INNOVATE Corp. (VATE) Q4 2017 Earnings Report, Transcript and Summary

Good afternoon, and welcome to the HC2 Holdings Fourth Quarter and Year-End 2017 Earnings Call. [Operator Instructions]. Please note that this call is being recorded. I would now like to turn the conference over to Mr. Andrew Backman, HC2's Managing Director of Investor Relations and Public Relations. Please go ahead.

Great. Thank you, Sandra, and good afternoon, everyone. And I thank you for joining us to review HC2's Fourth Quarter and Year-End 2017 Earnings. With me today are Philip Falcone, Chairman, President and CEO of HC2; and Mike Sena, our Chief Financial Officer. This afternoon's call is being webcast on our website at hc2.com, in the Investor Relations section. We also invite you to follow along with our webcast presentation, which can also be accessed on the HC2 website. A replay of the call is available approximately two hours after the call. The dial-in for the replay is 1-855-859-2056, with a confirmation code of 3278987. Before I turn the call over to Phil, I would like to remind everyone that certain statements and assumptions in this earnings call, which are not historical facts, will be forward-looking and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain assumptions and risk factors that could cause HC2's actual results to differ materially from these forward-looking statements. The risk factors that could cause these differences are more fully discussed 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 measurements, is available in our most recent earnings press release, which is on our website. And finally, as a reminder, the call cannot be taped or otherwise duplicated without the company's prior consent. With that, now let me turn it over to HC2's Chairman, CEO and President, Philip Falcone. Phil?

Thank you, Andy, and good afternoon, everyone, and thanks for joining us today. On the call today, we're going to switch it up a little as compared to previous calls. The objective here is to streamline the call a bit and allow for more time for Q&A at the end. As such, I'll focus my comments on some of the more meaningful accomplishments for the fourth quarter and for the year, including some additional commentary on one of our newer platforms, the broadcasting strategy. And of course, touching upon our key areas of focus for 2018, including the initiation of forecast for our top two subs, and hopefully, should be value-added to the investor base out there. So let's move on quickly to Slide 4, the segment financial summary. On Slide 4, you'll see a summary of the adjusted EBITDA by segment and adjusted operating income for our insurance segment. I'm going to speak to each of these key subs in a couple of minutes, but I will say, overall, I'm pleased with not only the performance of the businesses in 2017, but clearly, with the opportunities we see across the platform for 2018 and beyond. We are experiencing some very nice trends and are very excited about the prospects for, not only '18, but what we're seeing for 2019 as well based on our backlogs. Let's move to Slide 5, and review the highlights of 2017. To begin with, DBM Global, despite some timing issues as a result of the design changes on a couple of large projects and backlog, which shifted approximately $6 million of adjusted EBITDA from 2017 to '18, the team did a great job minimizing the impact here, and were very successful in adding new project work. This resulted overall in an increase, $76 million increase in full year revenue versus last year. For the fourth quarter and full year, adjusted EBITDA were down on a year-over-year basis due to those project delays, and that was something that we had talked about early on, and it's really not a function, again, of what and how we are operating. It's design delays, et cetera, or delays that may be as a result of other contractors on the job. Again, this is not lost EBITDA, this is just pushed off and this is, I guess, our closest thing to somewhat of, I guess, we could call seasonality. But we feel very confident that it's pretty straightforward in terms of which projects we did see some slight delays on and to the amounts. So the bridging is definitely there, and we can see very easily how we went from that 59 number to the 52 and how we're going to get that back in the next 12 months. In DBM, again, posted another record backlog coming in at $723 million at the end of the fourth quarter. Adjusted backlog of just over $770 million. And this is in addition to approximately $300 million of additional opportunities that are out there that we are looking at, at the moment and all of which provide some pretty strong visibility for this company over the next 18 to 24 months. Clearly, we are always looking at how we can build on the existing platform and as a result, DBM completed its acquisition of CanDraft in the quarter. It's a prominent 3D modeling and detailer as well as Mountain States Steel, which is a Utah-based bridge and structural steel fabricator. These tuck-ins added DBM's organic capacity and position them for future growth in the bridge market, which we think could help continue building on the overall business plan of Schuff, of the Schuff steel segment. The recently acquired Mountain States Steel, in fact, secured its first bridge infrastructure project following the Mountain States acquisition. This is a segment that we, overall, have been really pushing on, more focused on the general U.S. infrastructure side of the business versus the private enterprise. And we think there's a very strong opportunity here to expand our business and expand the product line that we can offer as it relates to the capabilities of the team. So we're very excited about this acquisition, and feel like, while it wasn't a sizable deal for us, it really gets us in that part of the world in terms of the infrastructure play. And we believe that we're going to be able to build on that pretty effectively. DBM distributed nearly $30 million of dividends and tax share to HC2 in 2017 and, of course, it continues to be a key source of stable liquidity. There's very little debt at this company. And as you can see either from the press release or from, what I will talk to in a bit, about the forecast, that we're quite well positioned and feel very confident that we will get that project delay back in 2018 and some. So we're very excited about what's happening there. And I think the important thing, too, is that, again, there's a lot of business to be had out there. Russ and the team are being very smart about how they're doing business and making sure that we are looking at profitable projects. I know there's been some -- and I don't want to say pressure in the overall market from a margin perspective, but we're turning down business, quite frankly, that we feel from an allocation perspective, is not the best allocation of capital. And I think that's part and parcel to how Russ and the team have looked at this business. And it's why we are where we are with the strong cash flows and the strong balance sheet, et cetera, on Schuff. So again, things are really moving in the right direction. We expect that we are going to pick that $6 million, plus or minus, that we had been talking about of a delay, we're going to pick that back up in 2018 and some. So very excited about what's happening here. In Global Marine, Global also finished the year with a very, very strong near record backlog of $445 million. During 2017, Global secured 2 to 3 remaining long-term telecom maintenance contracts, solidifying the company's leading position in the space. Of the six Global Telecom maintenance zone contracts, Global will continue to have three under wraps. And that's really nice business to have. It's longer term. The counterparties are phenomenally capable from a financial perspective, obviously. And it is something that we really worked very hard on and give our hats off to the team to be able to sign these up again and get them under our umbrella, and not only for the year, but over the next number of years. Overall, adjusted EBITDA for Global was up for the quarter versus last year, mainly due to telecom maintenance and installation and offset by a decrease in joint venture income, given the stronger fourth quarter. For the year, the adjusted EBITDA was up, and which -- up by a higher joint -- JV income, which saw a 43% increase in full year contribution from the Huawei Marine JV, in addition to higher contributions, as I mentioned earlier, from the telecom maintenance. Again, the Huawei JV continues to be a value-add for us here. And as a result of the various acquisitions and transactions that we've done in the vessel space, I think we're going to see more drop to our bottom line as a result of our capacity increase. And that was one of the objectives of our transactions and our vessel transactions over the last 12 to 18 months. We just felt like we needed to be able to participate in the growth over and above being just the JV equity holder there. And we can get that business by adding capacity to our base case model. And we did that with a few of the transactions over the last 12 to 18 months. Offshore power remains a key growth market for Global, but was not a major factor in the fourth quarter or for the full year. The recently completed acquisition of Fugro's trenching and cable-laying business will further serve to support meaningful opportunities in the offshore power market as well as in oil and gas. And without going into too much detail, the dynamics in what's happening in that marketplace in the offshore power market is, not only from an installation perspective, but with the acquisition that our first acquisition of CWind, which was more on the transportation side, there's a number of different dynamics that we're looking to get involved in on the offshore power. And considering the transportation, the maintenance, the installation, et cetera, there's some really juicy new business to be had there. And again, by virtue of the counterparties here, this is real. And once they start on these massive projects, obviously, the maintenance part of it alone is a very sizable and attractive piece of the overall puzzle. So we're looking to continue to capture market share in that space. And the market share, in general, is expanding. So we are very well positioned with the last couple of acquisitions of both Fugro and CWind. And we've also done some internal kind of restructuring, if I may say, in terms of how we're looking at the overall business of Global. And have, essentially, separated it into really three dynamics and three individual silos, and how we're looking at the business is the Offshore Power, the Telecom and, of course, the Energy space, which we typically haven't had a lot of exposure. But again, if oil does stay at $60 or above, we expect that, that market will pick up again. And expect to be positioned to capitalize on that in the event that we -- that, that market picks up again. And it's not a very big part -- the Energy sector is not a big part of the forecast, but I think it's always good to have -- to be positioned to move into that space, and move into it very quickly in the way we've restructured and built the business, and really took a step back and had to take one step back to take -- before we took two steps forward. I think we're much stronger and much better for it, and looking forward to picking up business across the board there. Just finally, Global added two key vessels to their fleet, as I mentioned, in 2017. And again, this is really positioning the company to address all of their targeted market demands. And I think it has been very well received just by virtue of what we're seeing in the backlog and the opportunity set that's in front of us today for Global. Moving on to American Natural Gas. Throughout 2017, ANG continues to develop an impressive pipeline of renewable natural gas supply agreements, which they believe will be an important component of the overall renewable natural gas strategy and represents potential for significant contribution to the company going forward. During the fourth quarter, ANG signed its first renewable nat gas supply agreement. This is all about the win credit aspect. We didn't see a lot of that in 2017. It's something that we kind of positioned ourselves going forward. And again, without getting into too much detail, it's the type of thing, where if you partner with a renewable nat gas supplier, there's an opportunity for, again, lowering our cost of goods and lowering our cost of goods dramatically. So this is a very, very attractive part of the market, and is one of the reasons why we have been and continue to be big believers around it. Aside from the fact that we continue to see a number of the big suppliers, or I should say, distributors moving to the CNG space. So I've said this, I kind of sound like a broken record on ANG, but I'm a big believer in this market. I think we're well positioned. We're now up to 40 stations. And it's taken a bit of time integrating them and getting them to -- I don't want to say, up to our standard, but getting them as part of our overall mix. But they were fantastic acquisitions and, again, positions us to be one of the leaders in this space. And there is no question the opportunity, there's been a lot of discussion around electric and the excitement around electric. And again, no offense to what's happening in that industry, it's just not there yet. And anybody with any natural -- with any know-how will tell you that. So we're expecting very good things in CNG. And if you think of what the diesel pricing is right now versus where you can buy compressed nat gas at the pump, it is extremely attractive and quite frankly, there is no economic reason for a Class 8 diesel truck entity to not have compressed nat gas in their -- compressed nat gas vehicles in their fleet. And I think, the unfortunate fact is it takes a bit of time, but it is something that once it turns, it turns. It's almost a somewhat permanent thing, because it's not like there's a number of compressed nat gas stations out there. You get the anchored tenant and they essentially come to your station and you have offtake agreements, et cetera. Just as a reminder, the alternative fuel tax credit, which is different from the renewable natural gas supply agreement I just talked about, was a meaningful contributor to ANG's 2016 adjusted EBITDA. Keep in mind, this expired -- this tax credit expired at the end of 2016. Recently Congress went back to the drawing board and extended it retroactive for 2017, which will result in approximately $3 million of adjusted EBITDA on cash contribution to ANG in the first half of 2018. So you can almost look at it as if, on an apples-to-apples basis, that $3 million could have been and probably should have been under a traditional ongoing alternative fuel tax credit and should have been in the 2017 year, but as they say, better late than never. And the team actually work very hard down in D.C. to get this. And it's a nice big plus to have. And I think it will continue to play a role in building out our relationships with the trucking companies as trucking companies see that these tax credits are still out there. There's an opportunity for JVs around them or sharing around them, as well as in the RNG space, that there's an opportunity there. As I mentioned, Drew and the key members of the natural gas industry continue to work with the legislatures and working very hard to find a more permanent solution for these tax credits for 2018 and beyond. In fact, Drew, the CEO, is scheduled to testify before Congress this afternoon. So hopefully that's going well or went well for him. Finally, as a result of the conversion of the promissory note associated with the Questar and Constellation acquisitions, HC2's equity ownership in ANG increased to 67.7% from 49.9%. And we had always looked at it as a majority-owned sub. It is now, however, official with the conversion in here. Looking ahead, ANG will continue to focus on increasing capacity utilization. And if you think about just a rule of thumb with the stations that we have, you're talking about 70 million of gallons of gas equivalent per year. And right now, we are at maybe 20% of that. And so in essence, there is a pretty phenomenal amount of capacity that we could increase to on each of these stations. And what's really nice about it is, if and when -- not if, but when we -- as the GGEs, Gasoline Gallon Equivalents start pumping, there's going to be a tremendous expansion in the bottom line or the EBITDA because we're covering our fixed cost right now and EBITDA positive at or below 20% of capacity. Imagine when that bumps up what it will look like. And the trucking companies want to see that because they want to know that they can expand their fleet and expand it very quickly. So it was done by design, and it is something that as we build out and acquire other stations, we will do that with that objective in mind. Just moving quickly onto ICS. Again, continues to be a good, solid, albeit small performer for us. Revenues were slightly down, but continued improvement in EBITDA, up $1.4 million to be exact, for the year, and as a result of operating efficiencies. In addition, ICS continues to be a nice dividend payer to HC2, contributing $8 million in total dividends for the year. It's not bad for a company that when we bought it or when we bought the holding company was a discontinued operation and losing money at the time. For 2018, Craig's focus will be to increase the number of global accounts, with a particular focus on midsized customers. Company will also look to expand its global sales team to support these initiatives by adding new account representatives, et cetera. And also, looking at some small tack-on and tuck-in acquisitions, and they're out there. This business is not disappearing anytime soon, and we feel like we're well positioned to continue to expand that marketplace and increase our margins accordingly. And we do that by being a synergistic buyer. And you're not talking about paying a 10x multiple on these things, which is quite frankly, the beauty of it being a buyer. In the Insurance sector, Continental improved profitability for the year as a result of higher net investment income and reduced reserves, mainly due to approved rate increases in several states. Posting positive income of $7.1 million and adjusted operating income of $8 million for the full year and this is after paying taxes. So as you can see, the numbers are turning on this business. And it is really moving in the right direction. And the guys have done a very good job of, not only managing the portfolio, but proving out that the model is what we expected it. And as a result, we've continued to look to capitalize on that and capitalize on it via acquisitions. And as we mentioned on our last call, Continental signed a definitive agreement to acquire Humana's long-term care business. Once completed, which could be in the second or third quarter, will add more than $2.25 billion of assets to our insurance vertical, and will be immediately accretive to Continental's statutory and risk-based capital. The fact that we have the platform is really a plug-and-play for us. It's very important that we are -- and we're getting a good amount of intention and incoming calls from potential sellers of these types of businesses. And we are looking at it maybe a little bit differently than the traditional life insurance company. And I think just by virtue of the performance, we've been right. And we have no reason to believe that will change. But the fact that we are looking at the kind of net income that we have now for the year is definitely a nice feather in our cap on this one. The Humana acquisition, as I mentioned, will increase the insurance investment platform to a bit north of $3.6 billion, almost $3.7 billion of cash and invested assets once completed. This will be a nice transaction for us. And I think both parties are pleased with what the deal that we've been able to sign up. So we're looking forward to wrapping this one up, and team is working very hard on crossing the Ts and dotting the Is on this one. And we're going to continue to bang away and look for opportunities. And we are very cognizant of what's happening in this industry and cognizant of the trends, et cetera. And I think, there is an opportunity to really build on our existing platform and getting this next acquisition under our belt, I think, will put us well ahead of most others that are even thinking about getting into this space. Clearly, you have to have and do a -- there's a tremendous amount of diligence involved. And not all portfolios are equal, and that's why we've been very picky with the transactions that we're doing and making sure that we're crossing the Ts and dotting the Is and not doing anything to harm our existing platform. But if anything, looking at deals that will be accretive. There's a lot of deals out there. Not all deals are accretive. I think this happens to be one of them and was a very solid deal for us. In the Life Sciences unit, as we've discussed on prior calls, there were many significant -- ongoing significant milestones in 2017 for the different companies under the Pansend umbrella, including new FDA approval for R2, successful pilot trials for MediBeacon, new important patents granted for BeneVir. We certainly understand that there's a heightened interest and some excitement around the Pansend platform. And we remain very encouraged with the multiple discussions these companies are having with several strategic parties. As I have discussed over, again, sounding a bit like a broken record, but I feel pretty good about where we are and the underlying value in each of these entities. Meaning, the different Pansend entities. And not being hasty and just cutting a deal for the sake of cutting a deal. We clearly could have done that, but we want to make sure that we are, again, crossing the Ts and dotting the Is and doing what we think is best for the entity as well as for HC2. But we are very well positioned. We've got a couple of people in this area that are monitoring and keeping our hand on every moving pulse as well as management teams that are very aligned. So up and down the structure, we're all looking in the right direction. And there's no disputing that. And again, I feel like I'd love to have something in hand on this, but there's no reason to believe that we need to be hasty and cut a deal for the sake of cutting a deal. But be that as it may. It is clearly something of interest to us all. And I will keep you apprised as we look and move forward on these different entities in the coming weeks. Finally, our Other segment, including our recent broadcasting investment, is the Other in this Page 5 or Slide 5, and I'll touch a little bit on that in the next slide. So turning quickly on to Slide 6, the broadcasting holdings. Again, we kind of looked at this as opportunistic and have done a lot of work on the space and have been very strategic in how we've thought about it and moved relatively quickly on building a platform. And as you can see right now, we have a 135 operational statements -- stations, sorry, and licenses and permits to build out another 476. And not that we will build out 476, but the fact that we have them and have them at our fingertips, we are working overtime in determining where we are building and making sure that we have all our bases covered. From a marketplace perspective, there's, I think, 210 DMAs right now. And in our market, just with what we have, not including construction permits, we're north of 110 markets. Total footprint, excluding construction permits, and that construction permit number is extremely high, we're covering approximately 60% of the U.S. population. And how you have to think about it is really stitching together stations, our objective is to continue building on this and building to a point where we get to north of 80% I'm anticipating and expecting, and as I kind of think about this and what we're trying to do with this. But the objective is to bring it into the next era and with what's happening in the cord cutting industry right now, people are looking at our platform as a distribution alternative. And that's what we are. With the Azteca acquisition, we did, by virtue of acquiring Azteca America, get involved in the network side, but there are those out there that are spending a lot more on content. And I will let them do what they do and utilize our platform as a distribution alternative. Not everybody watches television via cable, and obviously with cord cutting. And not everybody watches on the Internet. And there's opportunity to capture viewers. And clearly, you have to have the platform, and you have to have the content. And if you have one station, you have different opportunities from procuring proper content. And the more stations and the bigger platform you have, the more likely you get higher quality content. If you look at some of our stations today, and we bought them from very high-quality companies or families. But when you have five stations or six stations or seven stations, it just puts you in a different negotiating position than when you have 135 or 175 or 200. So we feel like we are positioning ourselves and very focused on kind of stitching together of five nines platform for distribution. And there's a number of things happening on the technology side that we believe we will be able to capture. And to that end, we are bringing on super-high quality people. We just hired, as we announced yesterday, two individuals who are very well-known in the industry, Kurt Hanson and Louis Libin, who come from -- have years and years of broadcasting technology experience on the engineering side and these two guys are going to be key and kind of see what we had and see what we have. And getting them onboard was a nice coup for us, so we're very excited about that. And they understand the opportunity set here. And I think they kind of welcomed the approach. So at some point, over the next month or two months or three months, I will come out with more detail on what we are going to do, and specifically -- more specifics on this, but we don't have too many more acquisitions or too many more holes to fill. That's for sure. We've done a phenomenal job of really securing, not only stations, but rights to build. And that was our goal, and we wanted to do it very quickly with the intent on thinking about that distribution platform. And it's not something that you kind of do halfway. If you're doing 30% of the country, it's different than if you're doing 80% of the country. So we are well down the path, and don't see too much additional capital being spent on acquisitions. Now the dynamic is around, okay, how many do we build, where do we build them, et cetera. And these are not expensive builds as one would think in the marketplace, and especially related to cellular. It's a different dynamic, building towers or building stations in the television space. While giving us and keeping us flexible for the advent of ATSC 3.0 as that comes down the pike, and that's just another digital or another technology shift that will prove to be, I believe, very value-added. We did not include that in our model as we thought about this. With the expectation that, that will come, that will be, as I like to say, just kind of found money or found value because it does provide a much more interactive from a broadcast perspective. It's the one technology -- it's one marketplace in technology and telecom where we've seen very little advancement over the last 30 years, 40 years. Now all of a sudden, you're seeing some movement there, even by virtue of being able to view your over-the-air television stations on your iPad or iPhone, which is pretty phenomenal. And it's incredible how people are not aware of this and granted there's education around it, but that's something that, again, I can discuss more in detail down the road. Just moving quickly along here to Slide 7. 2018 focus and priorities. We've outlined some of the key focus priorities for what we're seeing ahead. Top priority, and I continue to mention this, is to optimize our overall capital structure. I got to get that debt -- cost of debt down. And listen, I'm being patient. I think that with some of the things that we're working on and some of the things that we have in our pipeline, I will be able to -- or we will be able to refinance at lower levels. And when the time is right, that's when we'll do it. And I'd like to try to think about it as something that is -- that I think about often because I know when people look at it, your natural reaction is how paying 11% is not something you should be doing in this marketplace. And I wholeheartedly agree, it is not something that I take lightly and look at it every single day. And there will be the right time, and we're moving in that direction. Again, but the overall key is just to lower the cost of debt financing, and maybe even reducing debt financing. We fully expect that with some of the different things that are happening, and I've said this a number of times, I think our equity is undervalued, and I think reducing our preferred equity, which will happen naturally once our stock price starts moving up and people kind of crossed the Ts and dot the Is, having it down at 27 from 55 was a nice step. But I'm not happy that it's still there. So that's another thing that we are focused on. But, first and foremost, is kind of that 11% coupon, and getting that down to where it makes sense for us over the long term. We're close, but not quite there yet. But it is at the top of my list of things to do. Just quickly moving on and looking ahead. We're looking at, as it relates to, not only the refinancing at the holding company. There's various financing structures that we are contemplating from time to time, whether it's at the subsidiary or different instruments. So the key is that, we're not trying to time the market, but focus or thinking about it from an optimal perspective and getting our cost down as low as possible. We also like to think that the monetization aspect of one of our underlying businesses or so on and so forth will -- is very important improving out our model and that could be at which point in time, we decided to move down the path of refinancing as well. But overall, we're also looking to grow the overall HC2 portfolio. And I think it's, unfortunately, a sellers market right now. But we are doing tack-on acquisitions that are accretive, and that's very important for us. And we've had success, and I've had success in my previous situation with doing things like that and being patient as you make your money on the buy, and that's how we're thinking about it. There were some situations that would have probably have been good tack-on -- not tack-on acquisitions, but good complementary acquisitions for us, and notably, DBM, but we didn't want to pay the multiples that are out there. And have to be patient and smart about it. Finally, to provide more visibility into our two largest adjusted EBITDA contributors, and based largely on strong demand and the continuity that we're seeing on both of these, we thought it would be very helpful to investors to provide our current expectations for full year 2018 for both DBM and Global. You know the complex nature -- certainly, the complex nature of large-scale DBM and Global projects can cause some variability in their financial results on a quarter-to-quarter basis. We thought that, at the very least, we would provide full year guidance. And the full year guidance for DBM on the EBITDA is $60 million to $65 million, and that's up from our reported $52 million for 2017. And currently expect Global Marine to deliver between $45 million and $50 million for the full year '18. So hopefully, that gives people some comfort as to what we're seeing and how we're seeing it and feel comfortable enough to be able to forecast because the one thing that we don't want to do is to miss. And we feel pretty good about -- we feel pretty confident that we're positioned well, and that we have enough visibility to do this and do this going forward consistently. So our investor base hopefully gets more comfort in the underlying operations of the business. So I probably rambled on too long about certain things, but with that, I will open it up to some Q&A. And again, if you choose not to answer -- or ask any questions now, we're always here, and Andy's always manning the phone. And of course, any one of us in the team will always be glad to chat and help you as much as we possibly can. So with that, thanks for your time. Let's open it up to Q&A.

[Operator Instructions]. Our first question comes from the line of Sarkis Sherbetchyan with B. Riley.

Just to start off. So you mentioned you guys are having multiple discussions with strategic partners as it relates to the Life Sciences portfolio. Can you help us maybe understand any incremental kind of data points you can share on that in terms of the opportunity to monetize in Pansend? Is it one of the assets? Is it more than one of the assets? And then secondly, would you also consider reshuffling the portfolio outside of Pansend, either in terms of opportunities to monetize in any of the other segments?

So without going into too much detail, one of the things that we have tried to make clear is that -- and there's a fine line between being a good sponsor and believer of these types of businesses and being forced to continue putting money into them. And we wanted to make sure that, from a clarity perspective, that these are not types of situations that we have always looked at funding from beginning to end to -- meaning, from incubation stage to commercialization. In some cases, it always behooves the underlying sponsor to participate from -- with the strategic, who can kind of help extract the value. And I think in looking at the investments that we've made, that there is, I wouldn't say tomorrow is the right opportunity in all three of them. But clearly, there's been enough development on all three for that opportunity. I don't think we need to. We're being, again, good stewards of capital as well as good sponsors of the underlying product. And we clearly don't want to put good money after bad, but there's no -- there's nothing even close here as it relates to that. But if presented the right situation with the right economics, we have to be open-minded and compare that to how much capital would be needed to take them to commercialization. So there's all these different things that you balance, but I think the good news is that, these are some phenomenal investments. They are real products and we could go down a couple of different paths at this stage, where you do a strategic, you do a third-party financing. So there's that you kind have to balance that aspect to it. But I think you always want to think that you're working toward partnering with a strategic is the right agenda for us and the right mindset. And again, that's how we're thinking about it, and we've been clearly talking to a number of people. And I think I'm -- continue to be optimistic and cautiously optimistic, but can't go into any more detail other than that. But I feel pretty good about it. And again, it's all about the product as somebody said years and years and years ago, and we've got great product. And as it relates to other subsidiaries, that option is always there. I do believe that it's important for us, for our strategy, to do something, but do the right thing. So we do have a number of different options across all industries and sectors. And it's being patient and pulling the trigger when you feel like it's the right one. But again, the good news is, operationally, the guys are really doing a phenomenal job. So we're kind of balancing a few different options here. You have to think about the tax dynamic associated with it. The tax basis on, just by virtue of where we bought them, is not exactly a delightful tax position to be in. But that's a high-class problem, as I'd like to say. But there are clearly triggers that we can pull and options that we have.

And our next question comes from the line of Kurt Hoffman with Imperial Capital. [Operator Instructions]. And I apologize, his line is not in the queue. We'll move on to the next, and I'll get him reconnected. Our next question comes from the line of Kevin O'Brien with Jefferies.

I wondered if you might clarify a couple of things for me or give further color. As you look out and try to think about the optimization of the cap structure in regards to a global refi, is there sort of a particular batting order that you think you might have to stick to? In other words, do you think you need to monetize an asset before a broader global refi can occur? Or it sounds like there's a lot of different options out there? Is there not necessarily to find road map that has to happen?

I think when we're looking at it, we want to get the lowest rate possible and lock that in. And just looking at where our debt trades right now, I think it's 7.5%, 7.75%. So you could make the argument that you could refinance this thing tomorrow, maybe slightly wide to that, and I mean very slightly. But I don't think that's, quite frankly, attractive enough for us to do that. And I guess, if we weren't and didn't have the number of options that we have, I would probably think more aggressively about doing it today. But I'd like to see that rate come down a bit, and have no reason to believe that, with the underlying dynamics that we have, that we won't get there. I also have to think about the opportunity cost of paying that 5.5 point premium to taking them out tomorrow and taking it out -- if I think about the -- from a debt perspective, that's $20 million of -- I'd better be saving more than that from a rate perspective before I do that. So you end up taking market risk, but I mean I'm willing to take that risk knowing what we're doing and the momentum that we have operationally and strategically. So I don't think we need to -- we don't need to, in fact, have a monetization event to do that today. But before I take these things out and pay the 5.5 point premium, I'd better darn well be saving money rather than spending money.

Great. I appreciate that. I wondered if we would shift gears a little bit. Obviously, with the ever-changing political landscape in Washington, I wonder if you speak to a couple of the policy shifts that have occurred. Obviously the first up, on most peoples' minds would be to clarify what, if any, impact the proposed steel tariffs might have at DBM, given there obviously has to be a little bit of foreign steel exposure there?

So I think as it relates to that, and it's something that we've studied pretty thoroughly, and we are very comfortable that we're not going to see much impact, if any, given our structure and the contracts that we're using, and that we have using imported steel, which quite frankly, is very few in terms of number of projects. But as you know and hopefully most of you know, we're not taking on commodity risk to begin with in general. But as it relates to steel, we went over this during our board meeting in very good detail. And when you think about the typical project -- I don't want to -- there's no typical project, but kind of back of the envelope, if steel is 30% of the overall cost of a project -- or the 30% of the overall budget. And if the overall -- so then you think of the overall budget of being 30%, then there's a breakdown between labor and materials on that 30%. And the percentage on materials takes it even down to low-double-digits, maybe 10%, 8% to 10%. So on any given project then, there is 8% to 10% risk -- or there's 8% to 10% allocation towards steel. That's not a lot. So I don't think that, even if there was a doubling of steel pricing, you're going to see any knee-jerk, as it relates to construction. It's just not that big, and especially the things that we're doing. One, we're not taking the commodity risk. It's typically passed through. And two, just by virtue of the contracts, the structure of the contracts. And three, when it gets right down to it, the steel material is there -- it's not 90% of project cost. So I think this is kind of a blip on the radar for us, quite frankly.

Great. I appreciate that color. And if I might just for one more sticking with that similar theme. You sort of touched upon it when thinking about monetizing some of the assets, whether it be in Life Science or Other. Given the recent tax law changes, is there anything we should be thinking about in regards to the holding company or any of the operating subs that might have a different exposure than what we had thought prior to that tax law change?

No, no. There's not anything too dramatic. In fact, Mike Sena here, the CFO, can make a couple of quick comments on that specifically as it relates to that.

Right. Thanks, Phil. And it's good question, Kevin. While it's still early, we've spent quite a bit of time evaluating the tax rules. So I'll just highlight a couple of points. The first area I'll highlight is obviously around the interest deduction limitation, which, of course, is limited to 30% of your EBITDA. I'll point out that, that's not lost. It's can be carried forward to future years, where EBITDA is higher. So the expectation is that, we will be able to utilize some of that limitation in future years. The other area, which has a positive impact, is around the accelerated depreciation rules under the new code on capital expenditures. So all in all, assuming steady state, we don't expect to be a taxpayer with the U.S. tax group, which excludes insurance due to the offsetting impacts of what I just described along with utilization of existing NOLs. And when we look at the insurance company, we don't expect a significant impact there, which as you know, they are a taxpayer. But the changes in tax rates are offset by some longer amortization periods for deferred policy acquisition costs. And the last thing that I'll mention, for 2017, we had a onetime transition tax of $7 million on unremitted foreign earnings for 2017. However, we were able to utilize existing NOLs and as a result, there was no cash taxes.

Our next question comes from the line of Kurt Hoffman with Imperial Capital.

I wanted to ask on the monetization event and the refinancing priorities. Do you view a monetization event as a prerequisite to accomplishing a refi?

No. I think that somebody's talked about that -- or somebody asked that question. But no, we don't. At this point, we could get a refinancing done today or tomorrow, if we wanted. But I want to see that rate come down before we lock something in for a longer period of time. And again, we believe, just by virtue of the momentum on some of the different things that we're having, no reason to believe, albeit subject to market risk, which we can't control. But there's no reason to believe that we can't get something done over the next period -- a short period of time to where it really makes financial sense for us.

And in terms of the things you're looking at monetizing, would the Huawei JV with Global Marine be a candidate?

Listen, that's a very attractive business. And clearly, something that has been -- that's continued to increase in value. And there is a real value to having a partnership with a company like Huawei. But you never say never. There's, I think, with what we're doing in our -- I don't want to say limited scope with Huawei, you could find that there are certain people out there that would be able to capitalize on the relationship, probably a bit more than what we could. But be that as it may, it's a very, very valuable JV. And we're always willing -- ready, willing and able to look at transactions or any types of transactions from third parties that are interested. So that's clearly like many possibilities for us.

And if you make an asset sale prior to doing a refinancing, what's your view in terms of how much debt you'd want in the company and using those proceeds to may be make the debt burden smaller versus redeploying the proceeds to build up the portfolio?

In the spirit of full disclosure, I'd like to think that -- I would like to take that down a bit. And if we could take that down a bit and reduce our interest costs, if you take your debt down from a principal perspective, in theory you should get a better rate. And if you can do both in a bigger way, you position yourself much better for the future. So I'd rather -- I don't mind buying companies with a debt load and restructuring and so on and so forth. But I'd rather run a company with less debt than what we have today. So we're, again, kind of looking at all options here. And we've got -- but just -- it's not something that we can't handle right now. I think is the important thing. It's just kind of based on our -- how we're thinking about things and what gives us that -- the most optimal structure for, not only the debt, but from an equity holders' perspective as well as a preferred holders' perspective.

Yes. And I think along those lines, the closer the holdco can be to kind of cash flow breakeven will help all those efforts as well. And in that vein, what's a reasonable time line to expect casual breakeven at the holdco? And contribution from some of these other segments, like Broadcast?

I'd like to think that when we embark on that, we will be awfully close to it. It is something that we talk about more often than not. And not only from, I think, what investors want to see, but also from how we want to operate. And that's something that we're, in fact, we had a bank in here today, and we were discussing that and why we wanted to effectuate certain -- a certain dynamic or a certain capital structure with that objective. So again, the beauty of it is, we have a number of options. It's optimizing those options so we can get as close to, if not, better than cash flow, but breakeven.

And our next question is a follow up from the line of Sarkis Sherbetchyan with B. Riley.

I'll try to keep it brief here. Just piggybacking on the Broadcasting assets. So do you expect contribution on that segment in fiscal '18? Just kind of your thoughts on operating potential.

Well, I think that just in looking at the acquisitions that we've made and the timing, accordingly, there's already a pretty attractive equity contribution. It was -- we were pretty aggressive and pretty early post the auction on some of these different acquisitions. And you're seeing prices move up and move up pretty quickly. And I wish we could still -- fortunately, we don't have a lot of holes to fill, but I think we would be paying much more money today to replicate what we have in -- just in -- within the last 12 months. Just no question about it, prices have gone up and gone up quite nicely for us as a matter of fact. Now this is -- the first and foremost, for us and why we focused on bringing in solid engineering is to make sure the platform is what we want it to be, and is efficient and kind of five nines. So when we put -- when people -- when the main brand content providers are put on the air, they know -- everybody knows where it's put on the air and who's watching it and what they're watching and that they're actually getting the product, that's the most important thing right now. And that, of course, is a lot of stitching together, considering the number of acquisitions that we've done. But we're well on our way there. And fortunately, we get the right people doing it for us. And then we've got the programming aspect. And again, the first order of business is Azteca and the opportunity set there. But quite frankly, that's probably -- I think people will be surprised on the upside of the opportunities out there. And there's certain inefficiencies when you're operating south of the border, that I don't think we will see. So I think there's some wood to chop there, but I think that's a great acquisition for us. And we've got a good team. And again, I think we're getting the product from the team -- from the entity in Mexico City, TV Azteca, that was part of our deal. And though by the way, we're already getting incoming phone calls from other providers that want to contribute in their programming and complementing that platform. So very, very exciting. But I think the long and short of it is, there's already a value-add -- pretty decent value-add, just based on the pricing of stations and markets across the board, especially the bigger markets.

That's certainly helpful. Phil, just an observation and also kind of a question tied in, if I may. With respect to the Insurance unit, obviously delivering a profit here. If my math is correct, your stat cap is also increasing here sequentially. So it seems like the strategy is playing out there. And it sounds like the Humana book of business is scheduled to close in 3Q. Anything you want to reiterate with respect to the Insurance strategy and platform here?

We're looking at continuing to be value-added operators in that business. We are looking at a couple of things that we think will be accretive from an operational perspective. And we've set up a certain structure that I'm not able to really go into detail yet, that, again, will be value-added to our overall business, and proved to be value-added for our holding company. So it's all of -- obviously, all within the regulatory confines of what one deals with. But there's -- it's kind of part and parcel to how and why others have gone down the insurance path. And keep in mind, this is something that I've been involved with before and have done eight years ago. So we did it with an objective of, one, proving that we could be value-added operators in this segment, not only via asset management, but the holding -- having that platform. But also, from a structural perspective, there's things that you can do under our existing umbrella, that I think people will find to be quite intriguing and kind of understand then why we did and we are doing what we're doing. I think that's it for the questions in here. Thanks, again, everyone, for your time. And again, if you chose not to answer a question, please feel free to follow up with us and we will gladly do what we can to help you out. With that, Andy, Mike, anything?

No, that's great. Thanks, Phil, and thanks, Mike and thanks all of you for joining us. As always, we are here, as Phil said, to speak with you. Should you have any follow-up questions, please do not hesitate to call me directly at 212-339-5836 and Sandra, could you please go ahead and provide the conference call replay instructions once again? Thanks, everyone.

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 a confirmation code of 3278987. This concludes your call. You may all disconnect. Everyone, have a great day.