What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-06 compared with 2021-05-07 · 290 added, 158 removed, 455 unchanged (50% of the section changed)

36 unchanged sentences

COVID-19 Impact on our Business

On March 11, 2020, the World Health Organization declared the outbreak of the novel coronavirus ("COVID-19") pandemic resulting in action from federal, state and local governments that has significantly affected virtually all facets of the U.S.

and global economies.

federal and various state governments, have implemented enhanced screenings, quarantine requirements, and travel restrictions in connection with the COVID-19 outbreak.

The Company’s top priority is to protect its employees and their families, and those of the Company’s customers.

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus ("COVID-19") as a pandemic, and on March 13, 2020, the United States declared the pandemic to be a national emergency.

As COVID-19 spread throughout the country, the situation has continued to evolve, including, more recently, the increasing adoption of the COVID-19 vaccine and the reopening of state economies, although increasing rates of infection with recently identified variants of COVID-19, including the "Delta" variant, have prompted some authorities to reintroduce mask mandates and other restrictions.

The Company’s top priority has been to protect its employees and their families, and those of the Company’s customers.

The Company continues to take precautionary measures as directed by health authorities and local governments, including changing operational procedures as necessary, providing additional protective gear and cleaning to protect personnel and customers, which has resulted and may continue to result in disruptions to and increased costs of the Company’s operations.

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Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our operations.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions.

As the vaccine rollout has commenced, certain employees have begun to return to the office, either full-time or part-time.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, including any new strains of the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions.

The extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including, but not limited to, the duration and spread of the outbreak, the effectiveness of the vaccine program, the outbreak of any new strains of the coronavirus, and related travel advisories and restrictions, and its impact to the U.S.

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In these circumstances, there may be developments outside our control requiring us to adjust our plans.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the impact of COVID-19 on our results of operations, financial condition, or cash flows in the future.

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, 2021, the effects of COVID-19 and the related actions undertaken in the U.S.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the impact of COVID-19 on our results of operations, financial condition, or cash flows in the future, but 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 six months ended June 30, 2021, the effects of COVID-19 and the related actions undertaken in the U.S.

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

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

During the three months ended March 31, 2021, $3.9 million of COVID-19 related expenses were incurred.

During the three and six months ended June 30, 2021, $4.0 million and $7.9 million of COVID-19 related expenses were incurred, respectively.

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

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While this could cause the timing of revenue to be delayed and possibly impact earnings, as the vaccination program within the U.S.

progresses, DBMG could see continued increases in its backlog position as companies re-engage on previously delayed or postponed projects and could see decreases in COVID-19 related expenses.

As a result of COVID-19, our Spectrum 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.

continues to progress, DBMG has more recently seen increases in its backlog position as companies re-engage on previously delayed or postponed projects and could see decreases in COVID-19 related expenses.

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

While we are not able to predict when or whether advertising budgets and the advertising market generally will return or be comparable to historical levels, our Spectrum segment's advertising business appears to have begun to stabilize as the vaccination program within the U.S.

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Banker Steel Acquisition

On March 15, 2021, the Company announced that DBMG entered into an agreement to acquire 100% of Banker Steel Holdco LLC ("Banker Steel") for $145.0 million, which is expected to close in the second quarter of 2021.

Banker Steel provides fabricated structural steel and erection services primarily for East Coast and Southeast commercial and industrial construction industries.

On March 29, 2021, the Company announced the entry into a definitive agreement to sell its Insurance segment to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and a beneficial owner of approximately 6.6% of the Company's outstanding common stock who has also served as executive chairman of Continental since October 2020.

The transaction value is approximately $90.0 million, inclusive of $65.0 million in cash plus the return of a portion of the affiliated assets held by CGI.

On March 15, 2021, the Company announced that DBMG entered into an agreement to acquire 100% of Banker Steel Holdco LLC ("Banker Steel") for $145.0 million, which closed on May 27, 2021.

The acquisition was financed with $64.1 million from a partial draw on the new $110.0 million revolving credit facility, $49.6 million of sellers' notes, $6.3 million of assumed debt of Banker Steel, and $25.0 million in cash received from HC2 in the settlement of certain intercompany balances.

Banker Steel provides fabricated structural steel and erection services primarily for the East Cost and Southeast commercial and industrial construction market.

Banker Steel consists of six operating companies:

Banker Steel Co., LLC;

NYC Constructors, LLC;

Derr & Isbell Construction LLC;

Innovative detailing and Engineering Solutions;

and Lynchburg Freight and Specialty LLC.

On March 29, 2021, the Company announced the entry into a definitive agreement (the "Stock Purchase Agreement") to sell its Insurance segment to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of June 30, 2021, a beneficial owner of approximately 6.6% of the Company's outstanding common stock who has also served as executive chairman of Continental since October 2020.

The transaction value is approximately $90.0 million, inclusive of $65.0 million in cash plus certain assets of CGI.

The sale closed on July 1, 2021, subsequent to quarter end.

Sale of Beyond6

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On February 23, 2021, the Company entered into a third amendment for the line of credit with MSD PCOF Partners IX, LLC ("Revolving Credit Agreement"), increasing the aggregate principal amount to $20.0 million and extending the maturity to February 23, 2024.

In May 2021, HC2 drew $5.0 million of the Revolving Credit Agreement.

The Company used the proceeds to fund the redemption of the Company's Series A and A-2 Preferred Stock.

On July 1, 2021 the Company completed the previously announced sale of its insurance segment, comprised of CIG and its wholly-owned subsidiaries, Continental General Insurance Company and Continental LTC Inc.

(collectively, “Continental”), to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of June 30, 2021, a beneficial owner of approximately 6.6% of the Company's outstanding common stock who has also served as executive chairman of Continental since October 2020.

The total transaction value of approximately $90.0 million consists of a combination of $65.0 million in cash plus securities held by CGI.

On July 1, 2021, CGI exchanged their Series A and Series A-2 Preferred Stock for new classes of Series A-3 and A-4 Preferred Stock with an extended maturity of July 1, 2026, with other terms substantially unchanged.

On February 3, 2021 the Company announced that R2 received $10.0 million in funding from Huadong Medicine Company Limited (“Huadong”), a leading publicly traded Chinese pharmaceutical company.

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As part of its equity investment in R2, Huadong receives exclusive distribution rights for R2’s products in the China and selected Asia-Pacific markets.

On July 21, 2021 the Company provided an additional $15.0 million in Series C funding to R2 at a post-money valuation of $150.0 million.

The investment was made through HC2’s Life Sciences subsidiary, Pansend Life Sciences, LLC.

Financial Presentation Background

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, 2021 as compared to the three months ended March 31, 2020.

GAAP and SEC disclosure rules, the Company’s results of operations for the three and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020.

