to see to give you a glimpse of how we look at the business and how we look at the operating entity. These are the reportable segments as you can see the core operating subs again are Schuff, Global Marine, American Natural Gas, PTGi, and of course, we have the financial services sub, the insurance company. And then, we have the early stage in other holdings, including the Pansend investments and Nervve and DMR Racing or DMR; DMR, the racing entity where we have a north of 50% ownership in that company. The Nervve and DMR investments are relatively small. While we do have a pretty optimistic numbers for those two different subs, they're clearly not part of the core operating subsidiaries and how we're looking at our day-to-day business and where we see the most growth.

Now turning to slide 6, which is the detailed synopsis of the adjusted EBITDA for core operating subs. As I mentioned, the core operating subsidiary EBITDA was $27.1 million for the second quarter versus $12.7 million in the first quarter. As you will see, every one of our core operating businesses were up versus the first quarter 2016, and with our life sciences platform and non-operating corporate essentially unchanged, to slightly better quarter-over-quarter. Adjusted EBITDA at Schuff was up $1.7 million from the first quarter, Global Marine was up $11.3 million, American Natural Gas was up slightly, and PTGi was up $1.2 million for the quarter. Again, very solid performance by each of the core operating subs.

One thing I do want to point out, which is a point that we continue to focus on as we manage our day-to-day business, was the non-operating corporate expenses. And this is a area where when we think about managing the business, and it's managing growth and being prudent with our cost at the same time with managing a growing business, I think that's something that you have to take into consideration when looking at that number. I mentioned in the past that we would look to cut that number down to a $16 million, $17 million run rate.

Now, when I think about our business and when I think about the growth aspect to it, I think it's more important and very important for everybody to focus on the fact that we are a growing business that we are really managing very lean at the holding company. And we do have some ancillary expenses in there that we fully expect to come down over time. But keep in mind, as we grow the business, and especially the salary and benefits line, it is very tough to cut when you're in a growing environment. And we see a lot of positive things happening here, and we've been beefing up various departments and especially in the finance area, we've beefed up that area and feel like that's a necessary expense for us to incur.

But I think overall, we've been managing our cost extremely well. We will continue to be very prudent with that line item and make sure that we continue crossing the T's and dotting the I's there. But I think, overall, we've done an excellent job of managing the cash and managing that line item. And while our objective is to kind of keep it as low as possible, there are certain expenses in there that you will, that we will have to incur as we grow the business, but for the most part, we feel pretty good about where we are there.

Clearly, our deal costs have come down for the quarter. And if you think about our total SG&A, our total SG&A for the quarter was about $7.6 million, and you are not seeing that on the screen, the $7.6 million versus the total of $10.3 million for the first quarter of 2016. So you can see that, as I mentioned in the past, the deal expense aspect did result in a double-digit expense number, but now it's down pretty nicely coming in around the $7.6 million number for total SG&A for the quarter.

Turning to slide 7 and focusing for starters on Schuff. Schuff experienced still another very strong quarter, with second quarter adjusted EBITDA coming in at $13.2 million versus $11.5 million in the previous quarter. Gross profit margins were again very strong in this quarter. Schuff continues its strategy to focus on complex and sophisticated projects that makes them very unique in the industry. And looking at some of the projects that we've built and that they've been focused on over the past number of years, I think we're really second to none in that business, and we're very, very happy with what Rustin Roach and the team have done there.

Backlog at the end of the second quarter was approximately $344 million. And this number is versus $415 million for the first quarter. But I think what's really important to think about as we've look at the Schuff business is you have to take into consideration the contracts that are awarded but not yet signed, and that includes project awards in the Pacific region, including a very large tech company in Northern California as well as a large project in the Midwest, to cite a few. The backlog would be up over $522 million versus that same apples-to-apples comparison in the first quarter of $480 million. So that number continues to move in the right direction where we continue to believe, and as we talked to a number of you have mentioned that we -- the environment in that area, which is very specific to the core strength of Schuff, continues to do very well. And we continue to believe that, that will -- that number will continue to be very strong.

We continue to see a number of large opportunities in that sector, totaling over $400 million in new projects to be awarded over the next three to four months, which are not in our backlog. These projects include various new sporting arenas or stadiums as well as new healthcare facilities and commercial office buildings. So the next number of months could continue to be very strong for Schuff. We like what we see there. We think that we should clearly build on this existing backlog that we've already been awarded. There continue to be numerous opportunities out there.

