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Item 2. Management’s Discussion and Analysis

2021-11-04 compared with 2021-08-06 · 268 added, 228 removed, 517 unchanged (49% of the section changed)

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You should review the "Risk Factors" section in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 10, 2021, 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 Quarterly Report on Form 10-Q, "HC2" means HC2 Holdings, Inc.

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

Unless the context otherwise requires, in this Quarterly Report on Form 10-Q, "INNOVATE" means INNOVATE Corp.

(formerly known as HC2 Holdings, Inc.) and the "Company," "we" and "our" mean INNOVATE together with its consolidated subsidiaries.

GAAP" means accounting principles accepted in the United States of America.

We are a diversified holding company with principal operations conducted through four operating platforms or reportable segments:

Infrastructure ("DBMG"), Life Sciences ("Pansend"), Spectrum, and Insurance ("CIG"), plus our Other segment, which includes businesses that do not meet the separately reportable segment thresholds.

We are a diversified holding company with principal operations conducted through three operating platforms or reportable segments:

Infrastructure ("DBMG"), Life Sciences ("Pansend"), and Spectrum, plus our Other segment, which includes businesses that do not meet the separately reportable segment thresholds.

Certain previous year amounts have been reclassified to conform with current year presentations, including:

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Operating Segment and Related Information for further information;

• As a result of the sale of CIG, and in accordance with ASC 280, the Company no longer considers the results of operations and Balance Sheets of CIG as a separate segment.

This entity has been reclassified to the Other segment.

Operating Segment and Related Information for further information;

• The recast of prior year earnings per share as a result of the discontinued operations noted above.

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Preventing the effects from and responding to this market disruption if any other public health threat, related or otherwise, may further increase costs of our business and may have a material adverse effect on our business, financial condition, and results of operations.

COVID-19 has caused supply chain challenges related to labor shortages and supply chain disruptions, which may create significant delays in our ability to complete projects or deliver products.

The receipt of material from impacted areas has been slowed or disrupted and our suppliers are expected to face similar challenges in fulfilling orders.

In addition, reductions in the number of ocean carrier voyages, ocean freight capacity issues, congestion at major international gateways and other economic factors continue to persist worldwide due to COVID-19 and worldwide supply impacts as there is much greater demand for shipping and reduced capacity and equipment, which has resulted in recent price increases per shipping container.

In addition, in the United States, trucking costs have risen dramatically due to driver shortages and increased labor costs, as well as new federal and state safety, environmental and labor regulations.

These changes, as well as COVID-19 related state and local restrictions on domestic trucking and the operation of distribution centers, may disrupt our supply chain, which may result in a delay in the completion of our projects and cause us to incur significant additional costs.

Although we may attempt to pass on certain of these increased costs to our customers, we may not be able to pass all of these cost increases on to our customers.

As a result, our margins may be adversely impacted by such cost increases.

These supply chain disruptions and transportation challenges could have a material adverse effect on our results of operations or financial condition.

We continue to monitor the evolving situation and guidance from authorities, including federal, state and local public health departments, and may take additional actions based on their recommendations.

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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.

During the nine months ended September 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 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.

Developments resulting from governmental responses to COVID-19 such as social distancing and shelter-in-place directives have impacted, and could 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 continue to experience delays or suspensions of projects.

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

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.

During the three and nine months ended September 30, 2021, $0.4 million and $8.3 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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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.

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 INNOVATE in the settlement of certain intercompany balances.

Banker Steel provides fabricated structural steel and erection services primarily for the east coast and southeast commercial and industrial construction market.

Banker Steel consists of six operating companies:

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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.

The sale of CIG closed on July 1, 2021 to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of September 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 Insurance segment, which primarily consisted of a closed block of long-term care insurance, had a book value, inclusive of intercompany eliminations, at the time of the sale of $544.0 million, inclusive of $344.0 million of Accumulated other comprehensive income ("AOCI").

The carrying value of the Insurance segment at the time of sale excluded cash of $62.5 million and investments of $26.7 million which were distributed to the Company through an extraordinary dividend immediately prior to the sale.

The extraordinary dividend was approved by our domestic regulator in connection with the approval of the sale.

The amount included in AOCI was reversed from equity at the time of the sale and offset the loss recognized.

While several factors impacted the fair value of the Insurance segment at the end of 2019, following discussions with our domestic regulator, changes in the asset management fee arrangement and expectations of future dividends primarily and ultimately resulted in the full impairment of the goodwill associated with the Insurance segment during the year ended December 31, 2019.

While these factors did not have a major impact on the operations of the stand-alone business, they did have a significant impact on the economic benefit that could be realized by the Company.

As a result of the factors described above, combined with the risks associated with the long-term care insurance industry, the Company exited the segment and sold the business resulting in a $200.8 million loss on the sale of CIG.

Sale of Beyond6

On December 31, 2020, the Company announced a plan to sell Beyond6 to an affiliate of Mercuria Investments US, Inc., pursuant to an Agreement and Plan of Merger (the "Merger Agreement") among Beyond6, Greenfill, Inc., a Delaware Corporation ("Parent"), Greenfill Merger Inc., a newly-formed Delaware corporation and wholly-owned subsidiary of Parent, and an affiliate of HC2 as the Stockholder Representative for the Beyond6 stockholders.