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,

2021 2020 Increase / (Decrease)

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

2021 2020 Increase / (Decrease) 2021 2020 Increase / (Decrease)

Infrastructure

$ 232.0 $ 172.3 $ 59.7 $ 393.3 $ 348.8 $ 44.5

Life Sciences 1.2 — 1.2 1.2 — 1.2

Spectrum 10.6 9.5 1.1 21.1 19.6 1.5

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Loss on early extinguishment or restructuring of debt (1.6) (3.4) 1.8 (12.4) (9.2) (3.2)

Loss from equity investees (2.1) (2.5) 0.4

Income (loss) from equity investees 0.2 (0.2) 0.4 (1.9) (2.7) 0.8

Other income 0.4 64.6 (64.2) 3.8 66.1 (62.3)

Loss from continuing operations (41.8) (39.6) (2.2)

Income tax (expense) benefit (1.1) 9.7 (10.8)

Loss from continuing operations (42.9) (29.9) (13.0)

Income (loss) from discontinued operations (including gain on disposal of $40.4 million and loss on disposal of $39.3 million for the three months ended March 31, 2021 and 2020, respectively) 51.9 (71.1) 123.0

Net income (loss) 9.0 (101.0) 110.0

(Loss) income from continuing operations (21.1) 33.0 (54.1) (62.9) (6.6) (56.3)

Income tax expense (2.6) (12.0) 9.4 (3.7) (2.3) (1.4)

(Loss) income from continuing operations (23.7) 21.0 (44.7) (66.6) (8.9) (57.7)

(Loss) income from discontinued operations (including gain on disposal of $40.4 million and loss on disposal of $39.3 million for the six months ended June 30, 2021 and 2020, respectively) (1.5) 7.5 (9.0) 50.4 (63.6) 114.0

Net (loss) income (25.2) 28.5 (53.7) (16.2) (72.5) 56.3

Net income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest 1.7 (15.4) 17.1 5.3 2.5 2.8

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

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

(23.5) 13.1 (36.6) (10.9) (70.0) 59.1

Preferred dividends, deemed dividends, and repurchase gains 0.2 0.4 (0.2) 0.6 0.8 (0.2)

Net income (loss) attributable to common stock and participating preferred stockholders $ 12.2 $ (83.5) $ 95.7

Revenue for the three months ended March 31, 2021 decreased $14.8 million to $171.8 million from $186.6 million for the three months ended March 31, 2020.

The decrease in revenue was driven by our Infrastructure segment, primarily due to lower revenues from our structural steel fabrication and erection business, driven by timing of project work under execution and changes in backlog mix, as well as a decrease in power and industrial maintenance and repair work performed.

Net (loss) income attributable to common stock and participating preferred stockholders $ (23.7) $ 12.7 $ (36.4) $ (11.5) $ (70.8) $ 59.3

Revenue for the three months ended June 30, 2021 increased $62.0 million to $243.8 million from $181.8 million for the three months ended June 30, 2020.

Revenue for the six months ended June 30, 2021 increased $47.2 million to $415.6 million from $368.4 million for the six months ended June 30, 2020.

The increase in revenue was primarily due to the Infrastructure segment, which acquired Banker Steel in the second quarter of 2021.

Loss from operations :

Loss from operations for the three months ended March 31, 2021 decreased $2.7 million to a loss of $10.9 million from a loss of $13.6 million for the three months ended March 31, 2020.

The decrease is attributable to lower overhead costs at Non-operating Corporate, driven by by lower bonus expense and additional cost saving measures implemented, and by our Spectrum segment driven by cost reductions at Network, a decrease in compensation and overhead expenses.

This was partially offset by our Life Sciences segment driven by R2, which increased spending in the comparable period to support commercialization efforts and further develop its product platform.

Loss from operations for the three months ended June 30, 2021 decreased $1.2 million to a loss of $7.7 million from a loss of $8.9 million for the three months ended June 30, 2020.

Loss from operations for the six months ended June 30, 2021 decreased $3.9 million to a loss of $18.6 million from a loss of $22.5 million for the six months ended June 30, 2020.

The decrease is attributable to our Spectrum segment, driven by significant efforts to improve operations and reduce costs across the platform, the sale of high-cost non-core stations in the second half of 2020, and growth in station group OTA revenues, which can be attributed to the expansion in covered markets with new and existing customers and greater number of stations in operation and Non-operating Corporate, driven by unrepeated costs related to the proxy contest in the comparable period and additional cost saving measures implemented.

This was partially offset by our Infrastructure segment due primarily to the timing of project work under execution and changes in backlog mix, and our Life Sciences segment driven by R2, which increased spending in the comparable period to support commercialization efforts and further develop its product platform.

Interest expense :

Interest expense for the three months ended March 31, 2021 increased $2.2 million to $21.4 million from $19.2 million for the three months ended March 31, 2020.

The increase was attributable to the acceleration of original issue discount at Non-Operating Corporate related to the refinancing of its debt during the period.

Interest expense for the three months ended June 30, 2021 decreased $6.7 million to $12.4 million from $19.1 million for the three months ended June 30, 2020.

Interest expense for the six months ended June 30, 2021 decreased $4.5 million to $33.8 million from $38.3 million for the six months ended June 30, 2020.

The decrease was attributable to the refinancing of the 2021 Senior Secured Notes at Non-operating Corporate in the first quarter of 2021.

Loss on early extinguishment or restructuring of debt :

Loss on early extinguishment or restructuring of debt for the three months ended March 31, 2021 increased $5.0 million to $10.8 million from $5.8 million for the three months ended March 31, 2020.

This was driven by the write-off of deferred financing costs and original issuance discount related to the refinancing of the 2021 Senior Secured Notes and the 2022 Convertible Notes in the first quarter of 2021, partially offset by the partial pay down of the 2021 Senior Secured Notes in the prior year.

Loss from equity investees:

Loss from equity investees for the three months ended March 31, 2021 decreased $0.4 million to a loss of $2.1 million from a loss of $2.5 million for the three months ended March 31, 2020.

The decrease was driven by the equity investment in HMN, as the joint venture produced higher profits than in the comparable period, which is generally attributable to the timing of turnkey project work, and a reduction in HC2's ownership in the second quarter of 2020.

This was partially offset by an increase in losses recorded from our investment in MediBeacon due to the timing of clinical trials.

Loss on early extinguishment or restructuring of debt for the three months ended June 30, 2021 decreased $1.8 million to $1.6 million from $3.4 million for the three months ended June 30, 2020.

The decrease was related to a partial pay down of the 2021 Senior Secured Notes in the prior year, partially offset by an increase related to the refinancing of Infrastructure debt in conjunction with the Banker Steel acquisition.

Loss on early extinguishment or restructuring of debt for the six months ended June 30, 2021 increased $3.2 million to $12.4 million from $9.2 million for the six months ended June 30, 2020.

This was driven by the write-off of deferred financing costs and original issuance discount related to the refinancing of the 2021 Senior Secured Notes and the 2022 Convertible Notes in the first quarter of 2021 and the refinancing of Infrastructure debt in conjunction with the Banker Steel acquisition in the second quarter of 2021, partially offset by the partial pay down of the 2021 Senior Secured Notes in the comparable period.

Income (loss) from equity investees:

Income (loss) from equity investees for the three months ended June 30, 2021 increased $0.4 million to income of $0.2 million from a loss of $0.2 million for the three months ended June 30, 2020.

Income (loss) from equity investees for the six months ended June 30, 2021 improved $0.8 million to a loss of $1.9 million from a loss of $2.7 million for the six months ended June 30, 2020.

The change was driven by the equity investment in HMN, as the joint venture produced higher profits than in the comparable period, which is generally attributable to the timing of turnkey project work.

This was partially offset by a reduction in HC2's ownership in HMN in the second quarter of 2020 and increases in losses recorded from our investment in MediBeacon due to the timing of clinical trials.

Other income:

Other income for the three months ended March 31, 2021 increased $1.9 million to $3.4 million from $1.5 million for the three months ended March 31, 2020.

The increase was primarily driven by the income recognized on a litigation settlement in the current period.

Income tax (expense) benefit :

Income tax (expense) benefit was an expense of $1.1 million and a benefit of $9.7 million for the three months ended March 31, 2021 and 2020, respectively.

The income tax expense recorded for the three months ended March 31, 2021 primarily relates to the projected expense as calculated under ASC 740 for tax paying entities.

Other income for the three months ended June 30, 2021 decreased $64.2 million to $0.4 million from $64.6 million for the three months ended June 30, 2020.