Looking ahead, Schuff will continue to increase and diversify its structural field fabrication and erection sales pipeline. And we're also exploring opportunities to expand the overall product offering, which may include offering higher-margin services, inclusive of planning design build, building integration management, services and detailing as well as other diverse value-added services. We continue to scour the landscape to look for opportunities across the board. We do believe that we have our sights set on businesses that we think will be very value-added to our existing product line, and we're not looking at biting off more than we can chew there. We're really -- we, and the team down at Schuff are being very methodical in terms of thinking about how to build this business.

We believe we could be a $1 billion revenue company over the next three to five years, and that's how we're thinking about it. And we have a plan mapped out as to how we're going to get there that we believe will continue to diversify that top line and branch out into value-added service type businesses that we think can be complementary across the board, but that's how we're thinking about it. This is a very core part of our overall business. Our objective is to get to $1 billion mark in the next three to five years, and we believe we can do that and we do have the right team in place to get there with Rustin and the team that he has built in Phoenix.

Turning to Slide 8, the Marine Services business, Global Marine. Global Marine's adjusted EBITDA came in at nearly $12 million for the second quarter. That's significantly higher than the previous quarter. Keep in mind that we had the $5 million adjustment in the first quarter, but even taking that into consideration that onetime event, the company did have a very solid quarter, which was really nice to see. And as we talk to people, as we have explained on our calls, there has -- there is some lumpiness in this business, but for the most part, we're very happy with how the team is doing and the new prospects there.

This quarter's results benefited from a full quarter contribution from our CWind acquisition, where we are starting to see significant traction at CWind in both the O&M and construction opportunities as the European market continues to target significant investments in renewable energy. We've been a believer and a big believer in what's happening in that marketplace and wanted to capitalize on that, and feel like with the CWind acquisition we were able to do that pretty effectively and we're expecting some big things from CWind.

The JVs continue to be shining stars under the Global Marine umbrella. These JVs are with Huawei Marine and SBSS China Telecom. These entities were up significantly for the first quarter and continue to see growth in the overall market share through these JVs. Again, as I explained in the past calls that the JVs and especially the HMN JV is really something we're very, very excited about. This is a 49% owned JV with Huawei Technologies. You kind of know what kind of power that they have around the globe, and we're very pleased with what we're seeing there on the top line and on the profitability side of that JV.

Maintenance performance again -- it was again very strong in the second quarter with telecom maintenance revenues coming in at nearly $30 million, up 35% year-over-year and nearly 20% sequentially. Installation revenues in the second quarter were exclusively telecom, and while lumpy in nature, we continue to believe long-term prospects in the telecom installation market are especially significant. Worldwide broadband growth is expected to grow between 40% to 50% per year from emerging markets, data application, smartphone usage, et cetera. And in addition, system-wide redundancy demand for lower latency and faster transmission as well as new entrants in the market as the result of deregulation wanting to own and control their own fiber-optic cables, as well as just the general upgrades of obsolete cables will continue to drive long-term demand.

As most of you are well aware, the oil and gas market has been pretty rough in and around the installation area. Fortunately, we have not had a lot of -- and did not have a lot of exposure there. So we were very pleased with the performance, the overall performance. We didn't have the oil and gas segment as a big part of our budget. It hasn't been a big part of the company in the past. That being said, it's taken -- I think the industry in general has pushed some capacity into some of the telecoms marketplace in the vessel area as well as in the offshore power market space. And it's affected the capacity a little bit, which unfortunately has affected Global Marine. But I have to say that despite what you hear in the shipping market in that area in general, this company has done exceedingly well. They continue to hold their own. And I think it's part and parcel to their long-standing reputation and strong management and ability to execute, which is clearly a very critical part when you are installing and maintaining communication cables. So I think the team and the strength of the team is really a very important part of this business because it is not a commodity business. And I think our results and what we've seen despite the shipping business in general globally being under a little bit of pressure, we continue to perform, I think, quite well.

And one of the things that I want to highlight that I think is really important and when you think about Global Marine and what's happened and what the team has done, they've done a great job significantly reducing debt and pension obligations by over $50 million since September 2014. And we haven't really talked about that in the past, but when we bought the company, the total debt and pension on day 1 of the acquisition back in September of 2014 was approximately $125 million to $130 million, plus or minus. That number is down to $80 million.

So despite certain pressures in the vessel market, I think the performance really speaks for itself, and I think this debt reduction, net debt reduction of $50 million in debt and pension speaks significantly to the strength of Global Marine and the abilities to really generate cash and generate cash in the type of marketplace that we've been experiencing. So, if anything, we've really taken the opportunity and look at -- and we'll continue to take the opportunity to upgrade the capacity, to improve the capacity, to increase the capacity. And I think with overall vessel pricing coming down, I think we're looking at it as more of a positive for us than a negative. And it's clearly an opportunity for us in a way to increase our capacity, but I think I wanted to just highlight that $50 million reduction in debt and pension since the acquisition date in September of 2014.

