HC2 Holdings, Inc. (HCHC) CEO Philip Falcone on Q2 2018 Results - Earnings Call Transcript

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About: HC2 Holdings, Inc. (HCHC)
by: SA Transcripts

HC2 Holdings, Inc. (NYSEMKT:HCHC) Q2 2018 Earnings Conference Call August 8, 2018 5:00 PM ET

Executives

Andrew Backman - MD, IR and Public Relations

Phil Falcone - Chairman, CEO & President

Mike Sena - CFO

Analysts

Sarkis Sherbetchyan - B. Riley

Operator

Good afternoon and welcome to the HC2 Holdings’ Second Quarter 2018 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 like to turn the conference over to Mr. Andrew Backman, HC2’s Managing Director of Investor Relations and Public Relations. Please go ahead.

Andrew Backman

Thank you, GT. Good afternoon, everyone, and thank you for joining us to review HC2’s second quarter 2018 earnings. With me today are Philip Falcone, Chairman, President, and CEO of HC2; and Mike Sena, Chief Financial Officer.

This afternoon’s call is being webcast on our website at hc2.com in the Investor Relations section. We also invite you to follow along with our webcast presentation, which can also be accessed at the HC2 website as well in the IR section. A replay of this call will be available approximately two hours after the call. The dial-in for the replay is 1-855-859-2056 with the confirmation code of 4889247.

Before I turn the call over to Phil, I would like to remind everybody that certain statements and assumptions in this earnings and conference 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 disclosed in our filings with the SEC. In addition, the forward-looking statements included in this conference call are only made as of the date of this call and as stated in our SEC reports. HC2 disclaims any intent or obligation to update or revise these forward-looking statements, except as expressly required by law.

During the call, management will provide certain information that will constitute non-GAAP financial measures under the SEC rules such as pro forma net revenue, adjusted EBITDA, and adjusted operating income or AOI. Certain information required to be disclosed about these non-GAAP measures, including reconciliations with the most comparable GAAP measures, is available in the most recent earnings press release, which again is on our website. And finally, as a reminder, this call cannot be taped or otherwise duplicated without the company’s prior consent.

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

Phil Falcone

Thanks, Andy, and good afternoon, everyone. Thanks for joining us today. Once again we’re going to try to keep the remarks brief, so we have more time for Q&A. I’ll focus my comments on the solid performance across our portfolio during the quarter that also saw us complete the monetization of one of our life science investments. And I'll also mention some important milestones that took place just after the end of the quarter.

Turning to Slide 5, you'll see that we began broken out a summary of our adjusted EBITDA by segment along with pre-tax adjusted operating income for our insurance segment. Overall it was a very, very strong quarter for us. In fact it was our best performing quarter for our core operating subs since the inception of HC2 and one of the best quarters on a total company basis since Q4, 2016. So let me walk you quickly through it before opening it up to Q&A.

Turning to slide 6, our core operating subs DBM Global, and Global Marine Group both delivered very strong results. These businesses continue to validate our level of confidence in them and we are once again reaffirming our full-year adjusted EBITDA guidance for both of these businesses. First of all DBM Global had another very good quarter with adjusted EBITDA coming in at $15.5 million for the second quarter and $25.5 million on a year-to-date basis

Based on these results and our current view of the business, we remain comfortable with our full-year 2018 guidance. DBM continues and that DBM – and that 2018 guidance is $60 million to $65 million. DBM continues to diversify its offerings, maintaining a very robust backlog and execute on key projects underway. During the second quarter, the first deliveries arrived onsite for the L. A. Rams charger stadium and pre-assembly activities are moving forward as planned.

DBM ended the quarter with a very solid backlog of nearly $660 million, up 11% year over year and adjusted backlog of $675 million, even after burning through $175 – $177 million of backlog in the quarter driven by work on some of the larger projects including Loma Linda, Google Bayview and the L. A. Rams charger stadium.

Well, the opportunity pipeline remains very strong in commercial transportation, convention and leisure markets. We would expect the backlog to trend down somewhat over the next few quarters as DBM continues to work through the larger projects. And going forward, Rustom and team are focused on increasing the proportion of small to medium sized projects in the backlog. Hence, the expectation that the backlog overall will drift slightly lower.