On December 31, 2020, the Company announced a plan to sell Beyond6 to an affiliate of Mercuria Investments US, Inc., pursuant to an Agreement and Plan of Merger (the "Merger Agreement") among Beyond6, Greenfill, Inc., a Delaware Corporation ("Parent"), Greenfill Merger Inc., a newly-formed Delaware corporation and wholly-owned subsidiary of Parent, and an affiliate of INNOVATE as the Stockholder Representative for the Beyond6 stockholders.

The sale closed on January 15, 2021.

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

During the first quarter of 2021, the Company recognized a $39.2 million gain on the sale.

During the third quarter of 2021, as a result of releases of related escrows and hold backs, the Company recognized an additional $0.5 million gain on the sale.

Debt Obligations

Non-Operating Corporate

On February 1, 2021, HC2 repaid its 11.5% senior secured notes due 2021 (the "2021 Senior Secured Notes"), and issued $330.0 million aggregate principal amount of 8.5% senior secured notes due 2026 (the "2026 Senior Secured Notes").

On February 1, 2021, the Company repaid its 11.5% senior secured notes due 2021 (the "2021 Senior Secured Notes"), and issued $330.0 million aggregate principal amount of 8.5% senior secured notes due 2026 (the "2026 Senior Secured Notes").

In addition, the Company entered into exchange agreements with certain holders of approximately $51.8 million aggregate principal amount of its existing $55.0 million 7.5% convertible senior notes due 2022 (the "2022 Convertible Notes"), pursuant to which the Company exchanged such holders' 2022 Convertible Notes for newly issued convertible notes due 2026 (the "2026 Convertible Notes").

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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.

In May 2021, the Company drew $5.0 million under 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 August 30, 2021, HC2 Broadcasting Holdings Inc.

(“HC2 Broadcasting”) repurchased $1.0 million of DTV America Corporation's ("DTV") outstanding notes payable to certain institutional investors, of which the debt is now eliminated in consolidation.

Also on August 30, 2021, DTV extended its remaining outstanding notes by 60 days.

Subsequent to quarter end, on October 21, 2021, HC2 Broadcasting entered into the Fifth Omnibus Amendment to Secured Notes, Consent and Second Amendment to Asset Sale Under Secured Notes and Intercreditor Agreement (the “Amendment”), which, among other things, extended $52.2 million of its Senior Secured Notes, due October 21, 2021, through November 30, 2022.

In addition, HC2 Broadcasting completed the last of a series of repurchases of all the outstanding secured and convertible promissory notes, inclusive of accrued interest, of DTV using a combination of cash on hand and proceeds from the sales on non-core assets.

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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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.

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

Stockholders' Rights Agreement

On August 30, 2021, the Company entered into a Tax Benefits Preservation Plan (the "Plan").

The Plan is intended to help protect the Company's ability to use its tax net operating losses and other certain tax assets ("Tax Benefits") by deterring an "ownership change," as defined under Section 382 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder (the "Code"), by a person or group of affiliated or associated persons from acquiring beneficial ownership of 4.9% or more of the outstanding common shares.

Equity for further information.

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 and six months ended June 30, 2021 as compared to the three and six months ended June 30, 2020.

GAAP and SEC disclosure rules, the Company’s results of operations for the three and nine months ended September 30, 2021 as compared to the three and nine months ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

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

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Non-operating Corporate (4.4) (5.3) 0.9 (17.7) (22.4) 4.7

Total loss from operations (7.7) (8.9) 1.2 (18.6) (22.5) 3.9

Total income (loss) from operations 1.1 (16.1) 17.2 (17.5) (38.6) 21.1

Interest expense (12.8) (17.9) 5.1 (46.6) (56.2) 9.6

Loss on early extinguishment or restructuring of debt (0.1) — (0.1) (12.5) (9.2) (3.3)

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

Loss from equity investees (2.9) (1.3) (1.6) (4.8) (4.0) (0.8)

Other income 0.6 6.9 (6.3) 4.4 73.0 (68.6)

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

Loss from continuing operations (14.1) (28.4) 14.3 (77.0) (35.0) (42.0)

Income tax expense (0.1) (1.4) 1.3 (3.8) (3.7) (0.1)

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

Loss from continuing operations (14.2) (29.8) 15.6 (80.8) (38.7) (42.1)

(Loss) income from discontinued operations (including loss on sale of $200.3 million for the three months ended September 30, 2021 and net loss on sales of $159.9 million and $39.3 million for the nine months ended September 30, 2021 and 2020, respectively) (200.3) 8.2 (208.5) (149.9) (55.4) (94.5)

Net loss (214.5) (21.6) (192.9) (230.7) (94.1) (136.6)

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 2.6 4.3 (1.7) 7.9 6.8 1.1

Net loss attributable to INNOVATE Corp.

(211.9) (17.3) (194.6) (222.8) (87.3) (135.5)

Preferred dividends, deemed dividends, and repurchase gains 1.1 0.4 0.7 1.7 1.2 0.5

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 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.

Net loss attributable to common stock and participating preferred stockholders $ (213.0) $ (17.7) $ (195.3) $ (224.5) $ (88.5) $ (136.0)

Revenue for the three months ended September 30, 2021 increased $224.3 million to $394.8 million from $170.5 million for the three months ended September 30, 2020.

Revenue for the nine months ended September 30, 2021 increased $271.5 million to $810.4 million from $538.9 million for the nine months ended September 30, 2020.

The increase in revenue was primarily due to the Infrastructure segment, which acquired Banker Steel in the second quarter of 2021 as well as an increase in projects year over year.

Income (loss) from operations :

Income from operations for the three months ended September 30, 2021 increased $17.2 million to income of $1.1 million from a loss of $16.1 million for the three months ended September 30, 2020.

The increase in income from operations is attributable to our Spectrum segment, driven by a reduction in asset impairments in the current period, significant efforts to improve operations and reduce costs across the platform, 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.

The increase in income from operations was also attributable to the Infrastructure segment as a result of the contribution from Banker Steel, which was acquired in the second quarter of 2021, and was partially offset due primarily to the timing of project work under execution, changes in backlog mix and continued market pressure on point-of-sale project margins.

Additionally contributing to the increase is Non-operating Corporate, driven by non-recurring costs related to the proxy contest in the comparable period and additional cost saving measures implemented.

Loss from operations for the nine months ended September 30, 2021 decreased $21.1 million to a loss of $17.5 million from a loss of $38.6 million for the nine months ended September 30, 2020.

The decrease in loss from operations is attributable to our Spectrum segment, driven by a reduction in asset impairments in the current period, significant efforts to improve operations and reduce costs across the platform, the sale of high-cost non-core assets 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.

The decrease in loss from operations was also attributable to the Infrastructure segment as a result of the contribution from Banker Steel, which was acquired in the second quarter of 2021, and was partially offset due primarily to the timing of project work under execution, changes in backlog mix and continued market pressure on point-of-sale project margins.

Additionally contributing to the decrease is Non-operating Corporate, driven by non-recurring costs related to the proxy contest in the comparable period and additional cost saving measures implemented.

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

Interest expense :

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.

Interest expense for the three months ended September 30, 2021 decreased $5.1 million to $12.8 million from $17.9 million for the three months ended September 30, 2020.

Interest expense for the nine months ended September 30, 2021 decreased $9.6 million to $46.6 million from $56.2 million for the nine months ended September 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 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.

Loss on early extinguishment or restructuring of debt for the nine months ended September 30, 2021 increased $3.3 million to $12.5 million from $9.2 million for the nine months ended September 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.

Loss from equity investees:

Loss from equity investees for the three months ended September 30, 2021 increased $1.6 million to $2.9 million from $1.3 million for the three months ended September 30, 2020.

The increase in loss was driven by increases in losses recorded from our investment in MediBeacon due to the timing of clinical trials and the equity investment in HMN, which produced lower profits than in the three month comparable period, which is generally attributable to the timing of turnkey project work.

Loss from equity investees for the nine months ended September 30, 2021 increased $0.8 million to $4.8 million from $4.0 million for the nine months ended September 30, 2020.

The increase in loss was driven by increases in losses recorded from our investment in MediBeacon due to the timing of clinical trials and due to the reduction in ownership in the HMN investment from 49% to 19% in the second quarter of 2020.

This was partially offset by an increase in the equity investment in HMN, which produced higher profits than in the nine month comparable period, which is generally attributable to the timing of turnkey project work.

Other income:

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.

Other income for the three months ended September 30, 2021 decreased $6.3 million to $0.6 million from $6.9 million for the three months ended September 30, 2020.

The decrease was driven by gain on embedded derivatives in the third quarter of 2020.

Other income for the nine months ended September 30, 2021 decreased $68.6 million to $4.4 million from $73.0 million for the nine months ended September 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.

Income tax expense was an expense of $0.1 million and $1.4 million for the three months ended September 30, 2021 and 2020, respectively.

The income tax expense recorded for the three months ended September 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 INNOVATE Corp.'s U.S.

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 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.

The income tax expense recorded for the three months ended September 30, 2020 primarily relates to the projected expense as calculated under ASC 740 for tax paying entities.

Additionally, the tax benefits associated with losses generated by INNOVATE Corp.'s U.S.

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.

Income tax expense was an expense of $3.8 million and $3.7 million for the nine months ended September 30, 2021 and 2020, respectively.

The income tax expense recorded for the nine months ended September 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 INNOVATE Corp.'s U.S.

The income tax expense recorded for the nine months ended September 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

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

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Income from operations $ 12.6 $ 6.0 $ 6.6 $ 17.0 $ 13.1 $ 3.9

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.

Revenue from our Infrastructure segment for the three months ended September 30, 2021 increased $222.2 million to $383.0 million from $160.8 million for the three months ended September 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 $114.3 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.

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

Revenue from our Infrastructure segment for the nine months ended September 30, 2021 increased $266.7 million to $776.3 million from $509.6 million for the nine months ended September 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 $153.8 million of revenue as well as an increase from our structural steel fabrication and erection business, construction modeling and detailing business and in power and industrial maintenance and repair work performed 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 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.

Cost of revenue from our Infrastructure segment for the three months ended September 30, 2021 increased $201.4 million to $334.4 million from $133.0 million for the three months ended September 30, 2020.

Cost of revenue from our Infrastructure segment for the nine months ended September 30, 2021 increased $243.3 million to $674.1 million from $430.8 million for the nine months ended September 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 $94.2 million of cost of revenue and $127.8 million for the three months ended September 30, 2021 and nine months ended September 30, 2021, respectively, as well as timing of project work under execution, change in backlog mix and continued market pressure on point-of-sale project margins.