Other income for the six months ended June 30, 2021 decreased $62.3 million to $3.8 million from $66.1 million for the six months ended June 30, 2020.

The decrease was predominantly driven by the gain on the sale of a portion of HMN in the comparable period, which closed during the second quarter of 2020.

Income tax expense :

Income tax expense was an expense of $2.6 million and $12.0 million for the three months ended June 30, 2021 and 2020, respectively.

The income tax expense recorded for the three months ended June 30, 2021 primarily relates to the projected expense as calculated under ASC 740 for tax paying entities.

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 benefit recorded for March 31, 2020 primarily relates to a one-time, discrete benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act in the first quarter of 2020.

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.

Income tax expense was an expense of $3.7 million and $2.3 million for the six months ended June 30, 2021 and 2020, respectively.

The income tax benefit recorded for the six months ended June 30, 2021 primarily relates to the projected expense as calculated under ASC 740 for tax paying entities.

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

tax consolidated group 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.

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 which was 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.

Segment Results of Operations

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Infrastructure Segment

Three Months Ended March 31,

2021 2020 Increase / (Decrease)

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

2021 2020 Increase / (Decrease) 2021 2020 Increase / (Decrease)

Revenue $ 232.0 $ 172.3 $ 59.7 $ 393.3 $ 348.8 $ 44.5

2 unchanged sentences

Depreciation and amortization 3.3 2.7 0.6 5.7 5.3 0.4

Other operating expense — 0.2 (0.2)

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

Income from operations $ 2.2 $ 4.5 $ (2.3) $ 4.4 $ 7.1 $ (2.7)

Revenue from our Infrastructure segment for the three months ended March 31, 2021 decreased $15.2 million to $161.3 million from $176.5 million for the three months ended March 31, 2020.

The decrease was primarily driven by lower revenues from our structural steel fabrication and erection business, driven by timing of project work under execution and changes in backlog mix, as well as a decrease in power and industrial maintenance and repair work performed.

These decreases were partially offset by increases from our construction modeling and detailing business.

Revenue from our Infrastructure segment for the three months ended June 30, 2021 increased $59.7 million to $232.0 million from $172.3 million for the three months ended June 30, 2020.

The increase was primarily driven by DBMG’s acquisition of Banker Steel, which was acquired in the second quarter of 2021 and contributed an incremental $39.5 million of revenue.

The increase was also attributable to increased revenues from our structural steel fabrication and erection, industrial maintenance and repair, and modeling and detailing businesses due primarily to the timing of project work under execution and changes in backlog mix.

Revenue from our Infrastructure segment for the six months ended June 30, 2021 increased $44.5 million to $393.3 million from $348.8 million for the six months ended June 30, 2020.

The increase was primarily driven by DBMG’s acquisition of Banker Steel, which was acquired in the second quarter of 2021 and contributed an incremental $39.5 million of revenue as well as an increase from our construction modeling and detailing business and in power and industrial maintenance and repair work performed.

The increase was partially offset by lower revenues from our structural steel fabrication and erection business, driven by timing of project work under execution and changes in backlog mix.

Cost of revenue:

Cost of revenue from our Infrastructure segment for the three months ended March 31, 2021 decreased $14.2 million to $137.0 million from $151.2 million for the three months ended March 31, 2020.

The decrease was primarily driven by the timing of project work under execution and change in backlog mix, partially offset by higher costs incurred in response to the COVID-19 pandemic.

Cost of revenue from our Infrastructure segment for the three months ended June 30, 2021 increased $56.1 million to $202.7 million from $146.6 million for the three months ended June 30, 2020.

Cost of revenue from our Infrastructure segment for the six months ended June 30, 2021 increased $41.9 million to $339.7 million from $297.8 million for the six months ended June 30, 2020.

The increase was primarily driven by DBMG’s acquisition of Banker Steel, which was acquired in the second quarter of 2021 and contributed an incremental $33.6 million of cost of revenue, and timing of project work under execution and change in backlog mix.

Selling, general and administrative:

Selling, general and administrative expense from our Infrastructure segment for the three months ended June 30, 2021 increased $5.2 million to $23.8 million from $18.6 million for the three months ended June 30, 2020.

Selling, general and administrative expense from our Infrastructure segment for the six months ended June 30, 2021 increased $5.0 million to $43.5 million from $38.5 million for the six months ended June 30, 2020.

The increases were primarily due to headcount-driven increases in salary and benefits as a result of the acquisition of Banker Steel, which was acquired the second quarter of 2021 and contributed an incremental $3.7 million of selling, general and administrative expenses.

Depreciation and amortization:

Depreciation and amortization from our Infrastructure segment for the three months ended June 30, 2021 increased $0.6 million to $3.3 million from $2.7 million for the three months ended June 30, 2020.

Depreciation and amortization from our Infrastructure segment for the six months ended June 30, 2021 increased $0.4 million to $5.7 million from $5.3 million for the six months ended June 30, 2020.

The increase was largely due to the additional amortization and depreciation of assets obtained in the acquisition of Banker Steel in the second quarter of 2021, which contributed an additional $0.9 million of depreciation and amortization expense.

Life Sciences Segment

Three Months Ended March 31,

2021 2020 Increase / (Decrease)

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

2021 2020 Increase / (Decrease) 2021 2020 Increase / (Decrease)

Revenue $ 1.2 $ — $ 1.2 $ 1.2 $ — $ 1.2

Cost of revenue 0.6 — 0.6 0.6 — 0.6

Selling, general and administrative 5.0 3.4 1.6 9.8 6.6 3.2

Depreciation and amortization 0.1 0.1 — 0.1 0.1 —

Loss from operations $ (4.5) $ (3.5) $ (1.0) $ (9.3) $ (6.7) $ (2.6)

Revenue from our Life Sciences segment for the three months ended June 30, 2021 increased $1.2 million to $1.2 million from zero for the three months ended June 30, 2020.

Revenue from our Life Sciences segment for the six months ended June 30, 2021 increased $1.2 million to $1.2 million from zero for the six months ended June 30, 2020.

The increase in revenue was attributable to R2, which began the sale of its Glacial Rx products in the current period.

Cost of revenue :

Cost of revenue from our Life Sciences segment for the three months ended June 30, 2021 increased $0.6 million to $0.6 million from zero for the three months ended June 30, 2020.

Cost of revenue from our Life Sciences segment for the six months ended June 30, 2021 increased $0.6 million to $0.6 million from zero for the six months ended June 30, 2020.

The increase in cost of revenue was attributable to R2, which began the sale of its Glacial Rx products in the current period.

Selling, general and administrative :

Selling, general and administrative expenses from our Life Sciences segment for the three months ended March 31, 2021 increased $1.6 million to $4.8 million from $3.2 million for the three months ended March 31, 2020.

Selling, general and administrative expenses from our Life Sciences segment for the three months ended June 30, 2021 increased $1.6 million to $5.0 million from $3.4 million for the three months ended June 30, 2020.

Selling, general and administrative expenses from our Life Sciences segment for the six months ended June 30, 2021 increased $3.2 million to $9.8 million from $6.6 million for the six months ended June 30, 2020.

The increase was driven by higher expenses at R2, which increased spending from the comparable period to ramp up operations to support commercialization efforts and further develop its product platform.

Three Months Ended March 31,

2021 2020 Increase / (Decrease)

Spectrum Segment

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

2021 2020 Increase / (Decrease) 2021 2020 Increase / (Decrease)

Revenue $ 10.6 $ 9.5 $ 1.1 $ 21.1 $ 19.6 $ 1.5

2 unchanged sentences

Depreciation and amortization 1.4 1.7 (0.3) 2.9 3.4 (0.5)

Other operating expense 0.4 — 0.4

Loss from operations $ (1.2) $ (2.9) $ 1.7

Revenue from our Spectrum segment for the three months ended March 31, 2021 increased $0.4 million to $10.5 million from $10.1 million for the three months ended March 31, 2020.

The increase was primarily driven by higher station revenues as our Spectrum segment launched new customers and grew the number of its operating stations, partially offset by a decrease in advertising revenues at the Azteca network driven by unrepeated political campaign expenditures and U.S.

census advertising campaigns in the comparable period.

Other operating expense (income) (0.2) (2.1) 1.9 0.2 (2.1) 2.3

Income (loss) from operations $ 1.4 $ (1.2) $ 2.6 $ 0.2 $ (4.1) $ 4.3

Revenue from our Spectrum segment for the three months ended June 30, 2021 increased $1.1 million to $10.6 million from $9.5 million for the three months ended June 30, 2020.

Revenue from our Spectrum segment for the six months ended June 30, 2021 increased $1.5 million to $21.1 million from $19.6 million for the six months ended June 30, 2020.

The increase was primarily driven by higher station group revenues, which can be attributed to the expansion in coverage market with new and existing customers and the greater number of OTA stations in operation.

Stations group revenue increases were partially offset by lost revenues attributable to the sale of non-core stations in the second half of 2020.

Cost of revenue:

Cost of revenue from our Spectrum segment for the three months ended March 31, 2021 decreased $1.3 million to $4.3 million from $5.6 million for the three months ended March 31, 2020.

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.

Other operating expense :

Other operating expense from our Spectrum segment for the three months ended March 31, 2021 decreased $0.4 million to loss of $0.4 million from zero for the three months ended March 31, 2020.

The decrease was primarily due to an impairment of a right of use asset as a result of subletting office space, partially offset by an increase in gains from FCC reimbursements.

Cost of revenue from our Spectrum segment for the three months ended June 30, 2021 decreased $1.4 million to $4.1 million from $5.5 million for the three months ended June 30, 2020.

Cost of revenue from our Spectrum segment for the six months ended June 30, 2021 decreased $2.7 million to $8.4 million from $11.1 million for the six months ended June 30, 2020.

The overall decrease was primarily driven by cost reductions at Network as well as a reduction in operating expenses for certain non-core station that were sold in the second half of 2020.

Selling, general and administrative:

Selling, general and administrative expense from our Spectrum segment for the three months ended June 30, 2021 decreased $1.7 million to $3.9 million from $5.6 million for the three months ended June 30, 2020.

Selling, general and administrative expense from our Spectrum segment for the six months ended June 30, 2021 decreased $1.9 million to $9.4 million from $11.3 million for the six months ended June 30, 2020.

The overall decrease was primarily driven by headcount reductions, decreased consulting fees, decreased office rent, and decreased legal fees in the current year.

This was partially offset by severance costs incurred in the current period.

Depreciation and amortization:

Depreciation and amortization from our Spectrum segment for the three months ended June 30, 2021 decreased $0.3 million to $1.4 million from $1.7 million for the three months ended June 30, 2020.

Depreciation and amortization from our Spectrum segment for the six months ended June 30, 2021 decreased $0.5 million to $2.9 million from $3.4 million for the six months ended June 30, 2020.

The decrease in depreciation was primarily related to recent disposals of non-core assets.

Other operating expense (income) :

Other operating expense (income) from our Spectrum segment for the three months ended June 30, 2021 decreased $1.9 million to income of $0.2 million from $2.1 million for the three months ended June 30, 2020.

The decrease in other operating expense (income) was primarily related to a reduction in FCC reimbursements.

Other operating expense (income) from our Spectrum segment for the six months ended June 30, 2021 decreased $2.3 million to loss of $0.2 million from income of $2.1 million for the six months ended June 30, 2020.

The decrease in other operating expense (income) was primarily related to a reduction in FCC reimbursements and an impairment of certain right-of-use assets as a result of subletting office space in the current period.

Non-operating Corporate

Three Months Ended March 31,

2021 2020 Increase / (Decrease)

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

2021 2020 Increase / (Decrease) 2021 2020 Increase / (Decrease)

Selling, general and administrative $ 6.6 $ 8.0 $ (1.4) $ 13.3 $ 17.1 $ (3.8)

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, 2021 decreased $2.4 million to $6.7 million from $9.1 million for the three months ended March 31, 2020.

The decrease was driven by unrepeated costs related to the proxy contest in the comparable period as well as decreases in stock compensation expense, bonus expense, rent expense and various consulting expenses in the current period, partially offset by increased legal expenses.

Loss from Equity Investees

Three Months Ended March 31,

2021 2020 Increase / (Decrease)

Selling, general and administrative expenses from our Non-operating Corporate segment for the three months ended June 30, 2021 decreased $1.4 million to $6.6 million from $8.0 million for the three months ended June 30, 2020.

Selling, general and administrative expenses from our Non-operating Corporate segment for the six months ended June 30, 2021 decreased $3.8 million to $13.3 million from $17.1 million for the six months ended June 30, 2020.

The decrease was driven by unrepeated costs related to the proxy contest in the comparable period as well as decreases in stock compensation expense, rent expense and various consulting expenses in the current period, partially offset by increased legal expenses and additional expenses incurred as a result of settlement discussions with the Company's former CEO.

Income (Loss) from Equity Investees

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

2021 2020 Increase / (Decrease) 2021 2020 Increase / (Decrease)

Life Sciences $ (1.7) $ (1.1) $ (0.6) $ (3.2) $ (2.1) $ (1.1)

Other 1.9 0.9 1.0 1.3 (0.6) 1.9

Loss from equity investees $ (2.1) $ (2.5) $ 0.4

Income (loss) from equity investees $ 0.2 $ (0.2) $ 0.4 $ (1.9) $ (2.7) $ 0.8

Life Sciences:

Loss from equity investees within our Life Sciences segment for the three months ended March 31, 2021 increased $0.5 million to $1.5 million from $1.0 million for the three months ended March 31, 2020.

Loss from equity investees within our Life Sciences segment for the three months ended June 30, 2021 increased $0.6 million to $1.7 million from $1.1 million for the three months ended June 30, 2020.

Loss from equity investees within our Life Sciences segment for the six months ended June 30, 2021 increased $1.1 million to $3.2 million from $2.1 million for the six months ended June 30, 2020.

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

Loss from equity investees within our Other segment for the three months ended March 31, 2021 decreased $0.9 million to $0.6 million from $1.5 million for the three months ended March 31, 2020.

The decrease in loss was driven by the equity investment in HMN, as the joint venture produced a lower loss than in the comparable period, which is generally attributable to the timing of turnkey project work, and a reduction in ownership from 49% to 19% as a result of the partial sale of HC2's investment in the second quarter of 2020.

Income from equity investees within our Other segment for the three months ended June 30, 2021 increased $1.0 million to $1.9 million from $0.9 million for the three months ended June 30, 2020.

Income (loss) from equity investees within our Other segment for the six months ended June 30, 2021 increased $1.9 million to income of $1.3 million from a loss of $0.6 million for the six months ended June 30, 2020.

The increases in both periods were driven by the equity investment in HMN, as the joint venture produced higher income than in the comparable period, which is generally attributable to the timing of turnkey project work, partially offset by a reduction in ownership from 49% to 19% as a result of the partial sale of HC2's investment in the second quarter of 2020.

Non-GAAP Financial Measures and Other Information

23 unchanged sentences

bonus to be settled in equity;

share-based payment expense;

share-based compensation

non-recurring items;

1 unchanged sentence

and acquisition and disposition costs.

(in millions) Three months ended March 31, 2021

(in millions) Three months ended June 30, 2021

Infrastructure

Life Sciences Spectrum Non-operating Corporate Other and Eliminations HC2

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

Net (loss) attributable to HC2 Holdings, Inc.

Discontinued operations (1.5)

3 unchanged sentences

Depreciation and amortization (included in cost of revenue) 2.7 — — — — 2.7

Other operating (income) expenses — — 0.4 — — 0.4

Other operating (income) — — (0.2) — — (0.2)

Interest expense 2.2 — 2.4 7.8 — 12.4

1 unchanged sentence

Loss on early extinguishment or restructuring of debt 1.5 — — 0.1 — 1.6

Income tax (benefit) expense — — — 1.1 — 1.1

Income tax expense 1.2 — — 1.4 — 2.6

Noncontrolling interest 0.1 (1.9) (0.5) — 0.6 (1.7)

4 unchanged sentences

Adjusted EBITDA $ 13.9 $ (6.1) $ 2.7 $ (5.7) $ 1.7 $ 6.5

(in millions) Three months ended March 31, 2020

(in millions) Three months ended June 30, 2020

Infrastructure

Life Sciences Spectrum Non-operating Corporate Other and Eliminations HC2

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

Net income attributable to HC2 Holdings, Inc.

Discontinued operations 7.5

3 unchanged sentences

Depreciation and amortization (included in cost of revenue) 2.3 — — — — 2.3

Other operating (income) expenses 0.2 — — — — 0.2

Other operating (income) (0.1) — (2.2) — — (2.3)

Interest expense 2.2 — 3.5 13.4 — 19.1

1 unchanged sentence

Other (income) expense, net (0.1) (2.3) 0.4 8.8 (71.3) (64.5)

Income tax (benefit) expense 0.2 — — (0.4) (9.5) (9.7)

Income tax expense 0.8 — — 4.3 6.9 12.0

Noncontrolling interest 0.1 (1.2) (1.3) — 17.7 15.3

Bonus to be settled in equity — — — (0.3) — (0.3)

Share-based compensation expense — 0.1 — 0.1 — 0.2

4 unchanged sentences

Infrastructure:

Net income from our Infrastructure segment for the three months ended March 31, 2021 increased $0.1 million to zero from a loss of $0.1 million for the three months ended March 31, 2020.

Adjusted EBITDA from our Infrastructure segment for the three months ended March 31, 2021 increased $2.3 million to $11.3 million from $9.0 million for the three months ended March 31, 2020.

The increase in Adjusted EBITDA can be attributed to infrastructure work performed by the construction modeling and detailing business, the timing of project work under execution and change in backlog mix in the fabrication and erection business, partially offset by a decline in power and industrial repair and maintenance work performed.

Net income from our Infrastructure segment for the three months ended June 30, 2021 decreased $0.3 million to $1.4 million from $1.7 million for the three months ended June 30, 2020.

Adjusted EBITDA from our Infrastructure segment for the three months ended June 30, 2021 decreased $5.2 million to $13.9 million from $19.1 million for the three months ended June 30, 2020.

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, as well as a decline in power and industrial repair and maintenance work performed, partially offset by increased contribution from Banker Steel, which was acquired in the second quarter of 2021.

Life Sciences:

Net loss from our Life Sciences segment for the three months ended March 31, 2021 decreased $1.0 million to $4.2 million from $3.2 million for the three months ended March 31, 2020.

Adjusted EBITDA loss from our Life Sciences segment for the three months ended March 31, 2021 increased $2.0 million to $6.2 million from $4.2 million for the three months ended March 31, 2020.

Net loss from our Life Sciences segment for the three months ended June 30, 2021 increased $3.1 million to $4.3 million from $1.2 million for the three months ended June 30, 2020.

Adjusted EBITDA loss from our Life Sciences segment for the three months ended June 30, 2021 increased $1.6 million to $6.1 million from $4.5 million for the three months ended June 30, 2020.

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

Net loss from our Spectrum segment for the three months ended March 31, 2021 decreased $1.1 million to $4.4 million from $5.5 million for the three months ended March 31, 2020.

Adjusted EBITDA from our Spectrum segment for the three months ended March 31, 2021 increased $1.8 million to income of $0.8 million from an Adjusted EBITDA loss of $1.0 million for the three months ended March 31, 2020.

The overall increase in Adjusted EBITDA to income was primarily driven by cost reductions at Network, a decrease in compensation and overhead expenses, as well as higher station revenues as our Spectrum segment grew the number of operating stations and launched new customers across its broadcast platform.

This was partially offset by a decrease in advertising revenues at the Azteca network driven by unrepeated political campaign expenditures and U.S.

census advertising campaigns in the comparable period and severance costs incurred in the current period.

This was partially offset by increased profit contribution from R2, which launched its Glacial Rx product in the second quarter of 2021.

Net loss from our Spectrum segment for the three months ended June 30, 2021 decreased $2.6 million to $1.1 million from $3.7 million for the three months ended June 30, 2020.

Adjusted EBITDA from our Spectrum segment for the three months ended June 30, 2021 increased $3.9 million to income of $2.7 million from a loss of $1.2 million for the three months ended June 30, 2020.

The overall increase in Adjusted EBITDA to income was primarily driven significant efforts to improve operations and reduce costs across the platform, the sale of high-cost non-core stations in the second half of 2020, and growth in station group OTA revenues, which can be attributed to the expansion in covered markets with new and existing customers and greater number of stations in operation.

Non-operating Corporate:

Net income (loss) from our Non-operating Corporate segment for the three months ended March 31, 2021 increased $5.0 million to net loss of $30.8 million from $25.8 million for the three months ended March 31, 2020.

Adjusted EBITDA loss from our Non-operating Corporate segment for the three months ended March 31, 2021 decreased $1.0 million to $4.0 million from $5.0 million for the three months ended March 31, 2020.

The decrease in Adjusted EBITDA loss was driven by a decrease in discretionary bonus and a general reduction in overhead expenses, including professional fees, travel and entertainment expenses, and rent expense, partially offset by an increase in legal fees resulting from an increase in activity.

Net loss from our Non-operating Corporate segment for the three months ended June 30, 2021 decreased $19.0 million to $19.2 million from $38.2 million for the three months ended June 30, 2020.

Adjusted EBITDA loss from our Non-operating Corporate segment for the three months ended June 30, 2021 increased $2.1 million to $5.7 million from $3.6 million for the three months ended June 30, 2020.

The increase in Adjusted EBITDA loss was driven by additional expenses incurred as a result of settlement discussions with the Company's former CEO and changes to the executive compensation plan that went into effect in the comparable period which reduced executive and employee bonus accruals, partially offset by a reduction in rent expense.

Other and Elimination:

Net loss from our Other segment for the three months ended March 31, 2021 decreased $22.5 million to $0.1 million from $22.6 million for the three months ended March 31, 2020.

Adjusted EBITDA losses from our Other segment for the three months ended March 31, 2021 decreased $0.8 million to $0.9 million from $1.7 million for the three months ended March 31, 2020.

The decrease in Adjusted EBITDA loss for Other and Eliminations was driven by the equity investment in HMN, as the joint venture produced fewer losses than in the comparable period, which is generally attributable to the timing of turnkey project work, and a reduction in ownership from 49% to 19% as a result of the partial sale of HC2's investment in the second quarter of 2020.

Net income from our Other segment for the three months ended June 30, 2021 decreased $45.8 million to $1.2 million from $47.0 million for the three months ended June 30, 2020.

Adjusted EBITDA from our Other segment for the three months ended June 30, 2021 increased $0.9 million to $1.7 million from $0.8 million for the three months ended June 30, 2020.

The increase in Adjusted EBITDA for Other and Eliminations was driven by the equity investment in HMN, as it produced higher income than in the comparable period, which is generally attributable to the timing of turnkey project work, and partially offset by a reduction in ownership from 49% to 19% as a result of the partial sale of HC2's investment in the second quarter of 2020.

(in millions) Six months ended June 30, 2021

Infrastructure

Life Sciences Spectrum Non-operating Corporate Other and Eliminations HC2

Net (loss) attributable to HC2 Holdings, Inc.

Discontinued operations 50.4

Net Income (loss) attributable to HC2 Holdings, Inc., excluding discontinued operations $ 1.4 $ (8.5) $ (5.5) $ (50.0) $ 1.3 $ (61.3)

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

Depreciation and amortization 5.7 0.1 2.9 — — 8.7

Depreciation and amortization (included in cost of revenue) 5.0 — — — — 5.0

Other operating expenses — — 0.2 — — 0.2

Interest expense 4.1 — 4.7 25.0 — 33.8

Other (income) expense, net (3.9) — 0.8 (0.7) — (3.8)

Loss on early extinguishment or restructuring of debt 1.5 — 0.9 10.0 — 12.4

Income tax expense 1.2 — — 2.5 — 3.7

Noncontrolling interest 0.1 (4.0) (1.0) — (0.5) (5.4)

Share-based compensation expense — 0.1 0.3 0.9 — 1.3

Nonrecurring Items 0.4 — — 0.5 — 0.9

COVID-19 Costs 7.9 — — — — 7.9

Acquisition and disposition costs 1.8 — 0.2 2.1 — 4.1

Adjusted EBITDA $ 25.2 $ (12.3) $ 3.5 $ (9.7) $ 0.8 $ 7.5

(in millions) Six months ended June 30, 2020

Infrastructure

Life Sciences Spectrum Non-operating Corporate Other and Eliminations HC2

Net (loss) attributable to HC2 Holdings, Inc.

Discontinued operations (63.6)

Net Income (loss) attributable to HC2 Holdings, Inc., excluding discontinued operations $ 1.6 $ (4.4) $ (9.2) $ (64.0) $ 69.6 $ (6.4)

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

Depreciation and amortization 5.3 0.1 3.4 — — 8.8

Depreciation and amortization (included in cost of revenue) 4.6 — — — — 4.6

Other operating (income) expenses 0.1 — (2.2) — — (2.1)

Interest expense 4.4 — 6.7 27.2 — 38.3

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

Other (income) expense, net 0.1 (2.3) 1.0 6.4 (71.3) (66.1)

Income tax (benefit) expense 1.0 — — 3.9 (2.6) 2.3

Noncontrolling interest 0.1 (2.2) (2.4) — 2.0 (2.5)

Bonus to be settled in equity — — — (0.3) — (0.3)

Share-based compensation expense — 0.1 0.1 1.5 — 1.7

Nonrecurring Items 1.8 — — 5.2 — 7.0

COVID-19 Costs 8.8 — — — — 8.8

Acquisition and disposition costs 0.3 — 0.4 2.3 1.4 4.4

Adjusted EBITDA $ 28.1 $ (8.7) $ (2.2) $ (8.6) $ (0.9) $ 7.7

Infrastructure:

Net income from our Infrastructure segment for the six months ended June 30, 2021 decreased $0.2 million to $1.4 million from $1.6 million for the six months ended June 30, 2020.

Adjusted EBITDA from our Infrastructure segment for the six months ended June 30, 2021 decreased $2.9 million to $25.2 million from $28.1 million for the six months ended June 30, 2020.

This was partially offset by increased contribution from Banker Steel, which was acquired in the second quarter of 2021.

Life Sciences:

Net loss from our Life Sciences segment for the six months ended June 30, 2021 increased $4.1 million to $8.5 million from $4.4 million for the six months ended June 30, 2020.

Adjusted EBITDA loss from our Life Sciences segment for the six months ended June 30, 2021 increased $3.6 million to $12.3 million from $8.7 million for the six months ended June 30, 2020.

The increase in Adjusted EBITDA loss was primarily driven by higher expenses at R2, which increased spending from the comparable period to support commercialization efforts and further develop its product platform which launched its Glacial Rx product in the second quarter 2021, and higher equity method losses recorded from our investment in MediBeacon due to the timing of clinical trials.

Net loss from our Spectrum segment for the six months ended June 30, 2021 decreased $3.7 million to $5.5 million from $9.2 million for the six months ended June 30, 2020.

Adjusted EBITDA from our Spectrum segment for the six months ended June 30, 2021 increased $5.7 million to income of $3.5 million from an Adjusted EBITDA loss of $2.2 million for the six months ended June 30, 2020.

The overall increase in Adjusted EBITDA to income primarily driven by significant efforts to improve operations and reduce costs across the platform, the sale of high-cost non-core stations in the second half of 2020 and the growth in OTA revenues, which can be attributed to the expansion in covered markets with new and existing customers and a greater number of stations in operation.

This was partially offset by severance costs incurred in the current period.

Non-operating Corporate:

Net loss from our Non-operating Corporate segment for the six months ended June 30, 2021 decreased $14.0 million to $50.0 million from $64.0 million for the six months ended June 30, 2020.

Adjusted EBITDA loss from our Non-operating Corporate segment for the six months ended June 30, 2021 increased $1.1 million to $9.7 million from $8.6 million for the six months ended June 30, 2020.

The increase in Adjusted EBITDA loss was driven by additional expenses incurred as a result of negotiations around a settlement with the Company's former CEO.

The Company's remaining selling, general and administrative costs were mostly flat as decreases in discretionary bonus and a general reduction in overhead expenses, including professional fees, travel and entertainment expenses, and rent expense, were mostly offset by increases in legal fees resulting from an increase in activity resulting from employment and litigation matters in the current period.

Other and Eliminations:

Net income from our Other and Eliminations segment for the six months ended June 30, 2021 decreased $68.3 million to income of $1.3 million from income of $69.6 million for the six months ended June 30, 2020.

Adjusted EBITDA from our Other segment for the six months ended June 30, 2021 increased $1.7 million to income of $0.8 million from a loss of $0.9 million for the six months ended June 30, 2020.

The increase in Adjusted EBITDA for our Other and Eliminations segment was driven by the equity investment in HMN, as it produced higher income than in the comparable period, which is generally attributable to the timing of turnkey project work, partially offset by and a reduction in ownership from 49% to 19% as a result of the partial sale of HC2's investment in the second quarter of 2020.

(in millions):

Three months ended March 31,

2021 2020 Increase / (Decrease)

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

2021 2020 Increase / (Decrease) 2021 2020 Increase / (Decrease)

Infrastructure

10 unchanged sentences

Infrastructure Segment

At March 31, 2021, DBMG's backlog was $522.7 million, consisting of $329.1 million under contracts or purchase orders and $193.6 million under letters of intent or notices to proceed.

Approximately $217.1 million, representing 41.5% of DBMG’s backlog at March 31, 2021, was attributable to five contracts, letters of intent, notices to proceed or purchase orders.

At June 30, 2021, DBMG's backlog was $1,634.4 million, consisting of $1,323.1 million under contracts or purchase orders and $311.3 million under letters of intent or notices to proceed.

Approximately $1,022.1 million, representing 62.5% of DBMG’s backlog at June 30, 2021, 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.

2 unchanged sentences

Our Non-Operating Corporate segment consists of holding companies, and its liquidity needs are primarily for interest payments on its 2026 Senior Secured Notes, 2022 Convertible Notes and 2026 Convertible Notes, and its Revolving Credit Agreement, dividend payments on its Preferred Stock and recurring operational expenses.

As of March 31, 2021, the Company had $54.2 million of cash and cash equivalents compared to $43.8 million as of December 31, 2020.

On a stand-alone basis, as of March 31, 2021, the Non-Operating Corporate segment had cash and cash equivalents of $36.4 million compared to $27.5 million at December 31, 2020.

As of June 30, 2021, the Company had $18.1 million of cash and cash equivalents compared to $43.8 million as of December 31, 2020.

On a stand-alone basis, as of June 30, 2021, the Non-Operating Corporate segment had cash and cash equivalents of $2.0 million compared to $27.5 million at December 31, 2020.

Our subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of steel construction equipment, OTA broadcast station equipment, liabilities associated with insurance products, development of back-office systems, operating costs and expenses, and income taxes.

As of March 31, 2021, the Company had $549.4 million of indebtedness on a consolidated basis compared to $576.6 million as of December 31, 2020.

On a stand-alone basis, as of March 31, 2021 and December 31, 2020, HC2 had indebtedness of $385.0 million and $410.4 million, respectively.

As of June 30, 2021, the Company had $679.6 million of indebtedness on a consolidated basis compared to $576.6 million as of December 31, 2020.

On a stand-alone basis, as of June 30, 2021 and December 31, 2020, HC2 had indebtedness of $390.0 million and $410.4 million, respectively.

HC2's stand-alone debt consists of the $330.0 million aggregate principal amount of 2026 Senior Secured Notes, the $3.2 million aggregate principal amount of 2022 Convertible Notes, and the $51.8 million aggregate principal amount of 2026 Convertible Notes.

HC2 is required to make semi-annual interest payments on its 2026 Senior Secured Notes, 2022 Convertible Notes and 2026 Convertible Notes, and quarterly interest payments, if applicable, on its 2024 Revolving Credit Agreement.

HC2 received $0.8 million and $2.1 million in net management fees from its Insurance segment during the three months ended June 30, 2021 and six months ended June 30, 2021, respectively.

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 $1.3 million in net management fees from its Insurance segment during the three months ended March 31, 2021.

The maturity date for the Company's Preferred Stock is May 29, 2021.

Our Insurance segment subsidiary, CGIC, is a holder of our Preferred Stock, owning 6,125 Series A and 10,000 Series A-2 shares.

In connection with the sale of the Insurance segment to Continental General Holdings LLC, the buyer has agreed to extend the maturity date for the Preferred Stock owned by CGIC by five years from the closing date of the sale and has agreed to such other amendments to the certificates of designation for our Preferred Stock necessary to give effect to such extension of the maturity date.

External holders of our Preferred Stock, which include 6,375 Series A and 4,000 Series A-2 shares, have the right to require the Company to redeem each such holder’s shares in whole or in part at a redemption price equal to the accrued value of the shares plus any accrued and unpaid dividends;

however, certain of the external holders of our Preferred Stock may, but are under no obligation to, agree to a similar extension of the maturity date of our Preferred Stock held by such holder.

We believe our current liquidity sources, including our available cash and cash equivalents, borrowing capacity under our Revolving Credit Agreement and dividends and tax sharing agreement from our DBMG subsidiary are sufficient to meet the redemption obligations on our Preferred Stock.

On May 29, 2021, pursuant to the Certificate of Designation, holders of the Series A and A-2 Preferred Stock caused the Company to redeem the Series A and A-2 Preferred Stock at the accrued value per share plus accrued but unpaid dividends (to the extent not included in the accrued value of Series A and A-2 Preferred Stock), of which $10.4 million was paid in cash to holders of the Series A and A-2 Preferred Stock.

Each share of Series A and A-2 Preferred Stock that was not so redeemed was automatically converted into shares of common stock at the conversion price then in effect, of which 50,410 shares of the Company's common stock were issued in lieu of cash to holders of the Series A Preferred Stock.

In connection with the Stock Purchase Agreement, CGI, a wholly owned subsidiary of the Company, entered into a letter agreement with Continental General Holdings, LLC to not redeem at maturity or seek redemption of the $16.1 million Preferred Stock.

On July 1, 2021, subsequent to quarter end, CGI exchanged their Series A and Series A-2 Preferred Stock for new classes of Series A-3 and Series A-4 Preferred Stock with an extended maturity of July 1, 2026, with other terms substantially unchanged from the terms in the Series A and Series A-2 Preferred Stock.

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.

3 unchanged sentences

The ability of HC2’s subsidiaries to make distributions to HC2 is subject to numerous factors, including restrictions contained in each subsidiary’s financing agreements, regulatory requirements, availability of sufficient funds at each subsidiary and the approval of such payment by each subsidiary’s board of directors, which must consider various factors, including general economic and business conditions, tax considerations, strategic plans, financial results and condition, expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends, and such other factors each subsidiary’s board of directors considers relevant.

Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments.

Although the Company believes that it will be able to raise additional equity capital, refinance or renegotiate terms of our indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that we are not able to satisfy with the funds expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company if at all.

Although the Company believes that it will be able to raise additional equity capital, refinance or renegotiate terms of our indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that we are not able to satisfy with the funds on hand or expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company if at all.

Such financing options, if pursued, may also ultimately have the effect of negatively impacting our liquidity profile and prospects over the long-term.

Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments.

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.

We have seen significant costs increases, primarily at our Infrastructure segment, driven by expenses associated with maintaining a safe work environment, and while executing on its projects.

During the three months ended March 31, 2021, $3.9 million of COVID-19 costs were incurred.

Although the COVID-19 pandemic did not have a material impact on the HC2’s liquidity for the three months ended March 31, 2021, management believes the continuation of the pandemic and its related effect on the U.S.

We have seen significant cost increases, primarily at our Infrastructure segment, driven by expenses associated with maintaining a safe work environment, and while executing on its projects.

During the three and six months ended June 30, 2021, $4.0 million and $7.9 million of COVID-19 costs were incurred.

Although the COVID-19 pandemic did not have a material impact on the HC2’s liquidity for the six months ended June 30, 2021, 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 and 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 is predominantly working remotely and many of our key vendors, and consultants similarly 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.

Capital Expenditures

Capital expenditures for the years ended March 31, 2021 and 2020 are set forth in the table below (in millions):

Three Months Ended March 31,

Capital expenditures for the periods ended June 30, 2021 and 2020 are set forth in the table below (in millions):

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

2021 2020 2021 2020

Infrastructure

$ 3.9 $ 1.1 $ 5.5 $ 3.4

Life Sciences 0.3 0.1 0.5 0.1

Spectrum 0.6 3.7 2.0 6.4

Non-operating Corporate — 0.1 — 0.1

Total $ 4.8 $ 5.0 $ 8.0 $ 10.0

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Infrastructure

The Wells Fargo Facility and the TCW Loan associated with our Infrastructure segment contain customary restrictive and financial covenants related to debt levels and performance.

As of March 31, 2021, DBMG was in compliance with all of the financial covenants to its debt agreements.

The UMB Term Loan and UMB Revolving Line associated with our Infrastructure segment contains customary restrictive and financial covenants related to debt levels and performance.

As of June 30, 2021, DBMG was in compliance with all of the financial covenants to its debt agreements.

Debt Obligations to the Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q for additional details regarding the Company's indebtedness.

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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 2026 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, 2021, the Company was in compliance with this covenant.

As of June 30, 2021, the Company was in compliance with this covenant.

The maintenance of collateral coverage provides that the certain subsidiaries' 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, 2021, the Company was in compliance with this covenant.

As of June 30, 2021, the Company was in compliance with this covenant.

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 or used in our 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, Increase / (Decrease)

Operating activities from Continuing Operations $ (34.7) $ (8.1) $ (26.6)

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Net increase (decrease) in cash, cash equivalents and restricted cash $ 33.7 $ (35.3) $ 69.0

Net increase (decrease) in cash and cash equivalents classified within current assets held for sale 18.3 (44.0) 62.3

Net increase (decrease) in cash and cash equivalents from discontinued operations 58.3 (35.7) 94.0

Net change in cash, cash equivalents and restricted cash $ (24.6) $ 0.4 $ (25.0)

Operating Activities

Cash used in operating activities was $23.2 million for the three months ended March 31, 2021 as compared to cash used in operating activities of $4.3 million for the three months ended March 31, 2020.

The $18.9 million change was primarily related to an increase in working capital due to the timing of interest payments as a result of the refinancing, ramp of product launch at R2, scheduling of payments at Spectrum, and project timing at Infrastructure.

Cash used in operating activities was $34.7 million for the six months ended June 30, 2021 as compared to cash used in operating activities of $8.1 million for the six months ended June 30, 2020.

The $26.6 million change was primarily related to the increase in working capital uses resulting from project timing at our Infrastructure segment, ramp up of product launch at R2, and payment of certain accounts payable and increases in accounts receivable at our Spectrum segment.

This was partially offset by an increase in working capital at Non-operating Corporate due to the timing of interest payments as a result of the refinancing.

Investing Activities

Cash provided by investing activities was $66.4 million for the three months ended March 31, 2021 as compared to cash provided by investing activities of $140.8 million for the three months ended March 31, 2020.

The $74.4 million change was from the reduction in proceeds from the sale of subsidiaries.

Beyond6 was sold in 2021 for net proceeds of $70.0 million while compared to GMSL sold in the prior year for net proceeds of $144.0 million.

Cash used in investing activities was $62.8 million for the six months ended June 30, 2021 as compared to cash provided by investing activities of $223.6 million for the six months ended June 30, 2020.

The $286.4 million change was due to the acquisition of Banker Steel at our Infrastructure segment in the second quarter of 2021 and from the reduction in proceeds from the sale of subsidiaries.

Beyond6 was sold in first quarter of 2021 for net proceeds of $70.0 million compared to GMSL sold in the prior year for net proceeds of $144.0 million.

Financing Activities

Cash used in financing activities was $31.6 million for the three months ended March 31, 2021 as compared to cash used in financing activities of $142.1 million for the three months ended March 31, 2020.

The $110.5 million change was primarily a result of the larger principal payments on debt obligations at our Non-Operating Corporate segment in the comparable period and payments to minority stockholders at our Other segment for the portion of the proceeds received from the sale of GMSL in the comparable period.

Cash provided by financing activities was $73.6 million for the six months ended June 30, 2021 as compared to cash used in financing activities of $211.2 million for the six months ended June 30, 2020.

The $284.8 million change was primarily due to proceeds received on debt obligations at our Infrastructure segment as a result of the refinancing in the second quarter of 2021.

The change was also driven by the refinancing of debt obligations at our Non-Operating Corporate segment in the comparable period and payments to minority stockholders at our Other segment for the portion of the proceeds received from the sale of GMSL and the partial sale of HMN in the comparable period.

Discontinued Operations

Cash provided by discontinued operations was $17.9 million for the three months ended March 31, 2021 as compared to cash used by discontinued operations of $47.2 million for the three months ended March 31, 2020.

The $65.1 million increase was largely due to a decline in net investment spend at our Insurance segment compared to the prior year.

Cash provided by discontinued operations was $58.3 million for the six months ended June 30, 2021 as compared to cash used by discontinued operations of $40.2 million for the six months ended June 30, 2020.

The $98.5 million increase was largely due to a decline in net investment purchases at our Insurance segment compared to the prior year.

Reclassifications

Certain 2021 statement of cash flow items have been reclassified to conform to the current financial statement presentation.

These reclassifications have no effect on previously reported net income.

Infrastructure

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

Based upon the March 31, 2021 debt balance, DBMG anticipates that its interest payments will be approximately $1.7 million each quarter of 2021.

Based upon the June 30, 2021 debt balance, DBMG anticipates that its interest payments will be approximately $2.1 million each quarter of 2021.

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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Discontinued Operations

We have reclassified several entities as discontinued operations for the three months ended March 31, 2021 and 2020.

We have reclassified several entities as discontinued operations for the three and six months ended June 30, 2021 and 2020.

Accordingly, revenue, costs, and expenses of the discontinued operations have been excluded from continuing operations.

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• The sale of GMSL closed on February 28, 2020.

At the time of the sale, the Company recorded a $39.3 million loss on the sale, inclusive of recognizing a $31.3 million loss from the realization of AOCI.

At the time of the sale, the Company recorded a $39.3 million loss on the sale and recognized $31.3 million Accumulated other comprehensive loss.

During the fourth quarter of 2020, the Company recognized a gain of $2.4 million as a result of bonding releases related to projects which existed prior to sale.

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The Company recognized a $39.2 million gain on the sale.

• On March 29, 2021, the Company announced the definitive agreement to sell its Insurance segment to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and a beneficial owner of approximately 6.6% of the Company's outstanding common stock who has also served as executive chairman of Continental since October 2020.

• On March 29, 2021, the Company announced the entry into the Stock Purchase Agreement to sell its Insurance segment to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of June 30, 2021, a beneficial owner of approximately 6.6% of the Company's outstanding common stock who has also served as executive chairman of Continental since October 2020.

On July 1, 2021, subsequent to quarter end, the Company closed on the sale.

Cash flows from discontinued operations are reported in the Statement of Cash Flows as a separate line item within the Operations, Investing and Financing activities sections for each year presented.

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In September 2018, the Company entered into a 75-month lease for office space.

As part of the agreement, HC2 was able to pay a lower security deposit and lease payments, and received favorable lease terms as consideration for landlord required cross default language in the event of default of the shared space leased by Harbinger Capital Partners, formerly a related party, as disclosed in Note 16.

Related Parties to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

With the adoption of ASC 842, as of January 1, 2019, this lease was recognized as a right of use asset and lease liability on the Consolidated Balance Sheets.

DBMG’s off-balance sheet arrangements at March 31, 2021 included letters of credit of $9.8 million under Credit and Security Agreements and performance bonds of $107.0 million.

With the adoption of ASC 842, as of January 1, 2019, this lease was recognized as a right of use asset and lease liability on the Condensed Consolidated Balance Sheets.

DBMG’s off-balance sheet arrangements at June 30, 2021 included letters of credit of $13.4 million under Credit and Security Agreements and performance bonds of $921.1 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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For a discussion of our New Accounting Pronouncements, refer to Note 2.

Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Summary of Significant Accounting Policies to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Critical Accounting Policies

There have been no material changes in the Company’s critical accounting policies during the quarter ended March 31, 2021.

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, 2020.

There have been no material changes in the Company’s critical accounting policies during the quarter ended June 30, 2021.

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, 2020, filed with the SEC on March 10, 2021.

Related Party Transactions

For a discussion of our Related Party Transactions, refer to Note 16.

Related Parties to our Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Related Parties to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Corporate Information

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• its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise;

• its ability to successfully consummate the acquisition of Banker Steel Holdco LLC;

• potential impediments and limitations on our ability to complete ordinary course acquisitions in anticipated time frames or at all;

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Our actual results or other outcomes of our Other segment may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• risks associated with our equity method investment that operates in China (i.e., Huawei Marine Systems Co.

• risks associated with our equity method investment that operates in China (i.e., HMN International Co., Ltd F/K/A Huawei Marine Systems Co.

Limited, a Hong Kong holding company with a Chinese operating subsidiary)

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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