HC2 Holdings, Inc. (NYSE MKT:HCHC) Q1 2020 Earnings Conference Call - Final Transcript

May 11, 2020 • 05:00 pm ET


HC2 Holdings, Inc. (NYSE MKT:HCHC) Q1 2020 Earnings Conference Call - Final Transcript


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Philip Falcone

once the pandemic impact dissipates. Importantly at this time, there have been minimal effects in accounts receivables, collections, which is a credit to DBMs high-quality customers. Turning to Energy, our compressed nat gas operation, ANG continues to operate without significant issue. While we've seen a drop-off in volume at certain stations and by certain customers, a significant number of ANGs larger customers are consumer staples, suppliers and grocers, which have seen increased demand in recent weeks.

A number of our contracts are also under a taker pay structure, which requires a minimum fueling requirement regardless of whether those customers fuel with ANG, which helps to insulate ANG against short-term volume fluctuations. But the recent downward trend in oil prices, it is conceivable that the adoption of natural gas vehicles could slow near-term but we continue to believe that clean energy from CNG will become the primary alternative to diesel for commercial fleets. At Broadcasting, we believe our broadcast distribution platform remains a significant growth opportunity for HC2, given the broad geographic reach of our station group and the ongoing acceleration of cable cord cutting across the country.

At network group, however, Aztech America or Hispanic network will be impacted by the pandemic, a certain ad spend has been deferred and will affect the top-line in that unit. In addition, while our capacity lease deals, which are the bulk of our contracts remain unaffected. Some of the expected benefits from our revenue share agreements, such as with beIN SPORTS and Cheddar News will be delayed. Our Life Sciences Division we remain very optimistic for both MediBeacon and R2 Technologies. The recent additional 10 million equity investment from Huadong at post money valuation for 90 million further validates the viability of R2.

That said the current environment may create a slight delay in R2s expected commercial launch. While the pandemic has not affected the regulatory process at MediBeacon, we could potentially see delays that could slow MediBeacon's progress towards regulatory approval. That being said, it has not changed our long-term belief and the value of those entities. And in fact, one could argue that the issues discussed around COVID-19 and its effect on the kidney could prove that MediBeacon is more valuable than previously thought.

In addition, as a reminder, both R2 and MediBeacon have recently received new equity investments to fund ongoing activities and as a result we currently do not anticipate a need for further capital investment from HC2. Finally, at insurance continental continues to be well positioned with approximately 94% of its book comprised of investment grade securities. As with any asset book of this size, we expect certain rating agency downgrades, which undoubtedly will result in higher capital charges on these securities, but the impact will be greatly mitigated by CGICs strong RBC rating heading into the COVID pandemic.

At this stage in the pandemic, we've not experienced any significant deviations from its standard liquidity needs. Given the challenges COVID-19 has presented to all of us, we expect