[Filing Information](index=1&type=section&id=Filing%20Information) This section provides the official filing details for HC2 Holdings, Inc., a Delaware-incorporated diversified holding company, for the quarterly period ended June 30, 2019 [Registrant Details](index=1&type=section&id=Registrant%20Details) This section provides the official filing details for HC2 Holdings, Inc., a Delaware-incorporated diversified holding company, for the quarterly period ended June 30, 2019 - Registrant: **HC2 HOLDINGS, INC.**[2](index=2&type=chunk) - Filing Type: Quarterly Report (FORM 10-Q) for the period ended June 30, 2019[1](index=1&type=chunk)[2](index=2&type=chunk) - Jurisdiction of Incorporation: Delaware[2](index=2&type=chunk) [Securities and Filing Status](index=1&type=section&id=Securities%20and%20Filing%20Status) The company's common stock trades on the New York Stock Exchange under the symbol HCHC. HC2 Holdings, Inc. confirmed compliance with SEC filing requirements and is classified as an accelerated filer, not a shell company Securities Registered | Title of each class | Trading Symbol | Name of each exchange on which registered | |:--------------------------------|:---------------|:------------------------------------------| | Common Stock, par value $0.001 per share | HCHC | New York Stock Exchange | - Filing Compliance: Filed all required reports in the preceding 12 months and subject to filing requirements for the past 90 days (**Yes**). Submitted all Interactive Data Files (**Yes**)[4](index=4&type=chunk) - Filer Status: Accelerated filer[4](index=4&type=chunk)[5](index=5&type=chunk) - Shell Company Status: Not a shell company[4](index=4&type=chunk) - Common Stock Outstanding (as of July 31, 2019): **45,850,584 shares**[4](index=4&type=chunk) [PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis for HC2 Holdings, Inc [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements of HC2 Holdings, Inc. for the periods ended June 30, 2019, including statements of operations, comprehensive income (loss), balance sheets, stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, accounting policies, segment performance, and financial instrument valuations [Condensed Consolidated Statements of Operations](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) For the three months ended June 30, 2019, HC2 Holdings, Inc. reported net income of $9.2 million, a significant decrease from $79.8 million in the prior year, primarily due to the absence of a large gain on sale of a subsidiary recognized in 2018. Net revenue saw a modest increase, while operating income improved from a loss to a gain Condensed Consolidated Statements of Operations (Unaudited, in millions, except per share amounts) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Revenue | $439.9 | $455.0 | $844.8 | $870.5 | | Net revenue | $518.6 | $496.8 | $1,010.0 | $950.5 | | Income (loss) from operations | $30.9 | $(5.5) | $52.5 | $(19.3) | | Interest expense | $(23.0) | $(17.2) | $(45.3) | $(36.5) | | Gain on sale and deconsolidation of subsidiary | — | $102.1 | — | $102.1 | | Net income | $9.2 | $79.8 | $2.9 | $40.9 | | Net income attributable to HC2 Holdings, Inc. | $9.4 | $55.4 | $6.6 | $20.4 | | Basic Income per common share | $0.19 | $1.11 | $0.15 | $0.39 | | Diluted Income per common share | $0.12 | $1.08 | $0.08 | $0.38 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) HC2 Holdings, Inc. reported a significant increase in comprehensive income for the three and six months ended June 30, 2019, primarily driven by substantial unrealized gains on available-for-sale securities, which offset a decrease in net income Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited, in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:----------------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net income | $9.2 | $79.8 | $2.9 | $40.9 | | Unrealized gain (loss) on available-for-sale securities | $81.4 | $(22.9) | $229.6 | $(51.6) | | Other comprehensive income (loss) | $80.7 | $(29.1) | $229.8 | $(53.3) | | Comprehensive income (loss) | $89.9 | $50.7 | $232.7 | $(12.4) | | Comprehensive income (loss) attributable to HC2 Holdings, Inc. | $90.3 | $26.3 | $236.3 | $(32.9) | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2019, HC2 Holdings, Inc. reported an increase in total assets to $6,883.2 million from $6,503.8 million at December 31, 2018, primarily driven by growth in fixed maturity securities and property, plant and equipment. Total stockholders' equity significantly increased to $430.8 million from $193.7 million Condensed Consolidated Balance Sheets (Unaudited, in millions) | Asset/Liability/Equity | June 30, 2019 | December 31, 2018 | |:------------------------------------------------------|:--------------|:------------------| | Total investments | $4,198.1 | $3,822.0 | | Cash and cash equivalents | $280.4 | $325.0 | | Property, plant and equipment, net | $416.4 | $376.3 | | Goodwill | $178.4 | $171.7 | | Intangibles, net | $224.9 | $219.2 | | Total assets | $6,883.2 | $6,503.8 | | Total liabilities | $6,431.8 | $6,281.8 | | Total temporary equity | $20.6 | $28.3 | | Total stockholders' equity | $430.8 | $193.7 | [Condensed Consolidated Statements of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders'%20Equity) For the six months ended June 30, 2019, HC2 Holdings, Inc.'s total stockholders' equity increased significantly to $430.8 million from $193.7 million at December 31, 2018, primarily due to a substantial increase in accumulated other comprehensive income (loss) and net income, partially offset by the cumulative effect of accounting for leases Condensed Consolidated Statements of Stockholders' Equity (Unaudited, in millions) | Metric | Balance as of Dec 31, 2018 | Cumulative effect of accounting for leases (1) | Share-based compensation | Net income (loss) | Other comprehensive income | Balance as of Jun 30, 2019 | |:----------------------------------------|:---------------------------|:-----------------------------------------------|:-------------------------|:------------------|:---------------------------|:---------------------------| | Total HC2 Holdings, Inc. stockholders' equity | $88.1 | $(4.3) | $4.7 | $6.6 | $229.7 | $329.9 | | Noncontrolling interest | $105.6 | $(0.7) | — | $(3.2) | $0.1 | $100.9 | | Total stockholders' equity | $193.7 | $(5.0) | $4.7 | $3.4 | $229.8 | $430.8 | - Accumulated Other Comprehensive Income (Loss) increased from **$(112.6) million** at December 31, 2018, to **$117.1 million** at June 30, 2019, reflecting significant other comprehensive income during the period[14](index=14&type=chunk)[17](index=17&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2019, HC2 Holdings, Inc. generated $36.8 million in cash from operating activities, a significant improvement from cash used in operating activities in the prior year. However, cash used in investing activities increased substantially to $154.6 million, leading to a net decrease in cash and cash equivalents Condensed Consolidated Statements of Cash Flows (Unaudited, in millions) | Cash Flow Activity | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:--------------------------------------------------|:-------------------------------|:-------------------------------| | Cash provided by (used in) operating activities | $36.8 | $(41.2) | | Cash (used in) provided by investing activities | $(154.6) | $16.4 | | Cash provided by financing activities | $69.0 | $43.1 | | Effects of exchange rate changes on cash | $0.3 | $(0.3) | | Net change in cash, cash equivalents and restricted cash | $(48.5) | $18.0 | | Cash, cash equivalents and restricted cash, end of period | $281.9 | $116.9 | - Cash paid for interest increased to **$38.7 million** for the six months ended June 30, 2019, from $33.9 million in the prior year[24](index=24&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures on HC2 Holdings, Inc.'s financial statements, covering its diversified business segments, significant accounting policies, revenue recognition, recent acquisitions and dispositions, investment portfolio, fair value measurements, and various balance sheet accounts, along with commitments, contingencies, and subsequent events [Note 1. Organization and Business](index=11&type=section&id=Note%201.