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Item 2. Management’s Discussion and Analysis

2020-08-10 compared with 2020-05-11 · 351 added, 207 removed, 589 unchanged (49% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the information in our annual audited Consolidated Financial Statements and the notes thereto, each of which are contained in Item 8 entitled "Financial Statements and Supplementary Data," and other financial information included herein.

You should read the following discussion and analysis of our financial condition and results of operations together with the information in our annual audited Consolidated Financial Statements and the notes thereto in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020, each of which are contained in Item 8 entitled "Financial Statements and Supplementary Data," and other financial information included herein.

Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties.

You should review the "Risk Factors" section in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020, as well as the section below entitled "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Unless the context otherwise requires, in this Annual Report on Form 10-K, "HC2" means HC2 Holdings, Inc.

Unless the context otherwise requires, in this Quarterly Report on Form 10-Q, "HC2" means HC2 Holdings, Inc.

and the "Company," "we" and "our" mean HC2 together with its consolidated subsidiaries.

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Any securities acquired are marked to market and may increase short-term earnings volatility as a result.

We believe our track record, our platform and our strategy will enable us to deliver strong financial results, while positioning our Company for long-term growth.

We believe the unique alignment of our executive compensation program, with our objective of increasing long-term stakeholder value, is paramount to executing our vision of long-term growth, while maintaining our disciplined approach.

Having designed our business structure to not only address capital allocation challenges over time, but also maintain the flexibility to capitalize on opportunities during periods of market volatility, we believe the combination thereof positions us well to continue to build long-term stakeholder value.

Our Operations

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However, we do expect that it could have a material adverse impact on our future revenue growth as well as our overall profitability and may lead to revised payment terms with certain of our customers.

During the three months ended March 31, 2020, particularly the month of March, the effects of COVID-19 and the related actions undertaken in the U.S.

to attempt to control its spread, specifically impacting certain of our segments as follows:

During the three and six months ended June 30, 2020, the effects of COVID-19 and the related actions undertaken in the U.S.

to attempt to control its spread, specifically impact certain of our segments as follows:

DBMG is dependent on its workforce to carry out its services.

Developments resulting from governmental responses to COVID-19 such as social distancing and shelter-in-place directives have impacted, and will continue to impact, DBMG’s ability to deploy its workforce in its facilities and project sites efficiently.

The nature of DBMG’s business does not permit alternative workforce arrangements in its facilities and project sites such as remote work schemes to be implemented effectively, and as a result of potential workforce disruptions, DBMG may experience delays or suspensions of projects, however there have not been material impacts during the three months ended March 31, 2020.

DBMG has incurred significant costs related to inefficiency and additional procedures to maintain COVID-19 related safety measures.

During the three and six months ended June 30, 2020, $8.4 million and $8.8 million were incurred.

DBMG may also experience disruptions in the supply chain depending on the spread of COVID-19 and related governmental orders.

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Our Insurance segment has been impacted by the COVID-19 pandemic, including multiple reductions in target interest rates by the Board of Governors of the Federal Reserve System, and significant market volatility, driving actual and projected results of our business operations as well as our views on potential effectiveness of certain prudent and feasible tax planning strategies.

The Company’s March 31, 2020 loss reflected in earnings is primarily impacted by the Insurance segment's unrealized losses on investments of $21.5 million, included in the Net realized and unrealized gains (loss) on investments line, primarily driven by equity and derivative mark to market adjustments.

The impact on other comprehensive income was $355.5 million of unrealized losses on fixed maturity securities.

Both of these were largely attributable to market factors caused by the COVID-19 crisis.

Future recovery of losses will largely depend upon market reaction to additional COVID-19 stimulus packages, interest rates and timing and manner in which the economy is reopened.

These unrealized losses are considered temporary in nature, as we have the ability to hold these securities to maturity.

The Company’s June 30, 2020 results reflected in earnings are primarily impacted by the Insurance segment's net unrealized losses on investments of $17.9 million, included in the Net realized and unrealized gains (loss) on investments line, primarily driven by preferred stock mark to market adjustments.

The impact on other comprehensive income was $9.2 million of unrealized gain on fixed maturity securities, a significant improvement as compared to the three months ended March 31, 2020 results, which reflected $355.5 million of unrealized loss on fixed maturity securities.

Both of these were largely attributable to market factors caused by the COVID-19 crisis for each of the three month periods ended March 31, 2020 and June 30, 2020, respectively.

Additional future recovery of losses will largely depend upon market reaction to additional COVID-19 stimulus packages, interest rates and timing and manner in which the economy is reopened.

The unrealized losses are considered temporary in nature, as we have the ability to hold these securities to maturity.

As a result of COVID-19, our Broadcasting segment has experienced adverse effects on its advertising business because of weakness in the advertising market as advertisers seek to reduce their own costs in response to the pandemic’s impact on their businesses.

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In March 2020, with the proceeds received from the sale of GMSL, the Company repaid $15.0 million of its 2019 Revolving Credit Agreement and $76.9 million of its Senior Secured Notes.

On April 16, 2020 the Company drew $10.0 million on its 2020 Revolving Credit Agreement.

The proceeds from the draw are for general corporate purposes.

HC2 received $0.5 million in dividends from our Telecommunications segment during the three months ended March 31, 2020.

HC2 received $1.8 million in net management fees during the three months ended March 31, 2020.

On May 4, 2020 HC2 announced that its Construction segment will pay a cash dividend of $15.0 million, or $3.89 per share.

As the largest stockholder of DBM Global Inc., HC2 expects to receive approximately $13.9 million of the total dividend payout.

In April 2020 and May 2020, HC2 drew $10.0 million and $5.0 million on its 2020 Revolving Credit Agreement, respectively.

In June 2020, with the cash proceeds from the sale of New Saxon's 30% interest in HMN, HC2 redeemed an additional $50.6 million of its Senior Secured Notes.

HC2 received $0.5 million in dividends from our Telecommunications segment during the six months ended June 30, 2020.

HC2 received $1.1 million and $2.9 million in net management fees during the three and six months ended June 30, 2020, respectively.

HC2 received $13.5 million in dividends from its Construction segment during three and six months ended June 30, 2020.

On August 6, 2020 the Construction segment paid a cash dividend of $5.0 million, or $1.30 per share.

HC2 received approximately $4.5 million of the total dividend payout.

Separation from Philip A.

The Company has engaged in ongoing negotiations with Mr.

Falcone, the former CEO and Chairman of the Company, regarding his separation.

Falcone rejected the Company’s most recent severance offer.

In addition, Mr.

Falcone made two books and records demands of the Company in his capacity as a director, which the Company, among other reasons, has denied in light of the fact that Mr.

Falcone is no longer a director of the Company.

On April 16, 2020, R2 received $10 million in funding from Huadong Medicine Company Limited as part of Huadong's $30 million Series B equity investment in R2.

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In the below section within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we compare, pursuant to U.S.

GAAP and SEC disclosure rules, the Company’s results of operations for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019.

GAAP and SEC disclosure rules, the Company’s results of operations for the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019.

Results of Operations

The following table summarizes our results of operations and a comparison of the change between the periods (in millions):

Three Months Ended March 31,

2020 2019 Increase / (Decrease)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Construction $ 172.3 $ 195.7 $ (23.4) $ 348.8 $ 387.8 $ (39.0)

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Loss on early extinguishment or restructuring of debt (3.4) — (3.4) (9.2) — (9.2)

Loss from equity investees (2.5) (5.9) 3.4

Other income, net 2.8 3.4 (0.6)

(Loss) income from continuing operations (53.6) 4.3 (57.9)

Income tax benefit (expense) 12.6 (4.0) 16.6

(Loss) income from continuing operations (41.0) 0.3 (41.3)

(Loss) income from equity investees (0.2) 7.2 (7.4) (2.7) 1.3 (4.0)

Gain on bargain purchase — 1.1 (1.1) — 1.1 (1.1)

Other income (loss) 64.0 (4.8) 68.8 66.8 (1.4) 68.2

Income (loss) from continuing operations 43.9 18.0 25.9 (9.7) 22.3 (32.0)

Income tax expense (15.4) (1.1) (14.3) (2.8) (5.1) 2.3

Income (loss) from continuing operations 28.5 16.9 11.6 (12.5) 17.2 (29.7)

Loss from discontinued operations (including loss on disposal of $39.3 million) — (7.7) 7.7 (60.0) (14.3) (45.7)

Net loss (101.0) (6.3) (94.7)

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 17.9 3.5 14.4

Net loss attributable to HC2 Holdings, Inc.

Net income (loss) 28.5 9.2 19.3 (72.5) 2.9 (75.4)

Net (income) loss attributable to noncontrolling interest and redeemable noncontrolling interest (15.4) 0.2 (15.6) 2.5 3.7 (1.2)

Net income (loss) attributable to HC2 Holdings, Inc.

13.1 9.4 3.7 (70.0) 6.6 (76.6)

Preferred dividends, deemed dividends, and repurchase gains 0.4 0.4 — 0.8 (0.8) 1.6

Net loss attributable to common stock and participating preferred stockholders $ (83.5) $ (1.6) $ (81.9)

(1) The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three months ended March 31, 2020 and 2019, which are related to transactions between entities under common control which are eliminated or are reclassified in consolidation.

Net income (loss) attributable to common stock and participating preferred stockholders $ 12.7 $ 9.0 $ 3.7 $ (70.8) $ 7.4 $ (78.2)

(1) The Insurance segment results are inclusive of realized and unrealized gains and net investment income for the three and six months ended June 30, 2020 and 2019, inclusive of transactions between entities under common control, which are eliminated or are reclassified in consolidation.

Net revenue :

Net revenue for the three months ended March 31, 2020 decreased $4.2 million to $444.8 million from $449.0 million for the three months ended March 31, 2019.

