Good day everyone and welcome to the HC2 Holdings' Fourth Quarter and Full Year 2019 Conference Call. [Operator Instructions]. Please note, this event is being recorded. I'd now like to turn the conference over to Garrett Edson, of ICR. Please go ahead.

Thank you, and good afternoon. We’d like to thank you for joining us to review HC2’s fourth quarter 2019 earnings results. With me today, are Phil Falcone, Chairman, President, and CEO of HC2; and Mike Sena, HC2’s 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 be accessed on HC2’s website, again in the IR section. The replay of this call will be available approximately 1 hour after the call. The dial-in for the replay is 1844-512-2921 with confirmation code of 13700114. Before I turn the call over to Phil, I'd 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 thoroughly discussed in our filings with the SEC. In addition, the forward-looking statements are included in this conference call are only made as of the date of this call and as stated in our SEC report. 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, but not limited to, adjusted EBITDA, insurance adjusted operating income, and insurance pre-tax adjusted operating income. Certain information required to be disclosed about these non-GAAP measures, including reconciliations with the most comparable GAAP measures is available in the most recent earnings press release, which is also available on our website. And finally, as a reminder, this call cannot be taped or otherwise duplicated without the Company’s prior consent. Now, I’d like to turn the call over to HC2’s Chairman, CEO and President, Phil Falcone. Phil?

Thank you, Garrett. And good afternoon, everyone. Thank you for joining us. On today’s call, I'm going to review our accomplishments including our progress on our top priority of debt reduction and overhead. And then I'm going to discuss our longer-term vision and strategy for HC2. Our CFO, Mike Sena will then provide more details on our fourth quarter and full year performance, and then we'll take some questions. Let me start by saying that our thoughts and good wishes are with all of you, our employees at HC2 and our subsidiaries and their families to stay healthy. These are certainly challenging times in the United States and the world. So, thank you to all of our investors and analysts that are taking the time to join us today. It is appreciated. 2019 was a very successful year operationally for HC2 on several fronts. Our accomplishments over 2019 have positioned us well for further success in 2020, including notable progress towards significantly improving our capital structure and overhead reduction. I believe we are firmly moving in the right direction to transform HC2, and we're all confident in our strategic direction moving forward. For 2019, our adjusted EBITDA for our core operating subsidiaries of $127 million was the highest it has been since HC2’s inception and was $22 million higher than 2018. Our construction segment hit its adjusted EBITDA target for the year, while our energy segment had a record year of adjusted EBITDA of $17 million aided by the acquisition of 20 new CNG stations and the retroactive tax credit that was signed into legislation toward the end of 2019. When we first invested in energy in 2014, it was doing $2.5 million in revenue on a pro forma basis. It is now becoming a material contributor to our plan…

Thank you, Phil. Let's review our fourth quarter and full year performance. Consolidated total net revenue for the fourth quarter of 2019 was $498.4 million, compared to $524.9 million in the prior year period, as lower revenues from the construction, telecommunications and marine segments were partially offset by increases in revenue from insurance, net of eliminations and energy segments. Net loss attributable common and participating preferred stockholders for the fourth quarter of 2019 was $31.4 million or $0.66 per share, compared to a net loss of $16.1 million or $0.36 per share in the prior year period. Fourth quarter 2019 results included $50.4 million in goodwill impairment, mostly at Continental, which I'll touch upon more in a minute. Our prior year period results included a bargain purchase gain of $6.3 million related to completing the acquisition of Humana's long-term care business KMG America Corporation as well as a $29.2 million gain on the recapture of one of Continental insurances reinsurance treaties. At the Company's core operating subsidiaries, which comprise HC2’s construction, marine services, energy and telecom segments, adjusted EBITDA for the fourth quarter of 2019 increased 53% to $43.5 million compared to $28.5 million in the prior year period. The increase of $15 million was primarily attributable to energy which recognized $10.6 million in AFTC revenues from the renewal of the fuel tax credit for 2018 and 2019 as Phil pointed out. Total adjusted EBITDA, which excludes our insurance segment more than doubled to $36.7 million in the fourth quarter of 2019 compared to adjusted EBITDA of $15.1 million in the prior year period. The increase in year-over-year adjusted EBITDA during the fourth quarter was driven by the improvements from our core subsidiaries, as well as reduced losses at broadcasting and a meaningful reduction in non-operating corporate expenses to end…

Thank you. [Operator Instructions] Our first question will come from Sarkis Sherbetchyan of B. Riley Financial Inc. Please go ahead.

Good afternoon and thanks for taking my question here. First question just really relates to the liquidity levers to the holding company. Mike, I think you just mentioned $40 million of cash upstream from the subsidiaries to the Hold Co. Maybe if you can give us a more detailed breakdown of the liquidity levers especially after you anticipate on paying down the 11.5%. I think you mentioned $77 million.

Sure, thanks Sarkis. Over $40 million is really what we have planned, and it's broken down the normal cash flow levers that we had last year around DBM insurance and PTGi. We have additional capacity down there that we would draw on to the extent we need to. But, right now, that's our plan based on our strategic options going forward. We expect to have pretty significant savings from the buyback that we talked about of the $77 million, and so we -- in addition, we're going to do another redemption when we close on HMN. So, the $77 million is $9 million of interest savings, and then we of course have the first closing of HMN, which has been pushed out slightly just because of the things going on in the world. Administratively, we expect it to take a little longer than we originally thought.

Yes Sarkis, if I can just add to that, that's obviously a very good question and something that we have all planned out and are crossing the T's and dotting the I's on, but there is no reason for us to be concerned with that with meeting those liquidity needs. And especially, as we look to things going forward, we're going to see additional cost savings on the overhead, and we haven't seen anything from a disruption perspective from -- on the operation side. So, we feel like we're in pretty good shape. We've got revolver there as well which we thought was very important for us to have that as we look to move into 2020.

Okay. I guess, if we can maybe now touch on just you mentioned reducing the corporate overhead. I think everyone's just kind of interested on really understanding what the level of corporate expense, maybe you're targeting for fiscal 20, right? I mean if I compare the upstream a figure you just cited the levers and then add up the interest level pro forma for what you're going to pay down plus the corporate expense, I'm having a little bit of a difficult time kind of bridging the gap. Can you maybe kind of help us understand the opportunity in reducing overhead?

Yes. I will tell you one right off the top that we're all over, and that's on the real estate. We've been out looking at additional space, and the beauty of our setup here is HC2 doesn't have the long-term lease. So, we can exit relatively quickly as necessary, and I think we'll save a good chunk of change going forward with that in mind. There's other things that we, as you look at the corporate overhead from a legal perspective -- we've done a lot of work on both acquisitions, etc., over the number of years, and that's typically been not a sizable piece but a piece that we can, that is much more variable and that will come down. And there are other kind of nits and nats . There's not a lot of things that you can do on the reporting side, but over the last number of years we've had, as we've kind of ramped up, we have seen expenses kind of increase to probably more than we had hoped, and now we clearly have over the last 12 months made a conscientious decision to really slow down on some of these things that we've been looking at, which will really I think drop to the bottom line and get our expenses more in line with quite frankly where they should be, and that's a top priority for us. It hasn't gone unnoticed. You're not the only one that's asked that question over time but we've already had a nice move with reduction of that corporate overhead, and there are a number of different things that we can do and that we are doing that will continue to get that in line because quite frankly we're not there yet. We've got some more wood to chop, but you can't do this stuff overnight. And when we look at our model, there's no doubt that from a liquidity perspective we have internally bridged that gap. It's tough for me to think of how you're looking at it and what expenses you have on your spreadsheet, but I know that internally we are very comfortable with where we are and fully expect that to continue to improve as we go throughout the year.

So Sarkis, we've talked about over 53 million of cash flows from coming up from the subs. We do have some cash on the balance sheet, and we do have additional capacity that we will pull up, and all of these are a bunch of moving pieces as far as our strategic plans and when the timing of things roll in. So, we have the ability to pull more up depending on where we are with our debt reduction strategy going through 2019 if that makes sense.

And in addition to that from a refinancing perspective at the subsidiary level, there are things where the holding company, there are situations where the holding company will benefit, benefit meaning cash on the balance sheet as there are certain things that we're doing with a focus on that, not that we have to do, but again when you talk about different levers those are out there.

Okay. Thanks for that. Just kind of switching gears here talking a little bit about the insurance segment, I thought that's been a division that you guys were pretty proud of and focused on as far as the kind of cash flow driver. So, a little bit surprised to see that it's kind of been mentioned for the sale process. Maybe talk about that in a little bit more detail, and maybe also what were the factors that kind of drove this impairment charge in the segment.

Yes. So, I will start with why going down the path. The insurance business I was quite frankly very high on. It's the business that I have structured. It's the -- from inception, I have always believed that there is an opportunity here, and as a result of the certain things I was looking at when we formed HC2, I was keen on getting into this phase with the objective of the asset management fee and growing that, and growing the assets overtime. When we first kicked off this strategy we had an understanding of certain management fee that we were going to get and possible dividend associated with that. It's clear and it has become more clear and specially with regards to various meetings and discussions that we’ve had starting in 2019 and quite frankly became more definitive as the year came on and especially in the fourth quarter that we realized that there was risk around the management fee and it's no secret that there are, I don't want to say competitors but the competition has also been under pressure with regards to management fee reductions. And while we were hopeful that we are going to be able to work something out, we have had certain meetings that took place in December quite frankly that kind of changed how we thought about the business and changed our comfort level going forward with regards to the management fees that we had structured in our initial plan. And specially as it relates to the dividends, there was hope that and expectations that we would be able to extract certain dividends out of the company and again dealing with long term care and the rate increases that quite frankly seem to be ongoing from a necessity perspective have really put, have…

Okay. And the factors on the impairment?

Yes. So basically it's a measurement of your fair value to your book value. The book value in insurance company at the end of the year was about, before the impairment was about $500 million. It had almost $200 million of AOCI. So excluding that the book value was 300 million. So when you're measuring your goodwill compared to your. I mean your book value to your fair value for your impairment test if the fair value is lower than the book value you have to take an impairment. And so even without the factors that Phil described that have been impacting the fair value we still would have had an impairment because the insurance company had 99 million of net income in 2019 before the impact of goodwill. So you had a book value increased by a $100 million. So unless your fair value followed that you're going to have an impairment.

And just one last point of that I think from past conference calls we expected and anticipated our dividends to be or I'm sorry our management fee to be $13 million, $14 million, $15 million and potentially going higher and without question that is not going to be the case going forward at least with this asset base and it really became not an issue but a question for us as we look at, as we looked to either continue building this business or exit.

Okay. Thanks for that. Just switching over to broadcasting real quick you mentioned the build-out for broadcasting over the next 24 months. Any kind of target on the amount of spend in that division?

Yes the minims. We've done the bulk of our CapEx. Keep in mind that building out a station is about $150,000 to $200,000 not a lot and it depends on whether you're co-located with an existing station as well. And if you're co-located with an existing station you tend to have additional savings. So the stations that are coming online, I believe should be around 40 stations. It's not a tremendous amount of CapEx. It is maybe and some of these are partially built out but from a maximum perspective you could be looking at $5 million, $6 million maximum. So not a lot of CapEx.

And do you feel comfortable that the broadcasting segment has enough to kind of make way with that growth platform?

Yes. Absolutely. We are extremely excited about this and it's one of the things as we looked at our business going forward where our emphasis is going to be where do we want to focus and where do we think we're going to have a great success and the fact that we have this platform. These are all license stations. It's a very unique platform. You're seeing a tremendous amount of cord-cutting and quite frankly there's more content out there that needs to get in front of people and this is back to the old push versus pull phenomenon i.e. search phenomenon but as you see the amount of content out there that necessitates getting in front of what we call eyeballs we have a natural platform for that that's very unique and in looking at the competition they have a different model. There's a different model out there. It's an affiliate model and quite frankly one of the benefits that we have is we don't want to say we have a blank slate because we do have a number of networks on there but we have a tremendous amount of capacity to host super high quality content providers and we're in discussions with people around that today as a result of kind of a one-stop shop. We can put people on 210 stations today quite frankly almost overnight and that's a pretty attractive value add proposition for any content provider and now granted there's if you look at the number of cable subscribers in the marketplace there's 80 million households, the over-the-air market is 20 million households and growing. So if you are a cable network and you are on a cable provider you do not have a natural distribution platform and as you lose eyeballs and it is…

Thanks. I'm going to hop back into the queue.

Okay. Thank you.

Our next question will come from Nick Brown of Zazove Associates. Please go ahead.

All right. Thanks for taking my questions. Actually I have two questions. First on the HMN sale. Maybe I misheard but could you explain what you meant when you said I think you said you completed the sale last week but then you said it's not going to close until early second quarter. I just want to know what you meant by completing the sale, almost I misheard.

Sure. As you know we signed up the purchase of HMN via HengTong that deal was signed in the fall. What took place last week was the purchase by HengTong of the 51% of HMN owned by Huawei that closing essentially was a step for us that we were waiting for in order to close our 30 plus percent sale. So that had to take place first. It closed and quite frankly in this marketplace we're very pleased that it closed because we thought it might even be delayed but the fact that that deal was closed and our deal and our closing was conditional on that, that's what we were talking about from a delay in the closing of our piece. But the fact that that close means that ours will close it's just a function of whether we were hoping by the end of the month but it looks like it's going to be pushed into the first week or two of April.

Okay. That's helpful, timing especially. And then the other question on the potential insurance sale what is it about, I mean I understand why the economics aren't attractive to you anymore given that the changes but what makes it still attractive to other parties?

Well, if you have an existing insurance portfolio, you may have different capital, different capital allocator, that is looking at a different type of return. When we think about our capital allocation, our cost of debt and our cost of capital in general, we've got to make some decent money on or decent return on our capital. And then looking at growing this business, yes, the deal that we did with Humana was a great deal. I'm not saying that there won't be others out there in the marketplace like that. But, the expectation is that, it could necessitate some capital. And the question is to really grow this business. Do we want to allocate additional capital to grow the business based on what we are seeing now with the management fees where we expect them to be, as well as the potential issues with the dividend. And others may have different return parameters may have a different infrastructure that can and could and may be willing to accommodate those adjustments that are taking place in the market. But, quite frankly, we're not.

Okay, thank you for answering that.

You're welcome.

This will conclude our question and answer session. At this time, I'd like to turn the floor back over to Phil Falcone for any closing comments.

Okay. Thank you, everybody for joining us today. As always, we will have people here both Mike, myself and will be available to answer questions either today or throughout the week. We appreciate you joining. We know how busy everybody can be and how tumultuous the market can be. So we appreciate your time and be safe. Thank you very much.

The conference is now concluded. We thank you for attending today's presentation. And you may now disconnect your lines.