%20Organization%20and%20Business) HC2 Holdings, Inc. is a diversified holding company focused on acquiring and growing businesses that generate long-term sustainable free cash flow. The company operates through eight reportable segments: Construction, Marine Services, Energy, Telecommunications, Insurance, Life Sciences, Broadcasting, and Other - HC2 Holdings, Inc. is a diversified holding company that seeks to acquire and grow attractive businesses for long-term sustainable free cash flow and attractive returns[26](index=26&type=chunk) - The company has eight reportable segments: Construction (DBMG), Marine Services (GMSL), Energy (ANG), Telecommunications (ICS), Insurance (CIG), Life Sciences (Pansend), Broadcasting (HC2 Broadcasting), and Other[27](index=27&type=chunk)[28](index=28&type=chunk)[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk)[32](index=32&type=chunk)[33](index=33&type=chunk)[34](index=34&type=chunk)[35](index=35&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=12&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the company's accounting policies, including principles of consolidation, basis of presentation, and use of estimates. It also details the adoption of new accounting pronouncements for leases in 2019 and discusses the anticipated impact of future standards on credit losses and long-duration contracts - The company adopted ASU 2016-02, Leases, effective January 1, 2019, recognizing **$67.1 million** in right-of-use (ROU) assets and **$74.1 million** in lease liabilities, with a **$5.1 million** impairment of ROU assets recorded as a reduction to retained earnings[42](index=42&type=chunk)[43](index=43&type=chunk) - ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), effective January 1, 2020, is expected to significantly impact accounting for recoverable from reinsurers, accounts receivable, and mortgage loans, increasing volatility in the Consolidated Statements of Operations[44](index=44&type=chunk)[46](index=46&type=chunk)[49](index=49&type=chunk) - ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts, effective January 1, 2021, will require annual review of cash flow assumptions and quarterly updates to discount rates, increasing volatility in the Consolidated Statements of Operations and Stockholders' Equity[50](index=50&type=chunk)[51](index=51&type=chunk)[53](index=53&type=chunk) [Note 3. Revenue](index=14&type=section&id=Note%203.%20Revenue) HC2's total revenue from contracts with customers decreased slightly to $439.9 million for the three months ended June 30, 2019, from $455.0 million in the prior year, but increased to $844.8 million for the six months ended June 30, 2019, from $870.5 million in the prior year. Construction revenue increased, while Marine Services and Telecommunications revenue decreased Revenue from Contracts with Customers by Segment (in millions) | Segment | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:-------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Construction | $195.7 | $176.9 | $387.8 | $335.9 | | Marine Services | $39.4 | $68.4 | $81.8 | $105.1 | | Energy | $5.5 | $7.1 | $10.6 | $11.6 | | Telecommunications | $189.3 | $190.5 | $344.8 | $392.8 | | Broadcasting | $10.0 | $11.1 | $19.8 | $21.7 | | Other | — | $1.0 | — | $3.4 | | Total revenue | $439.9 | $455.0 | $844.8 | $870.5 | - The Construction segment's revenue increased due to the GrayWolf acquisition, while Marine Services revenue decreased due to fewer cable installation and repair projects. Telecommunications revenue declined due to changes in customer mix and market pressures[56](index=56&type=chunk)[58](index=58&type=chunk)[61](index=61&type=chunk)[63](index=63&type=chunk) Remaining Unsatisfied Performance Obligations (in millions) as of June 30, 2019 | Segment | Within one year | Within five years | Thereafter | Total | |:-------------------|:----------------|:------------------|:-----------|:--------| | Construction | $422.1 | $46.4 | — | $468.5 | | Marine Services | $61.4 | $284.9 | $59.9 | $406.2 | | Broadcasting | $4.1 | $7.7 | — | $11.8 | [Note 4. Acquisitions, Dispositions, and Deconsolidations](index=17&type=section&id=Note%204.%20Acquisitions,%20Dispositions,%20and%20Deconsolidations) This note details significant M&A activities, including DBMG's acquisition of GrayWolf Industrial in November 2018 for $139.8 million, ANG's acquisition of ampCNG's 20 natural gas fueling stations for $41.2 million in June 2019, and CGI's acquisition of KMG America Corporation in August 2018, which resulted in a bargain purchase gain of $116.5 million. It also covers the sale of BeneVir in 2018 and broadcasting license acquisitions - Construction Segment: DBMG acquired GrayWolf Industrial for **$139.8 million** in November 2018, adding specialty maintenance, repair, and installation services[65](index=65&type=chunk) - Energy Segment: ANG acquired ampCNG's **20 natural gas fueling stations** for **$41.2 million** in June 2019, expanding its network to over 60 stations[69](index=69&type=chunk) - Insurance Segment: CGI acquired KMG America Corporation in August 2018, resulting in a **gain on bargain purchase of $116.5 million**, primarily due to the Tax Cuts and Jobs Act and changes in fair value of acquired assets/liabilities[71](index=71&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - Life Sciences Segment: Pansend sold its **75.9% ownership** in BeneVir in June 2018 for **$140.0 million** upfront cash payment, recording a **gain of $102.1 million**[78](index=78&type=chunk) - Broadcasting Segment: Acquired licenses for **$13.0 million** during the six months ended June 30, 2019[80](index=80&type=chunk) [Note 5. Investments](index=20&type=section&id=Note%205.%20Investments) HC2's total investments increased to $4,198.1 million at June 30, 2019, from $3,822.0 million at December 31, 2018, driven by growth in fixed maturity securities. Net investment income significantly increased to $101.4 million for the six months ended June 30, 2019, from $37.1 million in the prior year, primarily from fixed maturity securities Investments (in millions) | Investment Type | June 30, 2019 (Fair Value) | December 31, 2018 (Fair Value) | |:--------------------------------------|:---------------------------|:-------------------------------| | Fixed maturity securities, available-for-sale | $3,812.6 | $3,391.6 | | Equity securities | $143.2 | $200.5 | | Mortgage loans | $151.8 | $137.6 | | Policy loans | $19.4 | $19.8 | | Other invested assets | $71.1 | $72.5 | | Total investments | $4,198.1 | $3,822.0 | Net Investment Income (in millions) | Source | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Fixed maturity securities | $43.7 | $16.2 | $87.3 | $31.9 | | Equity securities | $2.1 | $0.7 | $4.6 | $1.3 | | Mortgage loans | $3.1 | $1.6 | $6.8 | $2.8 | | Net investment income | $50.3 | $19.4 | $101.4 | $37.1 | - Unrealized losses on fixed maturity securities decreased to **$42.8 million** at June 30, 2019, from $117.4 million at December 31, 2018, with **81.7%** of gross unrealized losses and **86.5%** of fair value attributed to investment grade securities[84](index=84&type=chunk)[86](index=86&type=chunk)[91](index=91&type=chunk) [Note 6. Fair Value of Financial Instruments](index=24&type=section&id=Note%206.