The whole purpose of this is really selectively pursuing larger project opportunities while reducing the average project size and that will give us faster execution, revenue recognition, higher margins, less working capital, intensity as well as the ability to limit fabrication capacity constraints

And as I've mentioned in the past we have been running on all cylinders from a capacity perspective even getting close to 200% and this has been something that we've kept our eye on closely and clearly having that swing capacity as we call it, and the ability to outsource some of the fabrication does protect us in the downturn.

It does really prevent us from margin expansion. So as that capacity comes down and with the focus on the smaller-to-middle sized projects, you should see some improvement and some expansion in gross margins.

Subsequent to quarter end, DBM subsidiary of [indiscernible] completed the acquisition of a new fabrication plant in the Southeast region of the U.S. This new plant cements DBM’s commitment to the southeast, expands the capabilities and service offerings and increases operating efficiencies in this market, while adding incremental about an incremental 15% to DBM’s fabrication capacity.

Keep in mind this facility coupled with the previous acquisition in Utah will enhance our bridge business capabilities and that's been one of our key focuses of expanding that business as we see a continued infrastructure spanned across the U.S.

It's a very key acquisition for us albeit quite small, but it does give us a foothold in that market. And clearly there's a lot of activity in that market. So we’re looking at capturing some of the – of that market share in that region.

As you recall in the first quarter, I again discussed the quarterly variability associated with Global Marine Group as delays and the timing of large projects associated with the HMN JV impacted results. However, I also told you that we expected volume and profitability of these projects to ramp up, and in fact global marine reported a very solid second quarter with adjusted EBITDA coming in at just over $20 million, an increase of $23 million versus the previous quarter and $17 million higher than the year ago second quarter.

Sequential increase was driven by expected strong performance in the HMN JV as well as solid performance in telecom installation and maintenance and offshore power and cable repair businesses. Global Marine's backlog remains very strong coming in at $372 million at the end of the second quarter; backlog at the Huawei JV was also very, very strong at $423 million.

Couple of key global milestones for the quarter included commencing installation activities for the sale project for Huawei Marine once completed this cable will link Cameroon to Brazil and is the longest cable to be installed by HMN at over 5,700 kilometers.

In addition, Global completed inter-array installation and burial activities for a major German offshore wind farm utilizing the vessel Global Symphony that was recently acquired as part of the Fugro acquisition. This was the first major inter-array installation project for the group since the [indiscernible] project in 2016, so we’re very, very excited about that transaction and about that project.

Global was also recently awarded a five-year contract from one of the top UK energy suppliers to provide CTVs, our crew transport vessels across three UK wind farms reinforcing their position as a leading provider of crew transport vessels to the major utility companies.

As I've emphasized in the past and in the first quarter, we have very high expectations for this area as are the growth and the project backlog globally continues to expand. There's a tremendous amount of build in the offshore wind arena.

Finally Global Marine secured two oil and gas projects with a major international energy provider as industry improvements appear to be coming through first time in a while that we've seen some activity in that space and it's very, very nice to see. And again, as I mentioned in the past we did see margin compression because of certain vessels coming into the telecom and offshore wind space that were previously involved in the energy space.

And now that this area is picking up a bit and with oil where it is we see that as an opportunity to add some margin expansion opportunity in the telecom and offshore space. Based on our current view of the business, we continue to believe that Global will come in with in the full year guidance range of between $45 million and $50 million of adjusted EBITDA.

Moving on to energy and ANG, you'll see that ANG reported adjusted EBITDA of $3 million versus $1 million in the year ago quarter. This quarter's results included the impact of the alternative fuel energy tax credit, which was renewed by Congress in the first quarter of this year for the full year 2017. As a result of this renewal, ANG received approximately $2.6 million of net cash in the credit in the second quarter.

Drew and team continue to focus on growing this business through business development and marketing efforts and recently secured a five-year take-or-pay renewal of multiple contracts with a very large consumer company. Unfortunately, we can't divulge the name of that consumer company but we're very excited about this contract and we can say, it's indicative of the types of agreements ANG and fleets are looking to lock-in.

Given the strong role, compressed nat gas will play in the coming years in the transportation sector. And this is a market that is continuing to pick-up steam, given the national focus on fleet sustainability and the expensive cost of diesel fuel. So with that again with oil prices moving up in here, clearly the – that trickles down to increases in diesel fuel costs and it's a very nice thing to see on the CNG side because the nat gas market has been pretty stable and pretty flat for quite some time now.

Just to touch briefly on PTGi, now the focus there continues to be on expanding its sales reach and building relationships with smaller global accounts to seize on call termination opportunities and improving operational efficiencies. Second quarter and first half results of PTGi are in line with the expectations and more reflective of the nature of wholesale international long distance call termination. Again, we continue to extract dividends from them with the strong performance of PTGi.

As we flip to slide 7 and you'll see that this quarter we are now showing pre-tax adjusted operating income for the insurance segment, we believe this measure is more representative of the operations of the business as it excludes residual transaction related tax noise that gets included in tax adjusted AOI. Pre-tax AOI is also widely used by the comps for this business of course along with total adjusted capital.

Both the quarter and year-to-date pre-tax AOI were driven mainly by an increase in policy benefit expense which was partially offset by an increase in net investment income due to higher average invested fixed income assets and rotation into higher yielding investments. At quarter end that capital was $69 million with total adjusted capital of $85 million.

As we noted in our earnings press release this afternoon, we expect to announce imminently the completion of Continental General’s acquisition of the long-term care insurance business from Humana as we've received all regulatory approvals. Post close, CGI we'll have cash in invested assets of $3.8 billion up from $1.5 billion prior to this transaction and total adjusted capital of approximately $165 million and RBC north of $600 million. So it's an accretive transaction from that perspective

It’s an accretive transaction from not perspective, the team has worked phenomenally hard on this and we are very, very excited about this transaction and very excited about the opportunity set as we continue to look for opportunities to expand this portfolio. This represents a true milestone event for our insurance business significantly increasing the size of our insurance investment portfolio and signaling that we remain the counter-party of choice for future LTC transactions.

Jim Corcoran, Justin Myers and Mike Mazur and the entire team will be essentially two for two with respect to LTC acquisitions that we've pursued and ultimately closed, clearly this is no small task given the amount of regulatory approvals and the diligence needed to close these transactions.

And I remind everyone that's similar to the first LTC acquisition they completed with the American Financial Group, there are no parent guarantees here associated with this transaction with Humana. So it's very, very good transaction for all parties, will leave us in a very good position with regards to a phenomenal improvement in our total asset base and clearly total or improvement in total adjusted capital.

I mentioned that the ballpark figure and it could come in at higher than that and I'm think I'm being relatively conservative, but we want to see subject to closing adjustments that we may or may not see what that total adjusted capital could be, but it could be as high as $200 million. So we’re -- again I think this will be a phenomenal transaction for us and again we expect to close this imminently.

Moving on to Pansend, as we discussed on our last call, Janssen Biotech, one of the Janssen Pharmaceutical companies in Johnson & Johnson acquired BeneVir. Pansend portfolio company focused on developing oncolytic immunotherapies for the treatment of cancer in a transaction value that up to $1.04 billion.

During the second quarter, the transaction closed. Janssen made an upfront cash payment of a $140 million to BeneVir of which HC2 received $73 million with another approximately $12 million to $14 million being held in escrow for 15 months.

In addition, there is another $900 million of contingent payments to BeneVir shareholders for achieving certain predetermined milestones, which we have no reason to believe that we will see this capital. Without going into detail with regards to Johnson & Johnson’s plan and as I mentioned in the first quarter, we are big believers in their capability and this was an important transaction for them in this area.

And again, we have no reason to believe that these contingent payments will not be made. It's unfortunate that the equity, our equity price is not reflected. But again in due time, we feel that that will all flow to the bottom. We believe that our existing NOLs will offset all tax liability on the initial $85 million upfront cash payments, and we'll have to evaluate where we are at the time of any of the additional contingent payments again that's a high class problem.

But this transaction was a phenomenal transaction for us, game changer as far as I'm concerned. And again I'll note that our total investment in BeneVir was $8 million. So it's a clear example of the value inherent in the Pansend platform, platform with several other companies we hope to demonstrate value creation over the coming months and in the coming months, including MediBeacon and R2 both of which remain in discussions with strategic partners.

So the team there has done a fantastic job of circling up some very key investments early on, and as evidenced by the BeneVir transaction which was essentially a home run for us, and coming on the heels of that will be we think two more exciting transactions and two more exciting situations in companies that we've been working on for quite some time.

Moving onto broadcasting I mentioned on the last call. Our goal and our goal of our over the air strategy is to build the largest OTA distribution platform in the U.S. We believe that this platform will create an avenue for high end content providers to deliver their product to more viewers over the air while positioning us on the cutting edge of a rapidly evolving media and technology distribution landscape we consider ourselves and our focus is building out the distribution platform.

We are not necessarily involved in content production, we will leave that to certain entities out there with the sizable balance sheets, and again you could have the best content in the world, but if you don't have the ability to distribute it to the right consumer you are kind of stuck, and hence our focus has been on building out this distribution platform, and with what we're doing and with the technology changes and changing marketplace, we think we will be very, very well-positioned here.

And over the past year we've acquired Spectrum and licenses to cover a significant part of the U.S. including closed and pending transactions, we have – currently have a 164 operational television stations and an additional 400 silent licenses and construction permits reaching over 60% of the U.S. population.

These 164 stations include 13 full-power and over 54 Class-A stations a very, very valuable portfolio in a very short period of time. We're now fully focused on integrating these assets to make a cohesive technologically advanced distribution platform one that we believe will ultimately reach our goal of more than 80% of the U.S. markets.

This will be a very valuable content distribution platform for those providers currently losing eyeballs as more and more consumers cut the cord and moved away from cable and satellite. We are obviously in the early stages as we restructure portions of the existing business and build out the infrastructure needed to support future business. But we see significant opportunities to increase efficiencies and will nonetheless continue to focus on cost reductions here.

We have a number of initiatives underway to achieve that including the building out of a new IP transport solution that we will reduce operating core cost and transporting data, based on the identified initiatives we believe we can reduce targeted costs within the broadcasting business by 10 to 12 on an annual basis. And once all of our integration and cost cuttings are completed over the next several quarters, we feel very confident that we will -- we will get there.

And as such we do not see our year-to-date adjusted EBITDA as a run rate for this business by no means and our goal and we have no reason to believe we won't hit that goal is to be at breakeven or close to breakeven on a worst case basis. And that is again before we are going out and really building the business, integrating these stations.

We've made a number of acquisitions and I think a number of acquisitions at very attractive levels that we quite frankly couldn't reproduce this portfolio today at where we acquired it over the last number of months.

Of course all this takes a bit of time and to build to integrate and eliminate cost and see revenues catch up. But once this platform is built out and fully integrated it's going to be pretty robust. We have to have the right technology and have the right people in place with an experienced management team that we just enhanced through the addition of well-respected industry veteran Rebecca Hanson as EVP of President, Executive Vice President and General Counsel.

Rebecca has joined us from Sinclair where she was formerly SVP of Strategy and Policy. I’m very, very excited about having her on board. And she of course joins in veteran, industry veterans Kurt Hanson and Louis Libin. Louis came onboard from Sinclair as well. And Kurt joined us, who – from ABC where he was formerly Vice President of Engineering and Services and Systems Support.

So and of course as most of you know, we have an industry veteran Les Levi onboard as well. So we're building this team out, and building it out with the right people, very quality people, but we feel very comfortable and confident in the progress that we have been making.

Finally, as we noted in our earnings press release this afternoon, HC2 broadcasting and keep in mind we are working on a name for this. And two of its subsidiaries HC2 Station Group and HC2 LPTV Holdings obtained a $38 million of debt and equity financing from certain institutional investors.

This net proceeds from the financing will be used for pending and future broadcasting acquisitions and some in future broadcasting acquisitions and some distribution to HC2 and the working capital purposes. It's important to note that a small piece of the equity was sold of HC2 broadcasting at a pre-money equity value of $150 million. So clearly again building value here that third parties are believing in after looking under the hood.

So we're off to a very good start. We have a very good partner in this investor and we're not able to -- even though we closed it choose not to mention it at this point in time. But very excited, they are industry veterans and have – have a very astute investors. So we're very excited to have them onboard and excited about some capital coming in, some third party capital coming in to allow us to continue doing what we're doing.

Turning to slide 8, as I've discussed throughout today's call we made meaningful progress in the number of our 2018 priorities, including the monetization within the portfolio. BeneVir and several broadcasting subsidiary initiatives including this most recently closed short-term financing I just discussed we absolutely remain focused on a global reify of our 11% and are actively engaged in a number of fronts regarding a transaction as we certainly view this as one of our top priorities and getting this -- this cost of debt capital lower. And look forward to sharing additional updates on this and other key initiatives in short order over the next couple of months.

So with that, thank you again for joining the call, very, very good quarter for us. Lot of good developments from Pansend to broadcasting, the broadcasting financing and keep in mind that broadcasting financing again is down at the operating level. There are no parent guarantees there and that was our objective with this –with that entity to finance it down at the OpCo level and to get somebody in to give us both that equity and equity at $150 million is a very good step for us as they are very good partners and we want to see this thing continue to grow.

So with that, let's open it up for some Q&A.

Question-and-Answer Session

Operator

Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Sarkis Sherbetchyan from B. Riley FBR. Your line is now open.

Sarkis Sherbetchyan

Good afternoon, and thanks for taking my question here.

Phil Falcone

Thanks Sarkis.

Sarkis Sherbetchyan

Just want to – just want to focus first on the capital structure comments, Phil maybe if we can pick your BeneVir on some of the thoughts and timing. You know I think what's maybe holding back the equities is the level of the debt and perhaps the when we can see the refiling the 11s that will probably help the equity side.

So maybe if you can share some additional color on potential structure or just kind of thoughts on the level of those the interest that you’d aspire to and or the absolute dollar value of the debt?

Phil Falcone

Well I think based on the performance I'd like to think that we should get 5% to 6%, though I don't think we will. But knowing the asset base that we have, there is no reason to believe that it will be a material amount less than a 11%, again it’s not to sound like a broken record. But we fully expected to look to refi these 11%s at some point in 2018 doing it early in the year was a little bit challenging to think about that 5.5 point premium call protection. There is different things that we could do now that we are so close to that call day.

So we don't have to wait until that call day, we'll see how the market – what the market is like quite frankly become the 1st of September and shortly thereafter. But I think we're clearly well-positioned. I'd rather have it done sooner or rather than later. But I don't want to be hasty and print something with a rate that I'm not comfortable with, because it should be materially lower than 11%.

Sarkis Sherbetchyan

Thanks for that color Phil. So, just moving to the monetization for the portfolio, clearly BeneVir was a big one and it sounded like there are some other potential developments maybe on R2 and MediBeacon. Can you maybe give us some more color on developments there?

Phil Falcone

Yes. We’ve been I think with MediBeacon there has been discussions with strategies we are really kind of crossed [indiscernible] again trying to determine who the best partner is and what their end game is on this because clearly it’s -- the product is – the product works, it’s a breakthrough technology. There are a number of entities that are interested in this both from a strategic investment and possible acquisition.

Clearly if it's an outright acquisition we want a -- want to make sure again we don't make a hasty decision, we want the right number because this is the – this business attracts both of the remaining businesses where the two remaining businesses in terms of R2 and MediBeacon are the real deal.

You know they both are very effective in terms of what their objectives are and their both devices that work, they’re both breakthrough. So we think we're very well positioned and it depends on at the end of the day what type of a monetary – what type of monetary situation the potential buyers or investors would be potential buyers or investors we'd be looking at.

And so we're kind of open to both, but then have to be the right number, and there is no rush to it, but there are definitely intruders, there is no question about it. And I think the fact that we did get through and then leave it the second pilot testing or third pilot testing is with flying colors is evidence of a very premier technology, and one that we believe and the management believes will be distributed, and in many, many, many hospital operating rooms and intensive care units, and that’s how critical this technology is as it relates to real time kidney monitoring.

So the shooters are there, and we hope that we will see something develop. Again I can't give you the timeline. I don't want to give you the timeline. I think it's unfair for potential buyers or investors on this but they're there.

Sarkis Sherbetchyan

That's very helpful. Thanks for that color. Just kind of switching gears here on broadcasting, clearly you made some new ads from the management side. You're kind of giving us some more as it relates to the asset strategy, and some incremental financing here.

You did mention some of the run rates on cost savings that the program of -- I think it was saving $10 million if I’m not mistaken $10 million to $12 million annually over the next few quarters. Is it safe to say that you can get to break even on a run rate basis perhaps by the end of 2019.

Phil Falcone

Yes. Yeah, no question. If we're not – I didn’t want to think of not being cash flow positive or break even by then. But kind of knew that there would be certain expenses incurred and any time make the number of acquisitions that we did and just the integration aspect putting it all on paper and then taking it to putting the action plan on paper and then executing on that action plan take time. But there's no question we will get there. And that's the first order of business for us.

Integration as well as cost cutting and cost cutting is not a strategy but it's from a integration and acquisition perspective that is part and parcel to reducing the overhead and consolidating the acquisition that we made. If you buy three different companies or four different companies you are looking at three or four different overhead expenses and you cannot reduce that overnight. But I fully expect that these will be educated.

We are now the first and foremost it is doing this right the first time around because of who we believe will be potentially content providers over this have to be a [indiscernible] platform, where we know, where we will be distributing or I’m sorry broadcasting, we know who will reach, who we will, we will reach, we know we have to know who we can’t reach.

And we've got a right team in place with that Kurt is spearheading on that integration side, and there is a phenomenal opportunity from a technology side that we have to – I think one of the brighter minds on that site with Louis Libin and some of the different things that we're looking at and doing and working on executing there. So I hope to be able to announce over the next quarter or two quarters, really, really, really exciting.

So this is a – going to be a real platform. You've got 164 stations right now and 13 full power stations. Those stations we bought it – we believe very attractive levels, and you see some of the transactions in the marketplace today now granted there, affiliate transactions, but if I can buy a station in the same marketplace that somebody is buying and making an affiliate transaction on a 10 times cash flow multiple, and then I can buy it at a substantial discount.

I like that delta where we can put the right content on it, and deliver positive cash flow and ultimately create value and collapse that discrepancy between a full power affiliate station and a full power or a Class A or an LPTV affiliate station and what somebody who would pay for that versus a station that we're acquiring with no content today, there is massive content out there.

Every time you turn around somebody is producing and planning on doing this that or the other so that I believe is something that we'll be able to marry with in a very short period of time. And we believe that there will be phenomenal value creation as a result.

Sarkis Sherbetchyan

That's super helpful. And I think the number of stations closed pending sounded to be 164. It sounds up from 150 or so from the last time around, is that the right number there or are you acquiring some additional ones there?

Phil Falcone

Yes. We are acquiring and we have funds, NOIs and purchase agreements. And we did close on the – this New York related full power station where we essentially bought half of the channel which covers 15 million POPs, actually 16 million POPs, full power station in New York City.

Very, very excited about that transaction and that reach where we are now going to be able to utilize that station and be a key part of our portfolio. When you think about New York it’s the biggest media market in the country and when you think about the ability to cover 17 million people or 16 million people and we're working on expanding that coverage with this channel alone with a move of the transmitter which could expand the coverage to 20 million. Very, very valuable when you can reach that number of people in one market and with a full power station.

So we're doing things like that. But yes the 164 stations is right and I think people are -- when we tell them how many stations we have under our umbrella now they're quite surprised.

And I think if you talk to the quality people that we’ve hired and you'll – we’d see the excitement around it, getting people like Rebecca, Kurt and Louis and unless I mean Rebecca, Kurt and Louis came from super quality organizations and they didn't do the thinking that our asset or our portfolio is weak. They clearly did their homework and I believe are very excited about what we're doing and about the portfolio and about the prospects.

Sarkis Sherbetchyan

Great. That sounds great, thanks for that. I'm just kind of switching gears here to the meat and potatoes of the business some obviously for DBM and Global Marine. You reaffirmed the guide for both of those segments. Can you maybe help us through the backlog health of those businesses and just kind of what you're seeing in real time.

Phil Falcone

Yeah. I think both DBM and global are doing exceedingly well and really I think you're going to see great things. DBM is basic blocking and tackling. Russell and team are - they have more business than you can kind of shake a stick out and they're looking at, the business in the past has been a little bit lumpy with - by virtue of the size of the, some of the different projects that they've gone after.

I think they’ve, these are great projects to have, great power projects to have as part of the backlog. But they do create some lumpiness and I think conceptually we talked about it in the past of focusing a bit more on more of the middle sized projects, the smaller projects, which could result in a more turnover and potentially higher margins but a lower backlog.

So, the drifting down and backlog is not indicative of what's happening in the business by any stretch at all. It is a just a ton of a tweak in the focus of some of the different things that we're looking at and we're trying to get on the path. You turn some of this more smaller mid-size projects around quicker but as a result, your backlog doesn't look as high.

Keep in mind, when we - this backlog that we got up to 700 was up from the 300s so we've got a tremendous amount of cushion here but it's just a function of okay, where can we get a little bit smoother number or operating performance and even potentially higher margins.

And I think Rustin and team will could assure you that that's the dynamic that we're looking at right now. And I think with looking at the opportunities that and the infrastructure, we weren't able to do bridge business in the past. But the most – two are at most recent facility acquisitions will allow us to get into that space and we think that there is a continued opportunity set and again diversifying our overall business which is our goal.

On the Global Marine side, we think they're coming into their own right now. We did see, as I mentioned a bit margin compression in 2000 early – late 2016 early 2017 by virtue of what was happening in the energy space. And as we mentioned today, the – just the contract that we saw in energy kind of coming back and participating in that market are again indicative of some of the positive things that we're – that we believe we will continue to see overall in Global.

We are very, very, very excited about the offshore power market which is the wind farm and the massive amount of projects that are being built globally there, the transaction and our ability to help access that market with the vessel that we acquired as part of that transaction has been a big plus.

So the fruits are already paying off in that area but we're very excited about global, and what we're seeing there and you know clearly this second quarter was a good quarter, but no reason to believe that this cannot continue.

Sarkis Sherbetchyan

Great. Thanks for that, Phil. And I just want to touch upon the insurance side of the business. You know it seems like the Humana book of business that's expected to close soon or it’s going to really kind of game change and step function of that side of the portfolio? Can you maybe give us some more color or some comments on you know your expectations for that going forward? And what that means to your platform strategy?

Phil Falcone

Sure. I think this was a very, very critical transaction for us and the team worked extremely hard on this, this was a complicated transaction and it’s a complicated business to begin with and outside of the due diligence aspect to the thousands of LTC policies that you're analyzing, there's a whole other regulatory aspect that – and hurdle that you have to overcome and this is – I think clearly puts us as one of lead participants in this market with this transaction.

I think getting the regulatory approval from a number of states we had to was a big, big step for us gives us a lot of credibility. And quite frankly there were a number of guys that we have talked to and continue to talk to that wanted to see a transaction like this close.

So we believe I don't want to say it's going to open up the floodgates for us because we want to take our time, but this is a game changer for us in terms of our ability to now get a quality transaction like this under our belt with the size of the transaction and the asset base I think what catapult us and will quite frankly open the floodgates and allow us to probably grow this a bit faster than it took us for closing this transactions.

And you know there was a massive amount of heavy lifting here and on both you know Humana and CIG’s part. So we're extremely excited about the prospects now getting the portfolio up to almost $4 billion and we're going to look to expand this and continue to expand it because there will be a lots dropped to the bottom line as a result of doing transactions like this and we will clearly go into more detail over the next few months as it relates to how we are thinking about it and what we're doing with it.

But it’s a very valued -- very value-added to our overall strategy and just a fact of getting total adjusted capital now north of 160 without any additional capital infusion on our part is a big plus for us. So half of the team forget that is done on all levels. But it was really vertical but by getting that the regulatory approvals which we said in our press release that came through was a nice breath of fresh air for us and I think we’ll speed up the process here going forward.

Sarkis Sherbetchyan

Thank you. That's all for me.

Phil Falcone

Great. Thanks, Sarkis. We're coming up on 6. I want to thank everybody for joining us today. As always our management team is available to speak with you. Should you have any follow-up questions please do not hesitate to contact me directly at 212-339-5836. Judy, if you would please go ahead and provide the conference call replay instructions once again and have a great evening, everybody.

Mike Sena

Thank you, everyone.

Operator

Thank you, Mr. Backman. As a reminder, this conference call will be available for replay beginning approximately two hours after this call. Dial-in for the replay is 1-855-859-2056 with the confirmation code of 4889247. Again, dial-in for replay is 1-855-859-2056 with the confirmation code of 4889247. This concludes our call, you may now disconnect.