The decrease in revenue was driven by our Insurance segment, net of eliminations, largely driven by unrealized losses resulting from unfavorable market movements in values for preferred stock holdings, partially offset by an increase in gains recognized on fixed maturities, and our Construction segment, primarily driven by lower revenues from our structural steel fabrication and erection business.

These were largely offset by increases at our Telecommunications segment, attributed to changes in customer mix and fluctuations in wholesale traffic volumes.

Net revenue for the three months ended June 30, 2020 decreased $102.2 million to $377.0 million from $479.2 million for the three months ended June 30, 2019.

The decrease in revenue was driven by our Telecommunications segment, which can be attributed to changes in customer mix and fluctuations in wholesale traffic volumes, and our Construction segment primarily driven by lower revenues from our structural steel fabrication and erection business.

These were partially offset by increases at our Energy segment due to the Alternative Fuels Tax Credit ("AFTC") revenue related to CNG sales recognized in the current period and the acquisition of the ampCNG stations.

Net revenue for the six months ended June 30, 2020 decreased $106.4 million to $821.8 million from $928.2 million for the six months ended June 30, 2019.

The decrease is also due to our Insurance segment, net of eliminations, largely driven by unrealized losses resulting from unfavorable market movements in values for preferred stock holdings.

These were partially offset by increases at our Energy segment due to AFTC revenue related to CNG sales recognized in the current period and the acquisition of the ampCNG stations.

Income (loss) from operations :

Income (loss) from operations for the three months ended March 31, 2020 decreased $52.4 million to a loss of $26.8 million from income of $25.6 million for the three months ended March 31, 2019.

The decrease in operations was primarily driven by our Insurance segment largely driven by a decline in revenues, due to unrealized losses from unfavorable market movements in values for common and preferred stock holdings as a result of the COVID-19 pandemic, partially offset by an increase in gains recognized on certain fixed maturities.

Further adding to the decrease was an increase in policy benefits, changes in reserves, and commissions due to non-recurring favorable claims activity recognized in the comparable period along with unfavorable claims activity and reserves development in the current quarter.

Income from operations for the three months ended June 30, 2020 decreased $28.7 million to $4.9 million from $33.6 million for the three months ended June 30, 2019.

The decrease in operations was primarily driven by our Insurance segment due to an increase in policy benefits, changes in reserves, and commissions due to non-recurring favorable claims activity recognized in the comparable period along with unfavorable claims activity and reserves development in the current quarter, and our Construction segment primarily due to lower revenues from our structural steel fabrication and erection business and COVID-19 related costs.

Income (loss) from operations for the six months ended June 30, 2020 decreased $81.1 million to a loss of $21.9 million from income of $59.2 million for the six months ended June 30, 2019.

The decrease was primarily driven by our Insurance segment due to an increase in policy benefits, changes in reserves, and commissions due to non-recurring favorable claims activity recognized in the comparable period along with unfavorable claims activity and reserves development in the first half of 2020.

In addition there was a decline in revenues, due to unrealized losses from unfavorable market movements in preferred stock holdings.

The decrease is also attributable to our Construction segment due to lower revenues from our structural steel fabrication and erection business.

Interest expense :

Interest expense for the three months ended March 31, 2020 increased $2.5 million to $21.3 million from $18.8 million for the three months ended March 31, 2019.

The increase was largely attributable to an increase in the aggregate principal amount of debt at our Broadcasting segment.

Interest expense for the three months ended June 30, 2020 increased $2.3 million to $21.4 million from $19.1 million for the three months ended June 30, 2019.

Interest expense for the six months ended June 30, 2020 increased $4.8 million to $42.7 million from $37.9 million for the six months ended June 30, 2019.

The increases were attributable to an increase in the aggregate principal amount of debt at our Broadcasting and Energy segments.

Loss on early extinguishment or restructuring of debt :

Loss on early extinguishment or restructuring of debt for the three months ended March 31, 2020 was $5.8 million.

Loss from equity investees:

Loss from equity investees for the three months ended March 31, 2020 decreased $3.4 million to $2.5 million from $5.9 million for the three months ended March 31, 2019.

The decrease in loss was largely due to lower equity method losses recorded from our equity investment in HMN.

Income tax benefit (expense) :

Income tax benefit (expense) was a benefit of $12.6 million and an expense of $4.0 million for the three months ended March 31, 2020 and 2019, respectively.

The income tax benefit recorded for the three months ended March 31, 2020 primarily relates to a one-time, discrete tax benefit from the carry back of net operating losses at the Insurance segment as a result of the enactment of the CARES Act on March 27, 2020.

Loss on early extinguishment or restructuring of debt for the three months ended June 30, 2020 was $3.4 million.

This was driven by the 4.5% redemption premium on the $50.6 million redemption of the Senior Secured Notes and the write-off of deferred financing costs and original issuance discount.

Loss on early extinguishment or restructuring of debt for the six months ended June 30, 2020 was $9.2 million.

This was driven by the write-off of deferred financing costs and original issuance discount related to the $15.0 million pay down of the 2019 Revolving Credit Agreement and the $76.9 million redemption of the Senior Secured Notes at a 4.5% premium in the first quarter of 2020 and the $50.6 million redemption of the Senior Secured Notes at a 4.5% premium in the second quarter of 2020.

(Loss) income from equity investees :

(Loss) income from equity investees for the three months ended June 30, 2020 decreased $7.4 million to a loss of $0.2 million from income of $7.2 million for the three months ended June 30, 2019.

The decrease was driven by lower profit for the HMN investment, generally attributable to the timing of turnkey project work.

(Loss) income from equity investees for the six months ended June 30, 2020 decreased $4.0 million to a loss of $2.7 million from income of $1.3 million for the six months ended June 30, 2019.

The decrease was driven by an increase in losses for the HMN investment, which is generally attributable to the timing of turnkey project work.

Other income (loss):

Other income (loss) for the three months ended June 30, 2020 increased $68.8 million to a gain of $64.0 million from a loss of $4.8 million for the three months ended June 30, 2019.

Other income (loss) for the six months ended June 30, 2020 increased $68.2 million to a gain of $66.8 million from a loss of $1.4 million for the six months ended June 30, 2020.

The increases were primarily driven by the gain recognized on the First HMN Sale partially offset by the loss recognized on the Convertible Note embedded conversion feature.

Income tax expense :

Income tax expense was an expense of $15.4 million and $1.1 million for the three months ended June 30, 2020 and 2019, respectively.

The income tax expense recorded for the three months ended June 30, 2020 primarily relates to tax expense incurred in China from the partial sale of HMN and projected expense as calculated under ASC 740 for tax paying entities, primarily the Insurance segment, which is no longer in a valuation allowance.

Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc.

consolidated income tax return and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized prior to expiration.

The income tax expense recorded for the three months ended March 31, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities and because no benefit is recognized on the losses of the HC2 U.S.

tax consolidated group and the losses of their subsidiaries as valuation allowances are recorded on the deferred tax assets of these companies.

The income tax expense recorded for the three months ended June 30, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities offset by a benefit from the release of the valuation allowance of the Insurance segment due to an increase in current year income.

Income tax expense was an expense of $2.8 million and $5.1 million for the six months ended June 30, 2020 and 2019, respectively.

The income tax expense recorded for the six months ended June 30, 2020 primarily relates to tax expense incurred in China from the partial sale of HMN and projected expense as calculated under ASC 740 for tax paying entities, primarily the Insurance segment, which is no longer in a valuation allowance, mostly offset by a tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act.

Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc.

The income tax expense recorded for the six months ended June 30, 2019 relates to the projected expense as calculated under ASC 740 for taxpaying entities offset by a benefit from the release of the valuation allowance of the Insurance segment due to an increase in current year income.

Loss from discontinued operations (including loss on disposal of $39.3 million) :

Loss from discontinued operations for the three months ended March 31, 2020 increased $53.4 million to $60.0 million from $6.6 million for the three months ended March 31, 2019.

The increase in loss was largely driven by the $39.3 million loss on the sale of GMSL.

Loss from discontinued operations for the three months ended June 30, 2020 decreased $7.7 million to zero from $7.7 million for the three months ended June 30, 2019.

Loss from discontinued operations for the six months ended June 30, 2020 increased $45.7 million to $60.0 million from $14.3 million for the six months ended June 30, 2019.

The increase in loss was largely driven by the $39.3 million loss on the sale of GMSL in the first quarter of 2020.

Also contributing to the increase in loss was a $9.0 million increase in net loss from the discontinued entity, GMSL.

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Preferred dividends, deemed dividends, and repurchase gains :

Preferred dividends, and deemed dividends, and repurchase gains for the three months ended March 31, 2020 decreased $1.6 million to a loss of $0.4 million compared to a gain of $1.2 million for the three months ended March 31, 2019.

Preferred dividends, and deemed dividends, and repurchase gains for the three months ended June 30, 2020 remained unchanged from the three months ended June 30, 2019 at loss of $0.4 million.

Preferred dividends, and deemed dividends, and repurchase gains for the six months ended June 30, 2020 decreased $1.6 million to a loss of $0.8 million compared to a gain of $0.8 million for the six months ended June 30, 2019.

The decrease was largely driven by the Insurance segment's 2019 purchase of 10,000 shares of the Company's Series A-2 Preferred Stock at a $1.7 million discount.

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Construction Segment

Three Months Ended March 31,

2020 2019 Increase / (Decrease)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Net revenue $ 172.3 $ 195.7 $ (23.4) $ 348.8 $ 387.8 $ (39.0)

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Income from operations $ 4.5 $ 16.2 $ (11.7) $ 7.1 $ 21.9 $ (14.8)

Net revenue from our Construction segment for the three months ended March 31, 2020 decreased $15.6 million to $176.5 million from $192.1 million for the three months ended March 31, 2019.

The decrease was primarily driven by lower revenues from our structural steel fabrication and erection business, attributable to a reduction in the scale of project work under execution as large, complex projects underway in the prior period were effectively complete in the current period.

This was partially offset by an increase in revenue at GrayWolf due to increased project work in the current period.