%20Fair%20Value%20of%20Financial%20Instruments) This note details the fair value measurements of HC2's financial instruments, categorizing them into Level 1, 2, and 3 hierarchies. As of June 30, 2019, total assets accounted for at fair value were $3,955.8 million, with a net transfer of $73.7 million into Level 3 primarily related to corporate securities during the six months ended June 30, 2019 Assets Accounted for at Fair Value by Hierarchy Level (in millions) | Asset Type | Total (June 30, 2019) | Level 1 | Level 2 | Level 3 | |:--------------------------|:----------------------|:--------|:----------|:--------| | Fixed maturity securities | $3,812.6 | $21.4 | $3,137.9 | $653.3 | | Equity securities | $143.2 | $25.3 | $55.9 | $62.0 | | Total assets | $3,955.8 | $46.7 | $3,193.8 | $715.3 | - A net transfer of **$73.7 million** into Level 3 occurred during the six months ended June 30, 2019, primarily due to corporate securities, indicating increased reliance on unobservable inputs for valuation[98](index=98&type=chunk) - The fair values of private placement securities are primarily determined using a discounted cash flow model, often relying on significant unobservable inputs and classified as Level 3[103](index=103&type=chunk) Financial Instruments Not Measured at Fair Value (in millions) as of June 30, 2019 | Instrument Type | Carrying Value | Estimated Fair Value | Level 1 | Level 2 | Level 3 | |:--------------------------|:---------------|:---------------------|:--------|:--------|:--------| | Mortgage loans | $151.8 | $151.8 | — | — | $151.8 | | Policy loans | $19.4 | $19.4 | — | $19.4 | — | | Annuity benefits accumulated | $237.8 | $235.2 | — | — | $235.2 | | Debt obligations | $789.0 | $758.4 | — | $758.4 | — | [Note 7. Accounts Receivable, net](index=32&type=section&id=Note%207.%20Accounts%20Receivable,%20net) Accounts receivable, net, decreased to $350.7 million at June 30, 2019, from $379.2 million at December 31, 2018, primarily due to reductions in contracts in progress and trade receivables Accounts Receivable, net (in millions) | Category | June 30, 2019 | December 31, 2018 | |:--------------------------|:--------------|:------------------| | Contracts in progress | $171.7 | $188.2 | | Trade receivables | $99.9 | $127.5 | | Unbilled retentions | $67.1 | $65.6 | | Other receivables | $18.0 | $4.2 | | Allowance for doubtful accounts | $(6.0) | $(6.3) | | Total accounts receivable, net | $350.7 | $379.2 | [Note 8. Recoverable from Reinsurers](index=32&type=section&id=Note%208.%20Recoverable%20from%20Reinsurers) Recoverable from reinsurers decreased to $961.4 million at June 30, 2019, from $1,000.2 million at December 31, 2018. Munich American Reassurance Company and Hannover Life Reassurance Company of America remain the largest reinsurers, collectively accounting for over 70% of the total Recoverable from Reinsurers (in millions) | Reinsurer | A.M. Best Rating | June 30, 2019 Amount | June 30, 2019 % of Total | December 31, 2018 Amount | December 31, 2018 % of Total | |:----------------------------------------|:-----------------|:---------------------|:-------------------------|:-------------------------|:-----------------------------| | Munich American Reassurance Company | A+ | $340.9 | 35.5% | $335.0 | 33.5% | | Hannover Life Reassurance Company of America | A+ | $332.4 | 34.6% | $336.9 | 33.7% | | Loyal American Life Insurance Company | A | $146.3 | 15.2% | $146.0 | 14.6% | | ManhattanLife Assurance Company of America | B+ | $50.4 | 5.2% | $89.5 | 8.9% | | Great American Life Insurance Company | A | $56.0 | 5.8% | $54.5 | 5.4% | | Other | | $35.4 | 3.7% | $38.3 | 3.9% | | Total | | $961.4 | 100.0% | $1,000.2 | 100.0% | [Note 9. Property, Plant and Equipment, net](index=32&type=section&id=Note%209.%20Property,%20Plant%20and%20Equipment,%20net) Property, plant and equipment, net, increased to $416.4 million at June 30, 2019, from $376.3 million at December 31, 2018, primarily driven by an increase in equipment, furniture, fixtures, and software. Depreciation expense for the six months ended June 30, 2019, was $25.3 million Property, Plant and Equipment, net (in millions) | Category | June 30, 2019 | December 31, 2018 | |:------------------------------------------|:--------------|:------------------| | Cable-ships and submersibles | $241.3 | $251.1 | | Equipment, furniture and fixtures, and software | $207.1 | $148.0 | | Building and leasehold improvements | $48.5 | $47.3 | | Land | $36.9 | $32.8 | | Construction in progress | $13.5 | $12.9 | | Plant and transportation equipment | $12.3 | $12.0 | | Less: Accumulated depreciation | $143.2 | $127.8 | | Total | $416.4 | $376.3 | - Depreciation expense for the six months ended June 30, 2019, was **$25.3 million**, up from $22.3 million in the prior year[118](index=118&type=chunk) [Note 10. Goodwill and Intangibles, Net](index=33&type=section&id=Note%2010.%20Goodwill%20and%20Intangibles,%20Net) Goodwill increased to $178.4 million at June 30, 2019, from $171.7 million at December 31, 2018, primarily due to a measurement period adjustment in the Construction segment. Indefinite-lived intangible assets, mainly FCC licenses, also increased to $135.1 million, while definite-lived intangible assets had a net carrying amount of $89.8 million Goodwill by Segment (in millions) | Segment | Balance at Dec 31, 2018 | Measurement period adjustment | Impairments | Balance at Jun 30, 2019 | |:---------------|:------------------------|:------------------------------|:------------|:------------------------| | Construction | $82.2 | $7.1 | — | $89.3 | | Marine Services| $14.3 | — | — | $14.3 | | Energy | $2.1 | — | — | $2.1 | | Telecom | $4.4 | — | $(0.4) | $4.0 | | Insurance | $47.3 | — | — | $47.3 | | Broadcasting | $21.4 | — | — | $21.4 | | Total | $171.7 | $7.1 | $(0.4) | $178.4 | Indefinite-lived Intangible Assets (in millions) | Asset Type | June 30, 2019 | December 31, 2018 | |:---------------|:--------------|:------------------| | FCC licenses | $132.6 | $120.6 | | State licenses | $2.5 | $2.5 | | Total | $135.1 | $123.1 | Definite Lived Intangible Assets, Net (in millions) | Asset Class | June 30, 2019 Net | December 31, 2018 Net | |:-------------------------|:------------------|:----------------------| | Trade names | $19.0 | $20.0 | | Customer relationships | $42.1 | $46.4 | | Channel sharing arrangements | $24.7 | $25.2 | | Developed technology | — | — | | Other | $4.0 | $4.5 | | Total | $89.8 | $96.1 | - Amortization expense for definite-lived intangible assets for the six months ended June 30, 2019, was **$6.3 million**, up from $2.1 million in the prior year[122](index=122&type=chunk) [Note 11. Life, Accident and Health Reserves](index=34&type=section&id=Note%2011.