INNOVATE Corp. (VATE) Q2 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to the HC2 Holdings Incorporated Second Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today’s conference, Ashleigh Douglas, Director of Investor Relations. Ma’am, you may begin.

Thank you, Janice and good morning everyone. Welcome to HC2 conference call. We also invite you to follow along with our webcast presentation, which can be accessed on HC2’s website under the Investor Relations section. With me today are Philip Falcone, Chairman, President and CEO of HC2; Keith Hladek, Chief Operating Officer; and Michael Sena, Chief Financial Officer. As a reminder, this call cannot be taped or otherwise duplicated without the company’s prior consent. Before we begin, I will remind everyone that this presentation may contain forward-looking statements and as such are subject to risks and uncertainties that we discussed in detail in our documents filed with the SEC, specifically the most recent reports on Form 10-K, Form 10-Q and Form 8-K, which identify important risk factors that could cause actual results to differ materially from those contained in forward-looking statements. During the call, management will provide certain information that will constitute non-GAAP financial measures under the SEC rules such as adjusted EBITDA. 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. With that, we will begin the call by turning it over to Philip Falcone.

Thanks, Ashleigh. Good afternoon, everyone and thanks for joining the call today. For starters, I would like to welcome our one new addition during the quarter, our CFO, Mike Sena, who joined us in June. Mike has been a great addition to the team and we look forward to introducing him in person over the coming months. On the agenda today, I will start with a brief recap of the results, which was a very strong quarter in our opinion. I will also discuss a few operational highlights from my primary operating subs. I will finish by providing a brief overview of the current composition of our holdings and how we view opportunities going forward. Mike will wrap up with a financial overview of the quarter and we will finish with a Q&A answer session. Now, turning to the second quarter highlights and recent developments, results this quarter clearly were very strong. We exceeded management’s expectations with net revenue up for all operating segments and operating income up in all segments except other, which contains early stage growth holdings. I will focus on our results for the quarter as compared to the first quarter of this year given the significant amount of changes in the business over the last 12 months. Net revenues for the quarter were approximately $280 million, up roughly 39% when compared to the first quarter, which was primarily the result of an increase in revenues in our Telecom segment, which I will discuss in more detail in a bit. Schuff and Global Marine, our two largest subs, more than doubled their combined EBITDA compared to the first quarter, totaling approximately $31 million. We feel very confident in these two areas heading into the second half of the year based on our first half performance. Touching briefly in a few recent developments this quarter and I believe I touched on it in the first quarter as well. Continental Insurance Group, we established our insurance platform with the acquisition of CIG, which is an acquisition of two long-term care insurance businesses from American Financial Group, specifically United Teachers Associates and Continental General Insurance Corp. We have yet to close on those. However, we are moving forward as quickly as we possibly can. We are probably looking at close at the end of the third quarter, maybe drift into the first week of the fourth quarter, but we are obviously very excited about that. Jim Corcoran, an industry veteran and former Superintendent of Insurance for the State of New York has been leading the charge on this and doing a great job. As it relates to the Continental Insurance Group, which is going to be name of the unit, we strengthened our Board of Directors by adding David Atkins and Joe Kennedy. And as I mentioned, we are finalizing the regulatory process in both the state of Texas and Ohio and again are excited about bringing this to a close. We think it’s a pretty exciting and it will be a pretty exciting platform for us and provide some interesting ongoing acquisition opportunity in that space. It has been a little bit dislocated, the space in general and we hope to be able to capitalize on that dislocation. So, we are looking forward to closing this sooner rather than later. One of our smaller investments that we made during the quarter is in the gaming space. We are starting to build a gaming side with an investment in company by the name of Gaming Nation. This was a small investment for us, but we do have the opportunity or the option to buy up to 50% of the company. We funded Gaming Nation Acquisition Corp. with $16 million or CAD20 million convertible preferred. It’s not a lot of capital, but in light of what is taking place in that area, we think a great potential for a very big bang for the buck. The company is headquartered in Toronto. It’s a leading provider of daily fantasy sports. It’s one of those areas where there is a lot of buzz in growth potential. And right now, Gaming Nation is considered a number three behind DraftKings and FanDuel. So, if you look at the kind of valuations those guys are getting in the marketplace, I am very happy with the valuation where we got in and excited about the upside here. There is also some synergies – some synergistic acquisitions that we are looking in that space, but being very cautious because of the volatility. But we think we, for starters, dipped our toe in the water in a pretty attractive space. And again, we really like that valuation there. Looking ahead, we remain focused on strategically allocating capital. There is clearly a dislocation in the marketplace today, a lot more than there was 6 to 8 to 12 months ago. So, we are pretty excited about the opportunity set and it’s really a matter of prioritizing for us and deciding what is right for the group as we look to build out our platforms. We are going to continue to build our existing platforms. This is all about fundamental analysis for us and assessing what makes sense for each segment, but clearly, it’s all about delivering value for shareholders. We remain focused on taking a disciplined approach to creating and delivering value. I think this quarter – the results this quarter are evidence that actions speak louder than words as our operating subs are really moving in the right direction. And I am very excited about the long-term prospects just from an organic perspective, the growth potential that we are seeing as well as the opportunity set in the kind of tack-on type acquisitions. And turning to the next slide, the quarter snapshot, just to give you guys a quick summary, currently, we have about 41 million shares fully diluted outstanding if you take into assumption the conversion of our preferred. The equity market cap as of June 30 is about $368 million. And of that amount, of that 41 million shares, the – about 53 million is in that preferred which is about 11 million to 12 million shares. We have about $305 million of corporate debt. As a growing business, we are constantly evaluating our financing options and when and how to access the capital markets. I will touch on a few highlights at the primary subs and also have asked Keith Hladek, our COO, to join in on this discussion. So, Keith keeps pretty close tabs on what’s happening operationally as well as with the rest of our team here. Finally, I will end with a brief overview of one of our smaller assets that I believe is representative of what we mean by option value opportunities. First of all, as you can see from the Slide 5, our different, what we like to call, the platforms in the manufacturing area, marine services, telecom and utilities. And in the corner box on the lower left side, you will see our Life Sciences entity. And we do have a couple of equity holdings that we like to consider our toehold positions, notably Novatel, where that recently announced and lot of volatility in that stock, but we are happy with the opportunity set there. That stock was up in the $5 or $6 range, it’s now back to like $2 and change, but again, this is a longer term investment for us and I will just touch on a few of the other holdings as we go through the presentation. I will start with the manufacturing business and one that many of you are familiar with and that’s Schuff International or Schuff Steel. Schuff had a very solid quarter. The company is firing on all cylinders with a very strong pipeline ahead. Backlog for the quarter is up at 3.29, up from 3.06 at the end of Q1, very comfortable with this number in backlog. Feature products – projects that the company has been very involved in the Wilshire Grand in the L.A., the Sacramento Kings Arena and the Apple headquarters in Cupertino, California. There is also some building that’s taking place in the Las Vegas casino market, where the company hopes to be involved. That’s an area where Schuff had made a mark in the years past. From an operations perspective, the company is really running at full speed with a decent amount of capacity filled up within the company. So, the various facilities are running pretty smoothly and running pretty effective. And while running at a very, very strong case, I think you will be pleasantly surprised at the ongoing opportunity set that we are seeing especially in the West Coast. The company has and will continue to look at acquisitions, but there is nothing on the burner that is transformational as the guys have been very focused on growth organically, where we all believe we will get a better return on capital. There are a couple of things out there for sale, but the sales price has been a little bit steeper than what one would expect. So, we have kicked the tires on a couple of things pretty aggressively, but again, it’s about putting capital to work effectively. I think from organic push, you are going to continue to see us be very, very strong in the Southwest and especially West. There is a lot of activity out there. And I think again you got to think of Schuff is not the type of company that puts up the steel boxes. It’s really is much design and engineering on some of these facilities as anything and very high value-added operation rather than just kind of fabricating a square box. So, I think it’s one of the big pluses in why these guys continue to click on all cylinders in here, because of their – the ability to be value-added in the marketplace. So, you are going to continue to see growth from Schuff in the West Coast. We would like to keep pushing and expand the marketplace for the Northwest, where we think there is some good opportunity and also in the Midwest, where the company is doing about $60 million to $65 million on the top line. I think we would like to think that we could be at $150 million to $160 million in that region and it’s one of our objectives. And when I say $150 million to $160 million, I think of kind of where we would like to be organically. So, we think that there is clearly some opportunity set there to grow the business. And as I mentioned, there is a couple of tack-on acquisitions that we think we are continuing to kick the tires on that could be immediately accretive. And quite frankly, some of the smaller acquisitions are probably at prices that are a lot more sensible. The company in general has been proving and continued to prove the ability to utilize the extra capacity by subcontracting work at lower cost. And I think that has been one of the drivers in contributing to the increased margins that we are seeing. We continue – or the company is continuing to increase and diversify its sales pipeline, particularly in the healthcare and industrial sectors. And gross profit continues to be strong as the company is being much more selective in the bidding process. I think, in other words, you have to look at these guys as they are bidding for the right jobs, not all the jobs. As I mentioned in the first quarter, Rustin Roach has been doing a terrific job leading the team. Rustin has been with the company for over 17 years and was named the CEO when we took over. And he has a very strong team in place, but the guys are very enthusiastic. And I think it’s one of the reasons why you are seeing the strength that we are seeing in Schuff. They are out knocking on a lot of doors and getting in front of a lot of people and really capitalizing on the opportunities that’s out there and they are extremely busy and don’t see that changing anytime soon. Turning to the marine services, I believe its Slide 7, it’s Global Marine. As everybody knows, this is another key division for us or key platform for us, very, very strong or very strong quarter for overall. The company has won several key contracts this quarter, including a submarine fiber optic link contract with Subsea 7, which is a global leader in subsea engineering and construction. The company also won a pair of high profile contracts from Tampnet, which operates the largest offshore high capacity communication network in the world in the North Sea and Gulf of Mexico and is also collaborating again with Prysmian on a new project for the Wikinger Offshore Wind Farm in the Baltic Sea. The company continues to see that opportunity set open up for the company. And as anybody of you following the EU and what they are doing from a renewable energy perspective, the offshore wind market is a pretty attractive area for growth for the company and global kind of has the ability to provide a good amount of services for the construction in this industry. And the company is also really making a big push to reenter this – the offshore power market in general as it relates to an area where there have been – they haven’t been involved in for competitive purposes. And now with that opportunity set kind of picking up, the company is looking to kind of step into that area again and believes that, that could be a decent area for growth for the company. The Global Marine segment is somewhat seasonal, but I think the second quarter in general, the adjusted EBITDA of about $17 million for this company has been a indicative that it kind of validates what we have always believed and what we have – where we have thought this business would go. Very solid quarter in the company and we look to build – continue to build off of the second quarter number as we get into the second half of 2015. One other – and turning to Slide 8, interestingly enough, this company, PTGi, that we have been focused on is actually turning around nicely for us. The second quarter revenue alone in PTGi was over $100 million and actually came in around $104 million. Keith Hladek has spent a lot of time on this and really spent the last year simplifying the business, reducing cost and building what we call the best-of-breed sales team, but it is now more than breakeven on an operating income and adjusted EBITDA basis and this is a substantial turnaround from a year ago. The margins in this business are obviously not super attractive, but there is an opportunity set here that we are going to continue to look to capitalize on. We think that there is an opportunity to pickup some of the pieces out there in the marketplace. And I don’t think that we will ever say this is going to be a blockbuster division for us. I think it is something that will provide a decent income for us going forward and quite frankly, provide a good turnaround or be indicative of how we have – when we can focus on something, turning the business around. You look at the revenue alone as I mentioned $100 million of revenue in the second quarter. It’s up from $57 million in the first quarter. So, just some of the smaller highlights of that division, what’s happening there? We have completed the company’s restructuring plan at all levels within the organization. We have eliminated the multi-legacy billing and operational support systems. We have a complete overhaul of the global sales team and we are expanding into the higher growth markets in Africa and Latin America and quite frankly seeing increased sales from existing underachieving accounts. So, we are pretty happy where that this is no longer a cash drain for us. But clearly, with Schuff and Global having such a good amount of cash flow for us, we are going to continue – we will continue to see most of our strength in our operations from those two. PTGi will we expect to contribute and of course, the insurance business, we are very excited about and are very confident that, that leg of our overall structure is going to provide some real value. Before I move on to the next slide, I want to mention another smaller sub that we continue to be very excited about and that’s American Natural Gas. And we continue to like that area a lot, are very bullish on the opportunity set. And as you know, what’s going on in D.C.? There is clearly a big push for clean energy and CNG is on the forefront of that push. We probably started off a little bit slow, but we are seeing a very good opportunity for growth in that marketplace. The guys are very enthusiastic and we are going to make a big push in that area over the next 6 to 12 months. I think if you kind of look at this, this is not about a coast-to-coast business, but more regional in nature and they are still, even with diesel prices being down, a decent amount from where they were 12 months ago, it doesn’t change the prospects for CNG and the opportunity set out there. So, I think regionally, this could be a very, very attractive business and are fully expect to see some good growth, and quite frankly, going to be another cornerstone for our business overall. There are a number of competitors out there, but there is also a number of opportunities. The U.S. is a pretty big place and it’s kind of first to market. And what we are doing in the landscape is really allowing for a pretty good opportunity. So, I think you could expect some growth there. Having a kind of turnkey leasing entity for – to be able to provide kind of full service for turning around or turning over some of the prospects in the marketplace could be value-added. So, we are looking at that area for a means to kind of jump start that business. Turning to Slide 9, one of the areas that we don’t really talk about a lot, but again how we have tried to look at the portfolio is our cash flowing businesses, which are clearly the key drivers for us and it is all about continuing to push in those areas and to build on those platforms. And if you look at not taking into consideration insurance today, but what the two cash flowing businesses did for the quarter, $30 million of EBITDA for the quarter. I don’t want to get into forecasting, but I think you can kind of look at – look to those types of numbers over the next couple of quarters as being indicative of where we would like to be. So, you got – you have the stable or kind of cash flowing businesses on one side and the other areas are, as I have always told people, are more growth type control businesses that we have been involved in and that’s the American natural gases. And the one area we haven’t talked about a lot is our life sciences group, where we have a couple of individuals who are running this group that are incredibly talented as it takes incredible talent to maneuver in that – in the life science marketplace. But some of the investments that we have – and some of the businesses or companies that we have been involved with three or four companies, where we are now involved are very exciting and very unique. And the group or the division, I should say, Pansend, that’s what we are calling it, is run by two professionals with a combined 60 years of experience in investing and working in the life sciences industry. One of them spent 10 years practicing as an orthopedic surgeon. And when I talk about HC2’s ability to find unique opportunities, I think this is a great example of really having people on the ground and crossing the Ts and dotting the Is as industry veterans canvassing the marketplace in this area to find these kind of strategic opportunities. One of the investments where we are essentially kind of the cornerstone is in a company called BeneVir Biopharm. It’s a company developing patent-protected oncolytic virus that originated from the lab of Dr. Ian Mohr at NYU Langone Medical Center. Just to give you a little bit of background, Dr. Mohr is a world famous expert in oncolytic viruses and also the inventor of Amgen’s T-Vec, which is an oncolytic virus that the FDA panel has recently recommended for approval. And this is – in thinking about where this is, to give you an understanding it’s in the immunotherapy area. And immunotherapy, as many of you know, is a cutting-edge cancer treatment that is really reinventing the way oncologists are thinking about in treating cancer patients. And I don’t want to get too involved in what Amgen’s T-Vec, the value there, but we are very excited about being in this area with the BeneVir Biopharm in this therapy area, which are called checkpoint inhibitors. But we are extremely excited about not only this investment in this company where we are now heavily involved, but also some of the other things that we are doing across the board as we look at the different companies in both the – not only the therapeutic marketplace, the oncolytic virus marketplace, but some of the other investments in companies, where as it relates to NYU, where we got involved as well as Mass Gen, two other investments or companies, again, where we are very working closely with those two institutions. But we are – specifically, as it relates to BeneVir, we are very excited about that one and we think that the upside there is pretty attractive. Just thinking about the composition of holdings and turning to Slide 10, just to give you a quick snapshot again. The cash flow assets on the left, the Schuff Steel and Global Marine are again two of the exciting areas that we are going to continue to expect a lot from, from a cash flow perspective, the assets with significant equity upside potential are American Natural Gas. We continue to believe in Novatel. Obviously, the Pansend assets and BeneVir and the two other companies that where we are involved and in control and that is in Genovel and R2 dermatology. We haven’t talked about Nervve Technologies, but that is a video search that we have been involved with. It’s a technology play, where we have been involved for the last four, five, six months. We are excited about the prospects there. And you have to kind of think about this strategy in what we are doing as really kind of a barbell approach. I have always been a believer in that. So, we are providing, from a corporate perspective, a lot of value-added, especially on the capital market side for each of the companies as well as looking at and canvassing the marketplace for strategic investments for each one of the different vehicles where we are involved. Pipeline, clearly in insurance, once we close on this, we think we will be well off to the races there. Again, that insurance business is probably going to close late third, maybe early fourth quarter. It is performing nicely. We are very happy about what we see. I think just in the opportunity set that you are going to see us add to that platform over the next 6 to 12 months just by virtue of what’s happened out there. Very focused on the agricultural – agriculture market as well as the energy market, been a lot of dislocation in energy, however and we have kicked the tires on some different things in that area, but I think it’s a little bit early. We are very focused on, again, more of the nat gas assets that we could possibly connect with our American Natural Gas business and we are kicking the tires on some different gaming assets. So, we think – again, we are just being very methodical. We have looked at a ton of stuff in here. We don’t feel like we need to do anything and don’t want to be too hasty. I think there are some things again on the tack-on – from a tack-on perspective across the board that we are probably more high on despite the dislocation. It’s not like multiples have come down dramatically. So, we think we can get as good, if not better, value by some organic growth. If you look at Global Marine, we have kicked the tires on a number of companies, but we will probably look at and continue to focus on organic growth there, which means taking advantage of acquiring some individual assets like a ship or two, which will help us expand in the marketplace, but it’s all about return on capital for us at the individual entities. So, we are very, very happy with the quarter that we had. I fully expect that this trend, I don’t want to say, will continue at the kind of rate – at the rate increase that we have seen from the first quarter to the second, but we do believe that we have hit a good place for EBITDA and for – especially the Schuff Steel and Global Marine with the $30 million of EBITDA. Again, I don’t want to give a forecast, but we feel like we hopefully shouldn’t be too far off the mark over the next couple of quarters for that space for those two situations. And we do expect some of the other subs to start picking up. I think it’s a little bit too early to start thinking about monetization of some of the things in life sciences, but I think we could do – as you look forward expect to see some real value generated there, expect to see some growth on the ANG side. So, those are probably the two areas that we are most high on and have very high expectations on over the next 6 to 12 months. So, to go over some of the situations in detail as it relates to the numbers, I will hand it over to Mike. As Ashleigh mentioned, we will talk about – we will keep it open for question and answer at the end and we will have Keith Hladek on as well to participate where necessary. So, with that, I will turn it over to Mike and he can provide a bit more detail on the results.

Thanks, Phil. And moving on to Slide 12, as Phil discussed briefly, our operating subsidiaries had a very strong quarter. I will focus our results for the quarter as compared to the first quarter of this year given the significant amount of changes in the business over the last year. Consolidated net revenues for the second quarter totaled $281 million, an increase of 39% when compared to the first quarter and an increase of 32% when compared to the second quarter of 2014 on a pro forma basis. The increase in net revenues quarter-over-quarter was primarily due to our Telecom segment’s expansion into Latin America and other emerging markets and increased selling due to management changes to the global sales team. To a lesser extent, net revenue also increased as a result of a number of large projects ramping up in the second quarter in our Manufacturing segment and an increase in project work during the warmer months in our Marine Services segment. Flipping to Slide 13, our operating income for the second quarter was $3.3 million compared to $800,000 during the first quarter. The increase in operating profit was primarily due to a $4.9 million increase in gross profit in our Manufacturing segment, largely attributable to running our fabrication facilities at or near full capacity for the quarter and our ability to subcontract work at lower costs. In Marine Services, we saw a $1 million increase in gross profit, driven by the increase in project work and higher revenues. We also saw a small increase in gross profit in our Telecom segment that can be attributed to the increase in volumes driving the associated revenue increase. The increase was offset in part by early-stage investment and increases in deal-related diligence expenses in our corporate and other segments. Now, turning to Slide 14, HC2 reported consolidated adjusted EBITDA of $19.5 million for the second quarter of 2015, an increase of 230% when compared to last quarter’s adjusted EBITDA of $5.9 million. Adjusted EBITDA for the company’s primary operating subsidiaries, Schuff and Global Marine, was a combined $30.8 million during the quarter, an increase of $16.6 million when compared to the first quarter. This result is largely attributable to the factors that I mentioned earlier regarding Schuff along with the seasonal trends at Global Marine. These results were offset in part by our corporate and other segments expense, which increased approximately $3 million when compared to the first quarter. This was largely driven by the ramp-up in operating cost of our early stage businesses included in the other segment. With that, we will move on to the question-and-answer session. Operator, please open the call to the first question.

[Operator Instructions] Our first question comes from the line of Bradd Kern with Armored Wolf. Your line is now open.

Hi, guys. How are you?

Hi.

My first question is on the corporate expense line. It seems like it continues to increase from last quarter. I am just wondering how do we think about that on a full year basis or what’s – it seems like there were a bunch of maybe due diligence expenses, transaction expenses and what’s a stable level for that line item?

Well, I think – I mean, you did kind of hit the nail on the head. Unfortunately, we have some legal and diligence expenses in there. We would like to think that we have reached our peak there and there is also in the corporate expense area, it also includes non-cash compensation, but we don’t see that increasing at the trend, and in fact, think it’s at the high end and would like to see that go the other way. But it’s really – a lot of it is as we move to look at different deals, both legal and various diligence expense, especially as it related to the insurance company, where we had to kind of cross the Ts and dot the Is on some different things. We don’t see that trend continuing, however. We are clearly aware of that and want to keep a lid on that.

Okay, that’s helpful. And then I wanted to ask upon the – you are shying away from providing forecast, but given some of the lumpiness in quarterly earnings, how is your – how are your thoughts evolving and maybe providing guidance at some point?

Yes. I mean, I think we are so kind of early stage and maybe when we get another platform or two under our belt, I think the good – the beauty of it is Schuff and Global are the key providers and one should be able to back into some sort of guidance there or some idea of what the projections will look like, but I think we believe that we are a little bit early to start providing guidance. We hope that we – because we think our business is going to continue to evolve and to change over the next six to nine months and we want to get the insurance business under our belt and see what happens there. But I think comfortably, you can kind of look at what we did for Global and Schuff and feel pretty good that as we go forward at least for the next six months, not taking into consideration anything else we buy in the short-term that it’s kind of where we should be. We are pretty comfortable that we have – we are not going to see too much volatility over the next six months in those businesses, put it that way. I don’t know if that helps or answers your question. But I think in general, it’s just a little bit early. And we think our business, for the most part, will continue to evolve and probably too early to provide any sort of guidance.

Our next question comes from the line of Dusty Henderson with Eagle Asset Management. Your line is now open.

Hi, guys. Thanks for taking the call. Can you give any idea of what the float will look like, the investable float for when you guys acquire the insurance company?

We are not going into detail on that. I believe that – I think what we have told people is that the portfolio in general is going to be about $1.3 billion to $1.4 billion to start, but haven’t gone into details around what that will encompass and how it will look at the end of the day.

Okay. I think the gaming king’s investment is really interesting. It seems like DraftKings and FanDuel have been taking in a lot of capital for – so that they can pay it out to get to like a critical mass. Do you think gaming king is going to have the same kind of modus operandi for the time being?

Yes, it’s Gaming Nation, that’s not...

I am sorry. Gaming Nation, I am sorry.

Yes, we are shying away from that. We – without going into too much detail on kind of DraftKings and FanDuel, I think there is alternative business strategies there and we don’t see Gaming Nation as a company that is going to be following the lines of what those guys are doing, put it that way.

Okay. And then last question on DMi on the racing games, it looks like a real interesting game that was released. Is there any reason – I understand the Xbox 360 and the PlayStation 3 have a huge installed base. Is there any reason why it wasn’t also released on the current generation models?

I think the way we are kind of looking at that is the most recent release was a – was based on what we inherited from a technology perspective. I think you will see as the guys have now taken 100% control of that, you will see that change with future releases. But this was – the most recent release was kind of the inherited strategy. There wasn’t a lot we could do on that release – on the release of that, the most recent game. But I think as you go forward and as we go forward, we think that you should expect to see that change a bit with how it’s being done and exactly what is being released.

Okay. Is there also the license – does it also apply to mobile, like on the iPhone or whatever?

Yes, yes.

Excellent. Thanks for taking questions.

Sure. Thanks.

Our next question comes from the line of Daniel Gurvich with Beach Point Capital. Your line is now open.

Hi, guys. Congrats on a good quarter.

Hi.

First kind of housekeeping question, in terms of the increase for Global Marine, can you help just parse it out a little bit in terms of what part of that of the quarter-over-quarter increase is organic and what part was seasonality that’s on Q1?

I could barely hear the question.

Sorry. Can you hear me now?

Yes.

Okay. So, the question was can you help parse out of the increase in Global Marine? Can you help parse out what part was during – due to seasonality that we saw in Q1 and what part was organic growth? And maybe give a little bit more color on the contracts and how you expect those to phase in or are those incremental or are those replacing other contracts that are ending?

Yes. I think in looking at the first quarter, it was the result of obviously some ships coming off contract. And the first quarter was a little bit slower than expected and we did see some of the ships kind of going on to new contracts, getting picked up in the second quarter. I wouldn’t say it was unexpected, put it this way. We are where we expected to be for the first half results. We are not surprised about the second quarter. It was just kind of a little bit of a delay in getting the boats contracted out. So, I wouldn’t say it’s organic growth, where it’s really just some boats coming offline and those boats maybe taking a month or two longer to get back online. And there have been a couple of situations. I don’t think a big part – there have been a couple of situations where some of the boats have been kind of, I guess, you could say out at sea a lot longer than we expected, but the numbers that we are seeing are not over and above what we expected. So, there has been no real aberration or spike to get us to where we are. We are where we expected we would be for the first half of the year and are pretty confident that in the vision and the trajectory again as it relates to how the ships are contracted out for the next kind of 6 to 12 months. So, it’s not – there hasn’t – there wasn’t really like an, oh, wow situation that took place that got us to where we are. We fully expected to be at these numbers and as a result don’t see over the next six months a big aberration in what you saw in the second quarter for the remaining part of the year. I don’t know, Keith, can you add on to that at all or you...

No, Phil. I think you are spot on there. I think what you said is right on.

Okay. And can you also even if it’s just directional give us some commentary around utilization and like how many of the ships are currently under contract or any of that color?

Keith, do we have the detail in front of us on that?

Yes. I would say on the ship side, utilization is very high. What you have is you wind up just with gaps from contract to contract and that’s what you are trying to backfill, but companies at or near full capacity with gaps between projects that we are looking to fill.

Got it. Okay, thank you.

Yes. I mean, I don’t think you – it’s not like we have a number of ships that are going to be not under contract. We are – if anything, we would like to own more ships and we have quite frankly missed some business, because we don’t have enough ships. And I think that’s a very good sign. I think that’s indicative of what you are seeing in the kind of technology or telecom space that we have – we wish we had another ship or two and you would probably see some stronger numbers. So, we are at pretty good utilization. We are evaluating the opportunity set to pick up some additional assets where that can be – that we believe we can – that can be deployed immediately and increase our bottom line over and above what we are seeing today and what we expect.

Great, thank you.

Okay.

Our last question comes from the line of Jacob Schrum with FNY [ph]. Your line is now open.

Hi, guys. Congratulations on a great quarter and thank you very much for outlining the portfolio and the optionality it provides. I have two brief questions. Can you comment at all on the capacity utilization at Schuff at the moment?

Yes. Again, this is an area where we think we are running on all cylinders. I don’t want to say we are at full capacity or full utilization, but we are depending on the project. We are easily 85%, 90% of capacity utilization. I think we – that doesn’t mean that you won’t see a continued increase in our EBITDA levels beyond what you saw for this quarter as we think that there are some areas that are out there to pick up margin. And geographically, as I mentioned, there are certain facilities that are – have less utilization than others, but I think in general, we are – continue to look to subcontract out in – with some different projects. We are continuing to bid on a number of projects. And our backlog bumped up to 329 for the quarter. That will as you kind of see in seasonality that will dip. We are not quite where we want to be for – I shouldn’t say not quite where we want to be for 2016 as we fully expect that we will have the backlog within our kind of budgeting timeframe, but we are looking at a number of different projects and there is a number of different projects coming up. Some of these projects are taking longer than expected. We are still very involved in the Apple facility and what’s happening there and expect to have people on the job there for a lot longer than we expected. But overall, I would say, we are seeing some real efficiencies at the plant level today. We could probably squeak out more, not unexpectedly, but we don’t have – we are not operating at 50% capacity put it that way.

That’s great. Thank you. And then the other question is any color you can give us on the shareholder base? We noticed your top shareholder I think, it’s HRG Group, sold 1 million shares in June. As a company, we are wondering if you can comment at all about the shareholder base and the relationship there and what shareholders can expect?

Yes. I mean, I can’t go into detail about what they plan to do, but I do have – I have a very good relationship with them. It’s not unexpected that they sold some stock. We were in a quiet period. So, there wasn’t a lot we could do. But in looking at – again, that’s a probably question for them, but I think they have – as HRG has put – has looked at selling some oil and gas assets, has looked at selling their insurance business. So, it’s not surprising that they have pieced out of some of the HC2 stock, but I can’t really comment in detail about what will happen next there, but because we are still in a quiet period, there wasn’t a lot we could do.

Okay, great. And...

But we are talking to more and more people everyday and it’s very important that our liquidity improves or the liquidity in the marketplace improves. So, I guess, I am happy that they are looking to piece out of some or all of that, because it’s nice to get less concentration in over a number of shareholders rather than just one.

Great. And maybe you can just remind us, your compensation comes in the form of stock and you have some options, but if these shares are for sale, would management at current valuations view this as compelling and perhaps have interest in it? How – any kind of commentary there would be interesting?

Yes. I mean, I guess, I could – without talking about that specific strategy, because there is not – I can’t really discuss that, but I am a believer in the valuations here. I am a believer in this company over the long-term. I am very excited about our prospects. So, I don’t make money unless value increases and asset value increases. It’s not like I am taking out cash compensation. So, I think my interests are very aligned with shareholders if that helps at all.

It does. Thank you very much.

Okay.

At this time, I am showing no further questions. I would like to turn the call back over to Ashleigh Douglas for closing remarks.

Thank you all for joining today. That concludes our call.

Thanks, everybody.