INNOVATE (VATE) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents HC2 Holdings, Inc.'s unaudited condensed consolidated financial statements for Q2 and H1 2020, covering operations, balance sheets, and cash flows with detailed notes Condensed Consolidated Statements of Operations HC2 reported Q2 2020 net income of $12.7 million, driven by 'Other income,' while H1 2020 saw a $70.8 million net loss from discontinued operations Q2 & H1 2020 vs 2019 Key Operational Metrics (in millions, except per share amounts) | Metric | Q2 2020 | Q2 2019 | H1 2020 | H1 2019 | | :--- | :--- | :--- | :--- | :--- | | Net Revenue | $377.0 | $479.2 | $821.8 | $928.2 | | Income (Loss) from Operations | $4.9 | $33.6 | $(21.9) | $59.2 | | Net Income (Loss) Attributable to Common Stockholders | $12.7 | $9.0 | $(70.8) | $7.4 | | Diluted EPS - Continuing Operations | $0.26 | $0.24 | $(0.56) | $0.28 | | Diluted EPS - Net Income (Loss) | $0.26 | $0.12 | $(1.53) | $0.08 | - A significant gain of $64.0 million in 'Other income (loss)' for Q2 2020 was a primary driver of profitability, contrasting with a $4.8 million loss in the same period of 2019[10] - A loss from discontinued operations of $60.0 million in the first six months of 2020, which includes a $39.3 million loss on disposal, was the main contributor to the significant net loss for the period[10] Condensed Consolidated Balance Sheets As of June 30, 2020, HC2's total assets decreased to $6.63 billion and liabilities to $6.25 billion, primarily due to asset dispositions and debt reduction Balance Sheet Summary (in millions) | Account | June 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Assets | $6,633.3 | $6,958.3 | | Assets held for sale | $0 | $323.3 | | Total Liabilities | $6,249.4 | $6,493.1 | | Debt obligations | $633.8 | $773.6 | | Total HC2 Holdings, Inc. Stockholders' Equity | $319.3 | $349.8 | Condensed Consolidated Statements of Cash Flows In H1 2020, operating cash flow increased to $47.8 million, investing activities provided $138.9 million from dispositions, and financing used $222.6 million for debt payments Six Months Ended June 30, Cash Flow Summary (in millions) | Activity | 2020 | 2019 | | :--- | :--- | :--- | | Cash provided by operating activities | $47.8 | $36.8 | | Cash provided by (used in) investing activities | $138.9 | $(154.6) | | Cash (used in) provided by financing activities | $(222.6) | $69.0 | | Net change in cash, cash equivalents and restricted cash | $(25.1) | $(48.6) | - Investing activities were significantly impacted by $144.0 million in cash received from dispositions and $85.5 million from the sale of equity method investments in H1 2020[24] - Financing activities in H1 2020 included $157.4 million in principal payments on debt obligations and a $52.1 million cash outflow from transactions with noncontrolling interests[24] Notes to Condensed Consolidated Financial Statements This section details accounting policies and financial results, covering diversified segments, the GMSL sale, asset sales, debt restructuring, and COVID-19 impacts Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses Q2 2020 revenue decline to $377.0 million due to segment weakness and COVID-19 impacts, strategic asset sales for debt reduction, and recent executive changes - The company is a diversified holding company with seven reportable segments: Construction, Energy, Telecommunications, Insurance, Life Sciences, Broadcasting, and Other[195] - The COVID-19 pandemic has significantly impacted operations, particularly in the Construction segment, which incurred $8.4 million in related costs during Q2 2020 for safety measures and inefficiencies[207] - The company is actively managing its capital structure, using proceeds from the sales of GMSL and HMN to repay $15.0 million of its revolving credit facility and a total of $127.5 million of its Senior Secured Notes in 2020[211][212] Adjusted EBITDA by Segment (in millions) | Segment | Q2 2020 | Q2 2019 | | :--- | :--- | :--- | | Total Core Operating Subsidiaries | $23.5 | $25.2 | | Construction | $19.1 | $23.1 | | Energy | $4.2 | $1.3 | | Telecommunications | $0.2 | $0.8 | | Total Early Stage and Other | $(4.7) | $4.7 | | Non-Operating Corporate | $(3.6) | $(4.4) | | Total Adjusted EBITDA | $15.2 | $25.5 | Controls and Procedures Management concluded the company's disclosure controls were effective as of June 30, 2020, with no material changes to internal control over financial reporting during the quarter - As of June 30, 2020, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[353] - No changes occurred during the fiscal quarter ended June 30, 2020, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[354] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various legal proceedings, but management believes none will materially affect financial statements, with details in Note 16 - The company states that it does not believe any pending legal proceedings will have a material adverse effect on its Condensed Consolidated Financial Statements[358] - For detailed information on legal matters, the report refers to Note 16, which discusses the DBMG Class Action lawsuit and a stockholder litigation case[358][145][153] Risk Factors This section highlights material risks, primarily the widespread impacts of the COVID-19 pandemic across all segments, and risks from recent changes to the Board and executive management - The COVID-19 pandemic is identified as a major risk, potentially causing material adverse impacts on business, operating results, and financial condition across all segments[360] - The Construction segment (DBMG) faces risks of project delays and increased costs due to COVID-19, having already incurred $8.8 million in such costs in H1 2020[367] - Recent changes to the Board of Directors and executive management, including the departure of the former CEO and the search for a permanent successor, are cited as risks that could disrupt business and strategic direction[365][366] Other Information On August 7, 2020, the company finalized an employment agreement with interim CEO Wayne Barr, Jr., detailing his compensation and severance - The company entered into an employment agreement with interim CEO Wayne Barr, Jr. on August 7, 2020[379] - Mr. Barr's compensation includes a $360,000 annual base salary, a 2020 bonus of at least $180,000 contingent on performance, and a $90,000 restricted stock award[380][381]