%20Life,%20Accident%20and%20Health%20Reserves) Total life, accident and health reserves decreased slightly to $4,536.6 million at June 30, 2019, from $4,562.1 million at December 31, 2018. The Insurance segment experienced a favorable claims reserve development of $41.2 million for the six months ended June 30, 2019, driven by claim terminations and favorable experience Life, Accident and Health Reserves (in millions) | Reserve Type | June 30, 2019 | December 31, 2018 | |:------------------------------------|:--------------|:------------------| | Long-term care insurance reserves | $4,158.5 | $4,142.5 | | Traditional life insurance reserves | $179.9 | $196.8 | | Other accident and health insurance reserves | $198.2 | $222.8 | | Total life, accident and health reserves | $4,536.6 | $4,562.1 | - The Insurance segment experienced a **favorable claims reserve development of $41.2 million** for the six months ended June 30, 2019, compared to an unfavorable development of $2.6 million in the prior year, primarily due to claim terminations and estimates for remaining benefits[123](index=123&type=chunk) [Note 12. Accounts Payable and Other Current Liabilities](index=34&type=section&id=Note%2012.%20Accounts%20Payable%20and%20Other%20Current%20Liabilities) Accounts payable and other current liabilities decreased to $338.5 million at June 30, 2019, from $344.9 million at December 31, 2018, primarily due to a reduction in accrued interconnection costs, partially offset by an increase in accounts payable Accounts Payable and Other Current Liabilities (in millions) | Category | June 30, 2019 | December 31, 2018 | |:------------------------------------------|:--------------|:------------------| | Accounts payable | $133.1 | $104.7 | | Accrued expenses and other current liabilities | $95.5 | $83.4 | | Accrued interconnection costs | $64.1 | $103.0 | | Accrued payroll and employee benefits | $35.1 | $44.2 | | Accrued interest | $8.1 | $8.8 | | Accrued income taxes | $2.6 | $0.8 | | Total accounts payable and other current liabilities | $338.5 | $344.9 | [Note 13. Debt Obligations](index=35&type=section&id=Note%2013.%20Debt%20Obligations) Total debt obligations, net of issuance discount and deferred financing costs, increased to $828.2 million at June 30, 2019, from $743.9 million at December 31, 2018. This increase was driven by new term loans in the Energy segment, refinancing in Marine Services, and additional notes issued in Broadcasting, along with a new revolving credit agreement at the Non-Operating Corporate level Debt Obligations (in millions) | Segment/Type | June 30, 2019 | December 31, 2018 | |:--------------------------------------------|:--------------|:------------------| | Construction | $131.7 | $114.0 | | Marine Services | $69.9 | $67.3 | | Energy | $53.8 | $26.9 | | Life Sciences | — | $1.7 | | Broadcasting | $66.0 | $46.1 | | Non-Operating Corporate | $540.0 | $525.0 | | Total (gross) | $861.4 | $781.0 | | Issuance discount, net and deferred financing costs | $(33.2) | $(37.1) | | Debt obligations (net) | $828.2 | $743.9 | - Energy segment (ANG) entered a **$28.0 million term loan** in June 2019 to finance the ampCNG acquisition[127](index=127&type=chunk) - Broadcasting segment (HC2 Broadcasting) issued an additional **$19.0 million** in 8.5% notes in Q2 2019, with maturity dates extended to August 31, 2019[129](index=129&type=chunk) - Non-Operating Corporate (HC2) entered a **$15.0 million secured revolving credit agreement** in April 2019, fully drawn, for working capital and general corporate purposes[130](index=130&type=chunk) [Note 14. Income Taxes](index=37&type=section&id=Note%2014.%20Income%20Taxes) Income tax expense for the six months ended June 30, 2019, was $5.2 million, a decrease from $11.1 million in the prior year. This reduction was primarily due to a benefit from the release of the valuation allowance of the Insurance segment, offsetting projected expenses for taxpaying entities. The company is subject to provisions of the Tax Cuts and Jobs Act (TCJA), including GILTI and interest limitation rules Income Tax Expense (in millions) | Period | Income Tax Expense | |:--------------------------------------|:-------------------| | Three Months Ended June 30, 2019 | $(1.2) | | Three Months Ended June 30, 2018 | $(9.4) | | Six Months Ended June 30, 2019 | $(5.2) | | Six Months Ended June 30, 2018 | $(11.1) | - The decrease in income tax expense for the six months ended June 30, 2019, was driven by a **benefit from the release of the valuation allowance** of the Insurance segment due to increased current year income[134](index=134&type=chunk) - The company is subject to the Tax Cuts and Jobs Act (TCJA) provisions, including Global Intangible Low Taxed Income (GILTI) and interest limitation rules[135](index=135&type=chunk) [Note 15. Commitments and Contingencies](index=37&type=section&id=Note%2015.%20Commitments%20and%20Contingencies) This note outlines the company's future minimum operating lease payments, totaling $93.0 million, and discusses various legal proceedings and disputes. Key litigation includes a CGI Producer Class Action, a VAT assessment against ICS, and a DBMG Class Action. A significant development is the settlement agreement reached between GMSL and Alcatel-Lucent Submarine Networks Limited (ASN) for $3.5 million Future Minimum Operating Lease Payments (in millions) as of December 31, 2018 | Year | Operating Leases | |:-----------|:-----------------| | 2019 | $22.0 | | 2020 | $18.7 | | 2021 | $16.4 | | 2022 | $8.8 | | 2023 | $6.8 | | Thereafter | $20.3 | | Total obligations | $93.0 | - CGI Producer Litigation: A class settlement agreement was executed on February 4, 2019, requiring GAFRI to pay **$1.25 million** on behalf of defendants, contingent on final court approval in Ohio[142](index=142&type=chunk) - Global Marine Dispute: GMSL and ASN reached a settlement on July 25, 2019, where ASN agreed to pay GMSL **$3.5 million**, resolving all current and future claims related to the Marine Installation Contract[149](index=149&type=chunk) - VAT assessment: ICS is disputing VAT assessments from HMRC for 2015 and 2016, believing the assessments are without merit[144](index=144&type=chunk) [Note 16. Employee Retirement Plans](index=39&type=section&id=Note%2016.%20Employee%20Retirement%20Plans) Net periodic benefit cost for employee retirement plans was a gain of $0.7 million for the six months ended June 30, 2019, compared to a gain of $1.2 million in the prior year. The company made $3.7 million in contributions to pension plans during the period and anticipates contributing an additional $3.9 million in 2019 Net Periodic Benefit Cost (in millions) | Component | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:--------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Interest cost | $1.3 | $1.4 | $2.7 | $2.7 | | Expected return on assets | $(1.7) | $(2.0) | $(3.4) | $(3.9) | | Net periodic benefit | $(0.4) | $(0.6) | $(0.7) | $(1.2) | - Contributions to pension plans for the six months ended June 30, 2019, totaled **$3.7 million**, with an additional **$3.9 million** anticipated for the remainder of 2019[151](index=151&type=chunk) - GMSL has a revised deficit recovery plan for its pension plan, including fixed contributions of approximately **$6.6 million** in 2019, **$6.8 million** in 2020, **$7.0 million** in 2021, and **$3.0 million** in 2022, plus variable profit-related and dividend-related contributions[153](index=153&type=chunk) [Note 17. Share-based Compensation](index=40&type=section&id=Note%2017.