Net revenue from our Construction segment for the three months ended June 30, 2020 decreased $23.4 million to $172.3 million from $195.7 million for the three months ended June 30, 2019.

Net revenue from our Construction segment for the six months ended June 30, 2020 decreased $39.0 million to $348.8 million from $387.8 million for the six months ended June 30, 2019.

The decreases were primarily driven by lower revenues from our structural steel fabrication and erection business, which had increased activity in the comparable period on certain large commercial construction projects that are now at or near completion and lower revenues from our construction modeling and detailing business.

Cost of revenue:

Cost of revenue from our Construction segment for the three months ended March 31, 2020 decreased $11.6 million to $151.2 million from $162.8 million for the three months ended March 31, 2019.

The decrease was primarily driven by the timing of project work under execution and change in backlog mix, including a reduction in large commercial construction projects in the current period.

This was partially offset by costs associated with increased project work at GrayWolf.

Cost of revenue from our Construction segment for the three months ended June 30, 2020 decreased $8.7 million to $146.6 million from $155.3 million for the three months ended June 30, 2019.

Cost of revenue from our Construction segment for the six months ended June 30, 2020 decreased $20.3 million to $297.8 million from $318.1 million for the six months ended June 30, 2019.

The decreases were primarily driven by the timing of project work under execution and change in backlog mix, including a reduction in large commercial construction projects in the current period.

The decrease was partially offset by higher costs incurred in response to the COVID-19 pandemic.

Selling, general and administrative:

Selling, general and administrative from our Construction segment for the three months ended June 30, 2020 decreased $1.6 million to $18.6 million from $20.2 million for the three months ended June 30, 2019.

Selling, general and administrative from our Construction segment for the six months ended June 30, 2020 decreased $1.5 million to $38.5 million from $40.0 million for the six months ended June 30, 2019.

The decreases were primarily driven by lower travel expenses, acquisition costs, and bonus expense in the current period, partially offset by higher costs incurred due to COVID-19 pandemic.

Depreciation and amortization :

Depreciation and amortization from our Construction segment for the three months ended March 31, 2020 decreased $1.3 million to $2.6 million from $3.9 million for the three months ended March 31, 2019.

The decrease was primarily related to the full depreciation and amortization of assets that took place subsequent to the comparable period.

Depreciation and amortization from our Construction segment for the three months ended June 30, 2020 decreased $1.3 million to $2.7 million from $4.0 million for the three months ended June 30, 2019.

Depreciation and amortization from our Construction segment for the six months ended June 30, 2020 decreased $2.6 million to $5.3 million from $7.9 million for the six months ended June 30, 2019.

The decreases were primarily related to the full depreciation and amortization of assets that took place subsequent to the comparable periods.

Energy Segment

Three Months Ended March 31,

2020 2019 Increase / (Decrease)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Net revenue $ 10.3 $ 5.5 $ 4.8 $ 20.7 $ 10.6 $ 10.1

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Income (loss) from operations $ 2.2 $ (0.3) $ 2.5 $ 3.9 $ (0.7) $ 4.6

Net revenue from our Energy segment for the three months ended March 31, 2020 increased $5.3 million to $10.4 million from $5.1 million for the three months ended March 31, 2019.

The increase was primarily driven by higher volume-related revenues attributable to the inclusion of the acquired ampCNG stations, which was acquired in June 2019.

Additionally, the increase was driven by AFTC revenue related to CNG sales recognized in the current period.

Net revenue from our Energy segment for the three months ended June 30, 2020 increased $4.8 million to $10.3 million from $5.5 million for the three months ended June 30, 2019.

Net revenue from our Energy segment for the six months ended June 30, 2020 increased $10.1 million to $20.7 million from $10.6 million for the six months ended June 30, 2019.

The increases were primarily driven by higher volume-related revenues attributable to the inclusion of the acquired ampCNG stations, which was acquired in June 2019.

Additionally, the increases were driven by AFTC revenue related to CNG sales recognized in the current period.

The AFTC had not yet been renewed for 2019 in the comparable period.

Cost of revenue:

Cost of revenue from our Energy segment for the three months ended March 31, 2020 increased $1.8 million to $5.0 million from $3.2 million for the three months ended March 31, 2019.

The increase was due to the overall growth in volume of gasoline gallons delivered and higher commodity and utility costs driven by the acquisition of ampCNG stations.

Cost of revenue from our Energy segment for the three months ended June 30, 2020 increased $1.4 million to $4.7 million from $3.3 million for the three months ended June 30, 2019.

Cost of revenue from our Energy segment for the six months ended June 30, 2020 increased $3.2 million to $9.7 million from $6.5 million for the six months ended June 30, 2019.

The increases were due to the overall growth in volume of gasoline gallons delivered and higher commodity and utility costs driven by the acquisition of ampCNG stations.

Selling, general and administrative:

Selling, general and administrative expenses from our Energy segment for the three months ended March 31, 2020 increased $0.7 million to $1.6 million from $0.9 million for the three months ended March 31, 2019.

The increase was driven by the overall growth of the Energy segment as it continues to increase its national footprint.

Selling, general and administrative expenses from our Energy segment for the three months ended June 30, 2020 increased $0.4 million to $1.4 million from $1.0 million for the three months ended June 30, 2019.

Selling, general and administrative expenses from our Energy segment for the six months ended June 30, 2020 increased $1.1 million to $3.0 million from $1.9 million for the six months ended June 30, 2019.

The increases were driven by the overall growth of the Energy segment as it continues to increase its national footprint.

Depreciation and amortization :

Depreciation and amortization from our Energy segment for the three months ended March 31, 2020 increased $0.7 million to $2.1 million from $1.4 million for the three months ended March 31, 2019.

The increase was due to additional depreciation and amortization from the acquisition of ampCNG stations completed in June 2019.

Depreciation and amortization from our Energy segment for the three months ended June 30, 2020 increased $0.5 million to $2.0 million from $1.5 million for the three months ended June 30, 2019.

Depreciation and amortization from our Energy segment for the six months ended June 30, 2020 increased $1.2 million to $4.1 million from $2.9 million for the six months ended June 30, 2019.

The increases were due to additional depreciation and amortization from the acquisition of ampCNG stations completed in June 2019.

Telecommunications Segment

Three Months Ended March 31,

2020 2019 Increase / (Decrease)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Net revenue $ 107.3 $ 189.3 $ (82.0) $ 293.7 $ 344.8 $ (51.1)

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Depreciation and amortization 0.1 0.1 — 0.2 0.2 —

Other operating expense — 0.5 (0.5) — 0.5 (0.5)

Income from operations $ 0.2 $ 0.2 $ — $ 0.3 $ 0.8 $ (0.5)

Net revenue :

Net revenue from our Telecommunications segment for the three months ended March 31, 2020 increased $30.9 million to $186.4 million from $155.5 million for the three months ended March 31, 2019.

The increase can be attributed to changes in our customer mix and fluctuations in wholesale traffic volumes, which can result in variability across periods.

Net revenue from our Telecommunications segment for the three months ended June 30, 2020 decreased $82.0 million to $107.3 million from $189.3 million for the three months ended June 30, 2019.

Net revenue from our Telecommunications segment for the six months ended June 30, 2020 decreased $51.1 million to $293.7 million from $344.8 million for the six months ended June 30, 2019.

The decreases can be attributed to changes in our customer mix and fluctuations in wholesale traffic volumes, which can result in variability across periods.

Cost of revenue:

Cost of revenue from our Telecommunications segment for the three months ended March 31, 2020 increased $32.0 million to $184.3 million from $152.3 million for the three months ended March 31, 2019.

The increase was directly correlated to the fluctuations in wholesale voice termination volumes, in addition to a slight reduction in margin mix attributed to market pressures on call termination rates.

Cost of revenue from our Telecommunications segment for the three months ended June 30, 2020 decreased $81.1 million to $105.3 million from $186.4 million for the three months ended June 30, 2019.

Cost of revenue from our Telecommunications segment for the six months ended June 30, 2020 decreased $49.1 million to $289.6 million from $338.7 million for the six months ended June 30, 2019.

The decreases were directly correlated to the fluctuations in wholesale voice termination volumes, in addition to a slight reduction in margin mix attributed to market pressures on call termination rates.

Selling, general and administrative:

Selling, general and administrative expenses from our Telecommunications segment for the three months ended March 31, 2020 decreased $0.6 million to $1.9 million from $2.5 million for the three months ended March 31, 2019.

The decrease was primarily due to a decrease in compensation expense due to a lower headcount and reductions in bad debt expense.

Selling, general and administrative expenses from our Telecommunications segment for the three months ended June 30, 2020 decreased $0.4 million to $1.7 million from $2.1 million for the three months ended June 30, 2019.

Selling, general and administrative expenses from our Telecommunications segment for the six months ended June 30, 2020 decreased $1.0 million to $3.6 million from $4.6 million for the six months ended June 30, 2019.

The decreases were primarily due to a decrease in compensation expense due to a lower headcount.

Other operating expense:

Other operating expense expenses from our Telecommunications segment for the three and six months ended June 30, 2020 decreased $0.5 million to zero from $0.5 million for the three and six months ended June 30, 2019.

The decreases were driven by impairment of goodwill in the comparable period as a result of declining performance at the segment.

Insurance Segment

Three Months Ended March 31,

2020 2019 Increase / (Decrease)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Life, accident and health earned premiums, net $ 29.7 $ 30.1 $ (0.4) $ 58.2 $ 59.9 $ (1.7)

Net investment income 51.2 52.5 (1.3) 105.5 105.5 —

Net realized and unrealized gains (loss) on investments (19.0) 6.0 (25.0)

Net realized and unrealized gains (losses) on investments (0.4) (0.5) 0.1 (19.4) 5.5 (24.9)

Net revenue 80.5 82.1 (1.6) 144.3 170.9 (26.6)

2 unchanged sentences

Depreciation and amortization (5.5) (6.0) 0.5 (11.4) (12.5) 1.1

(Loss) income from operations (1)

Income from operations (1)

$ 14.2 $ 30.9 $ (16.7) $ 1.6 $ 65.3 $ (63.7)

(1) The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three months ended March 31, 2020 and 2019.

Such adjustments are related to transactions between entities under common control which are eliminated or are reclassified in consolidation.

(1) The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three and six months ended June 30, 2020 and 2019, inclusive of transactions between entities under common control, which are eliminated or are reclassified in consolidation.

Life, accident and health earned premiums, net:

Life, accident and health earned premiums, net from our Insurance segment for the three months ended March 31, 2020 decreased $1.3 million to $28.5 million from $29.8 million for the three months ended March 31, 2019.

Life, accident and health earned premiums, net from our Insurance segment for the three months ended June 30, 2020 decreased $0.4 million to $29.7 million from $30.1 million for the three months ended June 30, 2019.

The decrease is due to run-off of the closed blocks of business, partially offset by an increase in KIC LTC premiums from rate increases, outpacing terminations on this block.

Life, accident and health earned premiums, net from our Insurance segment for the six months ended June 30, 2020 decreased $1.7 million to $58.2 million from $59.9 million for the six months ended June 30, 2019.

The decrease was primarily related to run-off of the closed blocks of business.

Net investment income:

Net investment income from our Insurance segment for the three months ended March 31, 2020 increased $1.3 million to $54.3 million from $53.0 million for the three months ended March 31, 2019.

The increase was due to the deployment of cash held in money market accounts into fixed maturity securities and mortgage loans offset by decline in dividend income from a reduction in preferred stock holdings.

Net realized and unrealized gains (loss) on investments:

Net realized and unrealized gains (loss) on investments from our Insurance segment for the three months ended March 31, 2020 decreased $25.0 million to a loss of $19.0 million from a gain of $6.0 million for the three months ended March 31, 2019.

The decrease was driven by unrealized losses from unfavorable market movements in values for preferred stock holdings as a result of the COVID-19 pandemic, partially offset by an increase in gains recognized on fixed maturities.

Net investment income from our Insurance segment for the three months ended June 30, 2020 decreased $1.3 million to $51.2 million from $52.5 million for the three months ended June 30, 2019.

The decrease was due to decreased holdings in preferred stocks and short term investments, largely offset from an increase in bonds due to increased holdings.

Net realized and unrealized gains (losses) on investments :

Net realized and unrealized gains (losses) on investments from our Insurance segment for the six months ended June 30, 2020 decreased $24.9 million to a loss of $19.4 million from a gain of $5.5 million for the six months ended June 30, 2019.

The decrease was driven by unfavorable market movements in common and preferred stocks driven by interest rate reductions due to the COVID-19 pandemic.

Policy benefits, changes in reserves, and commissions :

Policy benefits, changes in reserves, and commissions from our Insurance segment for the three months ended March 31, 2020 increased $19.7 million to $72.4 million from $52.7 million for the three months ended March 31, 2019.

The increase was due to non-recurring favorable claims activity recognized in the comparable period along with unfavorable claims activity and reserves development in the current quarter.

Policy benefits, changes in reserves, and commissions from our Insurance segment for the three months ended June 30, 2020 increased $15.0 million to $63.0 million from $48.0 million for the three months ended June 30, 2019.

Policy benefits, changes in reserves, and commissions from our Insurance segment for the six months ended June 30, 2020 increased $34.7 million to $135.4 million from $100.7 million for the six months ended June 30, 2019.

The increases were due to non-recurring favorable claims activity recognized in the comparable period primarily driven by an increase in contingent non-forfeiture option activity as a result of in-force rate actions approved and implemented and unfavorable claims activity and reserves development in the first half of 2020.

Selling, general and administrative :

Selling, general and administrative expenses from our Insurance segment for the three months ended March 31, 2020 increased $1.7 million to $9.9 million from $8.2 million for the three months ended March 31, 2019.

The increase was driven by increases in headcount to support the growth of the segment, additional premium taxes, and miscellaneous software expenses.

Selling, general and administrative expenses from our Insurance segment for the three months ended June 30, 2020 decreased $0.4 million to $8.8 million from $9.2 million for the three months ended June 30, 2019.

Selling, general and administrative expenses from our Insurance segment for the six months ended June 30, 2020 increased $1.3 million to $18.7 million from $17.4 million for the six months ended June 30, 2019.

The increases were driven by increases in miscellaneous software expenses, legal expenses, additional premium taxes, and third party management fees.

Depreciation and amortization :

Depreciation and amortization from our Insurance segment for the three months ended March 31, 2020 decreased $0.6 million to $5.9 million from $6.5 million for the three months ended March 31, 2019.

The decrease was driven by a reduction in negative VOBA amortization largely due to lower policy terminations for the LTC policies acquired in 2018.

Depreciation and amortization from our Insurance segment for the three months ended June 30, 2020 decreased $0.5 million to $5.5 million from $6.0 million for the three months ended June 30, 2019.

Depreciation and amortization from our Insurance segment for the six months ended June 30, 2020 decreased $1.1 million to $11.4 million from $12.5 million for the six months ended June 30, 2019.

The decreases were driven by a reduction in negative VOBA amortization largely due to lower policy terminations for the LTC policies acquired in 2018.

Life Sciences Segment

Three Months Ended March 31,

2020 2019 Increase / (Decrease)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Selling, general and administrative $ 3.4 $ 1.6 $ 1.8 $ 6.6 $ 3.5 $ 3.1

Depreciation and amortization 0.1 0.1 — 0.1 0.1 —

Loss from operations $ (3.5) $ (1.7) $ (1.8) $ (6.7) $ (3.6) $ (3.1)

Selling, general and administrative :

Selling, general and administrative expenses from our Life Sciences segment for the three months ended March 31, 2020 increased $1.4 million to $3.2 million from $1.8 million for the three months ended March 31, 2019.

The increase was driven by higher expenses at R2 Technologies, which increased spending from the comparable period to ramp up efforts to achieve commercialization of its products.

Three Months Ended March 31,

2020 2019 Increase / (Decrease)

Selling, general and administrative expenses from our Life Sciences segment for the three months ended June 30, 2020 increased $1.8 million to $3.4 million from $1.6 million for the three months ended June 30, 2019.

Selling, general and administrative expenses from our Life Sciences segment for the six months ended June 30, 2020 increased $3.1 million to $6.6 million from $3.5 million for the six months ended June 30, 2019.

The increases were driven by higher expenses at R2 Technologies, which increased spending from the comparable period to ramp up efforts to achieve commercialization of its products.

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Net revenue $ 9.5 $ 10.0 $ (0.5) $ 19.6 $ 19.8 $ (0.2)

4 unchanged sentences

Loss from operations $ (1.2) $ (1.7) $ 0.5 $ (4.1) $ (5.0) $ 0.9

Net revenue from our Broadcasting segment for the three months ended March 31, 2020 increased $0.3 million to $10.1 million from $9.8 million for the three months ended March 31, 2019.

The increase was primarily driven by higher station revenues as our broadcasting segment grew the number of its operating stations, partially offset by a decrease in advertising revenues at the Azteca network driven by the negative impact of the COVID-19 pandemic.

Net revenue :

Net revenue from our Broadcasting segment for the three months ended June 30, 2020 decreased $0.5 million to $9.5 million from $10.0 million for the three months ended June 30, 2019.

Net revenue from our Broadcasting segment for the six months ended June 30, 2020 decreased $0.2 million to $19.6 million from $19.8 million for the six months ended June 30, 2019.

The decreases were primarily driven by a decrease in advertising revenues at the Azteca network driven by the negative impact of the COVID-19 pandemic, partially offset by higher station revenues as our Broadcasting segment grew the number of operating stations and launched new customers across its broadcast platform.

Cost of revenue:

Cost of revenue from our Broadcasting segment for the three months ended March 31, 2020 decreased $0.6 million to $5.6 million from $6.2 million for the three months ended March 31, 2019.

The overall decrease was primarily driven by cost reductions at Network, partially offset by increased cost of revenues associated with the higher number of operating stations.

Cost of revenue from our Broadcasting segment for the six months ended June 30, 2020 decreased $0.7 million to $11.1 million from $11.8 million for the six months ended June 30, 2019.

The decrease was primarily driven by cost reductions at Network, partially offset by increased cost of revenues associated with the higher number of operating stations.

Selling, general and administrative:

Selling, general and administrative expenses from our Broadcasting segment for the three months ended March 31, 2020 decreased $0.7 million to $5.7 million from $6.4 million for the three months ended March 31, 2019.

The decrease was primarily due to lower stock-based compensation, acquisition, legal and other overhead expenses.

Selling, general and administrative expenses from our Broadcasting segment for the six months ended June 30, 2020 decreased $0.7 million to $11.3 million from $12.0 million for the six months ended June 30, 2019.

The decrease was primarily due to lower stock-based compensation, legal and other overhead expenses.

Depreciation and amortization :

Depreciation and amortization from our Broadcasting segment for the three months ended March 31, 2020 increased $0.3 million to $1.7 million from $1.4 million for the three months ended March 31, 2019.

The increase was driven by additional amortization of fixed assets which were acquired subsequent to the comparable period.

Depreciation and amortization from our Broadcasting segment for the three months ended June 30, 2020 increased $0.2 million to $1.7 million from $1.5 million for the three months ended June 30, 2019.

Depreciation and amortization from our Broadcasting segment for the six months ended June 30, 2020 increased $0.5 million to $3.4 million from $2.9 million for the six months ended June 30, 2019.

The increases were driven by additional amortization of fixed assets at new stations which were acquired subsequent to the comparable period.

Other operating income :

Other operating income from our Broadcasting segment for the three months ended March 31, 2020 decreased $0.9 million to zero from income of $0.9 million for the three months ended March 31, 2019.

The change was primarily due to losses from the disposal of fixed assets in the current period.

Three Months Ended March 31,

2020 2019 Increase / (Decrease)

Other operating income from our Broadcasting segment for the three months ended June 30, 2020 increased $1.1 million to $2.1 million from $1.0 million for the three months ended June 30, 2019.

Other operating income from our Broadcasting segment for the six months ended June 30, 2020 increased $0.2 million to $2.1 million from $1.9 million for the six months ended June 30, 2019.

The changes were primarily due to receipt of FCC reimbursements.

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Selling, general and administrative $ 0.6 $ — $ 0.6 $ 1.6 $ — $ 1.6

Other operating (income) expense — 0.1 (0.1) — 0.1 (0.1)

Loss from operations $ (0.6) $ (0.1) $ (0.5) $ (1.6) $ (0.1) $ (1.5)

Selling, general and administrative :

Selling, general and administrative expenses from our Other segment for the three months ended March 31, 2020 increased $0.9 million to $1.0 million from $0.1 million for the three months ended March 31, 2019.

The increase was driven by an increase in costs associated with the sale of the Company's equity investment in HMN, expected to close in the second quarter of 2020.

Selling, general and administrative expenses from our Other segment for the three months ended June 30, 2020 increased $0.6 million to $0.6 million from zero for the three months ended June 30, 2019.

Selling, general and administrative expenses from our Other segment for the six months ended June 30, 2020 increased $1.6 million to $1.6 million from zero for the six months ended June 30, 2019.

The increases were predominantly driven by costs associated with the sale of HMN, which closed during the second quarter of 2020.

Non-operating Corporate

Three Months Ended March 31,

2020 2019 Increase / (Decrease)

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Selling, general and administrative $ 8.0 $ 6.5 $ 1.5 $ 17.1 $ 13.7 $ 3.4

1 unchanged sentence

Selling, general and administrative :

Selling, general and administrative expenses from our Non-operating Corporate segment for the three months ended March 31, 2020 increased $1.9 million to $9.1 million from $7.2 million for the three months ended March 31, 2019.

The increase was driven by legal costs incurred associated with the consent revocation, acquisition costs, and the annual stockholder meeting related to the current board solicitation matter with certain stockholders of the Company.

This was partially offset by reduced overhead costs in the current period.

Loss from Equity Investees

Three Months Ended March 31,

2020 2019 Increase / (Decrease)

Selling, general and administrative expenses from our Non-operating Corporate segment for the three months ended June 30, 2020 increased $1.5 million to $8.0 million from $6.5 million for the three months ended June 30, 2019.

Selling, general and administrative expenses from our Non-operating Corporate segment for the six months ended June 30, 2020 increased $3.4 million to $17.1 million from $13.7 million for the six months ended June 30, 2019.

The increases were driven by legal costs incurred associated with the consent revocation, acquisition costs, and the annual stockholder meeting related to the current board solicitation matter with certain stockholders of the Company.

This was partially offset by a decrease in bonus, stock compensation expense and overhead costs in the current period.

Income (loss) from Equity Investees

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Life Sciences $ (1.1) $ (0.2) $ (0.9) $ (2.1) $ (1.3) $ (0.8)

1 unchanged sentence

Loss from equity investees $ (0.2) $ 7.2 $ (7.4) $ (2.7) $ 1.3 $ (4.0)

Loss from equity investees within our Other segment for the three months ended March 31, 2020 decreased $3.3 million to $1.5 million from $4.8 million for the three months ended March 31, 2019.

The decrease was driven by the equity investment in HMN, as the joint venture produced less losses than in the prior period, which is generally attributable to timing of turnkey project work.

Life Sciences :

Loss from equity investees within our Life Sciences segment for the three months ended June 30, 2020 increased $0.9 million to $1.1 million from $0.2 million for the three months ended June 30, 2019.

Loss from equity investees within our Life Sciences segment for the six months ended June 30, 2020 increased $0.8 million to $2.1 million from $1.3 million for the six months ended June 30, 2019.

The increases in losses were largely due to higher equity method losses recorded from our investment in MediBeacon due to the timing of clinical trials.

Income (loss) from equity investees within our Other segment for the three months ended June 30, 2020 decreased $6.5 million to income of $0.9 million from income of $7.4 million for the three months ended June 30, 2019.

Income (loss) from equity investees within our Other segment for the six months ended June 30, 2020 decreased $3.2 million to a loss of $0.6 million from income $2.6 million for the six months ended June 30, 2019.

The decrease was driven by the equity investment in HMN, as the joint venture produced lower profits than in the prior periods, which is generally attributable to timing of turnkey project work, and a reduction in ownership as a result of the partial sale in the second quarter of 2020.

Non-GAAP Financial Measures and Other Information

27 unchanged sentences

non-recurring items;

and acquisition and disposition costs.

(in millions) Three months ended March 31, 2020

costs associated with the COVID-19 pandemic, and acquisition and disposition costs.

To help our board, management and investors assess the impact of COVID-19 pandemic on our results of operations, we are excluding the impacts of COVID-19 response initiatives for the cost of personal protective equipment distributed to employees, cleaning and sanitization equipment and procedures, and additional overhead costs to maintain proper social distancing from Adjusted EBITDA.

Our board and management find the exclusion of the impact of these COVID-19 response initiatives from Adjusted EBITDA to be useful because it allows us and our investors to assess the impact of these response initiatives on our results of operations.

(in millions) Three Months Ended June 30, 2020

Core Operating Subsidiaries Early Stage & Other Non-operating Corporate HC2

Construction Energy Telecom Life Sciences Broadcasting Other and Eliminations

Net loss attributable to HC2 Holdings, Inc.

Net income attributable to HC2 Holdings, Inc.

Net income attributable to HC2 Holdings Insurance segment 11.4

10 unchanged sentences

Noncontrolling interest 0.1 0.1 — (1.2) (1.3) 17.7 — 15.4

Bonus to be settled in equity — — — — — — (0.4) (0.4)

Share-based payment expense — — — 0.1 0.1 — 0.1 0.3

Non-recurring items 0.9 — — — — — 3.8 4.7

Covid-19 Costs 8.4 — — — — — — 8.4

Acquisition and disposition costs 0.2 — 0.1 — 0.4 0.5 1.0 2.2

Adjusted EBITDA $ 19.1 $ 4.2 $ 0.2 $ (4.5) $ (1.1) $ 0.9 $ (3.6) $ 15.2

Total Core Operating Subsidiaries $ 23.5

(in millions) Three Months Ended June 30, 2019

Core Operating Subsidiaries Early Stage & Other Non-operating Corporate HC2

Construction Energy Telecom Life Sciences Broadcasting Other and Eliminations

Net income attributable to HC2 Holdings, Inc.

Net income attributable to HC2 Holdings Insurance segment 30.3

Consolidating eliminations attributable to HC2 Holdings Insurance segment (3.2)

Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment $ 8.9 $ (0.7) $ 0.4 $ (1.4) $ (3.5) $ 1.1 $ (22.5) $ (17.7)

Adjustments to reconcile net income (loss) to Adjusted EBITDA:

Depreciation and amortization 4.0 1.5 0.1 0.1 1.5 — — 7.2

Depreciation and amortization (included in cost of revenue) 2.4 — — — — — — 2.4

Other operating (income) expenses — 0.1 0.5 — (1.0) — — (0.4)

Interest expense 2.2 0.5 — — 2.3 — 14.5 19.5

Net loss (gain) on contingent consideration — — (0.2) — — — — (0.2)

Other (income) expense, net 0.2 0.1 — (0.1) 0.3 0.6 3.7 4.8

Income tax (benefit) expense 4.1 — — — 0.1 — (4.8) (0.6)

Noncontrolling interest 0.8 (0.3) — (0.5) (1.0) 0.8 — (0.2)

Share-based payment expense — — — 0.1 0.2 — 1.4 1.7

Discontinued operations — — — — — 4.9 2.8 7.7

3 unchanged sentences

Total Core Operating Subsidiaries $ 25.2

(in millions) Three months ended March 31, 2019

Construction:

Net income (loss) from our Construction segment for the three months ended June 30, 2020 decreased by $7.3 million to income of $1.6 million from income of $8.9 million for the three months ended June 30, 2019.

Adjusted EBITDA from our Construction segment for the three months ended June 30, 2020 decreased $4.0 million to $19.1 million from $23.1 million for the three months ended June 30, 2019.

The decrease in Adjusted EBITDA can be attributed to the timing of project work under execution and change in backlog mix, including a reduction in large commercial construction projects in the current period.

Net income (loss) from our Energy segment for the three months ended June 30, 2020 increased by $1.1 million to income of $0.4 million from a loss of $0.7 million for the three months ended June 30, 2019.

Adjusted EBITDA from our Energy segment for the three months ended June 30, 2020 increased $2.9 million to $4.2 million from $1.3 million for the three months ended June 30, 2019.

The increase in Adjusted EBITDA was primarily driven by higher volume-related revenues from the acquisition of ampCNG stations in June 2019 and the AFTC recognized in the current period which had not yet been renewed in the comparable period.

Partially offsetting these increases were higher selling, general and administrative expenses as a result of the acquisition of the ampCNG stations.

Telecommunications:

Net income (loss) from our Telecommunications segment for the three months ended June 30, 2020 decreased by $0.5 million to a loss of $0.1 million from income of $0.4 million for the three months ended June 30, 2019.

Adjusted EBITDA from our Telecommunications segment for the three months ended June 30, 2020 decreased $0.6 million to $0.2 million from $0.8 million for the three months ended June 30, 2019.

The decrease in Adjusted EBITDA was primarily due to a decline in the contracting of call termination margin as a result of the continued decline in the international long distance market, partially offset by a decrease in compensation expense due to headcount decreases.

Life Sciences :

Net loss from our Life Sciences segment for the three months ended June 30, 2020 decreased $0.2 million to a loss of $1.2 million from a loss of of $1.4 million for the three months ended June 30, 2019.

Adjusted EBITDA loss from our Life Sciences segment for the three months ended June 30, 2020 increased $2.7 million to $4.5 million from $1.8 million for the three months ended June 30, 2019.

Broadcasting :

Net loss from our Broadcasting segment for the three months ended June 30, 2020 increased $1.2 million to $4.7 million from $3.5 million for the three months ended June 30, 2019.

Adjusted EBITDA loss from our Broadcasting segment for the three months ended June 30, 2020 increased $0.2 million to $1.1 million from $0.9 million for the three months ended June 30, 2019.

Other and Eliminations :

Net income from our Other and Eliminations segment for the three months ended June 30, 2020 increased $45.0 million to $46.1 million from $1.1 million for the three months ended June 30, 2019.

Adjusted EBITDA from our Other and Eliminations segment for the three months ended June 30, 2020 decreased $6.5 million to $0.9 million from $7.4 million for the three months ended June 30, 2019.

The decrease in EBITDA for Other and Eliminations was driven by lower profits for the HMN investment, which is generally attributable to the timing of turnkey project work.

Non-operating Corporate:

Net loss from our Non-operating Corporate segment for the three months ended June 30, 2020 increased $16.4 million to $38.9 million from $22.5 million for the three months ended June 30, 2019.

Adjusted EBITDA loss from our Non-operating Corporate segment for the three months ended June 30, 2020 decreased $0.8 million to $3.6 million from $4.4 million for the three months ended June 30, 2019.

The decrease in Adjusted EBITDA loss was driven by lower bonus and overhead costs compared to the prior period.

(in millions) Six Months Ended June 30, 2020

Core Operating Subsidiaries Early Stage & Other Non-operating Corporate HC2

10 unchanged sentences

Other (income) expense, net 0.1 0.1 (0.3) (2.3) 2.6 (71.3) 6.6 (64.5)

Gain on sale and deconsolidation of subsidiary — — — — — (0.8) (2.7) (3.5)

Loss on early extinguishment of debt — — — — — — 9.2 9.2

Income tax (benefit) expense 1.1 — — — — 7.3 4.0 12.4

Noncontrolling interest 0.1 0.4 — (2.2) (2.4) 1.6 — (2.5)

Bonus to be settled in equity — — — — — — (0.4) (0.4)

Share-based payment expense — — — 0.1 0.2 — 1.5 1.8

1 unchanged sentence

Non-recurring items 1.8 — — — — — 5.2 7.0

Covid-19 costs 8.8 — — — — — — 8.8

Acquisition and disposition costs 0.3 — 0.2 — 0.4 1.4 2.2 4.5

1 unchanged sentence

Total Core Operating Subsidiaries $ 36.7

(in millions) Six Months Ended June 30, 2019

Core Operating Subsidiaries Early Stage & Other Non-operating Corporate HC2

Construction Energy Telecom Life Sciences Broadcasting Other and Eliminations

Net income attributable to HC2 Holdings, Inc.

Net income attributable to HC2 Holdings Insurance segment 64.1

Consolidating eliminations attributable to HC2 Holdings Insurance segment (5.5)

Net Income (loss) attributable to HC2 Holdings, Inc., excluding Insurance Segment $ 11.0 $ (1.3) $ 1.0 $ (4.0) $ (7.9) $ (4.7) $ (46.1) $ (52.0)

Adjustments to reconcile net income (loss) to Adjusted EBITDA:

Depreciation and amortization 7.9 2.9 0.2 0.1 2.9 — — 14.0

Depreciation and amortization (included in cost of revenue) 4.5 — — — — — — 4.5

Other operating (income) expenses (0.1) 0.1 0.5 — (1.9) — — (1.4)

Interest expense 4.7 0.9 — — 3.9 — 28.7 38.2

Net loss (gain) on contingent consideration — — (0.2) — — — — (0.2)

Other (income) expense, net 0.2 0.2 — (0.1) 0.4 (0.2) 1.0 1.5

Income tax (benefit) expense 5.1 — — — 0.1 — (2.5) 2.7

Noncontrolling interest 0.9 (0.6) — (0.8) (1.6) (1.6) — (3.7)

Share-based payment expense — — — 0.1 0.4 — 2.5 3.0

Discontinued operations — — — — — 9.0 5.3 14.3

Non-recurring items — — — — — — — —

Acquisition and disposition costs 1.3 0.1 0.1 — 0.3 — 0.6 2.4

Adjusted EBITDA $ 35.5 $ 2.3 $ 1.6 $ (4.7) $ (3.4) $ 2.5 $ (10.5) $ 23.3

Total Core Operating Subsidiaries $ 39.4

Construction:

Net income (loss) from our Construction segment for the three months ended March 31, 2020 decreased $2.2 million to a loss of $0.1 million from income $2.1 million for the three months ended March 31, 2019.

Adjusted EBITDA from our Construction segment for the three months ended March 31, 2020 decreased $3.4 million to $9.0 million from $12.4 million for the three months ended March 31, 2019.

Net income from our Construction segment for the six months ended June 30, 2020 decreased $9.5 million to $1.5 million from $11.0 million for the six months ended June 30, 2019.

Adjusted EBITDA from our Construction segment for the six months ended June 30, 2020 decreased $7.4 million to $28.1 million from $35.5 million for the six months ended June 30, 2019.

This was partially offset by increased project work at GrayWolf over the comparable period.

Net income (loss) from our Energy segment for the three months ended March 31, 2020 increased by $1.2 million to income of $0.6 million from a loss of $0.6 million for the three months ended March 31, 2019.

Adjusted EBITDA from our Energy segment for the three months ended March 31, 2020 increased $2.8 million to $3.8 million from $1.0 million for the three months ended March 31, 2019.

Net income (loss) from our Energy segment for the six months ended June 30, 2020 increased by $2.3 million to income of $1.0 million from a loss of $1.3 million for the six months ended June 30, 2019.

Adjusted EBITDA from our Energy segment for the six months ended June 30, 2020 increased $5.7 million to $8.0 million from $2.3 million for the six months ended June 30, 2019.

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Telecommunications:

Net income from our Telecommunications segment was of $0.6 million for the three months ended March 31, 2020, unchanged from the three months ended March 31, 2019.

Adjusted EBITDA from our Telecommunications segment for the three months ended March 31, 2020 decreased $0.4 million to $0.4 million from $0.8 million for the three months ended March 31, 2019.

The decrease in Adjusted EBITDA was primarily due to a contraction of wholesale call termination margin as a result of the continued decline in the international long distance market, partially offset by a decrease in compensation expense due to headcount decreases and reductions in bad debt expense.

Net income from our Telecommunications segment for the six months ended June 30, 2020 decreased by $0.5 million to $0.5 million from $1.0 million for the six months ended June 30, 2019.

Adjusted EBITDA from our Telecommunications segment for the six months ended June 30, 2020 decreased $1.0 million to $0.6 million from $1.6 million for the six months ended June 30, 2019.

The decrease in Adjusted EBITDA was primarily due to a decline in call termination margin as a result of the continued decline in the international long distance market, partially offset by a decrease in compensation expense due to headcount decreases.

Life Sciences:

Net loss from our Life Sciences segment for the three months ended March 31, 2020 increased $0.6 million to a loss of $3.2 million from a loss of of $2.6 million for the three months ended March 31, 2019.

Adjusted EBITDA loss from our Life Sciences segment for the three months ended March 31, 2020 increased $1.3 million to $4.2 million from $2.9 million for the three months ended March 31, 2019.

This was partially offset by fewer expenses at the Pansend holding company and Genovel.

Net loss from our Life Sciences segment for the six months ended June 30, 2020 increased $0.4 million to $4.4 million from $4.0 million for the six months ended June 30, 2019.

Adjusted EBITDA loss from our Life Sciences segment for the six months ended June 30, 2020 increased $4.0 million to $8.7 million from $4.7 million for the six months ended June 30, 2019.

The increase in Adjusted EBITDA loss was primarily driven by higher expenses at R2 Technologies, which increased spending from the comparable period to ramp up efforts to achieve commercialization of its products and higher equity method losses recorded from our investment in MediBeacon due to the timing of clinical trials.

Broadcasting:

Net loss from our Broadcasting segment for the three months ended March 31, 2020 increased $1.8 million to a loss of $6.2 million from a loss of $4.4 million for the three months ended March 31, 2019.

Adjusted EBITDA loss from our Broadcasting segment for the three months ended March 31, 2020 decreased $1.5 million to $1.0 million from $2.5 million for the three months ended March 31, 2019.

The decrease in Adjusted EBITDA loss was primarily driven by increased revenue from broadcast stations, as well as cost reductions at Network, partially offset by increased cost of revenues associated with the higher number of operating stations, and a decrease in advertising revenues at the Azteca network driven by the negative impact of the COVID-19 pandemic.

Net loss from our Broadcasting segment for the six months ended June 30, 2020 increased $3.0 million to $10.9 million from $7.9 million for the six months ended June 30, 2019.

Adjusted EBITDA loss from our Broadcasting segment for the six months ended June 30, 2020 decreased $1.3 million to $2.1 million from $3.4 million for the six months ended June 30, 2019.

The overall decrease in Adjusted EBITDA loss was primarily driven by increased revenue from broadcast stations, as well as cost reductions at Network, partially offset by increased cost of revenues associated with the higher number of operating stations, and a decrease in advertising revenues at the Azteca network driven by the negative impact of the COVID-19 pandemic.

Other and Eliminations:

Net loss from our Other and Eliminations segment for the three months ended March 31, 2020 increased $36.3 million to a loss of $42.1 million from a loss of $5.8 million for the three months ended March 31, 2019.

Adjusted EBITDA loss from our Other and Eliminations segment for the three months ended March 31, 2020 decreased $3.3 million to $1.6 million from $4.9 million for the three months ended March 31, 2019.

The decrease in EBITDA loss for Other and Eliminations was driven by a reduction in losses for the HMN investment, which is generally attributable to the timing of turnkey project work.

Net income (loss) from our Other and Eliminations segment for the six months ended June 30, 2020 increased $8.7 million to income of $4.0 million from a loss of $4.7 million for the six months ended June 30, 2019.

Adjusted EBITDA from our Other and Eliminations segment for the six months ended June 30, 2020 decreased $3.2 million to a loss of $0.7 million from income of $2.5 million for the six months ended June 30, 2019.

The decrease in EBITDA for Other and Eliminations was driven by lower profits for the HMN investment, which is generally attributable to the timing of turnkey project work.

Non-operating Corporate:

Net loss from our Non-operating Corporate segment for the three months ended March 31, 2020 increased $7.5 million to a loss of $31.1 million from a loss of $23.6 million for the three months ended March 31, 2019.

Adjusted EBITDA loss from our Non-operating Corporate segment for the three months ended March 31, 2020 decreased $1.1 million to $5.0 million from $6.1 million for the three months ended March 31, 2019.

The decrease in Adjusted EBITDA loss was driven by severance payments made in the comparable period and reduced overhead expenses.

Net loss from our Non-operating Corporate segment for the six months ended June 30, 2020 increased $23.9 million to a loss of $70.0 million from a loss of $46.1 million for the six months ended June 30, 2019.

Adjusted EBITDA loss from our Non-operating Corporate segment for the six months ended June 30, 2020 decreased $1.9 million to $8.6 million from $10.5 million for the six months ended June 30, 2019.

The decrease in Adjusted EBITDA loss was driven by non-recurring severance payments made in the comparable period and reduced overhead expenses.

(in millions):

Three months ended March 31,

2020 2019 Increase / (Decrease)

Three Months Ended June 30, Six months ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Construction $ 19.1 $ 23.1 $ (4.0) $ 28.1 $ 35.5 $ (7.4)

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Refer to the analysis of the fluctuations within the results of operations section:

Three months ended March 31,

2020 2019 Increase / (Decrease)

Three Months Ended June 30, Six months ended June 30,

2020 2019 Increase / (Decrease) 2020 2019 Increase / (Decrease)

Net income - Insurance segment $ 11.4 $ 30.3 $ (18.9) $ 11.4 $ 64.1 $ (52.7)

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0.4 0.5 (0.1) 19.4 (5.5) 24.9

Gain on bargain purchase — (1.1) 1.1 — (1.1) 1.1

Acquisition costs — 1.6 (1.6) — 1.8 (1.8)

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Pre-tax Insurance AOI $ 14.6 $ 33.0 $ (18.4) $ 21.2 $ 61.7 $ (40.5)

(1) The Insurance segment revenues are inclusive of realized and unrealized gains and net investment income for the three months ended March 31, 2020 and 2019.

Such adjustments are related to transactions between entities under common control which are eliminated or are reclassified in consolidation.

Net income for the three months ended March 31, 2020 decreased $33.8 million to zero from $33.8 million for the three months ended March 31, 2019.

Pre-tax Insurance AOI for the three months ended March 31, 2020 decreased $22.1 million to $6.6 million from $28.7 million for three months ended March 31, 2019.

The decrease was primarily driven by non-recurring favorable claims activity recognized in the comparable period and additional unfavorable claims activity and reserve developments in the current year.

Additionally, the Insurance segment incurred larger expenses due to increases in headcount and other overhead to support the growth of the segment, additional premium taxes, and miscellaneous software expenses.

Net income for the three months ended June 30, 2020 decreased $18.9 million to $11.4 million from $30.3 million for the three months ended June 30, 2019.

Pre-tax Insurance AOI for the three months ended June 30, 2020 decreased $18.4 million to $14.6 million from $33.0 million for the three months ended June 30, 2019.

The decrease was primarily driven by non-recurring favorable claims activity recognized in the comparable period driven by an increase in contingent non-forfeiture option activity as a result of in-force rate actions approved and implemented and additional unfavorable claims activity and reserve developments in the current year.

Additionally, the Insurance segment incurred larger expenses due to additional premium taxes, miscellaneous software expenses, third party management fees, and legal expenses.

Net income for the six months ended June 30, 2020 decreased $52.7 million to $11.4 million from $64.1 million for the six months ended June 30, 2019.

Pre-tax Insurance AOI for the six months ended June 30, 2020 decreased $40.5 million to $21.2 million from $61.7 million for six months ended June 30, 2019.

Additionally, the Insurance segment incurred larger expenses due to additional premium taxes, miscellaneous software expenses, third party management fees, and legal expenses.

Projects in backlog consist of awarded contracts, letters of intent, notices to proceed, change orders, and purchase orders obtained.

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Construction Segment

At March 31, 2020, DBMG's backlog was $485.5 million, consisting of $401.0 million under contracts or purchase orders and $84.5 million under letters of intent or notices to proceed.

Approximately $108.0 million, representing 22.3% of DBMG’s backlog at March 31, 2020, was attributable to five contracts, letters of intent, notices to proceed or purchase orders.

At June 30, 2020, DBMG's backlog was $410.3 million, consisting of $349.9 million under contracts or purchase orders and $60.4 million under letters of intent or notices to proceed.

Approximately $96.6 million, representing 23.5% of DBMG’s backlog at June 30, 2020, was attributable to five contracts, letters of intent, notices to proceed or purchase orders.

If one or more of these projects terminate or reduce their scope, DBMG’s backlog could decrease substantially.

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HC2 is a holding company and its liquidity needs are primarily for interest payments on its Senior Secured Notes, 2020 Revolving Credit Agreement, 7.5% convertible notes due 2022 (the "Convertible Notes"), dividend payments on its Preferred Stock and recurring operational expenses.

As of March 31, 2020, the Company had $186.9 million of cash and cash equivalents compared to $228.8 million as of December 31, 2019.

On a stand-alone basis, as of March 31, 2020, HC2 had cash and cash equivalents of $3.6 million compared to $11.6 million at December 31, 2019.

At March 31, 2020, cash and cash equivalents in our Insurance segment was $122.3 million compared to $170.5 million at December 31, 2019.

As of June 30, 2020, the Company had $203.8 million of cash and cash equivalents compared to $228.8 million as of December 31, 2019.

On a stand-alone basis, as of June 30, 2020, HC2 had cash and cash equivalents of $0.9 million compared to $11.6 million at December 31, 2019.

At June 30, 2020, cash and cash equivalents in our Insurance segment was $139.5 million compared to $170.5 million at December 31, 2019.

Our subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of steel construction equipment and subsea cable equipment, fueling stations, network equipment (such as switches, related transmission equipment and capacity), and service infrastructure, liabilities associated with insurance products, development of back-office systems, operating costs and expenses, and income taxes.

As of March 31, 2020, the Company had $711.7 million of indebtedness on a consolidated basis compared to $805.0 million as of December 31, 2019.

On a stand-alone basis, as of March 31, 2020 and December 31, 2019, HC2 had indebtedness of $448.0 million and $540.0 million, respectively.

HC2's stand-alone debt consists of the $393.0 million aggregate principal amount of the Senior Secured Notes and the $55.0 million aggregate principal amount of the Convertible Notes.

HC2 is required to make semi-annual interest payments on its Senior Secured Notes and Convertible Notes.

Subsequent to March 31, 2020, HC2 drew $10.0 million on its 2020 Revolving Credit Agreement.

HC2 is required to make quarterly interest payments on its 2020 Revolving Credit Agreement.

As of June 30, 2020, the Company had $654.6 million of indebtedness on a consolidated basis compared to $805.0 million as of December 31, 2019.

On a stand-alone basis, as of June 30, 2020 and December 31, 2019, HC2 had indebtedness of $412.4 million and $540.0 million, respectively.

HC2's stand-alone debt consists of the $342.4 million aggregate principal amount of the Senior Secured Notes, the $55.0 million aggregate principal amount of the Convertible Notes, and the $15.0 million 2020 Revolving Credit Agreement.

HC2 is required to make semi-annual interest payments on its Senior Secured Notes and Convertible Notes, and quarterly interest payments on its 2020 Revolving Credit Agreement.

HC2 is required to make dividend payments on its outstanding Preferred Stock on January 15 th , April 15 th , July 15 th , and October 15 th of each year.

HC2 received $0.5 million in dividends from our Telecommunications segment during the three months ended March 31, 2020.

HC2 received $1.8 million in net management fees during the three months ended March 31, 2020.

On May 4, 2020 HC2 announced that its Construction segment will pay a cash dividend of $15.0 million, or $3.89 per share.

As the largest stockholder of DBM Global Inc., HC2 expects to receive approximately $13.9 million of the total dividend payout.

HC2 received $0.5 million in dividends from our Telecommunications segment during the six months ended June 30, 2020.

HC2 received $1.1 million and $2.9 million in net management fees during the three and six months ended June 30, 2020, respectively.

HC2 received $13.5 million in dividends from its Construction segment during the three and six months ended June 30, 2020, and on July 17, 2020 the construction segment announced it will pay a cash dividend of $5.0 million, or $1.30 per share.

HC2 received approximately $4.5 million of the total dividend payout.

We have financed our growth and operations to date, and expect to finance our future growth and operations, through public offerings and private placements of debt and equity securities, credit facilities, vendor financing, capital lease financing and other financing arrangements, as well as cash generated from the operations of our subsidiaries.

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In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners.

Although the COVID-19 pandemic did not have a material impact on the HC2’s liquidity in the first quarter of 2020, management believes the continuation of the pandemic and its related effect on the U.S.

We have begun to see significant costs increases, primarily at our Construction segment, driven by expenses associated with maintaining a safe work environment, and while executing on their projects.

During the three and six months ended June 30, 2020, $8.4 million and $8.8 million of COVID-19 costs were incurred.

Although the COVID-19 pandemic did not have a material impact on the HC2’s liquidity in the first half of 2020, management believes the continuation of the pandemic and its related effect on the U.S.

and global economies could introduce added pressure on the Company’s liquidity position and financial performance.

Our sources of liquidity are primarily from the dividends from our operating subsidiaries, tax sharing agreement with DBMG, cash proceeds from completed and anticipated monetization’s and other arrangements.

Additionally, in response to the COVID-19 pandemic, our corporate staff has begun working remotely and many of our key vendors, and consultants have similarly begun to work remotely.

Additionally, in response to the COVID-19 pandemic, our corporate staff is predominantly working remotely and many of our key vendors, and consultants have similarly begun to work remotely.

As a result of such remote work arrangements, certain operational, reporting, accounting and other processes may slow, which could result in longer time to execute critical business functions.

Debt Obligations and Note 22.

Subsequent Events , to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a description of our long-term debt.

Debt Obligations , to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for a description of our long-term debt.

Restrictive Covenants

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The maintenance of liquidity covenant provides that the Company will not permit the aggregate amount of (i) all unrestricted cash and cash equivalents of the Company and the Subsidiary Guarantors, (ii) amounts available for drawing under revolving credit facilities and undrawn letters of credit of the Company and the Subsidiary Guarantors and (iii) dividends, distributions or payments that are immediately available to be paid to the Company by any of its Restricted Subsidiaries to be less than the Company’s obligation to pay interest on the Senior Secured Notes and all other debt, including Convertible Preferred Stock mandatory cash dividends or any other mandatory cash pay Preferred Stock but excluding any obligation to pay interest on Convertible Preferred Stock or any other mandatory cash pay Preferred Stock which, in each case, may be paid by accretion or in-kind in accordance with its terms of the Company and its Subsidiary Guarantors for the next six months.

As of March 31, 2020, the Company was in compliance with this covenant.

As of December 31, 2019, the Company was in compliance with this covenant.

The maintenance of collateral coverage provides that the Company's Collateral Coverage Ratio (as defined in the Secured Indenture as the ratio of (i) the Loan Collateral to (ii) Consolidated Secured Debt (each as defined therein)) calculated on a pro forma basis as of the last day of each fiscal quarter may not be less than 1.50 to 1.00.

As of March 31, 2020, the Company was in compliance with this covenant.

As of June 30, 2020, the Company was in compliance with this covenant.

The maintenance of secured net leverage ratio provides that the Company’s Secured Net Leverage Ratio (as defined in the Secured Indenture) as of any date of determination calculated on a pro forma basis after accounting for the net proceeds from any Asset Sale which the Company has determined to apply to the repayment of any Debt to exceed 7.75 to 1.00.

As of March 31, 2020, the Company was in compliance with this covenant.

As of June 30, 2020, the Company was in compliance with this covenant.

The maintenance of fixed charge coverage ratio provides that commencing with the fiscal year ending December 31, 2020, that the Company will not permit the Fixed Charge Coverage Ratio (as defined in the Secured Indenture) calculated as of the last day of each fiscal year of the Company to be less than 1.00 to 1.00 or that the Company’s “HC2 Corporate Overhead” (as defined in the Secured Indenture) in any fiscal year not exceed the sum of $29.0 million for such fiscal year.

As of March 31, 2020, the Company was in compliance.

As of June 30, 2020, the Company was in compliance.

The instruments governing the Company’s Preferred Stock also limit the Company’s and its subsidiaries ability to take certain actions, including, among other things, to incur additional indebtedness;

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The below table summarizes the cash provided by or used in our continuing operating, investing and financing activities and the amount of the respective changes between the periods (in millions):

Three Months Ended March 31, Increase / (Decrease)

Six Months Ended June 30,

2020 2019 Increase / (Decrease)

Operating activities $ 48.6 $ 33.6 $ 15.0

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Operating Activities

Cash provided by operating activities was $36.1 million for the three months ended March 31, 2020 as compared to cash provided by operating activities of $34.0 million for the three months ended March 31, 2019.

Cash provided by operating activities was $48.6 million for the six months ended June 30, 2020 as compared to cash provided by operating activities of $33.6 million for the six months ended June 30, 2019.

The $15.0 million change was the result of the working capital improvements in our Construction and Energy segments.

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These increases were offset by the working capital declines in our Telecommunication and Insurance segments.

Our Telecommunication segment experienced a decline due to the timing of vendor payments and receivables collections, while our Insurance segment recorded a large tax receivable during the current quarter as a result of the CARES Act, refer to Note 15.

Our Telecommunication segment experienced a decline due to the timing of vendor payments and receivables collections, while our Insurance segment recorded a large tax receivable during the current period as a result of the CARES Act, refer to Note 15.

Income Taxes for further detail.

Investing Activities

Cash provided by investing activities was $67.1 million for the three months ended March 31, 2020 as compared to cash used in investing activities of $56.5 million for the three months ended March 31, 2019.

The $123.6 million change was a result of the sale of GMSL, in which $144.0 million in cash was received, partially offset by cash used from net investing activity at our Insurance segment.

Cash provided by investing activities was $145.9 million for the six months ended June 30, 2020 as compared to cash used in investing activities of $149.0 million for the six months ended June 30, 2019.

The $294.9 million change was a result of the sales of GMSL and HMN during the current year and acquisition of ampCNG during the comparable period.

Financing Activities

Cash used in financing activities was $145.8 million for the three months ended March 31, 2020 as compared to cash used in financing activities of $3.8 million for the three months ended March 31, 2019.

The $142.0 million change was largely a result of the principal payments on debt obligations at our Corporate segment of $95.4 million and payments to minority shareholders at our Other segment of $42.5 million, both from proceeds received from the sale of GMSL.

Cash used in financing activities was $220.2 million for the six months ended June 30, 2020 as compared to cash provided by financing activities of $66.5 million for the six months ended June 30, 2019.

The $286.7 million change was largely a result of the principal payments on debt obligations at our Corporate segment and payments to minority stockholders at our Other segment for the portion of the proceeds received from the sale of GMSL and HMN.

Cash flows from operating activities are the principal source of cash used to fund DBMG’s operating expenses, interest payments on debt, and capital expenditures.

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DBMG is required to make monthly or quarterly interest payments on all of its debt.

Based upon the March 31, 2020 debt balance, DBMG anticipates that its interest payments will be approximately $2.4 million each quarter of 2020.

Based upon the June 30, 2020 debt balance, DBMG anticipates that its interest payments will be approximately $1.7 million each quarter of 2020.

DBMG believes that its available funds, cash generated by operating activities and funds available under its bank credit facilities will be sufficient to fund its capital expenditures and its working capital needs.

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Market environment

As of March 31, 2020, CIG was in a position to hold any investment security showing an unrealized loss until recovery, provided it remains comfortable with the credit of the issuer.

As of June 30, 2020, CIG was in a position to hold any investment security showing an unrealized loss until recovery, provided it remains comfortable with the credit of the issuer.

CIG does not rely on short-term funding or commercial paper and to date it has experienced no liquidity pressure, nor does it anticipate such pressure in the foreseeable future.

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CIG monitors its insurance subsidiary's compliance with the RBC requirements specified by the National Association of Insurance Commissioners.

As of March 31, 2020, CIG’s insurance subsidiary exceeded the minimum RBC requirements.

As of June 30, 2020, CIG’s insurance subsidiary exceeded the minimum RBC requirements.

Insurance Companies Capital Contributions

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(ii) provide reliable yield and investment income;

(iii) preserve capital and (iv) provide liquidity to meet policyholder and other corporate obligations.

(iii) preserve capital;

and (iv) provide liquidity to meet policyholder and other corporate obligations.

The Insurance segment’s investment portfolio is designed to contribute stable earnings and balance risk across diverse asset classes and is primarily invested in high quality fixed income securities.

In addition, at any given time, CIG’s insurance subsidiary could hold cash, highly liquid, high-quality short-term investment securities and other liquid investment grade fixed maturity securities to fund anticipated operating expenses, surrenders and withdrawals.

At March 31, 2020 and December 31, 2019, CIG’s investment portfolio is comprised of the following (in millions):

March 31, 2020 December 31, 2019

At June 30, 2020 and December 31, 2019, CIG’s investment portfolio is comprised of the following (in millions):

June 30, 2020 December 31, 2019

Fair Value Percent Fair Value Percent

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The following table summarizes the credit quality, by NRSRO rating, of CIG's fixed income portfolio (in millions):

March 31, 2020 December 31, 2019

June 30, 2020 December 31, 2019

Fair Value Percent Fair Value Percent

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Off-Balance Sheet Arrangements

DBMG’s off-balance sheet arrangements at March 31, 2020 included letters of credit of $9.1 million under Credit and Security Agreements and performance bonds of $127.1 million.

DBMG’s off-balance sheet arrangements at June 30, 2020 included letters of credit of $9.1 million under Credit and Security Agreements and performance bonds of $108.0 million.

DBMG’s contract arrangements with customers sometimes require DBMG to provide performance bonds to partially secure its obligations under its contracts.

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Critical Accounting Policies

There have been no material changes in the Company’s critical accounting policies during the quarter ended March 31, 2020.

There have been no material changes in the Company’s critical accounting policies during the quarter ended June 30, 2020.

For information about critical accounting policies, refer to “Critical Accounting Policies” under Item 7 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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Debt Obligations and future financing agreements on our ability to operate our business and finance our pursuit of acquisition opportunities;

• our dependence on certain key personnel, in particular, our Chief Executive Officer, Philip Falcone;

• our dependence on certain key personnel;

• the impact of our reconstituted Board on our business growth and value to stockholders;

• uncertain global economic conditions in the markets in which our operating segments conduct their businesses;

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• our expectations and timing with respect to our ordinary course acquisition activity and whether such acquisitions are accretive or dilutive to stockholders;

• our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries including GMSL, or businesses that we may make in the future and the effect of any such dispositions or sales on our results of operations;

• our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries or businesses that we may make in the future and the effect of any such dispositions or sales on our results of operations;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis