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…

[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…

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.