%20Share-based%20Compensation) HC2 Holdings, Inc. recognized $3.8 million in total share-based compensation expense for the six months ended June 30, 2019, a decrease from $4.8 million in the prior year. The company's equity compensation plans include restricted stock and stock options, with 2,423,246 unvested restricted shares and 7,067,592 outstanding stock options as of June 30, 2019 - Total share-based compensation expense recognized was **$3.8 million** for the six months ended June 30, 2019, down from $4.8 million in the prior year[160](index=160&type=chunk) Restricted Stock Activity | Metric | Shares | Weighted Average Grant Date Fair Value | |:----------------------------|:-------------|:---------------------------------------| | Unvested - December 31, 2018| 3,031,469 | $5.93 | | Granted | 542,450 | $2.57 | | Vested | (1,144,831) | $6.07 | | Forfeited | (5,842) | $3.14 | | Unvested - June 30, 2019 | 2,423,246 | $5.12 | Stock Option Activity | Metric | Shares | Weighted Average Exercise Price | |:----------------------------|:-----------|:--------------------------------| | Outstanding - December 31, 2018| 7,160,861 | $6.51 | | Granted | — | — | | Expired | (93,269) | $5.47 | | Outstanding - June 30, 2019 | 7,067,592 | $6.52 | | Eligible for exercise | 6,613,099 | $6.59 | [Note 18. Equity](index=41&type=section&id=Note%2018.%20Equity) This note details the company's preferred stock activity, including the purchase of 10,000 Series A-2 Preferred Stock shares by CGI for $8.3 million in January 2019, which resulted in a $1.7 million discount recorded as a deemed dividend. Additionally, common stock shares were issued to Luxor and Corrib in conjunction with conversion agreements Preferred Shares Issued and Outstanding | Preferred Stock Type | June 30, 2019 | December 31, 2018 | |:--------------------------|:--------------|:------------------| | Series A shares issued and outstanding | 6,375 | 6,375 | | Series A-2 shares issued and outstanding | 4,000 | 14,000 | - CGI purchased **10,000 shares of Series A-2 Preferred Stock** for **$8.3 million** in January 2019, resulting in a **$1.7 million discount** recorded as a deemed dividend[165](index=165&type=chunk) - For the six months ended June 30, 2019, **122,070 common shares** were issued to Luxor and **13,734 to Corrib** as part of conversion agreements, valued at **$0.4 million**[167](index=167&type=chunk) [Note 19. Related Parties](index=42&type=section&id=Note%2019.%20Related%20Parties) HC2 recognized $1.9 million in expenses under a services agreement with Harbinger Capital Partners for the six months ended June 30, 2019. GMSL had transactions with Fugro and equity method investees, incurring $5.3 million in expenses with Fugro and recognizing $3.0 million in net revenue from equity method investees for the six months ended June 30, 2019 - HC2 recognized **$1.9 million** in expenses under a services agreement with Harbinger Capital Partners for the six months ended June 30, 2019[169](index=169&type=chunk) - GMSL recognized **$0.8 million** in revenues and **$5.3 million** in expenses for transactions with Fugro for the six months ended June 30, 2019[171](index=171&type=chunk) GMSL Transactions with Equity Method Investees (in millions) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:-------------------|:-------------------------------|:-------------------------------| | Net revenue | $3.0 | $7.6 | | Operating expenses | $0.7 | $1.0 | | Interest expense | $0.5 | $0.7 | | Dividends | $1.1 | $2.4 | [Note 20. Operating Segment and Related Information](index=43&type=section&id=Note%2020.%20Operating%20Segment%20and%20Related%20Information) HC2 operates through eight segments and two primary geographic regions (United States and United Kingdom). For the six months ended June 30, 2019, total net revenue increased to $1,010.0 million, and income from operations improved to $52.5 million. The Insurance segment was the largest contributor to net revenue and operating income growth Net Revenue by Geographic Region (in millions) | Geographic Region | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | United States | $469.9 | $423.0 | $910.5 | $835.4 | | United Kingdom | $38.8 | $65.4 | $81.0 | $101.8 | | Other | $9.9 | $8.4 | $18.5 | $13.3 | | Total | $518.6 | $496.8 | $1,010.0 | $950.5 | Net Revenue by Operating Segment (in millions) | Segment | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:-------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Construction | $195.7 | $176.9 | $387.8 | $335.9 | | Marine Services | $39.4 | $68.4 | $81.8 | $105.1 | | Energy | $5.5 | $7.1 | $10.6 | $11.6 | | Telecommunications | $189.3 | $190.5 | $344.8 | $392.8 | | Insurance | $82.1 | $43.8 | $170.9 | $84.0 | | Broadcasting | $10.0 | $11.1 | $19.8 | $21.7 | | Other | — | $1.0 | — | $3.4 | | Total net revenue | $518.6 | $496.8 | $1,010.0 | $950.5 | Income (Loss) from Operations by Segment (in millions) | Segment | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Construction | $16.2 | $11.8 | $21.9 | $17.9 | | Marine Services | $(2.7) | $2.8 | $(6.8) | — | | Energy | $(0.3) | $1.5 | $(0.7) | $0.9 | | Telecommunications | $0.2 | $1.1 | $0.8 | $2.1 | | Insurance | $30.9 | $4.0 | $65.3 | $6.9 | | Life Sciences | $(1.8) | $(6.6) | $(3.6) | $(9.8) | | Broadcasting | $(1.7) | $(8.4) | $(5.0) | $(16.1) | | Non-operating Corporate | $(6.5) | $(8.5) | $(13.7) | $(15.8) | | Total income (loss) from operations | $30.9 | $(5.5) | $52.5 | $(19.3) | [Note 21. Basic and Diluted Income Per Common Share](index=47&type=section&id=Note%2021.%20Basic%20and%20Diluted%20Income%20Per%20Common%20Share) Basic income per common share for the six months ended June 30, 2019, was $0.15, down from $0.39 in the prior year, while diluted EPS was $0.08, down from $0.38. The calculation uses the two-class method, allocating earnings to common stock and participating securities, and excludes certain antidilutive potential common shares Basic and Diluted Income Per Common Share (in millions, except per share amounts) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net income attributable to common stock and participating preferred stockholders | $9.0 | $54.7 | $7.4 | $19.0 | | Basic Income per common share | $0.19 | $1.11 | $0.15 | $0.39 | | Diluted Income per common share | $0.12 | $1.08 | $0.08 | $0.38 | | Weighted average common shares outstanding - basic | 45.6 | 44.2 | 45.2 | 44.1 | | Weighted average common shares outstanding - diluted | 58.1 | 45.5 | 59.9 | 45.3 | - Potential weighted common shares excluded from diluted EPS for the six months ended June 30, 2019, due to antidilutive impact included **2,168,454** for outstanding warrants and **486,627** of unvested restricted stock[184](index=184&type=chunk) [Note 22. Subsequent Events](index=48&type=section&id=Note%2022.