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.

Selling, general and administrative expense from our Infrastructure segment for the three months ended September 30, 2021 increased $9.2 million to $28.5 million from $19.3 million for the three months ended September 30, 2020.

Selling, general and administrative expense from our Infrastructure segment for the nine months ended September 30, 2021 increased $14.2 million to $72.0 million from $57.8 million for the nine months ended September 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 in the second quarter of 2021 and contributed an incremental $9.2 million and $12.9 million of selling, general and administrative expenses for the three months ended September 30, 2021 and the nine months ended September 30, 2021, respectively.

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.

Depreciation and amortization from our Infrastructure segment for the three months ended September 30, 2021 increased $4.7 million to $7.4 million from $2.7 million for the three months ended September 30, 2020.

Depreciation and amortization from our Infrastructure segment for the nine months ended September 30, 2021 increased $5.1 million to $13.1 million from $8.0 million for the nine months ended September 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 $4.8 million and $5.7 million of depreciation and amortization expense for the three months ended September 30, 2021 and the nine months ended September 30, 2021, respectively.

The increase was partially offset by full deprecation of certain assets in 2020.

Life Sciences Segment

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

Three Months Ended September 30, Nine Months Ended September 30,

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

3 unchanged sentences

Depreciation and amortization — — — 0.1 0.1 —

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

Loss from operations $ (4.9) $ (4.7) $ (0.2) $ (14.2) $ (11.4) $ (2.8)

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.

Revenue from our Life Sciences segment for the three months ended September 30, 2021 increased $1.6 million to $1.6 million from zero for the three months ended September 30, 2020.

Revenue from our Life Sciences segment for the nine months ended September 30, 2021 increased $2.8 million to $2.8 million from zero for the nine months ended September 30, 2020.

The increase in revenue was attributable to R2, which began the sale of its Glacial Rx products in the 2021.

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.

Cost of revenue from our Life Sciences segment for the three months ended September 30, 2021 increased $0.9 million to $0.9 million from zero for the three months ended September 30, 2020.

Cost of revenue from our Life Sciences segment for the nine months ended September 30, 2021 increased $1.5 million to $1.5 million from zero for the nine months ended September 30, 2020.

The increase in cost of revenue was attributable to R2, which began the sale of its Glacial Rx products in 2021.

Selling, general and administrative :

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.

Selling, general and administrative expenses from our Life Sciences segment for the three months ended September 30, 2021 increased $1.0 million to $5.6 million from $4.6 million for the three months ended September 30, 2020.

Selling, general and administrative expenses from our Life Sciences segment for the nine months ended September 30, 2021 increased $4.2 million to $15.4 million from $11.2 million for the nine months ended September 30, 2020.

The increase was driven by higher expenses at R2, which increased spending from the comparable period as a result of increased headcount across the organization, mainly to build out its sales team.

Spectrum Segment

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

Three Months Ended September 30, Nine Months Ended September 30,

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

3 unchanged sentences

Depreciation and amortization 1.4 1.7 (0.3) 4.3 5.1 (0.8)

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.

Other operating expense 0.7 9.6 (8.9) 0.9 7.5 (6.6)

Loss from operations $ (1.2) $ (11.7) $ 10.5 $ (1.0) $ (15.8) $ 14.8

Revenue from our Spectrum segment for the three months ended September 30, 2021 increased $0.5 million to $10.2 million from $9.7 million for the three months ended September 30, 2020.

The increase was primarily driven by higher station 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.

This was partially offset by a decrease in revenue from the sale of full power stations.

Revenue from our Spectrum segment for the nine months ended September 30, 2021 increased $2.0 million to $31.3 million from $29.3 million for the nine months ended September 30, 2020.

This was partially offset by a decrease in revenue from the sale of full power stations.

Cost of revenue:

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.

Cost of revenue from our Spectrum segment for the three months ended September 30, 2021 decreased $1.4 million to $4.4 million from $5.8 million for the three months ended September 30, 2020.

Cost of revenue from our Spectrum segment for the nine months ended September 30, 2021 decreased $4.1 million to $12.8 million from $16.9 million for the nine months ended September 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 assets 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.

Selling, general and administrative expense from our Spectrum segment for the three months ended September 30, 2021 increased $0.6 million to $4.9 million from $4.3 million for the three months ended September 30, 2020.

The overall increase was primarily driven by an increase to bonus expense in the third quarter 2021 related to prior year bonus adjustments partially offset by a decrease in professional fees and rent expense.

Selling, general and administrative expense from our Spectrum segment for the nine months ended September 30, 2021 decreased $1.3 million to $14.3 million from $15.6 million for the nine months ended September 30, 2020.

The overall decrease was primarily driven by decreased office expenses, consulting fees and no terminated deal costs in the current year, which was partially offset by an increase to bonus expense related to prior year bonus adjustments.

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.

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

Depreciation and amortization from our Spectrum segment for the nine months ended September 30, 2021 decreased $0.8 million to $4.3 million from $5.1 million for the nine months ended September 30, 2020.

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

Other operating expense :

Other operating expense from our Spectrum segment for the three months ended September 30, 2021 decreased $8.9 million to $0.7 million from $9.6 million for the three months ended September 30, 2020.

Other operating expense from our Spectrum segment for the nine months ended September 30, 2021 decreased $6.6 million to $0.9 million from $7.5 million for the nine months ended September 30, 2020.