One of the questions that we've continually been asked has been the potential impact of the recent Brexit decision. And based on review of the business, we do not see any long-term risk, primarily due to the currency denominations of the contracts, which are essentially all in U.S. dollars as well as the diversification of the business. And I think that's, again, a key part where we have a very diversified client base. We have the JVs, we have a different product offering, which contributes to the overall strength of Global Marine as a core competitor in the overall marketplace.

I will note that because almost all of our contracts are U.S. dollar-denominated and our fixed overhead costs are on sterling, we would expect to see a slight benefit, net benefit to -- during fiscal year 2016. So, again, very, very happy with what we're seeing at Global Marine. I think the debt pay down is indicative. The top line in the EBITDA is clearly holding its own, and we continue to expect that we are seeing the telecom market pick up, do continue to believe there's some real great opportunity in the offshore power markets. So we're very excited about what's happening at Global, and what Dick and the team are doing.

Turning quickly on to slide 9 in the utility space. American Natural Gas continues to make great progress in the quarter. This sub currently owns and operates 17 compressed natural gas fueling stations. This is up from 11 stations that we discussed during our last earnings call. Again, this is a company that, for those of you who are not as familiar, designs, builds and operates the compressed nat gas fueling stations. This is not for retail. This is for commercial/industrial. Continue to see real, real opportunity here. During the second quarter alone, ANG acquired a couple of stations from an affiliate of Southwestern Energy Company in Arkansas. Also during the second quarter, the company opened fueling stations in Saratoga Springs; Albany, New York; and Georgetown. A couple of weeks ago, ANG commissioned a fueling station in Rochester, New York, and just yesterday, announced that it acquired Krug Energy's public compressed nat gas station in Arkansas. And with the acquisition of this station, ANG signed a long-term fueling agreement with Triple Transport, which is an established Arkansas-based hauling and transportation company.

During the second quarter, ANG also entered into a $6.5 million delayed draw term loan and $1 million working capital line of credit with Pioneer Bank. This is, we felt, a very solid step considering that when we first made the investment in this company, it only had three stations. But the fact now that we're getting third-party financing at very attractive term is, I think, indicative of the growth potential here and not only the growth potential but the growth, the smart build, the smart build where we are seeing positive EBITDA. So this capital, we'll continue to expect to see continued expansion including station construction, as well as maybe an acquisition or two.

We're very pleased, clearly, very pleased, with the progress Drew and team are making at ANG and expect them to own and operate 20-plus stations by the end of this year; many of which are currently in the various stages of planning, design, and construction. Again, it's an area that is, we believe in there's a number of the Class 8 distribution companies that are moving towards compressed nat gas. I think that from an operating and engineering perspective, the team we have in place, which is exceedingly critical when you think about a company moving into compressed nat gas that they are partnering with a team that knows what they're doing. And I think the experience that we have and have had at ANG is kind of indicative of how we've been able to grow to the number of stations that we have today.

And there were a lot of people that were questioning like, well, with oil down at $30 or $35 or $40, will they see the benefit and will there be continued growth and will there be a continued move into compressed nat gas? And the question without hesitancy is absolutely. We're still seeing substantial savings on a per gallon basis. We're seeing the -- aside from the emissions benefit, the fuel continues to be a very important part of distribution companies. Overall, the cost and expenses of operating their business and where they can get savings and if you look at the CNG business and how moving towards CNG can not only benefit, they can benefit from a substantial cost savings here, you do have the added benefit of tax credits as well as being green.

So we're very excited about this, and I'm a big believer in this space and fully expect that we will continue to grow accordingly. And we are -- our objective is to really build on this platform that we have because there is a nationwide, I think, a huge, huge opportunity here.

Just quickly again, moving on to slide 10 in the telecoms space. PTGi, again, delivered another solid quarter, marking its fifth consecutive quarter of profitability, with adjusted EBITDA coming in at $1.5 million for the quarter, up from $1.2 million from the previous quarter. This significant increase was due to growth in wholesale traffic volumes, resulting from the focus and expansion and the scale in number of customer relationships as well as increased in traffic in the Middle East region, in part delivered by the religious holidays.

Keep in mind that when we acquired PTGi or the entity or took control of the entity, this company was negative EBITDA. And you look at how focus on management and putting the right people and structure and mindset in place, what these guys have done without any, without an incremental acquisition, it was just a function of focus. And that's where we believe we continue to be at the holding company, value-added propositions for the operating subs, but these guys have turned around the business, which was a business that you probably couldn't give away two years ago to something that's now you look at the run rate EBITDA. This company is going to be worth something and is worth something, quite frankly. So I think what the management team has done is done, has been very, very positive here at PTGi.

Slide 11, Insurance. As a reminder, six months ago, we completed the acquisition of the Texas-based, United Teachers Associates Insurance Company and Ohio-based Continental General Insurance Company, which serve as the platform for one-offs, long-term care books of business. We bought this platform. And one of the attractive aspects to it was the ability to service, and the team that we acquired, 75-plus people in Austin is, I believe, chomping at the bit for additional business that they feel we could manage pretty effectively. And that's one of the beauties of this thing that we do have the platform that we don't have to outsource books of business as we drop them into this portfolio. So I think that's one of the value-added propositions in looking at our ability to grow this business.

Recently, we initiated the process of merging the two companies into one single legal entity that will be domiciled in Texas. We expect this to be completed by the end of the year. We believe the merger result and the merger of their two existing operating subs under one umbrella, but we believe that this merger will result in a number of benefits, including meaningful administrative and compliance savings. In addition, the combined entity will require less statutory capital, and then, of course, that's a positive for our RBC, or the risk-based capital ratio.

Looking at the platform as of June 30, 2016, CIG had approximately $2.1 billion in total GAAP assets and $77 million of stat surplus. On a reported basis, adjusted operating income for our Insurance business was a loss of $4.7 million. And this is mainly due to a $5.3 million noncash tax charge. Excluding this noncash charge, AOI for the second quarter would have been a positive $600,000. So I think that's something that you have to keep in mind in terms of how you're looking at the business. And while there are a number of different ways that people look at insurance, I think the important thing here is that we keep a very close eye on stat capital. And, of course, you have to pay attention to GAAP assets but -- and making sure your claims are in line and you keep your expenses in line and how you manage the left side of the book, the left side of the portfolio, where we are working and continue to work on or I should say the team continues to work on capitalizing at some of the things in the overall portfolio.

I think in general, when we bought the company, it was a very short-term-based asset book where you could really look at extending on the curve and picking up some basis points, some pretty substantial basis points without taking any incremental credit risk. And that's one thing I think the team continues to focus on and looks to capitalize on, considering that the duration of the overall portfolio. We -- and the team needs to continue -- will continue to focus on that and capitalizing on that because that's, as I say, kind of free money out there. So you'll continue to see that happen in the overall portfolio.

We are clearly in the early stages of building this platform, and things are going as planned. We continue to focus on building out the infrastructure, including accounting and administrative support in Austin, Texas, where the base of operations is. In 2016 alone, we've added a number of new hires in Austin, including several key personnel additions in finance, actuarial, IT, and compliance as we continue to build out and strengthen the overall platform and create the ability to really absorb additional books of business that we're looking at. And we continue to think that there's a real opportunity here, and that there's going to be a continued opportunity, quite frankly, to pick up some books of business as some of the diversified insurance companies look to pare down their books in the long-term care space.

So we're excited about the opportunity. As you know, we hired Jim Corcoran, he's a former New York State Superintendent, to, in effect, manage this entity and manage this unit, and he's working very closely with another couple of the team members here, Justin Myers and Dave Watters, who really -- I think the three of them and -- as well as the team in Austin have done a superb job. But I think we all believe internally, there continues to be a real opportunity to build on this. It's going to take a little bit of time, as you know, that getting acquisitions done in the insurance space, you have to do a lot of, cross a lot of Ts and dot a lot of Is. And we want to be methodical and make sure that we buy the right books. And we're looking at the right books because I think, overall, I mean in general, the book of business that we bought from American Financial was a pretty solid book and really kind of skewed on the left towards a more conservative book than anything. So we want to continue with that approach and make sure that we're very methodical in how we think about growing this business overall.

Quickly on Pansend Life Sciences in slide 12. It gives you a little bit of detail on the early-stage holdings of the Pansend business. Really, the main thesis for these investments continues to be the ability to really offer significant upside but real optionality -- and real optionality within each business. These are not sizable individual investments as compared to our other core subs. However, in most instances, Pansend has a majority equity position. I think the objective continues to be diligence, diligence, diligence. And we've got a couple of people in management there that are really fantastic and have done a very good job of building this platform.

Any incremental capital associated with these investments are typically milestone-driven, and the Pansend team is very hands off -- on, I should say -- and often involved in the creation of what the companies are doing, and maintains very close and direct relationships with management and have critical governance rights and responsibilities. But the four or five underlying investments are very, very exciting here. Tough to go through each one in detail, but it's funny, when I talk about them, I talk about different -- the different ones. It seems like every time I'm in a meeting and I get equally as excited about, I don't know, which ones to talk about because every one is as exciting as the next.

So we're thrilled with where we are. And, again, the important thing is that these are not massive capital investments and are very -- any incremental capital associated with each of these means progress, and that's progress in the right direction. So we feel like we've got a very solid portfolio right now. And while we will continue and will continue to look for other opportunities in the marketplace, this is not about reinventing the wheel, however. And I think if you talk to [Shereen] and [David], they'll tell you that they continue to scour the landscape and feel like the portfolio that they've assembled is fantastic. We do believe, however, that one or two of these companies will achieve significant milestones this year, and that's primarily in the MediBeacon, which is the kidney monitoring entity, as well as R2 in the dermatology space, where we have applied for a 510(k) approval to the FDA.

So we're very, very excited about the progress that all of the companies have made. I think if anything, we do expect some good things to happen in the short term on MediBeacon and R2.

And just turning quickly to Slide 13. We have two additional highlights within our segment of other investments, and that's Nervve Technologies, which continues to build on its technologies, video search capabilities that are really second to none in the marketplace. I think the key turnaround for them has been the ability to focus on how to make money with that technology, and I think there is some -- a number of different things happening there that hopefully we'll be able to talk about over the next few months.

And the DMR, which is Dusenberry Martin Racing, which is -- has the rights to NASCAR mobile and desktop games, and that's a pretty powerful license when you really think about it. But the company has announced that during the second quarter, the new NASCAR Heat Evolution game scheduled to be released on September 13. The game's trailer, commercial trailer, was released last month and made its television debut as part of NBC's broadcast of the Coke Zero 400 at DAYTONA. So, I think that is, albeit small, turning out to be a pretty solid investment for us and really like the prospects there.

Just quickly and lastly on Slide 14, just a couple of quick notable financial updates. First, given an increase in the value of the HC2 portfolio, we exceeded our -- and really a function of performance by the individual entities, we exceeded our 2x collateral coverage under our 11% secured notes at the end of the second quarter. And, again, these are valuations of our various underlying subs that are done by third parties. This is not us monitoring -- of course, we monitor but not us valuing the underlying subs. But given the performance, the values continue to move up. And as a result, again, we exceeded the collateral coverage. As a result, our maintenance liquidity was reduced to six months from 12, training up an incremental $19 million of cash.

Excluding our insurance segment, consolidated cash, I mentioned, the $134 million number, which included just the cash portion of insurance. I should have been more specific with that, but I'll take that opportunity to bring that up here. But I think this is an important number. Including -- excluding our Insurance segment, consolidated cash was over $105 million at quarter end, and that is, again, the cash at Holdings, Schuff, Global Marine, and PTGi. So we feel pretty comfortable about where we are there.

And as you may have seen during the last week, we were able to reduce the cumulative outstanding balance of our preferred by approximately $10 million. We remain focused on improving our capital structure and reducing our cost of capital, which is very important. I know we had to start somewhere with an 11%. And while we weren't -- and I'm not happy about paying an 11% coupon, now the proof is in the pudding. And I believe that over time, we will have -- there will be reason to believe that our cost of capital will go lower as that is our key objective. The preferred has been an area of focus for us as well. I think reducing that preferred balance from $53 million to $43 million was a good step in the right direction, and we're hoping we continue to see that and we're continuing to press on that as we go forward.

So overall, a very, very, very good quarter. I'm very happy with what's happening on the operating side. And one of the things that I've tried to highlight as I go through these slides and talk about the business, and I could probably talk for hours on this stuff, but the strength of the underlying management teams. And that's the most critical thing from telecom to manufacturing, marine, utilities, life sciences, et cetera, very, very solid human beings and very solid managers and stewards of their businesses. They're experts in their underlying businesses, and you're seeing it and you will continue to see it. And that's how we think, and that's the objective, is to really partner with not only good businesses or acquire good businesses but acquire businesses and bring in management team or acquire businesses with solid, an existing solid management team because that is the most, the critical thing and in good times and in bad. But needless to say, that we're really running on all cylinders right now and very excited about this past quarter and continue to expect to see and believe that, that will not change. And things are continuing to move in the right direction and thinking about the opportunity set manufacturing and how Global is really turning around and has -- I don't want to say stabilize, there was nothing wrong there. But just the overall dip in the market we see, kind of strength in that market kind of picking up again and the growth in Utilities and the turnaround that Craig and team have done at Telecom and, of course, the opportunity in Life Sciences and Insurance.

So management team, very strong, great numbers. With that, I know I've kind of probably gone over my time here, but there is a lot to talk about and I tried to jam it all in under an hour. So let's move it on to Q&A. If anybody has any questions, we can do what we can to answer those questions. And if we don't answer them tonight, we can answer them anytime because one of the guys -- somebody's always here. In fact, the team here has done a superb job of really, I think, building a really solid and tight holding company and operating platform.

So with that, I will turn it over to the Q&A. The operator, if there's any questions lined up, we'll do the best that we can to answer them today or if not today, again, in the future. So thank you again, and let's move past to the operator.

(Operator Instructions) Our first question comes from Sarkis of B. Riley & Co.

Yes, thanks for taking my questions here. Phil, can you maybe dive a bit further and help us understand the statement in the press release regarding the company's focus on the capital structure, liquidity optimization, and the active management of your portfolio?

Yes. When thinking about this portfolio or this capital structure, we have to think about how we can continue to lower that cost of capital. And we believe that whether it's performance or monetization of assets, it's really a critical and key part of getting our cost of capital lower. And aside from operating from what the guys are doing on the operating side, we have to get out and really explain to people and walk people through the value that we see in our overall and underlying businesses. And I think once people see that, that in and of itself won't lower the cost of capital, but I think people will see the value there and allow us to do certain things with the capital structure that we believe we should be able to do with the assets that we have today.

I think that there are -- because we kind of, I don't want to say grew so fast. But we did assemble and effectively assemble a very solid platform, it takes time for people to understand the underlying values here. And in -- we can talk about how the operations are doing and people seeing the numbers, and I think part of the other investments and the other assets that we're not getting credit for what's happening there. And I think as you see, as you will see the value creation from the Pansend businesses, for instance, I think, will prove to be a inflection point or one of the inflection points of getting us to our endgame of lowering our cost of capital and lowering that 11% rate to a more marketable rate.

But I think overall, too, we want to continue focusing on the preferred and continuing to be creative with what we've done in the last couple of weeks of reducing that preferred position from 53 to 43. And we have to get that down, and that is one of the main focuses -- one of the main areas of focus for me. And we are looking at a number of things that we can do to get there. But at the same time, one of the things that I did was I eliminated my non-dilutive agreement, my personal non-dilutive agreement, where I -- and I think that was kind of a sign of, "Okay, I want to be aligned with shareholders. We're all in this together." And as a steward of capital, I do believe that we are very undervalued. We have to take and we have to do the right things from a management of cash, from acquisition, from a possible monetization of assets down the road. All things -- it's kind of a collective piece -- collaborative piece of strategy that we have to deploy to get our cost of capital down. The debt for me is too high at 11%. Again, we had to start somewhere. I want to do something with the preferred, and I have to also think about how -- what we do from a capital perspective going forward. And I think we're in very good shape, and we do have a certain strategy. But I don't want to sell stock because I think it's too cheap down here.

And so I have to think about those things and have to really think about how we can be creative with our underlying subs and doing some different things with our subs where they could be third-party capital coming into our subsidiaries that reflect real valuation, which I think will ultimately translate into a better cost of capital. So, I guess, as I think about -- this is a long-winded answer, but as I think about managing our cash and our capital, the things that we have to do are kind of all of the above and kind of a collective approach to continue to improve our capital structure.

Thanks for that, Phil. And one more for me if you guys don't mind. One thing that stood out especially was the backlog that's growing within Schuff and that Manufacturing segment. You did mention that there are a bunch of unsigned contracts, and the backlog here would be over $500 million and that there's other large opportunities that total over $400 million. Can you maybe just touch upon the incremental opportunities there?

Sure. You have, in that space -- when we talk about that adjusted backlog of contracts that were awarded but not yet signed, they are the [area] convention center, the Alon casino. It means that I could go down the list of -- that have been awarded that have contributed to what we -- how we look at our backlog.

But also, too, from an opportunity set going forward, the -- clearly, the West and the Southwest is -- from a healthcare perspective, as well as a gaming perspective, is really moving in the right direction, the number of sports arenas and stadiums. There's more opportunities out there than you can kind of shake a stick at. And quite frankly, when you think about capacity being utilized and used up in the industry, you could even see a margin improvement as a result because of the number of opportunities and a number of entities that are building.

Now, we don't have that built into our model, but I think that's kind of just basic economics 101. But there are, from the stadiums alone, a number of opportunities that we think we will be able to capitalize on, that will really continue to build on our backlog.

Thanks for that. I'll hop back in the queue.

Our next question comes from Kurt Hoffman of Imperial Capital.

Hi, Phil. Nice set of results. Just quickly to follow up on that Schuff. Saw last month that Turner Construction was selected to build the new L.A. Rams stadium. Can you talk about Schuff's relationship with Turner where Schuff may have worked with them in the past and how that could maybe help us here?

Yes. I mean we do have a pretty good relationship with Turner. They've turned to us in the past for projects of this sort. It's very difficult to comment further on that, but we are -- clearly, we think -- very -- one of the companies, I should say, that Turner thinks very highly of and very capable of doing that type of project. So we were excited to see that happen and that announcement.

Okay. We'll stay tuned on it. On Global Marine, you've spoken extensively on this Huawei joint venture in the past. Can you give us a little more granular sense of how it's performing versus last year? I think in 2015, we saw about $190 million in revenue, and I think it was $14 million of profit. Do you have any idea where you -- is it true that we will see that winding up this year?

Yes, we can't give any projections on that. But just from a growth perspective, when we closed on this, I believe the top line was $60 million and was zero profit. And just the short span of the number of 18 months, 19 months, or 20 months that we've seen here have seen a significant growth. And I believe that we fully expect that with the growth and the state of business around the globe and the strength of Huawei in some of the emerging economies, that we have no reason to believe that, that will change -- that growth trajectory will change.

So we -- I think the significance of where we were when we bought it and, quite frankly, the value that we put on it, and I personally kind of put on it, I always thought it was great to have, I didn't think we would be where we are with that from a top line perspective. And I clearly didn't bank on the value proposition that we have today with that entity. So it's been a real pleasant surprise. And that is not -- the company has had a relationship and has had that subsidiary for a long time. So it was kind of serendipitous that our timing worked out where we were able to acquire Global and, oh by the way, that the business kind of took off just as we made the acquisition. And I think it's been, I don't want to say a pleasant surprise, I think that's understating it. But very, very exciting proposition there that we will continue to expect to see grow at the rates that we've seen.

Okay. All right, perfect. And then just more generally on Global Marine. I think pro forma for the onetime event in the first quarter, the subsidiary generated about $17 million of EBITDA in the first half of the year here. How do you think about that over the full year?

Yes. That's one of the things that when I talked about the competition in the marketplace and what was happening in oil and gas, even though we didn't have a lot of exposure in the oil and gas market, just by virtue of some capacity coming online and into our segments has affected margins per se, which put a little bit of pressure on EBITDA. But that being said, we really held our own. I think the data market or the telecom market was a little bit slower to turn around than we expected, and we are now finally starting to see that. The performance in the first quarter -- I think the performance in the second quarter was probably more in line with what we had been thinking of full year 2016. 2016 first quarter was a little bit weak. And I don't want to say disappointing, but it was a little bit more lumpy than we would have hoped. But now we've got the momentum kind of coming back, a number of projects kicking in. And I think the CWind is -- and that offshore power market is really helping.

So we are -- the first six months were okay. I think we can do better, and I think we're expecting to do better. That answers it?

Okay. Yes, that's perfect. Last question. A smaller investment, this Nervve, I thought it was intriguing and maybe you can speak about what it could mean for you guys. I saw it was used at Wimbledon. Saw it was also used for the Major League Baseball All-Star Game. How do we think about what the value can be with this entity?

The funny thing about this one is I think this technology that these guys have is really second to none. If you talk to experts in the industry and of a competing technology, the video search capability that they have is really phenomenal and, quite frankly, is the preeminent technology in the marketplace. The critical part for them has been how to take that technology and commercialize it. And that's been the $64,000 question and the movement -- and again, this is kind of where we kind of put our heads together and really helped the company really focus on -- the natural thing was advertising -- well, the sports and entertainment advertising. The branding from an advertising perspective during the sporting events where these companies or these teams have to send their information to companies that manually review the games to determine how many times during that game the brand will show up.

Well, now you have this technology that can be essentially instantaneous, and I think that is new to the industry. And the ability of the company to tailor their technology to what some of the -- as you mentioned, the major sporting leagues have really looked at this and, quite frankly, are embracing it is a very exciting change to the business, which allows them to analyze their ad space and advertising business in general, but that ability to really move from just a pure technology where it wasn't commercialized to really focusing on major league sports. And there are a number of things that these guys are doing that we unfortunately can't discuss that are extremely exciting. But as you mentioned, it's now being used where a number of months ago, it wasn't being used. So there is a real value, again, value-added proposition, I think, that we're helping them come to the table with and really exploiting their technology.

That'll be exciting to see where that ends up . Okay, good. Well, thanks so much and keep up the good work.

Our final question comes from [Umesh]. Your line open.

Hi, guys. Thanks for taking my questions. Maybe, Phil, just on the Schuff business, the difference between the sort of the signed contracts and, I don't know, one sort of, like a deal that has been awarded. I mean is there any sort of risk that doesn't get signed? I mean, what is sort of the risk on that?

We don't view that as a risk. From a GAAP perspective, that's how you have to report. But in thinking about, like last quarter, how we went from signed to a $415 million to $480 million, you -- when these contracts are awarded, they're awarded. And, I guess, things can happen in a contract that's even signed, but we haven't had the experience where -- and the company has not had the experience where it gets awarded something and it doesn't get signed, if that's any indication. It hasn't been an experience that the company has dealt with.

Got it. That's helpful. And then this $400 million of sort of potential opportunities that is not in the backlog yet. Maybe you can help us sort of think through that in terms of what amount is sort of you think of you have a very high degree of confidence that you can get it. Maybe just whatever many buckets you may want to use but give us some sense of confidence in terms of realizing that in the backlog.

Well, I think we try to be conservative with, in looking at the potential new projects. I can't go into detail about how and what we think we will get, but we feel pretty good about this backlog number going higher. And we've been very conservative in our approach and thinking about, okay, the -- where could the backlog go in -- because there's a number of contracts that we haven't -- a number of opportunities in that 400 -- in the overall marketplace that we'll clearly work to capture that could result in a substantially higher number than that. So it's how we subject it, and you never know what can happen. But I think we feel like there are enough opportunities out there that we will be able to build off of our existing backlog by a pretty good amount. And this is just on the West Coast. There's a ton of opportunity out there and really right in the catering for the strength of Schuff.

I think you guys have done a pretty decent job in terms of growing the backlog. When do you think we should start seeing some inflection in the revenue in terms of year-over-year growth on the Schuff side of the business?

Well, it is about quality rather than quantity. And the -- you always want higher value-added and higher margin business. So we do believe, and as I mentioned, we have a plan to get to the $1 billion mark. That will take time, and we kind of look at it as a three- to five-year plan. But there is obviously a number of things that we have to do. And whether that's -- and that's both organic and inorganic. But I think in general, we are really moving in the right direction, and we're seeing improved margins. And that's what we really want to focus on.

But that being said, just by virtue of the backlog and by virtue of the opportunity set, we have no reason to believe that revenue will go the opposite way. We continue to feel pretty good about that number increasing. Now it's not going to double overnight, but it's our objective to get that thing to double. But it will take time. And the key for us is the blocking and tackling as to what these guys are doing. But there's just a number of positive things happening with Schuff, and that number will continue to tick up. But the key is to focus on profitability, and they've done a phenomenal job with that.

And one final question for me. Just in terms of monetization of some of your life sciences business, I think last time we met, you already talked about MediBeacon sort of having, sort of last final stages of sort of qualification. Any update there in terms of -- do you still feel that there could be some potential monetization by the end of the year?

Yes, I think when I talk about monetization, I think about maybe it's realization, not monetization. And realization is the progress point of getting an FDA approval on the dermatology business, which, quite frankly, leads to -- the next step there is commercial operation, commercial sale and the completion of Pilot 2 for MediBeacon, which is a big step from a value-added realization.

And when you hit these levels, there's an opportunity to bring in additional investors that, quite frankly, may not appreciate or understand the value that was there yesterday. But once the project is a bit derisked, it kind of -- I don't want to say opens up the floodgate, but I think how we're looking at it is derisking these and being there from day 1 and walking it through the derisking period is a opportunity for, we believe, phenomenal realization of value and not monetization from a sales perspective but realization from a possible third-party investment perspective. And -- but you have to hit these hurdles, and I think these two are in the lead from that point.

Great. Thank you very much. That's very helpful.

Okay.

Great. Thank you, Umesh, and thank you, everybody, for joining us today. As always, our management team is available to speak if you have any questions. You can -- feel free to give me a call directly here in New York at 212-339-5836.

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

Thank you, Mr. Backman. As a reminder, this conference will be available for replay beginning approximately one hour after this call. Dial-in for the replay is 1-855-859-2056 with a confirmation code of 49610865. This concludes our call. You may disconnect.