%20Subsequent%20Events) Subsequent to the reporting period, on July 31, 2019, MediBeacon entered into an exclusive licensing agreement with Huadong Medicine for its portfolio of assets in Greater China and select Asian countries. MediBeacon will receive an initial $15.0 million equity payment and a second $15.0 million payment upon US FDA approval - On July 31, 2019, MediBeacon entered an exclusive agreement with Huadong Medicine for its assets in Greater China and 25 Asian countries[187](index=187&type=chunk) - Under the agreement, MediBeacon will receive an initial **$15.0 million equity payment** at a **$300.0 million pre-money valuation** and a second **$15.0 million equity payment** upon US FDA approval at a **$400.0 million pre-money valuation**, plus royalties on net sales[187](index=187&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=49&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on HC2 Holdings, Inc.'s financial condition and results of operations for the three and six months ended June 30, 2019. It highlights the company's diversified business model, recent acquisitions, and the impact of various factors on segment performance, liquidity, and capital resources [Our Business](index=49&type=section&id=Our%20Business) HC2 Holdings, Inc. is a diversified holding company operating through eight segments, continuously evaluating acquisition opportunities and monitoring key performance indicators to maximize stakeholder value. The company emphasizes a disciplined approach to capital allocation and a flexible business structure to capitalize on market opportunities - HC2 is a diversified holding company with principal operations across eight segments: Construction, Marine Services, Energy, Telecommunications, Insurance, Life Sciences, Broadcasting, and Other[190](index=190&type=chunk) - The company evaluates acquisition opportunities and monitors key indicators like revenue, cost of revenue, operating profit, Adjusted EBITDA, and free cash flow to maximize stakeholder value[191](index=191&type=chunk) - HC2's strategy involves close collaboration with subsidiary management teams to capture synergies and position the company for long-term growth, supported by an executive compensation program aligned with stakeholder value creation[191](index=191&type=chunk)[193](index=193&type=chunk) [Our Operations](index=49&type=section&id=Our%20Operations) This section refers to Note 1 for detailed information on the company's operational structure and business segments - Refer to Note 1. Organization and Business for additional information on the company's operations[194](index=194&type=chunk) [Seasonality](index=49&type=section&id=Seasonality) The Construction and Marine Services segments are subject to seasonality, with business volume in Construction affected by project delays and Marine Services installation revenues typically lower in late Q4 and Q1 due to weather. Other segments are not materially affected - Construction and Marine Services segments are highly cyclical and subject to seasonal patterns, with project delays and weather conditions impacting business volume[195](index=195&type=chunk)[197](index=197&type=chunk) - Marine Services installation revenues are generally lower towards the end of the fourth quarter and throughout the first quarter due to warmer weather preferences for cable installations in the northern hemisphere[199](index=199&type=chunk) [Recent Developments](index=50&type=section&id=Recent%20Developments) Recent developments include ANG's acquisition of 20 natural gas fueling stations for $41.2 million, HC2 Broadcasting's acquisition of licenses for $13.0 million, and various debt obligation activities across segments, including GMSL's loan refinancing, ANG's new term loan, and HC2 Broadcasting's additional note issuances. HC2 also entered a $15.0 million secured revolving credit agreement - Energy Segment: ANG acquired ampCNG's **20 natural gas fueling stations** for **$41.2 million** in June 2019, expanding its network to over 60 stations[201](index=201&type=chunk) - Broadcasting Segment: HC2 Broadcasting acquired licenses for **$13.0 million** during the six months ended June 30, 2019[202](index=202&type=chunk) - Debt Obligations: GMSL refinanced a loan for **$21.6 million**, ANG secured a **$28.0 million term loan**, HC2 Broadcasting issued an additional **$19.0 million** in notes, and HC2 entered a **$15.0 million secured revolving credit agreement**[203](index=203&type=chunk)[204](index=204&type=chunk)[206](index=206&type=chunk)[207](index=207&type=chunk) - Dividends Received: HC2 received **$13.5 million** in dividends from its Construction segment and **$4.3 million** from its Telecommunications segment for the six months ended June 30, 2019[208](index=208&type=chunk)[209](index=209&type=chunk) - Tax Sharing Agreement: HC2 received **$10.0 million** from its Construction segment for use of net operating losses during the six months ended June 30, 2019[210](index=210&type=chunk) [Financial Presentation Background](index=51&type=section&id=Financial%20Presentation%20Background) This section states that the Management's Discussion and Analysis compares the company's results of operations for the three and six months ended June 30, 2019, against the corresponding periods in 2018, in accordance with U.S. GAAP and SEC disclosure rules - The MD&A compares results of operations for the three and six months ended June 30, 2019, to the same periods in 2018, adhering to U.S. GAAP and SEC disclosure rules[211](index=211&type=chunk) [Results of Operations](index=51&type=section&id=Results%20of%20Operations) For the six months ended June 30, 2019, total net revenue increased by $59.5 million to $1,010.0 million, driven by improvements in the Insurance and Construction segments. Income from operations significantly improved by $71.8 million to $52.5 million. However, net income attributable to HC2 Holdings, Inc. decreased by $13.8 million to $6.6 million, largely due to the absence of a $102.1 million gain on sale of a subsidiary in the prior year Summary of Results of Operations (in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Total net revenue | $518.6 | $496.8 | $1,010.0 | $950.5 | | Total income (loss) from operations | $30.9 | $(5.5) | $52.5 | $(19.3) | | Interest expense | $(23.0) | $(17.2) | $(45.3) | $(36.5) | | Gain on sale and deconsolidation of subsidiary | — | $102.1 | — | $102.1 | | Net income attributable to HC2 Holdings, Inc. | $9.4 | $55.4 | $6.6 | $20.4 | | Net income attributable to common stock and participating preferred stockholders | $9.0 | $54.7 | $7.4 | $19.0 | - Net revenue increased by **$59.5 million** for the six months ended June 30, 2019, primarily due to the Insurance segment (KIC acquisition, higher-yielding investments) and Construction segment (GrayWolf acquisition), partially offset by declines in Telecommunications and Marine Services[214](index=214&type=chunk) - Income from operations increased by **$71.8 million** for the six months ended June 30, 2019, mainly driven by the Insurance segment (KIC acquisition) and lower losses in the Broadcasting segment (cost-cutting measures)[215](index=215&type=chunk) - Interest expense increased by **$8.8 million** for the six months ended June 30, 2019, due to additional debt at Non-operating Corporate and Construction segments[216](index=216&type=chunk) - The absence of the **$102.1 million gain** from the sale of BeneVir in 2018 significantly impacted the year-over-year net income comparison[217](index=217&type=chunk) [Segment Results of Operations](index=54&type=section&id=Segment%20Results%20of%20Operations) This section provides a detailed