Innovate Corp (VATE) 2017 Q2 法說會逐字稿

Good afternoon, and welcome to the HC2 Holdings Second Quarter 2017 Earnings Conference Call. (Operator Instructions) Please note that this call is being recorded.

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

Great. Thank you, Charlotte, and good afternoon, everyone. And I thank you for joining us to review HC2's Second Quarter 2017 Earnings. With me today are: Philip Falcone, Chairman, President and CEO of HC2; and Mike Sena, our Chief Financial Officer.

This afternoon's call is being webcast on our website at hc2.com in the Investor Relations section. We also invite you to follow along our webcast presentation, which can be accessed on the HC2 website, again, in the Investor Relations section. A replay of this call will be available approximately an hour after the call. The dial in for the replay is 1 (855) 859-2056 with confirmation code of 54309287.

Before I turn the call over to Phil my boiler 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 subjected to risk factors that could cause HC2's actual results to differ materially from these forward-looking statements. The risk factors that could cause these differences are more fully disclosed in our filings with the SEC. In addition, the forward-looking statements included in this conference call are only made as of the date of this call and as stated in our SEC reports. HC2 disclaims any intent or obligation to update or revise these forward-looking statements except as expressly required by law.

During the call, management will provide certain information that will constitute non-GAAP financial measures under the SEC rules, such as pro forma net revenue, adjusted EBITDA and adjusted operating income, or AOI. Certain information regarding -- 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 press release this week filed this afternoon, and is also available on the website.

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

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

Thanks, Andy, and good afternoon, everyone, and thank you for joining us. On the agenda today, I'll start with a brief recap of the results for both the quarter and year-to-date, provide some operational highlights from our core operating subs and -- including our Pansend platform and finish up with Q&A.

Turning to Slide 4. Highlights and recent developments. As a general comment, I'm pleased that we continued to see the momentum across our platform with which we began the year with several subsidiaries achieving significant milestones and accomplishments. First of all, DBM posted a sequential increase in adjusted EBITDA, maintained a healthy backlog and expects to remain on track for a solid year. And despite some incurring additional costs in the quarter for offshore power installation and repair work, Global Marine also expects to remain on track for a solid 2017, reflecting the strength of its JVs and a high level of short and long-term opportunities across the various market segments, including offshore power and telecom. I know we discussed in a little bit more detail what was happening in the offshore power market in the last call. We continue to be very excited about what's happening there.

The PTGi-ICS team continues to focus on higher margin wholesale traffic and again, posted very solid results this quarter. In addition to delivering its fourth cash dividend to HC2 in its many quarters, some of you may recall, this was a business -- when we acquired control of the Shell, this was a business that was held-for-sale and essentially, a discontinued operation. It continues to pay, literally, dividends and has been a phenomenal turnaround for us. And we continue to be excited about what's happening there.

During the second quarter, ANG continued to integrate the Questar and Constellation acquisitions and expanded the number of ANG stations within the nationwide network with opening of a new station northeast of Syracuse, New York and another in Fayetteville, Tennessee. And Dave and Cherine continue to make great progress with Pansend platform, specifically our MediBeacon, R2 and BeneVir investments, and we will obviously talk a little bit about those as we go through the presentation today.

For the second quarter, we posted adjusted EBITDA from our core operating subs of $17.9 million compared to $27.1 million in the second quarter of 2016, driven -- this was driven primarily by the timing of some of the large commercial projects in both DBM and GMSL, which I'll discuss in a couple of minutes. I think the important thing to highlight here is, this is not a slowdown, not a hiccup of any sort. We've not changed our internal projections. This is purely timing, and we've already seen that start to move back in the proper time frame with what we've seen in the early part of the third quarter.

On a year-to-date basis, adjusted EBITDA from our core operating subs was $45.7 million, up 15% as compared to $39.8 million in the comparable year-ago period, driven primarily by year-over-year increases in Global Marine's JVs, and offset by the timing of certain projects in DBM.

As we've said before, given the nature of the diverse businesses within the portfolio and the project-oriented nature of large complex contracts, especially in the 2 that I mentioned, DBM and Global, our results will be lumpy from time to time. But as I just mentioned, we expect to remain on track for a solid 2017.

Finally, we ended the quarter with $1.7 billion of cash and investments and $105 million of consolidated cash. And excluding our Insurance segment, we remained focused on adjusting our capital structure, having further reduced our outstanding preferred equity in the second quarter. At the end of the second quarter, we had just 26.7 million of outstanding preferred compared to 55 million of total preferred issued when we first did and completed the first and second tranches of that transaction. So we're happy that we're -- some of the guys there are in conversion mode and wheedling that one down, which will, of course, give us continued flexibility.

One important point, at the subsidiary level on a gross basis, we've reduced nearly $73 million in debt and pension liability since the end of Q3, the third quarter 2014, which is a pretty good size number in looking at our overall subsidiary debt perspective. The bulk of that has come at the Global Marine level, again, indicative of the kind of free cash flow that, that thing will generate.

Turning quickly to Slide 5. Again, this is how we lay out the portfolio, and I'll cover each segment in a few minutes.

Moving on to Slide 6, which is a good summary of the adjusted EBITDA for the second quarter and year-to-date. As I mentioned, total core operating adjusted EBITDA for the second quarter was $17.9 million versus $27.1 million in the year-ago quarter. Year-over-year -- more in detail, year-over-year decline was due mainly to better-than-bid performance on large commercial projects in DBM in the year-ago quarter, specifically Wilshire Grand and Apple headquarters and the project delays, of course, of some of these various projects. And this is not a delay on our end. It's -- sometimes these projects take a little bit longer to hammer out, and there could be changes on one part of the project, which may or may not slow down the continued erection and fabrication of some of the different things that DBM does. So it is something that we fully expect and, again, are seeing that pick up already. But that lumpiness is a function of the project overall, and some of it is out of our control.

The one point that we have experienced this kind of lumpiness is in relation to the Loma Linda Hospital in the California area, in the Los Angeles area. But these projects -- this project, and again, the Google project is being ramped up, so it's something that we fully expect to see the pick up back over the second half of 2017.

The early stage in other was down slightly quarter-over-quarter and essentially in line on a year-to-date basis. This is mainly due to an increase in expenses at R2 and MediBeacon and BeneVir, offset by a reduction in equity investment losses recorded for our Inseego investment, which is now at the insurance company. As a reminder, we typically fund the Pansend companies based on critical milestones, such as FDA approval, successful clinical studies or other strategic milestones. The Pansend companies then use that funding to further scale operations as appropriate, as evidenced by the increased expenses for R2, MediBeacon, and BeneVir, all of which achieved critical milestones over the past several quarters.

This is an accounting treatment that we started to give people a very -- what we felt was a very good understanding as to what was happening as it relates to our exposure with some of the companies. This is not necessarily -- these expenses are not necessarily cash out the door for us on that particular time. It's just the way we've accounted for these expenses. And I believe that as a way for a consistent approach, so people don't see one accounting structure and strategy one quarter and another strategy and accounting structure another quarter. We wanted to continue with this approach to be consistent across the board.

Nonoperating corporate was slightly higher in the second quarter. However, we remain on track for approximately $25 million of nonoperating corporate for full year. We are -- we closely watch that. We make sure that we are in line with our internal expectations. And you have to understand that we are a growing business, and we will continue to -- at the same time, however, continue to make sure that these numbers are -- that we're crossing the T's and dotting the I's on these numbers. So again, they're well within our internal numbers, and we're comfortable and confident that we will keep these on track and make sure that we're balanced on the pluses and minuses as it relates to the nonoperating corporate expenses.

Just turning quickly to Slide 7. The DBM Global. Overall, a pretty good quarter for DBM, with adjusted EBITDA coming in at $11.1 million versus $8.66 million in the first quarter of this year and $13.2 million for the year-ago second quarter. On a year-to-date basis, adjusted EBITDA was $19.7 million versus $24.7 million for the comparable 2016 year-to-date period, again, due primarily to delays associated with various design changes for Loma Linda and to a certain extent, Google, the Google project this year, and the better-than-bid performance on the Apple headquarters and Wilshire Grand in Los Angeles in the year-ago period.

And despite these project delays, which create longer revenue burn or longer revenue stream as we move into the third and fourth quarter of 2017, DBM's expectations for the full year 2017 have not changed. And we are, quite frankly, encouraged by not only the current initiatives, but by the robust long-term pipeline of opportunities as we will discuss in a second here. The backlog continues to perform in line with what we've expected here. And as we reported earlier this afternoon, DBM posted $590 million in backlog and over $800 million in, what we call, the adjusted backlog, taking into consideration "awarded but not yet signed" contracts. So these are 2 numbers, again, that are exceedingly strong and clearly give us very good visibility and -- in what we're seeing at DBM.

Rustin and the team continue to see a large number of opportunities in the commercial sector, totaling more than $400 million in potential new projects that could be awarded over the next several quarters, which are clearly not reflected in the $590 million backlog or the $800 million adjusted backlog for the second quarter. These projects include new sporting arenas, stadiums as well as new healthcare facilities, some commercial office buildings and convention centers, including a number of planned and potential projects in Las Vegas, where DBM has had, typically, a very long and successful history having constructed either entirely or in part over 30 hotels and casinos, convention centers, retail centers, et cetera.

So as things continue to do well and continue to move in the right direction in that area. These are, again, very big projects, and they're very well-funded, which is also a very, very key thing and very important thing. They're not small, minuscule projects that could disappear. They're very large projects, which, quite frankly, DBM has a reputation of doing effectively and, quite frankly, performing in an outstanding manner.

Turning to Slide 8. The Marine Services division, which obviously is Global Marine. For the first 6 months of the year, Global's revenues and adjusted EBITDA were up 23% and 62%, respectively, over the same 6-month period last year and despite higher offshore power installation and repair costs incurred in the second quarter this year, as the company built market share in this key area of growth. Adjusted EBITDA for the second quarter is $3.6 million versus $16 million in the first quarter. And the first quarter, quite frankly, was one of GMSL's best quarter since our acquisition. And this, again, is versus $11.8 million in the year-ago second quarter.

Just a little bit more detail on the sequential and year-over-year variances. It was primarily due to higher costs associated with 2 offshore power and installation repair projects in the second quarter as a result of challenging site conditions, weather, et cetera; very strong prior period JV performance, in particular Huawei Marine; as well as higher underutilized vessel and mobilization costs in the first half of this year, associated with Global's newly leased installation vessel, the CS Recorder. When we made that acquisition, essentially, we believe that, one, it was a phenomenal -- it would put the company in a phenomenal position. We continue to believe that. There were certain costs and upfront costs that you would normally incur in acquiring a -- and doing a transaction like this. So this is not unique for us or for, quite frankly, anyone in that industry, and it's not unexpected.

As I mentioned, we expect to partially recover or offset some of the offshore power costs incurred in the second quarter throughout the balance of this year. But needless to say, it's not a hiccup or anything like that. We are well on track to -- the team is well on track there to performing in line with what we fully expected for the year.

On a year-to-date basis, Global's adjusted EBITDA was $20 million versus $12.3 million for the comparable year -- year-to-date period in 2016. And this is primarily due to the higher JV income and a onetime telecom charge taken in the first quarter of 2016, which was a charge that we took, if people recall, of approximately $5 million, of which we did recoup later -- a portion of that later in the year. It's a little bit different from an actual expense perspective this year. However, we do, again, fully expect to recover a good portion of that, that we -- that charge that we took in this next quarter. But overall, I think we're very happy and -- clearly, very happy with what these guys are doing year-to-date and are really performing as we had hoped and as we always believe they would.

As I mentioned earlier, there can be significant lumpiness in results given the project nature of both DBM and Global. But despite this lumpiness, Global posted a 62% increase year-to-date adjusted EBITDA, and we are very pleased with what we're seeing.

Turning quickly to the backlog for Global. At the end of the second quarter, Global's backlog was $328 million. This is essentially in line with the $332 million at the end of the first quarter, with a nice increase in the CWind backlog. And that was the acquisition the company had made over 1 year ago.

In addition, telecom installation backlog at HMN, the JV, achieved yet another record level in the second quarter, with project wins in Southeast Asia. This has been a very pleasant surprise for us, and that unit continues to perform. And quite frankly, considering Huawei and the 51% owner there, it's not surprising, but it's been a pleasant surprise, if I may say, of how strong the numbers have been there. And about, quite frankly, the potential as you see, as we look at what's happening with that business, we clearly see -- have some good visibility there and think that there's continued very value-added projects and business and continued growth in the backlog that we expect.

We continue to believe that Global remains well-positioned for both short and long-term telecom and clearly, offshore power installation and maintenance opportunities. As I mentioned on the last call, we believe there's tremendous opportunity in the offshore wind market, which is the offshore power, with an estimated 50 plus gigawatts of additional Global capacity to be added to the market over the next 10 years. Specifically, approximately 3 gigawatts of capacity to be installed each year in the European market alone, with approximately 12 gigawatts currently in development and permitting for delivery by 2020 and an additional 15 gigawatts to 20 gigawatts thereafter from 2020 to '25.

Why I mentioned that is that is a very important and a key part of our growth. That is a market that we had. And as I've explained from time to time that there was a noncompete associated with it, so it is a new business line for us. Since we acquired the business, we feel like, with the C position, that has put us on a pretty good line of sight to start building up that business. And we're seeing that take place probably quicker than we expected. So we're really excited about -- Ian and Dick are very excited about what they're seeing in that part of the market and looking at opportunities as well on the acquisition side that we can further expand and potentially expand into that market.

And if you look at the capacity that I was talking about, if you add that capacity, the 12 gigawatts that's currently in development and permitting for delivery, and add to this an additional 25 gigawatts expected in the APAC market over the same period, you can kind of see why I'm -- why we're so excited about it and the opportunity set. And this is not a business that you can just enter overnight. These are massive projects offshore. And Global Marine is, quite frankly, well-positioned and has the right experience to capture some of these projects. And we're seeing that happen in the marketplace today.

Turning to Slide 9. American Natural Gas. Adjusted EBITDA for ANG was $1 million for the second quarter as compared to $500,000 for the year-ago quarter and $2.2 million on the year-to-date versus $900,000 for the comparables, 2016's 6-month period, both driven primarily by an increase in a number of fueling stations owned and/or operated. The ANG team continues to integrate the 18 stations acquired from Questar and Constellation, while at the same time, focusing on increasing CNG volumes at existing stations and expanding the geographic footprint through both organic and strategic M&A transactions.

During the second quarter, ANG delivered approximately 2.8 million gasoline gallon equivalents versus 828,000-gallon gasoline equivalents in the year-ago quarter. This integration, which is moving along, has taken some time. One of the things that, I think, Drew West and the team are, quite frankly, noted for is how meticulous they are in operating the stations, which, not surprisingly, is a very critical part of getting quality business. You don't want these trucking companies to show up in the morning and not be able to pump gas, because there's no -- it's not like -- and there are alternatives where they can go across the street, which is, quite frankly, the part of the attractiveness of the business. So the operating aspect is very key, very critical. And the integration, they're just making sure that they are crossing the T's and dotting the I's, and it's going, quite frankly, quite well. We'll take, probably, another quarter before we really see the kind of numbers to kick in and the real ramp-up that we expect and expected to see.

Also, we will, hopefully, see some incremental impact from certain renewable energy credits, i.e., the RIN market and the VETC space, which have yet to be renewed and implemented. But we remain optimistic there, and remain very optimistic about the long-term earnings potential of this important business within our portfolio.

And just one quick point on this company, when you think of this business it's delivering -- and I mentioned it, we delivered approximately 2.8 million gallon -- gasoline gallon equivalents. The EBITDA contribution and the cash contribution to incremental volume on this business is really the exciting part. If you think about total -- if you assume on a rounded-up basis, we did 3 million GGEs for the quarter and annualized that, it's obviously 12 million gallon gasoline equivalents for the year. From a capacity perspective, we're very well in position where we could do 60 million to 70 million.

So think about the EBITDA and the positive EBITDA at this capacity level that we're at right now and the expansion there. And it's one of the -- having that platform and having that -- the infrastructure and proving that we can make money at these volumes is -- quite frankly, speaks volumes of the potential in this business. So we continue to be very excited as to what's happening there.

From a station perspective, as announced last week, ANG held a ribbon-cutting ceremony and unveiled its new public compressed nat gas station in Fayetteville, Tennessee. This facility will be open to the public in Pepsi's Frito-Lay division, which will be a major customer with its fleet of CNG tractor-trailers.

In addition, as announced last month, ANG opened a new station northeast of Syracuse to meet regional demand for high-performing, easily-accessible CNG fueling facilities for the region's heavy-duty and long-haul trucking fleet. Again, this is for the commercial market. These are primarily Class 8 trucks, and these are trucking companies like Frito-Lay or distribution company that are out in the morning, back at night, so and so forth. So when you see companies like a Frito-Lay moving into this market or doing it after studies that they've conducted and see the opportunity there from both a cost savings perspective as well as a potential tax credit perspective and equally important is from an emissions perspective. So you -- there's clearly a lot of wind at our back here in this industry. It takes time, but the fact that we are now up at over 40 natural gas fueling stations, and these will include a couple that are under development in 15 states, up from 1 or 2 when we first got into this business, has been -- this has been a very exciting industry for us. And we continue to be huge believers in the potential here, just on the 40 stations alone. And the building up of additional volumes at these stations will clearly drop a big chunk and a nice chunk to the bottom line. So keep an eye on that sector and in that industry. And I think you'll be pleasantly surprised.

Just moving quickly to Slide 10. As I mentioned, this -- the PTGi-ICS business adjusted EBITDA was $2.2 million for the second quarter versus $1.5 million. On a year-to-date basis, adjusted EBITDA was up $2 million at $3.8 million versus $1.8 million. And the second quarter marked the fourth consecutive quarter in which PTGi paid a cash dividend to HC2. Fantastic work by Craig and the team during the quarter and the year so far, and look forward to additional progress as they continue to build on their strengths and look for various other growth opportunities and strategic initiatives.

Quickly onto the CIG business, the Insurance business. Overall, a good quarter for CIG, with top line results being driven primarily by the higher net investment income as a result of premium collections and higher premiums due to continued implementation of rate increases, which I think is a very nice positive thing to see in the marketplace. Premium growth from rate increases was offset by the acceptance of contingent nonforfeiture options from policyholders in lieu of rate increases, but these forfeiture elections drive some reserve releases, which resulted in a lower net reserve build for the quarter.

Looking at the platform as of June 30, 2017, CIG had approximately $2.1 billion in total GAAP assets, approximately $69 million of stat surplus and $79 million of total adjusted cap. Our RBC ratio as of the end of June, again, exceeded 400%, which is our agreed to minimum with the Texas regulators. We continue to strengthen our regulatory relationships and continue to see a beneficial shift in the environment, which we continue to believe will provide a tailwind for the company's planned rate increases.

As we discussed, in part, in the last quarter, we've been successful in obtaining rate increases in excess of our plan, which we continue to implement in the second quarter, which had a positive impact on our operating results. Just as an aside, we -- one of the key things for this business is scale, and we continue to pound the pavement to make sure to look at other opportunities of increasing the exposure here. And we have been, quite frankly, knocking on a lot of doors but taking our time. So we fully expect that we will continue to try to turn over as many rocks as possible. But I think, overall, the business is performing along the lines of what we expected. And we -- I think you will see that as we build the overall asset base here, you will continue to see the positives and larger contributions to what the Insurance business can do for the overall structure.

Turning to Slide 12 in Pansend. Companies in Pansend portfolio continue to achieve strategic milestones during the second quarter. Specifically, R2 received its second FDA approval for the second generation device, the R2 Dermal Cooling System. As a reminder, the dermal cooling system is intended for use in dermatologic procedures for the removal of lesions of the skin, including skin lightening and skin evening, which is an approximate $20 billion marketplace. Modifications to the initial R2 device, which received FDA approval last October, will improve the usability of the device. For example, reducing the steps required by the user for setup of this system in treatment and to make it more commercially appealing.

R2 continues to garner feedback from key opinion leaders in the space and remains on track for a commercial launch late next year. This is a, as I mentioned, commercial aspect. This is not the type of product that's going to be sold in retail stores, at least today. This is a device or machine that will be sold in the dermatology offices, and the feedback has been fantastic here. And it all comes down to the project -- product working. And the pedigree, as it relates to who, what, where, when and why on this project is, I think, second to none. And without going into detail, this is the same group that had developed and built out the product that is called CoolSculpting. And this project and this product, albeit, quite frankly, are a bigger market is somewhat of an offshoot from that, but same pedigree. So it is, quite frankly, the real deal.

In addition, BeneVir, which is a biotech company developing oncolytic immunotherapies for the treatment of cancer, announced during the second quarter that it had received the second patent for the Stealth-1H, which is BeneVir's leading oncolytic immunotherapy as well as other platform assets. This patent further strengthens BeneVir's product development program and protects its product platform through 2032. BeneVir plans to bring Stealth-1H into clinic next year and accelerate the preclinical development of its platform assets to help a diverse array of patients whose tumors do not respond to current therapeutic options, including immune checkpoint inhibitors. That's a mouthful right there, but that's the, I guess, the simplest way to try to explain what the basis is on this oncolytic immunotherapy. It's really to partner with a checkpoint inhibitor to essentially treat cancer.

And as I have said and as I've talked about, we're -- one of the things, especially in Pansend, that is very key for us is the pedigree and understanding who is behind these products and who has developed and built and been involved in the patents, et cetera. And again, with this particular situation, there's really a very exciting story behind who is behind, who has developed this, and the individuals are, quite frankly, second to none. And as I said on last quarter's call, key milestones like R2's second FDA approval of BeneVir's new Stealth-1H patent and the successful completion of MediBeacon's pilot 2 trial in the first quarter of this year has attracted significant interest from third parties, interested in these groundbreaking technologies. The interesting thing about these projects and products is some of the big strategics want to see development and are not necessarily incubators of these types of devices or products or so on. And as they move down the path toward commercialization is then the strategics start getting more interested. And that's -- to many of you, that's not surprising. But the fact that we have been involved in these 3, specifically, and the developments and the path and the process behind it and the move forward has really been very exciting, and quite frankly, has brought in a number of -- and have received a number of incoming phone calls as a result. And while there's nothing to announce today, we are very pleased with what's happening here and look forward to some additional key milestones in the coming quarters and additional developments on one or more -- with 1 or more of these companies and investments. So very exciting about what -- very excited about what's happening here. We clearly did the right thing by moving into this area a few years ago, and I think people will be pleasantly surprised with the progress and with the potential with some of these different commercial items or these items as we get closer to the commercialization, and that's really what it's all about for us. And I think the important thing is, is we realize that it would and has taken a little bit of money to get them to these stages. But it's not -- in the end, our objective to build out something from a complete soup to nuts commercial aspect, and I know a number of you have asked that question from time to time. But there is and there has been a specific method and a specific strategy as it relates to these. And quite frankly, we are on the right path and have done, I think, a great -- have made some great progress on these 3 particular companies. So hopefully, we'll have some additional, exciting news over the next number of months.

Just note -- turning to Slide 13, some notable financial and other updates. Given the value of the HC2 portfolio, we again continue to exceed 2x collateral coverage under our 11% senior secured notes. Excluding our Insurance segment, consolidated cash was over $100 million at the quarter end with approximately $56 million at the corporate level. During the second quarter, we received $11.5 million in dividends and tax share from DBM and PTGi, further reduced the cumulative outstanding of our convertible preferreds to approximately $26.7 million from $30 million at the end of the first quarter 2017. During the second quarter, we completed a $38 million private placement of 11%. These notes were issued at an issue price of 101% and continue to move up and trade higher in the market. As I've said before and as I've continued to focus on internally is we look for ways to continue to improve our capital structure, optimizing liquidity while balancing accretive acquisitions that add to the overall value of the portfolio. The ultimate goal here -- I don't want to say ultimate goal, but it's clear we want to reduce our cost of capital, and we fully expect that with certain things that are happening and that we're doing that we are well on track to doing that. We have been -- we had -- we did make a small -- enter into a small transaction that -- in the second quarter. It's really a series of transactions that needs approval by the FCC but will result in us owning 50% of the common shares of DTV, which is an aggregator and operator of low-power television stations. We are continually, we -- I should say we are looking at a lot of different things, but we don't want to overpay. And as I've always said, you really make your money on the buy. And we're -- we just don't want to be aggressive for the sake of being aggressive in building our top line. We don't feel like we need to do that. We're not going to do that. We're being very opportunistic, and we were just talking about it today that patience is -- we will be rewarded in the end. And we're looking opportunistically at, will there be another platform? If we can find the right platform and if we can buy that and get in at the right valuation, yes. We will also continue to look at acquisitions on the platform level, which is where we can be a little bit more strategic and really buy, quite frankly, with a strategic hat, with our strategic view in mind where we will be able to capture certain synergies? So we continued to scour the landscape, but we're being patient. And this focus on the low power as [vision] stations is something that we've been looking at and I've personally been looking at for an awful long time, very interesting, exciting part of the business. And look more -- we'll look forward to discussing more in detail how this develops as we move forward. It's not a large investment for us right now, but we -- it doesn't necessarily mean it's not going to be an important one for us from a value perspective. So as we move forward, we'll clearly keep people abreast of what's happening in that. But we're being patient. And again, it's all about not overpaying and scouring the landscape and looking for the right opportunity set.

So in summary, I am very proud of the dedication and hard work of the management here and how we really continue to be focused on building on our strategy and building out our strategy and being patient. And clearly, the performance is starting and has been increasing, and we'll continue to move in the right direction. But the year-to-date performance in the first half of this year is -- we're very pleased with and look forward to many more such milestones going forward.

So with that, let's move on to the Q&A. And if anybody has any questions, hopefully we'll be able to give you some insight on some of the different things that you may have on the table for us today. But thanks again for taking the time, and let's now move it on to Q&A.

(Operator Instructions) And it looks like our first question will be coming from the line of Sarkis Sherbetchyan from B. Riley & Co.

Phil, can you talk about the lumpiness in the business? I know you mentioned this measure going through the results. And obviously, it's really hard to look at a project-based business on a quarter-to-quarter basis. So clearly, good backlog growth in the businesses. So maybe if you can give us a perspective on what you're seeing in both the Marine Services segment and Construction and just kind of what gives you, right, the incremental confidence of making up for the balance of the kind of numbers in the back half of the year.

Well, The reality of it is when you look like specifically at DBM, when you're building -- when you're involved in the development and building of a project like a stadium or the Loma Linda Hospital, the size of that project typically doesn't get smaller. It gets larger. And the lumpiness aspect is a function of maybe it's something in relation to a design change or a weather related as it relates to Global Marine. But the size of the project doesn't change. Clearly, the timing of implementing a certain design change that may be not in our realm will lead to us not building or erecting maybe the 35th floor or 45th floor. And then we'll -- in the second half of the year, as that change was implemented on something else in the project, then our part, again, kind of picks up a bit. These are massive projects, and they typically don't change in size. Going the opposite way, they typically increase with various changes that the contractor or the sponsor or developer will implement. And the easiest aspect as it relates to Global Marine could be weather related. When you're building an offshore power unit, you've got the contractor to build it, if the weather is not in line with what -- with how you can operate and how you can build, it might delay you for a week or 2 weeks or 3 weeks or 4 weeks. So you have to then decide when the contract doesn't change as a result. It's just that -- it's just really timing related. And again, that's the kind of lumpiness that you -- and that we have typically seen in these bigger projects. It's not like halfway through, they decide they don't want to finish the building, and that's the critical part. It's typically design changes as it relates to DBM or weather related as it relates to Global because these are sometimes very harsh weather conditions, which can result in delays over a week or 2 weeks or 3 weeks.

Yes. That's helpful. And it's certainly sounds like the backlog is building, so that's good to see there. I guess, next, if you can maybe switch gears and talk about the Life Sciences division. Obviously, R2 received clearance for the gen-2 device as you mentioned, and BeneVir received the Stealth-1H patent. So maybe if you can give an update, right? Like what are the major milestones we should be looking for these assets next? And maybe how you're thinking about kind of the funding? I mean, you did mention some strategic inquiries, some inbound calls there. So any kind of updates on value creation or realization events in the portfolio, alongside some new milestones?

Sure. While I can't go into detail with regards to who we're actually speaking with or what we're doing on that end, but I think it's important to understand that from a committed capital perspective, we don't have a -- clearly, we want to sponsor -- we want to be the proper sponsor or the right sponsor for these projects, but at the same time, have to make sure that we are balancing our internal budget and making sure that we have the appropriate resources. So while we look to and think about the -- getting these things commercial, it has not been our objective to fund all the way through. And if you look at the project now, I don't believe we have a tremendous amount of committed capital that we have to put. In fact, Mike is giving me the 0 sign that we essentially don't have to put any additional capital into these projects. That being said, if we believe that there are multiples from a return perspective, we want to be a good sponsor. We're very excited about each of these projects. We have been involved in each of these projects now for quite some time. There are -- these are big enough projects, where, I think from a strategic perspective, it's in our best interest and the shareholders -- the other shareholders' best interest to look at the opportunity set of bringing on a strategic and having them take it from point C to point D, E, F and G while we were there from point A to point C. And that's how we kind of think about this business, and that's how we've structured it. So when I think about R2, for instance, we've funded. We've been involved. We have been -- David and Cherine have been very involved in the day-to-day activity here. And the objective with this particular device would get it to a point where it works and is funded and is approved, et cetera, and then look at the opportunity set, kind of the stage 3 or 4 level of, okay, who's the right partner? And who -- how can we best create value in the long term? And that's how we're kind of thinking about it. And the progress that we had in each of these, whether it's BeneVir, whether it's R2 or MediBeacon specifically, we're now at a stage where these are very well advanced. These are beyond the incubation stage and to a point where we know they work. Once you kind of know they work is when you start thinking strategically, and we are doing that on all 3 of these. And there have been a number of incoming from very credible -- and I don't want to say extremely credible strategics on each of these products or projects because they are not small and could be even for the sizable entities, bottom line contributors for certain strategics. So we're taking our time. We're fielding calls. We're -- we have data rooms set up. We are making sure, again, that we are thinking about this in terms of trying to extract the right value, the right -- not only whether it's an upfront payment, but stream of revenues, et cetera. Because you know what we have, and these are things that we're believers in and not looking to dump at any price, put it that way. So they're -- Dave and Cherine have their hands full with working with management and making sure that everybody is onboard. And that between HC2, Dave and Cherine and the existing management of these subs that we're all on the same page. And I think the working relationships have been fantastic. And I guess when you have projects and products like this that progress like they have, it makes it a whole heck of a lot easier. But while we can't report on anything today, we're looking at -- I don't want to get people from a timing perspective, but there's real value here. And we're taking our time to make sure things are done properly. That's kind of a long-winded answer to your question.

No. That's extremely helpful. One final one for me, and I'll hop back in the queue. Just regarding the...

Our next question comes from the line of Kevin O'Brien from Jefferies.

I wonder if you could -- if we could go back to Global Marine for a second. I can sort of understand from the DBM construction side sort of lumpiness in the business, where a design delay might eventually lead to growing the project. The change order may come in maybe higher than the original bid. I'm just trying to understand on the Global Marine side. So your 2 projects that had some cost overruns, whether or not it was due to weather or whatever those specific items were. How do the contracts actually work? And how confident are you that some of those overruns or some of the unforeseen costs can actually be sort of recouped in future periods?

(technical difficulty)

Ladies and gentlemen, please remain on the line. Your conference call will resume momentarily.

Kevin, we heard part of your question. If you can queue back up, please, real quickly. And, Sarkis, you as well. We want to make sure we answered your questions, so we'll pause a few seconds until you can queue up. Charlotte, look for Sarkis, please. He should be in queue right now.

Sarkis, your line is now open.

All right. Just real quickly on the DTV America assets. Maybe if you can give us the rationale with acquiring those assets? I think you paid about $18 million for the transaction. And is it cash flowing today? Is it going to be a platform that you can kind of build off of? And any incremental thoughts for us to get a better understanding?

Yes. As I've mentioned, it's a small acquisition for us. It is an operating business, which is something that we wanted to focus on. There is a platform there. We felt like it was undervalued. There is a possibility to build on it. But we're kind of crossing the Ts and dotting the Is, but we do think that we have a -- that we got in a pretty attractive entry price there. And we -- it's not something that I want to go into too much detail on right now because clearly it still needs FCC approval. But we see an opportunity set, an opportunity set where there's not a real CapEx need, like building out a telecom -- wireless telecom network or anything like that. We like their underlying business. And as I mentioned, they're operating and probably could be a bit more efficient. But I think overall, we got in at the right price and like the valuation and very pleased with the diversified assets that the company built in their previous history.

At this time, I'm not showing any further questions in the queue.

Okay. Thank you, Charlotte. And thank you, Phil and Mike and everyone for joining us today. Charlotte, I just saw Kevin queue up in queue. Can you let Kevin O'Brien in from Jefferies, please?

Certainly. Kevin O'Brien, your line is open.

Did you actually get any of other question as it came through prior or should I reask?

No, Kevin. Just do it again. Thank you.

Yes. Okay. So the question was really revolving around Global Marine. I can understand and seeing some of the lumpiness of the business from construction side, where design delays may push things off from a timing basis into third quarter or future periods. I also understand that, generally, that may come back as a positive with a change or leading to something that's better than the initial bid. I'm trying to understand a little bit better the lumpiness in the Global Marine side of the business and what to expect going forward. If weather is such a variable, how are the contracts set up for things or cost overruns that you saw in the 2 projects? How confident are you that you can recoup some of those costs or future periods, just to try to understand how to view that business going forward?

Okay. So let me answer the first part of your question as it relates to lumpiness. Again, how you have to think about this is whether you're building a stadium or an offshore power unit, while they're different, they're the same in terms of the size and the scope of the project. And the timing, there may be a different construction piece where, Kevin, you're not involved in, where they may have slowed down for any one of the number of reasons or there may have been a change with the -- with one of the pieces or one of the designs or the product being ready for installation, again kind of something that's related to the project but essentially out of our control. No different than building a stadium, albeit one's in the -- one's offshore and one's onshore. So you kind of have to think about it like that. And then you have the other dynamic of weather. And depending on where you are in the world, these are not projects that are 25-feet offshore. They can be in pretty rough weather, and -- which makes the business and that part of Global that much more valuable because you have to have that expertise to be able to operate in those types of environments. So the combination of the 2 will -- may spread things out from 3 months to 6 months or 3 months or 6 months to 8 months, depending on the other participants in the construction aspect. Or -- I don't want to say to a lesser extent, but they're both -- the weather -- with the weather part of it. So that's not new. And again, you see these are very well-funded projects. They get completed. They may take more time. They may increase in size. But once they're started, they typically get completed. And that's quite frankly the beauty of it. So albeit a little different from a characteristic perspective between DBM and Global, similar from a scope perspective. And as it relates to the ability of the -- of Global to extract back certain costs associated with the project, it's -- I don't want to say typical, but it's not atypical. And we've seen -- history will tell us that we have a -- and needs again projects. There is and there has been a history of being able, if there is a cost issue with some particular project of extracting that back over the time of the project. We have, I think, a very conservative team that bids on contracts based on profitability, not on top line. And that's -- this is an expertise that these guys have built their careers around, and that's something from a historical perspective that the company has just been successful in doing. And they're -- quite frankly, they're not material charges to begin with or material expenses to begin with. But kind of this and that, here and there that we may get. And last year, we got it in the first quarter and extracted it back over the remainder of the year and this year from the second quarter and believe that we'll get it back over the next 6 to 8 months or a good chunk of it back. So just from a history, from a relationship perspective, from an expertise perspective, that's hence the rationale for why we are thinking the way we're thinking or just based -- it's just an experience, positive experience that we have.

That's great. I wonder if I could just chime in for one more and switch gears back to the Energy side. I think you had mentioned if you were to look at this quarter's performance on a GGE basis and annualize it out to $12 million, you mentioned that you have the capacity to potentially do $60 million to $70 million. What's the pathway to get towards that greater volume? Does it have to come from organic growth? Is it more the growth as you're seeing here with the facility in Tennessee that it's next to a large commercial contract or commercial operator? And I guess as part of that, with Pepsi, Frito-Lay, is there actually a contract involved with that station? Or is it just location-based volume growth?

It's primarily contract. And clearly, these are big moves for some of these companies, and they have massive suites, and they don't change over their entire fleet overnight. They -- this is very strategic for these guys. When you think about our stations, it's creating an environment to get their truckers in and out as quick as possible. So the sizing of the lanes is very important. The speed and the efficiency of the pumps are extremely important, and these are things that the underlying distributor thinks about because time is money. And we're not selling potato chips and coffee. So the big distributors like to think about it as time. Time is money. As efficient and as fast, if they can get in and get out, that is -- that means that they're that much more productive. But from a capacity perspective, again these guys, their -- these stations are in distribution centers. They're strategically located. They're typically contract associated. But before you -- if you're delivering the product to Frito, you have to make sure that you are -- that things are running smoothly, and you will see over time volume pick up. And the volume pick up will be primarily organic as it relates to the existing distributors, but there's also the other opportunity set is as more and more of these distributors and trucking companies convert, that's all kind of -- I don't want to say gravy, but there are people that are using the site now that we didn't expect, just by virtue of the locations of some of these facilities. So you've got the growth from the underlying contract and from the growth -- we expect growth in -- with the underlying distributor, and then you have the kind of one-offs that will come in to utilize the facility as they get to understand and see that it operates and it works. And oh, by the way, once you have the station and are strategic, then you can go out to the -- start marketing it and go to the number of other trucking centers. That's why the growth opportunity is really tremendous in this area. And if you think about the number of stations from a compressed nat gas perspective versus the number of diesel stations, there is -- the number of diesel stations is just of magnitude versus the compressed nat gas stations is no comparison. So from a growth perspective, there's that -- I guess you could say inorganic growth of stations that we don't have, taking it from 40 stations to -- even if we had a 100 stations, we wouldn't be making advance in the diesel market. And we're on the top 3 or 4 right now. But I think the largest pure-play competitor maybe has 60 to 70 stations. So we're right there, and we're seeing nothing but growth opportunity in this marketplace. And there will be the building of the stations, but just from -- the reality of it is, even with the 40 stations, because of our capacity capabilities, there's massive growth with just the 40 stations that we have. So there's that kind of a dual-pronged perspective here that you think -- that you can think about from a growth perspective. It's not only going -- getting to full capacity but also growing the number of stations, which is also very important to us. And if you're effective with a Frito-Lay, it's not like they have one distribution center. They've got centers all around the country, and that's just one group. And as long as the economics are there and the economics are so -- they're right there in front of you today, it just -- it takes time for people to get comfortable and to understand the dynamics. But if you were a trucker, you'd want to do this.

Kevin, thank you. And thank you, everybody, for joining us today. Thank you, Phil and Mike again. As always, our management team is available for some follow-ups. Should you have any follow-up questions, please do not hesitate to call me directly at (212)339-5836. Charlotte, could you please go ahead and provide the conference call replay instructions once again? Thanks again, everyone, and have a great night.

Thank you, Mr. Backman. As a reminder, this conference call will be available for replay beginning approximately 2 hours after this call. Dial in for the replay is 1 (855) 859-2056 with a confirmation code of 54309287. This concludes our call. You may disconnect.