The decrease in other operating expense was primarily related to fewer asset impairments and a reduction in FCC reimbursements received in the current period.

Non-operating Corporate

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

Three Months Ended September 30, Nine Months Ended September 30,

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

Selling, general and administrative $ 4.3 $ 5.2 $ (0.9) $ 17.6 $ 22.3 $ (4.7)

Depreciation and amortization 0.1 0.1 — 0.1 0.1 —

Loss from operations $ (4.4) $ (5.3) $ 0.9 $ (17.7) $ (22.4) $ 4.7

Selling, general and administrative :

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,

Selling, general and administrative expenses from our Non-operating Corporate segment for the three months ended September 30, 2021 decreased $0.9 million to $4.3 million from $5.2 million for the three months ended September 30, 2020.

Selling, general and administrative expenses from our Non-operating Corporate segment for the nine months ended September 30, 2021 decreased $4.7 million to $17.6 million from $22.3 million for the nine months ended September 30, 2020.

The decrease was driven by non-recurring 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.

(Loss) Income from Equity Investees

Three Months Ended September 30, Nine Months Ended September 30,

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

1 unchanged sentence

Other (0.6) 0.2 (0.8) 0.7 (0.4) 1.1

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

Loss from equity investees $ (2.9) $ (1.3) $ (1.6) $ (4.8) $ (4.0) $ (0.8)

Life Sciences:

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.

Loss from equity investees within our Life Sciences segment for the three months ended September 30, 2021 increased $0.8 million to $2.3 million from $1.5 million for the three months ended September 30, 2020.

Loss from equity investees within our Life Sciences segment for the nine months ended September 30, 2021 increased $1.9 million to $5.5 million from $3.6 million for the nine months ended September 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.

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.

Income (loss) from equity investees within our Other segment for the three months ended September 30, 2021 decreased $0.8 million to loss of $0.6 million from income of $0.2 million for the three months ended September 30, 2020.

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

Income (loss) from equity investees within our Other segment for the nine months ended September 30, 2021 increased $1.1 million to income of $0.7 million from a loss of $0.4 million for the nine months ended September 30, 2020.

The increase was 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 INNOVATE'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 compensation

share-based compensation expense;

non-recurring items;

1 unchanged sentence

and acquisition and disposition costs.

(in millions) Three months ended June 30, 2021

(in millions) Three months ended September 30, 2021

Infrastructure

Life Sciences Spectrum Non-operating Corporate Other and Eliminations HC2

Net (loss) attributable to HC2 Holdings, Inc.

Life Sciences Spectrum Non-operating Corporate Other and Eliminations INNOVATE

Net (loss) attributable to INNOVATE Corp.

Discontinued operations (200.3)

Net Income (loss) attributable to HC2 Holdings, Inc., excluding discontinued operations $ 1.4 $ (4.3) $ (1.1) $ (19.2) $ 1.2 $ (22.0)

Net Income (loss) attributable to INNOVATE Corp., excluding discontinued operations $ 6.9 $ (5.1) $ (4.1) $ (8.0) $ (1.3) $ (11.6)

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

1 unchanged sentence

Depreciation and amortization (included in cost of revenue) 3.4 — — — — 3.4

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

Other operating expense 0.1 — 0.7 — — 0.8

Interest expense 2.2 — 2.4 8.2 — 12.8

1 unchanged sentence

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

Income tax expense 1.2 — — 1.4 — 2.6

Income tax expense (benefit) 2.9 — — (2.8) — 0.1

Noncontrolling interest 0.7 (2.0) (0.9) — (0.4) (2.6)

4 unchanged sentences

Adjusted EBITDA $ 24.4 $ (7.1) $ 1.8 $ (3.8) $ (1.0) $ 14.3

(in millions) Three months ended June 30, 2020

(in millions) Three months ended September 30, 2020

Infrastructure

Life Sciences Spectrum Non-operating Corporate Other and Eliminations HC2

Net income attributable to HC2 Holdings, Inc.

Life Sciences Spectrum Non-operating Corporate Other and Eliminations INNOVATE

Net (loss) attributable to INNOVATE Corp.

Discontinued operations 8.2

Net Income (loss) attributable to HC2 Holdings, Inc., excluding discontinued operations $ 1.7 $ (1.2) $ (3.7) $ (38.2) $ 47.0 $ 5.6

Net Income (loss) attributable to INNOVATE Corp., excluding discontinued operations $ 2.4 $ (4.3) $ (14.6) $ (8.0) $ (1.0) $ (25.5)

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

1 unchanged sentence

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

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

Other operating (income) expense (0.3) 0.1 9.6 — — 9.4

Interest expense 2.1 — 3.6 12.2 — 17.9

Loss on early extinguishment or restructuring of debt — — — 3.4 — 3.4

Other (income) expense, net (0.1) 0.1 0.3 (7.2) — (6.9)

Income tax expense 0.8 — — 4.3 6.9 12.0

Income tax expense (benefit) 1.5 — — (2.3) 2.2 1.4

Noncontrolling interest 0.1 (1.8) (1.1) — (1.5) (4.3)

6 unchanged sentences

Infrastructure:

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.

Net income from our Infrastructure segment for the three months ended September 30, 2021 increased $4.5 million to $6.9 million from $2.4 million for the three months ended September 30, 2020.

Adjusted EBITDA from our Infrastructure segment for the three months ended September 30, 2021 increased $6.7 million to $24.4 million from $17.7 million for the three months ended September 30, 2020.

The increase in Adjusted EBITDA can be attributed to increased contribution from Banker Steel, which was acquired in the second quarter of 2021.

The increase was partially offset by timing of project work under execution, changes in backlog mix and continued market pressure on point-of-sale project margins.

Life Sciences:

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.

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.

Net loss from our Life Sciences segment for the three months ended September 30, 2021 increased $0.8 million to $5.1 million from $4.3 million for the three months ended September 30, 2020.

Adjusted EBITDA loss from our Life Sciences segment for the three months ended September 30, 2021 increased $1.2 million to $7.1 million from $5.9 million for the three months ended September 30, 2020.

The increase in Adjusted EBITDA loss was primarily driven by the ramp-up in operations at R2 to support the commercial launch of its Glacial Rx products, including notable increases in salaries and benefits from headcount additions, including increased commissions for product sales as well as higher equity method losses recorded for Pansend's investment in MediBeacon due to the timing of clinical trials.

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

Net loss from our Spectrum segment for the three months ended September 30, 2021 decreased $10.5 million to $4.1 million from $14.6 million for the three months ended September 30, 2020.

Adjusted EBITDA from our Spectrum segment for the three months ended September 30, 2021 increased $2.0 million to income of $1.8 million from a loss of $0.2 million for the three months ended September 30, 2020.

The overall increase in Adjusted EBITDA to income was primarily driven by an increase in gross profit contribution attributable to cost reductions at Azteca, and the growth in station group revenues.

Partially offsetting the increase was an increase to bonus expense in the third quarter 2021 related to prior year bonus adjustments.

Non-operating Corporate:

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.

Net loss from our Non-operating Corporate segment for the three months ended September 30, 2021 remained unchanged from three months ended September 30, 2020 at $8.0 million.

Adjusted EBITDA loss from our Non-operating Corporate segment for the three months ended September 30, 2021 increased $0.1 million to $3.8 million from $3.7 million for the three months ended September 30, 2020.

The increase in Adjusted EBITDA loss was driven by additional professional fees, which was partially offset by a decrease in salaries and benefits and rent expense.

Other and Elimination:

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

Net income from our Other segment for the three months ended September 30, 2021 decreased $0.3 million to $1.3 million from $1.0 million for the three months ended September 30, 2020.

Adjusted EBITDA losses from our Other segment for the three months ended September 30, 2021 increased $0.9 million to $1.0 million from $0.1 million for the three months ended September 30, 2020.

The increase in Adjusted EBITDA loss for Other and Eliminations was driven by the equity investment in HMN, as it produced lower income than in the comparable period, which is generally attributable to the timing of turnkey project work.

(in millions) Nine months ended September 30, 2021

Infrastructure

Life Sciences Spectrum Non-operating Corporate Other and Eliminations HC2

Net (loss) attributable to HC2 Holdings, Inc.

Life Sciences Spectrum Non-operating Corporate Other and Eliminations INNOVATE

Net (loss) attributable to INNOVATE Corp $ (222.8)

Discontinued operations (149.9)

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

Net Income (loss) attributable to INNOVATE Corp., excluding discontinued operations $ 8.3 $ (13.6) $ (9.6) $ (58.0) $ — $ (72.9)

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

5 unchanged sentences

Loss on early extinguishment or restructuring of debt 1.5 — 1.0 10.0 — 12.5

Income tax expense 1.2 — — 2.5 — 3.7

Income tax expense (benefit) 4.1 — — (0.3) — 3.8

Noncontrolling interest 0.9 (6.0) (1.9) — (0.9) (7.9)

4 unchanged sentences

Adjusted EBITDA $ 49.6 $ (19.4) $ 5.3 $ (13.5) $ (0.2) $ 21.8

(in millions) Six months ended June 30, 2020

(in millions) Nine months ended September 30, 2020

Infrastructure

Life Sciences Spectrum Non-operating Corporate Other and Eliminations HC2

Net (loss) attributable to HC2 Holdings, Inc.

Life Sciences Spectrum Non-operating Corporate Other and Eliminations INNOVATE

Net (loss) attributable to INNOVATE Corp $ (87.3)

Discontinued operations (55.4)

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

Net Income (loss) attributable to INNOVATE Corp., excluding discontinued operations $ 4.0 $ (8.7) $ (23.8) $ (72.0) $ 68.6 $ (31.9)

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

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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.

Net income from our Infrastructure segment for the nine months ended September 30, 2021 increased $4.3 million to $8.3 million from $4.0 million for the nine months ended September 30, 2020.

Adjusted EBITDA from our Infrastructure segment for the nine months ended September 30, 2021 increased $3.8 million to $49.6 million from $45.8 million for the nine months ended September 30, 2020.

The increase in Adjusted EBITDA can be attributed to the contribution from Banker Steel, which was acquired in the second quarter of 2021.

The increase was partially offset from timing of project work under execution, changes in backlog mix and continued market pressure on point-of-sale project margins.

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.

Net loss from our Life Sciences segment for the nine months ended September 30, 2021 increased $4.9 million to $13.6 million from $8.7 million for the nine months ended September 30, 2020.

Adjusted EBITDA loss from our Life Sciences segment for the nine months ended September 30, 2021 increased $4.8 million to $19.4 million from $14.6 million for the nine months ended September 30, 2020.

The increase in Adjusted EBITDA loss was primarily driven by higher expenses at R2, which ramped-up operations to support the commercial launch of its Glacial Rx products, including notable increases in salaries and benefits from headcount additions, including increased commissions for product sales, as well as 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 nine months ended September 30, 2021 decreased $14.2 million to $9.6 million from $23.8 million for the nine months ended September 30, 2020.

Adjusted EBITDA from our Spectrum segment for the nine months ended September 30, 2021 increased $7.7 million to income of $5.3 million from an Adjusted EBITDA loss of $2.4 million for the nine months ended September 30, 2020.

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

The increase was also attributable to increased advertising revenues at the Azteca network.

This was partially offset by bonus expense in the third quarter 2021 related to prior year bonus adjustments partially offset by a decrease in professional fees and rent expense.

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.

Net loss from our Non-operating Corporate segment for the nine months ended September 30, 2021 decreased $14.0 million to $58.0 million from $72.0 million for the nine months ended September 30, 2020.

Adjusted EBITDA loss from our Non-operating Corporate segment for the nine months ended September 30, 2021 increased $1.2 million to $13.5 million from $12.3 million for the nine months ended September 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.

The Company's remaining selling, general and administrative costs decreased due to lower salary and benefits, professional fees, travel and entertainment expenses, and rent expense, which were partially 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.

Net income from our Other and Eliminations segment for the nine months ended September 30, 2021 decreased $68.6 million to zero from $68.6 million for the nine months ended September 30, 2020.

Adjusted EBITDA loss from our Other segment for the nine months ended September 30, 2021 decreased $0.8 million to $0.2 million from $1.0 million for the nine months ended September 30, 2020.

The decrease in Adjusted EBITDA loss 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 a reduction in ownership from 49% to 19% as a result of the partial sale of INNOVATE's investment in the second quarter of 2020.

(in millions):

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

Three Months Ended September 30, Nine months ended September 30,

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

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Infrastructure Segment

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.

At September 30, 2021, DBMG's backlog was $1,605.9 million, consisting of $1,326.7 million under contracts or purchase orders and $279.2 million under letters of intent or notices to proceed.

Approximately $1,004.4 million, representing 62.5% of DBMG’s backlog at September 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.

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Short- and Long-Term Liquidity Considerations and Risks

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 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 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.

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.

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, Revolving Credit Agreement, dividend payments on its Preferred Stock and recurring operational expenses.

As of September 30, 2021, the Company had $55.5 million of cash and cash equivalents compared to $43.8 million as of December 31, 2020.

On a stand-alone basis, as of September 30, 2021, the Non-Operating Corporate segment had cash and cash equivalents of $31.6 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, development of back-office systems, operating costs and expenses, and income taxes.

As of September 30, 2021, the Company had $676.0 million of indebtedness on a consolidated basis compared to $576.6 million as of December 31, 2020.

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

INNOVATE'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.

INNOVATE 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, on its 2024 Revolving Credit Agreement.

INNOVATE received $4.5 million in dividends from its Infrastructure segment during the three and nine months ended September 30, 2021.

Under a tax sharing agreement, the Infrastructure segment reimburses INNOVATE for use of its net operating losses.

During the three and nine months ended September 30, 2021, INNOVATE received $5.4 million from its Infrastructure segment under this tax sharing agreement.

INNOVATE received $2.1 million in net management fees from its Insurance segment during the nine months ended September 30, 2021.

INNOVATE 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.

On May 29, 2021, pursuant to the Certificate of Designation, certain 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.

In connection with the Stock Purchase Agreement, CGI, formerly 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, 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 of 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.

In the future, we may also choose to sell assets or certain investments to generate cash.

At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt service and operating leases) and other cash needs for our operations for at least the next twelve months through a combination of cash on hand, distributions from our subsidiaries, and/or the sale of assets and certain investments.

Historically, we have chosen to reinvest cash and receivables into the growth of our various businesses, and therefore have not kept a large amount of cash on hand at the holding company level.

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.

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.

At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt service and operating leases) and other cash needs for our operations for at least the next twelve months from the issuance of the Condensed Consolidated Financial Statements through a combination of available cash and distributions from our subsidiaries.

The ability of INNOVATE’s subsidiaries to make distributions to INNOVATE 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.

Although the Company believes, to the extent needed, that it will be able to raise additional equity capital, refinance 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.

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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.

During the three and nine months ended September 30, 2021, $0.4 million and $8.3 million of COVID-19 costs were incurred.

Although the COVID-19 pandemic did not have a material impact on INNOVATE’s liquidity for the nine months ended September 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.

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Capital Expenditures

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,

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

Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

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2026 Senior Secured Notes Terms and Conditions

The 2026 Senior Secured Notes mature on August 1, 2026.

The 2026 Senior Secured Notes mature on February 1, 2026.

The 2026 Senior Secured Notes accrue interest at a rate of 8.50% per year.

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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.

As of September 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.

Restrictive Covenants

The indenture governing the 2026 Senior Secured Notes dated February 1, 2021, by and among HC2, the guarantors party thereto and U.S.

The indenture governing the 2026 Senior Secured Notes dated February 1, 2021, by and among INNOVATE, the guarantors party thereto and U.S.

Bank National Association, a national banking association ("U.S.

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

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

As of September 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):

Six Months Ended June 30, Increase / (Decrease)

Nine Months Ended September 30, Increase / (Decrease)

Operating activities from Continuing Operations $ (48.1) $ (6.8) $ (41.3)

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Cash flows from discontinued operations (195.4) (84.9) (110.5)

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

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

Net decrease in cash, cash equivalents and restricted cash $ (176.6) $ (75.3) $ (101.3)

Net decrease in cash and cash equivalents from discontinued operations (195.4) (80.4) (115.0)

Net change in cash, cash equivalents and restricted cash $ 18.8 $ 5.1 $ 13.7

Operating Activities

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.

Cash used in operating activities was $48.1 million for the nine months ended September 30, 2021 as compared to cash used in operating activities of $6.8 million for the nine months ended September 30, 2020.

The $41.3 million change was primarily related to the decrease 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 a reduction in non-recurring proxy-related costs.

Investing Activities

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.

Cash provided by investing activities was $6.4 million for the nine months ended September 30, 2021 as compared to cash provided by investing activities of $221.4 million for the nine months ended September 30, 2020.

The $215.0 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.

Beyond6 was sold in first quarter of 2021 for net proceeds of $70.0 million and the cash portion of our Insurance segment was sold in the third quarter for $64.7 million compared to GMSL sold in the prior year for net proceeds of $144.0 million and the partial sale of the HMN joint venture in the prior year.

Financing Activities

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.

Cash provided by financing activities was $62.2 million for the nine months ended September 30, 2021 as compared to cash used in financing activities of $205.7 million for the nine months ended September 30, 2020.

The $267.9 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 and debt payments in the prior years and a reduction in dividends when compared to the prior year.

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 $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.

Cash used by discontinued operations was $195.4 million for the nine months ended September 30, 2021 as compared to cash used by discontinued operations of $84.9 million for the nine months ended September 30, 2020.

The $110.5 million decrease was largely due to a decline in net investment purchases at our Insurance segment compared to the prior year.

Reclassifications

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

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

Based upon the September 30, 2021 debt balance, DBMG anticipates that its interest payments will be approximately $1.7 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 and six months ended June 30, 2021 and 2020.

We have reclassified several entities as discontinued operations for the three and nine months ended September 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 closed on January 15, 2021.

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

• 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.

During the first quarter of 2021, the Company recognized a $39.2 million gain on the sale.

During the third quarter of 2021, as a result of releases of related escrows and holdbacks, the Company recognized an additional $0.5 million gain on the sale.

• The sale of CIG closed on July 1, 2021 to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of September 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 Company recorded a $200.8 million loss 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, in the same building.

As part of the agreement, INNOVATE 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, in the same building.

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 off-balance sheet arrangements at September 30, 2021 included letters of credit of $13.4 million under Credit and Security Agreements and performance bonds of $860.4 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 June 30, 2021.

There have been no material changes in the Company’s critical accounting policies during the quarter ended September 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.

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Corporate Information

HC2, a Delaware corporation, was incorporated in 1994.

INNOVATE, a Delaware corporation, was incorporated in 1994.

The Company’s executive offices are located at 295 Madison Avenue, 12th Floor, New York, NY, 10017.

The Company’s telephone number is (212) 235-2690.

Our Internet address is www.hc2.com .

Our Internet address is www.innovatecorp.com .

We make available free of charge through our Internet website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

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Factors that could cause actual results, events and developments to differ include, without limitation:

the ability of our subsidiaries (including, target businesses following their acquisition) to generate sufficient net income and cash flows to make upstream cash distributions, capital market conditions, our and our subsidiaries’ ability to identify any suitable future acquisition opportunities, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance, conditions to, and the timetable for, completing the integration of financial reporting of acquired or target businesses with HC2 or the applicable subsidiary of HC2, completing future acquisitions and dispositions, litigation, potential and contingent liabilities, management’s plans, changes in regulations and taxes.

the ability of our subsidiaries (including, target businesses following their acquisition) to generate sufficient net income and cash flows to make upstream cash distributions, capital market conditions, our and our subsidiaries’ ability to identify any suitable future acquisition opportunities, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance, conditions to, and the timetable for, completing the integration of financial reporting of acquired or target businesses with INNOVATE or the applicable subsidiary of INNOVATE, completing future acquisitions and dispositions, litigation, potential and contingent liabilities, management’s plans, changes in regulations and taxes.

We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.

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As a result, you should consider all of the following factors, together with all of the other information presented herein, in evaluating our business and that of our subsidiaries.

HC2 Holdings, Inc.

INNOVATE Corp.

and Subsidiaries

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• the effect of the novel coronavirus (“COVID-19”) pandemic and related governmental responses on our business, financial condition and results of operations;

• the impact of recent supply chain disruptions, labor shortages and increases in transportation costs;

• limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources;

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• the impact on our business and financial condition of our substantial indebtedness and the significant additional indebtedness and other financing obligations we may incur;

• the impact of covenants in the Indenture governing HC2’s new notes, the Certificates of Designation governing HC2’s Preferred Stock and all other subsidiary debt obligations as summarized in Note 9.

• the impact of covenants in the Indenture governing INNOVATE’s new notes, the Certificates of Designation governing INNOVATE’s Preferred Stock and all other subsidiary debt obligations as summarized in Note 9.

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

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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