breakdown of the financial performance for each of HC2's operating segments, highlighting key revenue and expense drivers, and changes in income (loss) from operations for the three and six months ended June 30, 2019, compared to the prior year [Construction Segment](index=54&type=section&id=Construction%20Segment) The Construction segment's net revenue increased by $51.9 million to $387.8 million for the six months ended June 30, 2019, primarily due to the GrayWolf acquisition. Income from operations also increased by $3.9 million to $21.9 million, despite higher cost of revenue and SG&A expenses related to the acquisition Construction Segment Financials (in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:----------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net revenue | $195.7 | $176.9 | $387.8 | $335.9 | | Cost of revenue | $155.3 | $149.1 | $318.1 | $284.8 | | Selling, general and administrative | $20.2 | $14.3 | $40.0 | $29.5 | | Depreciation and amortization | $4.0 | $1.7 | $7.9 | $3.2 | | Income from operations | $16.2 | $11.8 | $21.9 | $18.0 | - Revenue increase was primarily driven by DBMG's acquisition of GrayWolf in late Q4 2018, partially offset by lower activity in fabrication and erection business on large commercial projects nearing completion[226](index=226&type=chunk) - SG&A expenses increased due to headcount-driven increases in salary and benefits resulting from the GrayWolf acquisition[228](index=228&type=chunk) [Marine Services Segment](index=55&type=section&id=Marine%20Services%20Segment) The Marine Services segment's net revenue decreased by $23.3 million to $81.8 million for the six months ended June 30, 2019, leading to an operating loss of $6.8 million compared to break-even in the prior year. This decline was due to fewer and smaller cable installation and repair projects and lower telecom maintenance zone revenues Marine Services Segment Financials (in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:----------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net revenue | $39.4 | $68.4 | $81.8 | $105.1 | | Cost of revenue | $30.6 | $54.0 | $63.8 | $84.0 | | Selling, general and administrative | $5.9 | $5.2 | $12.0 | $10.5 | | Income (loss) from operations | $(2.7) | $2.9 | $(6.8) | — | - Revenue decreases were primarily attributed to a decrease in the number and scale of GMSL projects for cable installation and repair work in offshore renewables, power utility, and telecom end markets, and lower volume of cable repair work in telecom maintenance zones[232](index=232&type=chunk) - Other operating income increased for the three months ended June 30, 2019, driven by a gain on the sale of a vessel[235](index=235&type=chunk) [Energy Segment](index=56&type=section&id=Energy%20Segment) The Energy segment's net revenue decreased by $1.0 million to $10.6 million for the six months ended June 30, 2019, resulting in an operating loss of $0.7 million. This was mainly due to the absence of $2.6 million in Alternative Fuels Excise Tax Credit (AFETC) revenue recognized in the prior year, partially offset by increased CNG fueling sales and the ampCNG acquisition Energy Segment Financials (in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:----------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net revenue | $5.5 | $7.1 | $10.6 | $11.6 | | Cost of revenue | $3.3 | $2.7 | $6.5 | $5.6 | | Selling, general and administrative | $1.0 | $1.4 | $1.9 | $2.3 | | Income (loss) from operations | $(0.3) | $1.6 | $(0.7) | $0.9 | - Revenue decrease was largely driven by the absence of **$2.6 million** of Alternative Fuels Excise Tax Credit (AFETC) revenue recognized in Q2 2018[239](index=239&type=chunk) - Cost of revenue increased due to higher gas commodity and utility costs associated with increased CNG sales volumes, including from the ampCNG acquisition[240](index=240&type=chunk) [Telecommunications Segment](index=56&type=section&id=Telecommunications%20Segment) The Telecommunications segment's net revenue decreased by $48.1 million to $344.8 million for the six months ended June 30, 2019, resulting in a decline in income from operations to $0.8 million. This was primarily due to changes in customer mix, fluctuations in wholesale voice termination volumes, and market pressures Telecommunications Segment Financials (in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:----------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net revenue | $189.3 | $190.5 | $344.8 | $392.9 | | Cost of revenue | $186.4 | $186.6 | $338.7 | $385.4 | | Selling, general and administrative | $2.1 | $2.7 | $4.6 | $5.2 | | Income from operations | $0.2 | $1.1 | $0.8 | $2.1 | - Revenue decreases were attributed to changes in customer mix, fluctuations in wholesale voice termination volumes, and market pressures[243](index=243&type=chunk) - Cost of revenue decreased in correlation with lower wholesale voice termination volumes and a slight reduction in margin mix due to market pressures on call termination rates[244](index=244&type=chunk) [Insurance Segment](index=57&type=section&id=Insurance%20Segment) The Insurance segment's net revenue significantly increased by $86.9 million to $170.9 million for the six months ended June 30, 2019, primarily due to the KIC acquisition and higher net investment income. Income from operations surged by $58.3 million to $65.3 million, despite increased policy benefits and SG&A expenses Insurance Segment Financials (in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Life, accident and health earned premiums, net | $30.1 | $19.9 | $59.9 | $39.9 | | Net investment income | $52.5 | $19.4 | $105.5 | $37.1 | | Net realized and unrealized (losses) gains on investments | $(0.5) | $4.5 | $5.5 | $7.0 | | Net revenue | $82.1 | $43.8 | $170.9 | $84.0 | | Policy benefits, changes in reserves, and commissions | $48.0 | $35.4 | $100.7 | $67.7 | | Selling, general and administrative | $9.2 | $5.7 | $17.4 | $11.6 | | Depreciation and amortization | $(6.0) | $(1.3) | $(12.5) | $(2.3) | | Income from operations | $30.9 | $4.0 | $65.3 | $7.0 | - Increases in net earned premiums and net investment income were primarily due to the KIC acquisition in 2018 and a rotation into higher-yielding investments[247](index=247&type=chunk)[248](index=248&type=chunk) - Policy benefits, changes in reserves, and commissions increased due to KIC, but were partially offset by current period reserve releases from higher mortality, policy terminations, and favorable claim developments[250](index=250&type=chunk) - Depreciation and amortization increased due to higher negative VOBA amortization from the KIC acquisition, which positively impacts net income[252](index=252&type=chunk) [Life Sciences Segment](index=58&type=section&id=Life%20Sciences%20Segment) The Life Sciences segment's loss from operations decreased by $6.3 million to $3.5 million for the six months ended June 30, 2019. This improvement was driven by comparably fewer expenses at the Pansend holding company, reduced costs associated with the BeneVir sale in 2018, and lower R&D costs at R2 Life Sciences Segment Financials (in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:----------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Selling, general and administrative | $1.6 | $6.5 | $3.4 | $9.7 | | Loss from operations | $(1.7) | $(6.6) | $(3.5) | $(9.8) | - SG&A expenses decreased due to fewer expenses at Pansend, reduced costs from the BeneVir sale in Q2 2018, and lower R&D costs at R2[253](index=253&type=chunk) [Broadcasting Segment](index=58&type=section&id=Broadcasting%20Segment) The Broadcasting segment's net revenue decreased by $1.9 million to $19.8 million for the six months ended June 30, 2019, but its loss from operations significantly decreased by $11.1 million to $5.0 million. This improvement was primarily due to cost-cutting measures, including exiting unprofitable local operations and changes in programming mix, and increased FCC reimbursements Broadcasting Segment Financials (in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:----------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net revenue | $10.0 | $11.1 | $19.8 | $21.7 | | Cost of revenue | $5.6 | $7.2 | $11.8 | $14.0 | | Selling, general and administrative | $5.6 | $11.4 | $12.0 | $22.3 | | Depreciation and amortization | $1.5 | $0.8 | $2.9 | $1.4 | | Loss from operations | $(1.7) | $(8.4) | $(5.0) | $(16.1) | - Revenue decreased due to lower local advertising sales resulting from restructuring efforts, including exiting certain local business operations and strategic changes to programming mix[255](index=255&type=chunk) - SG&A expenses decreased significantly due to cost-cutting measures at HC2 Network Inc., resulting in lower personnel, occupancy, advertising, and administrative costs[257](index=257&type=chunk) - Other operating income increased due to reimbursements from the Federal Communications Commission (FCC) for stations changing channels or modifying transmission facilities[259](index=259&type=chunk) [Non-operating Corporate](index=59&type=section&id=Non-operating%20Corporate) The Non-operating Corporate segment's loss from operations decreased by $2.1 million to $13.7 million for the six months ended June 30, 2019. This improvement was driven by reductions in professional services fees and bonus expense, partially offset by an increase in employee wage and benefits expenses Non-operating Corporate Financials (in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:----------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Selling, general and administrative | $6.5 | $8.5 | $13.7 | $15.8 | | Loss from operations | $(6.5) | $(8.5) | $(13.7) | $(15.8) | - SG&A expenses decreased due to reductions in professional services fees and bonus expense, partially offset by increased employee wage and benefits[261](index=261&type=chunk) [Income from Equity Investees](index=59&type=section&id=Income%20from%20Equity%20Investees) Income from equity investees decreased by $4.3 million to $1.2 million for the six months ended June 30, 2019. This decline was primarily due to lower equity method income from Huawei Marine Networks (HMN) and S.B. Submarine Systems (SBSS) in the Marine Services segment, and reduced losses from MediBeacon in the Life Sciences segment Income from Equity Investees by Segment (in millions) | Segment | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Construction | — | $(0.1) | — | $(0.1) | | Marine Services | $6.3 | $11.6 | $2.5 | $7.7 | | Life Sciences | $(0.2) | $(0.7) | $(1.3) | $(2.1) | | Total | $6.1 | $10.8 | $1.2 | $5.5 | - Marine Services: Income from equity investees decreased due to lower HMN revenues on large turnkey projects and losses at SBSS from low vessel utilization[262](index=262&type=chunk) - Life Sciences: Losses from equity investees decreased due to lower equity method losses from MediBeacon, driven by timing of clinical trials and licensing income[263](index=263&type=chunk) [Non-GAAP Financial Measures and Other Information](index=60&type=section&id=Non-GAAP%20Financial%20Measures%20and%20Other%20Information) This section presents non-GAAP financial measures, including Adjusted EBITDA and Insurance Adjusted Operating Income (AOI), which management uses to evaluate financial performance and operating trends. Adjusted EBITDA for the six months ended June 30, 2019, increased by $14.7 million to $30.5 million, while Pre-tax Insurance AOI increased by $59.0 million to $61.7 million [Adjusted EBITDA](index=60&type=section&id=Adjusted%20EBITDA) Adjusted EBITDA, a non-GAAP measure, increased by $14.7 million to $30.5 million for the six months ended June 30, 2019. This improvement was primarily driven by the Construction segment (GrayWolf acquisition) and reduced losses in Life Sciences and Broadcasting, partially offset by declines in Marine Services and Energy - Adjusted EBITDA is a non-GAAP measure used to provide insight into operating trends and facilitate comparisons, excluding items like depreciation, amortization, interest, taxes, and non-recurring items[265](index=265&type=chunk)[266](index=266&type=chunk) Adjusted EBITDA by Segment (in millions) | Segment | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:--------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Construction | $23.1 | $15.5 | $35.5 | $25.5 | | Marine Services | $9.6 | $20.4 | $9.7 | $18.0 | | Energy | $1.3 | $3.0 | $2.3 | $3.6 | | Telecommunications | $0.8 | $1.3 | $1.6 | $2.4 | | Life Sciences | $(1.8) | $(4.8) | $(4.7) | $(9.2) | | Broadcasting | $(0.9) | $(6.3) | $(3.4) | $(11.3) | | Non-Operating Corporate | $(4.4) | $(5.4) | $(10.5) | $(12.0) | | Total Adjusted EBITDA | $27.7 | $22.7 | $30.5 | $15.8 | - Construction Adjusted EBITDA increased by **$10.0 million** for the six months ended June 30, 2019, driven by higher gross profit from fabrication and erection projects and the GrayWolf acquisition[276](index=276&type=chunk) - Marine Services Adjusted EBITDA decreased by **$8.3 million** for the six months ended June 30, 2019, due to reduced cable installation and repair work and lower income from equity method investees[277](index=277&type=chunk) [Adjusted Operating Income - Insurance](index=64&type=section&id=Adjusted%20Operating%20Income%20-%20Insurance) Pre-tax Insurance Adjusted Operating Income (AOI), a non-GAAP measure, significantly increased by $59.0 million to $61.7 million for the six months ended June 30, 2019. This growth was primarily driven by incremental net investment income and policy premiums from the KIC acquisition, as well as favorable reserve adjustments - Insurance AOI and Pre-tax Insurance AOI are non-GAAP measures used to evaluate the Insurance segment's financial performance, excluding investment gains/losses, asset impairment, bargain purchase gains, and acquisition costs[286](index=286&type=chunk) Insurance AOI and Pre-tax Insurance AOI (in millions) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | |:------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Net income (loss) - Insurance segment | $30.3 | $0.6 | $64.1 | $1.8 | | Insurance AOI | $31.3

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended March 31, 2019 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File No. 001-35210 HC2 HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 54-1708481 (State or other jurisdiction of incorporation or organization) 450 Park Av ...

WASHINGTON, D.C. 20549 FORM 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the fiscal year ended December 31, 2018 UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. Commission File No. 001-35210 HC2 HOLDINGS, INC. (Exact name of registrant as specified in its charter) Delaware 54-1708481 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer ...