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…

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.