UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended March 31, ~~2021~~2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File No. 001-35210


~~HC2 HOLDINGS, INC.~~INNOVATE CORP. (Exact name of registrant as specified in its charter)


Delaware						54-1708481
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
295 Madison Avenue, 12th Floor, New York, NY						10017
(Address of principal executive offices)						(Zip Code)

(212) 235-2690

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	~~HCHC~~VATE	New York Stock Exchange
Preferred Stock Purchase Rights	N/A	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.:


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of April 30, ~~2021, 77,612,041~~2022, 78,432,535 shares of common stock, par value $0.001, were outstanding.

~~F-1~~

~~HC2 HOLDINGS, INC.~~

INNOVATE CORP.
INDEX TO FORM 10-Q


Item 1.	~~Item 1.~~ Financial Statements	12
	C ondensed C onsolidated Statements of Operations	2
	C ondensed C onsolidated Statements of Comprehensive (Loss) Income ~~Loss~~	3
	C ondensed C onsolidated Balance Sheets	4
	C ondensed C onsolidated Statements of Stockholders’ ~~Equity~~Deficit	5
	C ondensed C onsolidated Statements of Cash ~~Flo~~w sFlows	6
	Notes to ~~Condensed~~ Cond ensed Consolidated Financial Statements	7
	(1) Organization and Business	7
	(2) Summary of Significant Accounting Policies	8
	(3) Discontinued Operations	10
	(4) Revenue	11
~~(4) Revenue~~	13(5) Acquisitions, Dispositions, and Deconsolidations	14
~~(5) Business Combinations~~	(6) Accounts Receivable, net	15
~~(6) Accounts Receivable~~	(7) Property, Plant and Equipment, net	16
~~(7) Property, Plant~~	(8) Goodwill and ~~Equipment, net~~Intangible Assets	16
	(9) Debt Obligations	17
~~(8) Goodwill and Intangible Assets~~	17(10) Supplementary Financial Information
~~(9) Debt Obligations~~	19
(1 0 ~~) Supplementary Financial Information~~	20
(1 1 )(11) Leases	22
	(12) Income Taxes	23
	(13) Commitments and Contingencies	23
	(14) Share-based Compensation	25
	(15) Equity	26
~~(15) Equity~~	27
(16) Related Parties	29
	(17) Operating Segment and Related Information	3029
	(18) Basic and Diluted Income (Loss) Per Common Share	31
	(19) Subsequent Events	32
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	~~Item 2. Management's Discussion~~Quantitative and ~~Analysis of~~ ~~Financial Condition and Results of Operations~~Qualitative Disclosures about Market Risk	3449
Item 4.	~~Item 4.~~ Controls and Procedures	5249

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 6.	Exhibits	50


	~~PART II. OTHER INFORMATION~~
~~Item 1.~~	~~Legal Proceedings~~	53
~~Item 1A.~~	~~Risk Factors~~	53
~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	53
~~Item 3.~~	~~Defaults Upon Senior Securities~~	53
~~Item 4.~~	~~Mine Safety Disclosures~~	53
~~Item 5.~~	~~Other Information~~	53
~~Item 6.~~	~~Exhibits~~	53

~~F-1~~1

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions, except per share amounts)

PART I: FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements


	Three Months Ended March 31,
		2022		2021
Revenue		$	412.8	$	171.8
Cost of revenue		363.0		141.3
Gross profit		49.8		30.5
Operating expenses:
Selling, general and administrative		42.6		37.1
Depreciation and amortization		6.9		3.9

Other operating (gain) loss		(0.4)		0.4
Income (loss) from operations		0.7		(10.9)
Other (expense) income:
Interest expense		(12.6)		(21.4)

Loss on early extinguishment or restructuring of debt		—		(10.8)

Loss from equity investees		(0.5)		(2.1)

Other (loss) income		(0.1)		3.4
Loss from continuing operations before income taxes		(12.5)		(41.8)
Income tax expense		(1.6)		(1.1)
Loss from continuing operations		(14.1)		(42.9)
Income from discontinued operations (including gain on disposal of $40.4 million for the three months ended March 31, 2021)		—		51.9
Net (loss) income		(14.1)		9.0
Net income attributable to noncontrolling interest and redeemable noncontrolling interest		1.7		3.6
Net (loss) income attributable to INNOVATE Corp.		(12.4)		12.6
Less: Preferred dividends and deemed dividends from conversions		1.2		0.4
Net (loss) income attributable to common stock and participating preferred stockholders		$	(13.6)	$	12.2

Loss per common share - continuing operations
Basic		$	(0.18)	$	(0.51)
Diluted		$	(0.18)	$	(0.51)

Income per common share - discontinued operations
Basic		$	—	$	0.66
Diluted		$	—	$	0.66

(Loss) income per share - Net loss attributable to common stock and participating preferred stockholders
Basic		$	(0.18)	$	0.15
Diluted		$	(0.18)	$	0.15

Weighted average common shares outstanding:
Basic		77.3		76.9
Diluted		77.3		76.9

Three Months Ended March 31,
2021 2020
Revenue $ 171.8 $ 186.6
Cost of revenue 141.3 156.8
Gross Profit 30.5 29.8
Operating expenses:
Selling, general and administrative 37.1 38.9
Depreciation and amortization 3.9 4.3
Other operating loss 0.4 0.2
Loss from operations (10.9) (13.6)
Other (expense) income:
Interest expense (21.4) (19.2)
Loss on early extinguishment or restructuring of debt (10.8) (5.8)
Loss from equity investees (2.1) (2.5)
Other income 3.4 1.5
Loss from continuing operations before income taxes (41.8) (39.6)
Income tax (expense) benefit (1.1) 9.7
Loss from continuing operations (42.9) (29.9)
Income (loss) from discontinued operations (including gain on disposal of $40.4 million and loss on disposal of $39.3 million for the three months ended March 31, 2021 and 2020, respectively) 51.9 (71.1)
Net income (loss) 9.0 (101.0)
Net income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest 3.6 17.9
Net income (loss) attributable to HC2 Holdings, Inc. 12.6 (83.1)
Less: Preferred dividends and deemed dividends from conversions 0.4 0.4
Net income (loss) attributable to common stock and participating preferred stockholders $ 12.2 $ (83.5)
Loss per common share - continuing operations
Basic $ (0.51) $ (0.60)
Diluted $ (0.51) $ (0.60)
Income (loss) per common share - discontinued operations
Basic $ 0.66 $ (1.22)
Diluted $ 0.66 $ (1.22)
Income (loss) per share - Net income (loss) attributable to common stock and participating preferred stockholders
Basic $ 0.15 $ (1.82)
Diluted $ 0.15 $ (1.82)
Weighted average common shares outstanding:
Basic 76.9 45.9
Diluted 76.9 45.9

See notes to Condensed Consolidated Financial Statements

~~F-2~~2

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~LOSS~~(LOSS) INCOME

(Unaudited, in millions)

Three Months Ended March 31,
2021 2020
Net income (loss) $ 9.0 $ (101.0)
Other comprehensive income
Foreign currency translation adjustment (0.8) 0.2
Unrealized losses on available-for-sale securities (181.2) (276.0)
Dispositions 0 22.8
Other comprehensive loss (182.0) (253.0)
Comprehensive loss (173.0) (354.0)
Comprehensive income attributable to noncontrolling interests and redeemable noncontrolling interests (3.7) (8.9)
Comprehensive loss attributable to HC2 Holdings, Inc. $ (176.7) $ (362.9)


	Three Months Ended March 31,
		2022		2021
Net (loss) income		$	(14.1)	$	9.0
Other comprehensive income (loss)
Foreign currency translation adjustment, net of tax		0.7		(0.8)
Unrealized loss on available-for-sale securities, net of tax		—		(181.2)


Other comprehensive income (loss)		0.7		(182.0)
Comprehensive loss		(13.4)		(173.0)
Comprehensive loss attributable to noncontrolling interests and redeemable noncontrolling interests		(1.6)		(3.7)
Comprehensive loss attributable to INNOVATE Corp.		$	(15.0)	$	(176.7)

See notes to Condensed Consolidated Financial Statements

~~F-3~~3

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except share amounts)


	March 31, 2022		December 31, 2021

Assets
Current assets
Cash and cash equivalents	$	26.4	$	45.5
Accounts receivable, net	274.4		247.1
Contract assets	140.6		118.6
Inventory	19.5		17.0
Restricted cash	2.0		2.0
Assets held for sale	1.5		1.5
Other current assets	12.2		10.9
Total current assets	476.6		442.6
Investments	60.2		56.0






Deferred tax asset	3.1		3.0
Property, plant and equipment, net	165.8		169.9
Goodwill	127.5		127.4
Intangibles, net	204.2		208.4
Other assets	74.8		73.3
Total assets	$	1,112.2	$	1,080.6

Liabilities, temporary equity and stockholders’ deficit
Current liabilities
Accounts payable	$	200.4	$	179.2
Accrued liabilities	86.1		93.4
Current portion of debt obligations	80.1		69.5
Contract liabilities	55.1		79.1

Other current liabilities	19.8		18.3
Total current liabilities	441.5		439.5



Deferred tax liability	9.5		9.1
Debt obligations	601.0		556.8
Other liabilities	63.3		63.3
Total liabilities	1,115.3		1,068.7
Commitments and contingencies	0		0
Temporary equity
Preferred stock	18.5		18.8
Redeemable noncontrolling interest	47.7		49.3
Total temporary equity	66.2		68.1
Stockholders’ deficit
Common stock, $0.001 par value	0.1		0.1
Shares authorized: 160,000,000 at March 31, 2022 and December 31, 2021, respectively
Shares issued: 79,821,751 and 79,225,964 at March 31, 2022 and December 31, 2021, respectively
Shares outstanding: 78,432,535 and 77,836,748 at March 31, 2022 and December 31, 2021, respectively
Additional paid-in capital	330.8		330.6
Treasury stock, at cost: 1,389,216 and 1,389,216 shares at March 31, 2022 and December 31, 2021, respectively	(5.2)		(5.2)
Accumulated deficit	(428.6)		(416.2)
Accumulated other comprehensive income	7.0		6.4
Total INNOVATE Corp. stockholders’ deficit	(95.9)		(84.3)
Noncontrolling interest	26.6		28.1
Total stockholders’ deficit	(69.3)		(56.2)
Total liabilities, temporary equity and stockholders’ deficit	$	1,112.2	$	1,080.6

March 31,
2021 December 31,
2020
Assets
Current assets
Cash and cash equivalents $ 54.2 $ 43.8
Accounts receivable, net 186.4 184.7
Costs and recognized earnings in excess of billings on uncompleted contracts 65.7 55.6
Assets held for sale 5,592.8 5,942.1
Other current assets 21.3 20.1
Total current assets 5,920.4 6,246.3
Investments 52.7 55.4
Deferred tax asset 2.7 3.0
Property, plant and equipment, net 110.7 112.8
Goodwill 110.9 111.0
Intangibles, net 167.1 172.1
Other assets 41.5 42.2
Total assets $ 6,406.0 $ 6,742.8
Liabilities, temporary equity and stockholders’ equity
Current liabilities
Accounts payable $ 70.2 $ 69.7
Accrued liabilities 78.6 77.1
Current portion of debt obligations 82.8 433.6
Billings in excess of costs and recognized earnings on uncompleted contracts 58.5 52.2
Liabilities held for sale 5,166.0 5,306.7
Other current liabilities 14.2 12.9
Total current liabilities 5,470.3 5,952.2
Deferred tax liability 6.9 7.0
Debt obligations 463.3 127.9
Other liabilities 34.0 39.8
Total liabilities 5,974.5 6,126.9
Commitments and contingencies 0 0
Temporary equity
Preferred stock 10.4 10.4
Redeemable noncontrolling interest 7.6 5.3
Total temporary equity 18.0 15.7
Stockholders’ equity
Common stock, $0.001 par value 0.1 0.1
Shares authorized: 160,000,000 at March 31, 2021 and December 31, 2020, respectively
Shares issued: 78,949,329 and 77,836,586 at March 31, 2021 and December 31, 2020, respectively
Shares outstanding: 77,564,273 and 76,726,835 at March 31, 2021 and December 31, 2020, respectively
Additional paid-in capital 355.7 355.7
Treasury stock, at cost: 1,385,056 and 1,109,751 shares at March 31, 2021 and December 31, 2020, respectively (5.2) (4.2)
Accumulated deficit (176.1) (188.7)
Accumulated other comprehensive income 215.1 396.9
Total HC2 Holdings, Inc. stockholders’ equity 389.6 559.8
Noncontrolling interest 23.9 40.4
Total stockholders’ equity 413.5 600.2
Total liabilities, temporary equity and stockholders’ equity $ 6,406.0 $ 6,742.8
See notes to Condensed Consolidated Financial Statements

INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY

(Unaudited, in millions)





	Common Stock			Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss) (a)		Total INNOVATE Stockholders' Equity (Deficit)		Non- controlling Interest		Total Stockholders’ Equity (Deficit)		Temporary Equity

	Shares	Amount
Balance as of December 31, 2021	77.8	$	0.1	$	330.6	$	(5.2)	$	(416.2)	$	6.4	$	(84.3)	$	28.1	$	(56.2)	$	68.1


Share-based compensation	—	—		0.8		—		—		—		0.8		—		0.8		—




Preferred stock dividend	—	—		(0.8)		—		—		—		(0.8)		(1.3)		(2.1)		(0.3)

Issuance of common stock	0.6	—		—		—		—		—		—		—		—		—






Transactions with noncontrolling interests	—	—		0.1		—		—		—		0.1		(0.2)		(0.1)		0.1
Other	—	—		0.1		—		—		—		0.1		—		0.1		—
Net loss	—	—		—		—		(12.4)		—		(12.4)		—		(12.4)		(1.7)





Other comprehensive income	—	—		—		—		—		0.6		0.6		—		0.6		—
Balance as of March 31, 2022	78.4	$	0.1	$	330.8	$	(5.2)	$	(428.6)	$	7.0	$	(95.9)	$	26.6	$	(69.3)	$	66.2





	Common Stock			Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss) (a)		Total INNOVATE Stockholders' Equity (Deficit)		Non- controlling Interest		Total Stockholders’ Equity (Deficit)		Temporary Equity

	Shares	Amount
Balance as of December 31, 2020	76.7	$	0.1	$	355.7	$	(4.2)	$	(188.7)	$	396.9	$	559.8	$	40.4	$	600.2	$	15.7

Share based compensation	—	—		0.7		—		—		—		0.7		—		0.7		—

Fair value adjustment of redeemable noncontrolling interest	—	—		(0.2)		—		—		—		(0.2)		—		(0.2)		0.2

Taxes paid in lieu of shares issued for share-based compensation	—	—		—		(1.0)		—		—		(1.0)		—		(1.0)		—
Preferred stock dividend	—	—		(0.2)		—		—		—		(0.2)		—		(0.2)		—

Issuance of common stock	0.9	—		0.2		—		—		—		0.2		—		0.2		—





Transactions with noncontrolling interests	—	—		2.4		—		—		—		2.4		(14.5)		(12.1)		3.8

Other	—	—		(2.9)		—		—		—		(2.9)		—		(2.9)		—

Net income (loss)	—	—		—		—		12.6		—		12.6		(1.9)		10.7		(1.7)





Other comprehensive loss	—	—		—		—		—		(181.8)		(181.8)		(0.1)		(181.9)		—
Balance as of March 31, 2021	77.6	$	0.1	$	355.7	$	(5.2)	$	(176.1)	$	215.1	$	389.6	$	23.9	$	413.5	$	18.0

See notes to Condensed Consolidated Financial Statements

~~F-4~~5

~~HC2 HOLDINGS, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY~~

~~(Unaudited, in millions)~~

Common Stock Additional
Paid-In
Capital Treasury
Stock Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total HC2 Stockholders' Equity Non-
controlling
Interest Total Stockholders’ Equity Temporary Equity
Shares Amount
Balance as of December 31, 2020 76.7 $ 0.1 $ 355.7 $ (4.2) $ (188.7) $ 396.9 $ 559.8 $ 40.4 $ 600.2 $ 15.7
Share-based compensation — — 0.7 — — — 0.7 — 0.7 —
Fair value adjustment of redeemable noncontrolling interest — — (0.2) — — — (0.2) — (0.2) 0.2
Taxes paid in lieu of shares issued for share-based compensation — — — (1.0) — — (1.0) — (1.0) —
Preferred stock dividend — — (0.2) — — — (0.2) — (0.2) —
Issuance of common stock 0.9 — 0.2 — — — 0.2 — 0.2 —
Transactions with noncontrolling interests — — 2.4 — — — 2.4 (14.5) (12.1) 3.8
Other — — (2.9) — — — (2.9) — (2.9) —
Net income — — — — 12.6 — 12.6 (1.9) 10.7 (1.7)
Other comprehensive loss — — — — — (181.8) (181.8) (0.1) (181.9) —
Balance as of March 31, 2021 77.6 $ 0.1 $ 355.7 $ (5.2) $ (176.1) $ 215.1 $ 389.6 $ 23.9 $ 413.5 $ 18.0

Common Stock Additional
Paid-In
Capital Treasury
Stock Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total HC2 Stockholders' Equity Non-
controlling
Interest Total Stockholders’ Equity Temporary Equity
Shares Amount
Balance as of December 31, 2019 46.1 $ 0 $ 281.1 $ (3.3) $ (96.7) $ 168.7 $ 349.8 $ 93.8 $ 443.6 $ 21.6
Share-based compensation — — 2.6 — — — 2.6 — 2.6 —
Fair value adjustment of redeemable noncontrolling interest — — (4.1) — — — (4.1) — (4.1) 4.1
Taxes paid in lieu of shares issued for share-based compensation (0.4) — — (0.9) — — (0.9) — (0.9) —
Preferred stock dividend — — (0.2) — — — (0.2) — (0.2) —
Issuance of common stock 0.8 — — — — — 0 — 0 —
Transactions with noncontrolling interests — — 3.3 — — — 3.3 (40.1) (36.8) (5.5)
Net loss — — — — (83.1) — (83.1) (15.0) (98.1) (2.9)
Other comprehensive income (loss) — — — — — (253.3) (253.3) 7.7 (245.6) 1.3
Balance as of March 31, 2020 46.5 $ 0 $ 282.7 $ (4.2) $ (179.8) $ (84.6) $ 14.1 $ 46.4 $ 60.5 $ 18.6

~~See notes to Condensed Consolidated Financial Statements~~

~~F-5~~

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)

Three Months Ended March 31,
2021 2020
Cash flows from operating activities
Net income (loss) $ 9.0 $ (101.0)
Less: Income (loss) from discontinued operations, net of tax 51.9 (71.1)
(42.9) (29.9)
Adjustments to reconcile net loss to cash provided by operating activities
Share-based compensation expense 0.5 1.4
Depreciation and amortization 6.2 6.7
Amortization of deferred financing costs and debt discount 7.4 3.4
Loss on extinguishment of debt 10.8 5.8
Loss from equity investees 2.1 2.5
Asset impairment expense 2.1 0.1
Deferred income taxes 0.6 (9.0)
Other operating activities (2.6) 1.3
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (1.5) (7.6)
Costs and recognized earnings in excess of billings on uncompleted contracts (10.1) (11.0)
Other current assets (1.3) (8.2)
Other assets (0.9) 2.2
Accounts payable (1.3) 16.0
Accrued liabilities 1.9 8.9
Billings in excess of costs and recognized earnings on uncompleted contracts 6.3 18.9
Other current liabilities (1.2) (10.6)
Other liabilities 0.7 4.8
Cash used in operating activities (23.2) (4.3)
Cash provided by discontinued operating activities 20.7 39.6
Cash (used in) provided by operating activities (2.5) 35.3
Cash flows from investing activities
Purchase of property, plant and equipment (3.2) (5.0)
Proceeds from disposal of property, plant and equipment 0 0.5
Cash received from dispositions, net 71.2 144.0
Other investing activities (1.6) 1.3
Cash provided by investing activities 66.4 140.8
Cash provided by (used in) discontinued investing activities 1.5 (80.7)
Cash provided by investing activities 67.9 60.1
Cash flows from financing activities
Proceeds from debt obligations 317.4 3.2
Principal payments on debt obligations (356.5) (99.9)
Cash received by subsidiary to issue preferred stock 10.0 0
Transactions with noncontrolling interests (1.1) (42.5)
Other financing activities (1.4) (2.9)
Cash used in financing activities (31.6) (142.1)
Cash used in discontinued financing activities (4.3) (6.1)
Cash used in financing activities (35.9) (148.2)
Effects of exchange rate changes on cash, cash equivalents and restricted cash (0.3) 0.4
Net increase in cash and cash equivalents, including cash classified within assets held for sale 29.2 (52.4)
Less: Net increase (decrease) in cash and cash equivalents classified within current assets held for sale 18.3 (44.0)
Net change in cash, cash equivalents and restricted cash 10.9 (8.4)
Cash, cash equivalents and restricted cash, beginning of period 45.3 24.7
Cash, cash equivalents and restricted cash, end of period $ 56.2 $ 16.3


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities
Net (loss) income	$	(14.1)	$	9.0
Less: Income from discontinued operations, net of tax	—		51.9
	(14.1)		(42.9)
Adjustments to reconcile net (loss) income to cash provided by operating activities
Share-based compensation expense	0.8		0.5
Depreciation and amortization	10.6		6.2
Amortization of deferred financing costs and debt discount	1.2		7.4


Loss on extinguishment of debt	—		10.8

Loss from equity investees	0.5		2.1
Asset impairment expense	0.1		2.1


Deferred income taxes	0.4		0.6

Other operating activities	0.2		(2.6)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(25.8)		(0.8)

Contract assets	(22.0)		(8.6)
Other current assets	(1.2)		(1.3)
Other assets	2.0		(0.9)

Accounts payable	20.2		(1.3)
Accrued liabilities	(7.2)		1.9
Contract liabilities	(24.0)		4.1
Other current liabilities	(4.9)		(1.2)
Other liabilities	(0.2)		0.7
Cash used in continuing operating activities	(63.4)		(23.2)
Cash provided by discontinued operating activities	—		20.7
Cash used in operating activities	(63.4)		(2.5)
Cash flows from investing activities
Purchase of property, plant and equipment	(4.6)		(3.2)
Proceeds from disposal of property, plant and equipment	1.8		—
Purchase of investments	(4.5)		—




Cash received from dispositions, net of cash disposed	—		71.2


Other investing activities	(0.1)		(1.6)
Cash (used in) provided by continuing investing activities	(7.4)		66.4
Cash provided by discontinued investing activities	—		1.5
Cash (used in) provided by investing activities	(7.4)		67.9
Cash flows from financing activities
Proceeds from debt obligations	59.8		317.4
Principal payments on debt obligations	(6.2)		(356.5)



Cash received by subsidiary to issue preferred stock	—		10.0





Transactions with noncontrolling interests	—		(1.1)
Other financing activities	(2.4)		(1.4)
Cash provided by (used in) continuing financing activities	51.2		(31.6)
Cash used in discontinued financing activities	—		(4.3)
Cash provided by (used in) financing activities	51.2		(35.9)
Effects of exchange rate changes on cash, cash equivalents and restricted cash	0.5		(0.3)
Net (decrease) increase in cash and cash equivalents, including restricted cash and cash classified within assets held for sale	(19.1)		29.2
Less: Net increase in cash and cash equivalents from discontinued operations	—		18.3
Net change in cash, cash equivalents and restricted cash	(19.1)		10.9
Cash, cash equivalents and restricted cash, beginning of period	47.5		45.3
Cash, cash equivalents and restricted cash, end of period	$	28.4	$	56.2

See notes to Condensed Consolidated Financial Statements

~~F-6~~6

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Business

~~HC2 Holdings, Inc.~~INNOVATE Corp. ("~~HC2"~~INNOVATE" and, together with its consolidated subsidiaries, the "Company", "we" and "our") is a diversified holding company that has a portfolio of subsidiaries in a variety of operating segments. We seek to grow these businesses so that they can generate long-term sustainable free cash flow and attractive returns in order to maximize value for all stakeholders. While the Company generally intends to acquire controlling equity interests in its operating subsidiaries, the Company may invest to a limited extent in a variety of debt instruments or noncontrolling equity interest positions. The Company’s shares of common stock trade on the NYSE under the symbol ~~"HCHC"~~"VATE".

The Company currently has 43 reportable segments, plus our Other segment, based on management’s organization of the ~~enterprise-~~enterprise: Infrastructure, Life Sciences, Spectrum, ~~Insurance,~~ and Other which includes businesses that do not meet the separately reportable segment thresholds.

1.Our Infrastructure segment is comprised of DBM Global Inc. ("DBMG") and its wholly-owned subsidiaries. DBMG is a fully integrated Industrial Construction, Structural Steel and Facility Maintenance provider that provides ~~3-D Building Information Modeling (“BIM”), detailing,~~ fabrication and erection of structural steel and heavy steel ~~plate.~~plate services and also fabricates trusses and girders and specializes in the fabrication and erection of large-diameter water pipe and water storage tanks, as well as 3-D Building Information Modeling (“BIM”) and detailing. DBMG provides these services on commercial, industrial, and infrastructure construction projects such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas and stadiums, shopping malls, hospitals, dams, bridges, mines, metal processing, refineries, pulp and paper mills and power plants. ~~DBMG also fabricates trusses and girders and specializes in the fabrication and erection of large-diameter water pipe and water storage tanks.~~ Through GrayWolf, DBMG provides integrated solutions for digital engineering, modeling and detailing, construction, heavy equipment installation and facility services including maintenance, repair, and installation to a diverse range of end markets. Through Aitken Manufacturing, DBMG manufactures pollution control scrubbers, tunnel liners, pressure vessels, strainers, filters, separators and a variety of customized products. Through the recently acquired Banker Steel, DBMG provides full-service fabricated structural steel and erection services primarily for the East Coast and Southeast commercial and industrial construction market, in addition to full design-assist services. The Company maintains an approximately ~~92%~~91% controlling interest in DBMG.

2.Our Life Sciences segment is comprised of Pansend Life Sciences, LLC ("Pansend"). Pansend maintains controlling interests of approximately 80% in Genovel Orthopedics, Inc. ("Genovel"), which seeks to develop products to treat early osteoarthritis of the knee and approximately ~~51%~~56% in R2 Technologies, Inc. ("R2"), which develops aesthetic and medical technologies for the skin. Pansend also invests in other early stage or developmental stage healthcare companies including an approximately 47% interest in MediBeacon Inc. ("MediBeacon"), a medical technology company specializing in the advances of fluorescent tracer agents and transdermal measurement, and an ~~investment~~approximately 26% interest in Triple Ring Technologies, ~~Inc.~~Inc ("Triple Ring"), a science and technology co-development company.

3.Our Spectrum segment is comprised of HC2 Broadcasting Holdings Inc. ("~~HC2~~ Broadcasting") and its subsidiaries. ~~HC2~~ Broadcasting strategically acquires and operates over-the-air broadcasting stations across the United States. In addition, ~~HC2~~ Broadcasting, through its wholly-owned subsidiary, HC2 Network Inc. ("Network"), operates Azteca America, a Spanish-language broadcast network offering high quality Hispanic content to a diverse demographic across the United States. The Company maintains ~~an approximately~~a 98% controlling interest in ~~HC2~~ Broadcasting and ~~an approximately 57%~~maintains a controlling interest ~~in DTV America Corporation ("DTV") as well as~~of approximately ~~19%~~77%, inclusive of approximately 10% proxy and voting rights from minority ~~holders.~~holders of DTV America Corporation ("DTV").

4.Our Insurance segment is comprised of the discontinued operations of Continental Insurance Group Ltd. ("CIG") and its wholly-owned subsidiary Continental General Insurance Company ("CGI"). CGI provides long-term care, life, annuity, and other accident and health coverage that help protect policy and certificate holders from the financial hardships associated with illness, injury, loss of life, or income continuation. The Company maintains a 100% interest in CIG.

5.Our Other segment represents all other businesses or investments that do not meet the definition of a segment individually or in the aggregate. Included in the Other segment is the former Marine Services segment, which includes its holding company, Global Marine Holdings, LLC ("GMH"), in which the Company maintains approximately 73% controlling interest. GMH results include the current and prior year equity investment in ~~Huawei Marine Networks~~HMN Technologies Co., ~~Limited~~Ltd. (“HMN”), its 19% equity method investment, ~~with Huawei Technologies Co., Ltd.,~~ and the discontinued operations of Global Marine Systems Limited ("GMSL"). Also included in the Other segment is the discontinued operations of Beyond6, Inc. ("Beyond6"), and ~~PTGi International Carrier Services, Inc. and its subsidiaries~~Continental Insurance Group ("~~ICS"~~CIG").

~~F-7~~7

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

2. Summary of Significant Accounting Policies

Principles of Consolidation

The Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries and all other subsidiaries over which the Company exerts control. All intercompany profits, transactions and balances have been eliminated in consolidation. ~~As of~~For the three months ended March 31, ~~2021,~~2022, the results of DBMG, Pansend, Genovel, R2, ~~HC2~~ Broadcasting, ~~CIG,~~and GMH ~~and Beyond6~~ have been consolidated into the Company’s results based on guidance from the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC" 810, Consolidation). The remaining interests not owned by the Company are presented as a noncontrolling interest component of total equity.

Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information. All such adjustments are of a normal recurring nature. Certain information and note disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), have been condensed or omitted pursuant to such rules and regulations. Certain prior amounts have been reclassified or combined to conform to the current year presentation.

These interim financial statements should be read in conjunction with the Company’s annual Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, filed with the SEC on March ~~10, 2021.~~9, 2022. The results of operations for the three months ended March 31, ~~2021~~2022 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, ~~2021.~~2022.

Use of Estimates and Assumptions

The preparation of the Company’s Condensed Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions used.

Liquidity

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, raising of additional debt or equity, refinancing of certain of our subsidiary indebtedness or preferred stock, other financing arrangements 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.subsidiaries. The ability of ~~HC2’s~~INNOVATE’s subsidiaries to make distributions to ~~HC2~~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. ~~Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments.~~ Although the Company believes, 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. Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments. In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners.

COVID-19

There are many uncertainties regarding the current coronavirus ("COVID-19") pandemic, and the Company continues to closely monitor the impact of the COVID-19 pandemic, including the effectiveness of the vaccine programs, on all aspects of its business, including how it will impact its customers, employees, suppliers, vendors, business partners and distribution ~~channels.~~channels and any potential prolonging or worsening of the pandemic due to COVID-19 variants. We are unable to predict the impact that COVID-19 will have on ~~its~~the Company's financial position and operating results due to numerous ~~uncertainties, however~~uncertainties. However, as the pandemic continues, it may have an adverse effect on the Company’s results of operations, financial condition, or ~~liquidity~~liquidity.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

COVID-19 has continued to cause 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 ~~fiscal year 2021.~~ 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.

The Company expects to continue to assess the evolving impact of the COVID-19 pandemic.

~~F-8~~9

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Statement of Cash Flows

The following table provides a reconciliation of cash and cash equivalents and restricted cash to amounts reported within the Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Cash Flows (in millions):


		March 31,					March 31,
		2021		2020			2022		2021
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	$	43.8	$	23.3	Cash and cash equivalents, beginning of period	$	45.5	$	43.8
Restricted cash included in other assets	Restricted cash included in other assets	1.5		1.4		Restricted cash included in other assets	2.0		1.5
Total cash and cash equivalents and restricted cash	Total cash and cash equivalents and restricted cash	$	45.3	$	24.7	Total cash and cash equivalents and restricted cash	$	47.5	$	45.3

Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	$	54.2	$	14.9	Cash and cash equivalents, end of period	$	26.4	$	54.2
Restricted cash included in other assets	Restricted cash included in other assets	2.0		1.4		Restricted cash included in other assets	2.0		2.0
Total cash and cash equivalents and restricted cash	Total cash and cash equivalents and restricted cash	$	56.2	$	16.3	Total cash and cash equivalents and restricted cash	$	28.4	$	56.2

Cash and cash equivalents classified in Assets held for sale, beginning of period	Cash and cash equivalents classified in Assets held for sale, beginning of period	$	195.2	$	216.0	Cash and cash equivalents classified in Assets held for sale, beginning of period	$	—	$	195.2
Restricted cash classified in Assets held for sale	Restricted cash classified in Assets held for sale	0.2		0.2		Restricted cash classified in Assets held for sale	—		0.2
Total cash and cash equivalents and restricted cash classified in Assets held for sale	Total cash and cash equivalents and restricted cash classified in Assets held for sale	$	195.4	$	216.2	Total cash and cash equivalents and restricted cash classified in Assets held for sale	$	—	$	195.4

Cash and cash equivalents classified in Assets held for sale, end of period	Cash and cash equivalents classified in Assets held for sale, end of period	$	213.7	$	172.1	Cash and cash equivalents classified in Assets held for sale, end of period	$	—	$	213.7
Restricted cash classified in Assets held for sale	Restricted cash classified in Assets held for sale	0		0.1		Restricted cash classified in Assets held for sale	—		—
Total cash and cash equivalents and restricted cash classified in Assets held for sale	Total cash and cash equivalents and restricted cash classified in Assets held for sale	$	213.7	$	172.2	Total cash and cash equivalents and restricted cash classified in Assets held for sale	$	—	$	213.7

Supplemental cash flow information:	Supplemental cash flow information:					Supplemental cash flow information:
Cash paid for interest	Cash paid for interest	$	10.5	$	5.5	Cash paid for interest	$	18.6	$	10.5
Cash paid for taxes, net of refunds	Cash paid for taxes, net of refunds	$	0.7	$	0.1	Cash paid for taxes, net of refunds	$	0.4	$	0.7

Non-cash investing and financing activities:	Non-cash investing and financing activities:					Non-cash investing and financing activities:
Property, plant and equipment included in accounts payable	Property, plant and equipment included in accounts payable	$	0.2	$	6.6	Property, plant and equipment included in accounts payable	$	—	$	0.2

Extinguishment of convertible note in exchange	Extinguishment of convertible note in exchange	$	51.8	$	0	Extinguishment of convertible note in exchange	$	—	$	51.8
Issuance of convertible note in exchange	Issuance of convertible note in exchange	$	(51.8)	$	0	Issuance of convertible note in exchange	$	—	$	(51.8)

~~Reclassification~~

~~Certain previous year amounts have been reclassified to conform with current year presentations, as related to the reporting of new balance sheet line items:~~

•The recast of Beyond6, ICS, and CIG's results to discontinued operations. Further, the reclassification of prior period assets and liabilities have been classified as held for sale. See Note 3. Discontinued Operations for further information;

•As a result of the sale of ICS, and in accordance with ASC 280, the Company no longer considers the results of operations and Balance Sheets of the retained ICS entities as a separate segment. Formerly the Telecommunications segment, these entities have been reclassified to the Other segment. See Note 17. Operating Segment and Related Information for further information; and

•As a result of the sale of Beyond6, and in accordance with ASC 280, the Company no longer considers the results of operations and Balance Sheets of Beyond6 as a separate segment. Formerly the Clean Energy segment, this entity has been reclassified to the Other segment. See Note 17. Operating Segment and Related Information for further information; and

•The recast of prior year earnings per share as a result of the discontinued operations noted above. This includes presenting EPS for Net (loss) income from continuing operations, Net (loss) income from discontinuing operations, and Net (loss) income. See Note 18. Basic and Diluted Income (Loss) Per Common Share~~for further details.~~

~~F-9~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

Accounting Pronouncements Adopted in the Current Year

~~Accounting for Debt with Conversion Options~~

~~ASU 2020-06,~~ Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity~~, was issued by~~There were no new accounting pronouncements adopted during the ~~FASB in August 2020. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20,~~ ~~Debt: Debt with Conversion and Other Options~~, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, ~~Earnings Per Share~~, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. The standard is effective on January 1, 2024, but early adoption was elected as of January 1, 2021. A modified retrospective method of transition was applied, which resulted in no impact to the Company.three months ended March 31, 2022.

Accounting Pronouncements to be Adopted Subsequent to December 31, ~~2021~~2022

Credit Loss Standard

ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments, was issued by FASB in June 2016. This standard is effective January 1, 2020 (with early adoption permitted),. This new standard changes the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables, from an incurred loss model to an expected loss model and adds certain new required disclosures. Under the expected loss model, entities will ~~impact, at least to some extent,~~recognize estimated credit losses over the ~~Company's accounting and disclosure requirements for it's recoverable from reinsurers, accounts receivable, and mortgage loans.~~entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred. The FASB has voted to delay the effective date of ASU 2016-13 to January 1, 2023 for smaller reporting companies with a revised ASU in the fourth quarter of 2019. The Company will not be required to adopt Topic 326 until January 1, 2023. Currently, the Company continues to ~~focus on developing models and procedures, with testing and refinement of models occurring in 2020 and 2021 with parallel testing to be performed in 2022.~~

~~Available for sale fixed maturity securities are not in scope~~evaluate the potential impact of the new credit loss model, but will undergo targeted improvements to the current reporting model including the establishment of a valuation allowance for credit losses versus the current direct write down approach. The Company will continue to identify any other financial assets not excluded from scope.

The Company plans to use the modified retrospective method which will include a cumulative effect adjustment on the balance sheet as of the beginning of the fiscal year of adoption. However, prospective application is required for purchased credit deteriorated assets previously accounted for under ASU 310-30 for debt securities for which an other-than-temporary impairment ("OTTI") was recognized prior to the date of adoption. The Company does not currently expect to early adopt this standard ~~and is currently evaluating the impact of this new accounting guidance~~ on its ~~Condensed Consolidated Financial Statements.~~

~~Outlined below are key areas of change, although there are other changes not noted below:~~

•~~Financial assets (or a group of~~ financial assets) measured at amortized cost will be required to be presented at the net amount expected to be collected, with an allowance for credit losses deducted from the amortized cost basis, resulting in a net carrying value that reflects the amount the entity expects to collect on the financial asset at purchase.results.

•Credit losses relating to available for sale fixed maturity securities will be recorded through an allowance for credit losses, rather than reductions in the amortized cost of the securities and is anticipated to increase volatility in the Company's Condensed Consolidated Statements of Operations. The allowance methodology recognizes that value may be realized either through collection of contractual cash flows or through the sale of the security. Therefore, the amount of the allowance for credit losses will be limited to the amount by which fair value is below amortized cost because the classification as available for sale is premised on an investment strategy that recognizes that the investment could be sold at fair value, if cash collection would result in the realization of an amount less than fair value.

•The Company's Condensed Consolidated Statements of Operations will reflect the measurement of expected credit losses for newly recognized financial assets as well as the expected increases or decreases (including the reversal of previously recognized losses) of expected credit losses that have taken place during the period. The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.

•Disclosures will be required to include information around how the credit loss allowance was developed, further details on information currently disclosed about credit quality of financing receivables and net investments in leases, and a rollforward of the allowance for credit losses for available for sale fixed maturity securities as well as an aging analysis for securities that are past due.

~~F-10~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

The Company anticipates a significant impact on its systems, processes and controls. While the requirements of the new guidance represent a material change from existing GAAP, the underlying economics of items in scope and related cash flows are unchanged. Focus areas will include, but not be limited to: (i) updating procedures to reflect new guidance requiring establishment of allowance for credit losses on available for sale debt securities; (ii) establishing procedures to review reinsurance risk to include but not limited to review of reinsurer ratings, trust agreements where applicable and historical and current performance; (iii) establishing procedures to identify and review all remaining financial assets within scope; and (iv) developing, testing, and implementing controls for newly developed procedures, as well as for additional annual reporting requirements.

Subsequent Events

ASC 855, Subsequent Events requires the Company to evaluate events that occur after the balance sheet date as of which the financial statements are issued, and to determine whether adjustments to or additional disclosures in the financial statements are necessary. See Note 19. Subsequent Events for the summary of the subsequent events.

3. Discontinued Operations

The results of ~~GMSL, ICS,~~ Beyond6 and CIG and the related expenses directly attributable to the entities were reported as discontinued operations. Summarized operating results of the discontinued operations are as follows (in millions):

Three Months Ended March 31,
2021 2020
Revenue $ 1.7 $ 214.1
Life, accident and health earned premiums, net 28.4 28.6
Net investment income 43.9 51.9
Realized/unrealized gains (losses) on investments 9.5 (19.0)
Total revenue 83.5 275.6
Cost of revenue 0.8 207.4
Policy benefits, changes in reserves, and commissions 56.1 72.4
Selling, general and administrative 12.4 27.3
Depreciation and amortization (5.9) 0
Income (loss) from operations 20.1 (31.5)
Interest expense (0.4) (5.6)
Gain (loss) on sale and liquidation of subsidiaries 40.4 (39.3)
Income from equity investees 0 0.5
Other (loss) income (3.1) 2.0
Pre-tax income (loss) from discontinued operations 57.0 (73.9)
Income tax (expense) benefit (5.1) 2.8
Income (loss) from discontinued operations $ 51.9 $ (71.1)

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)


	Three Months Ended March 31,
		2022		2021
Revenue		$	—	$	1.7
Life, accident and health earned premiums, net		—		28.4
Net investment income		—		43.9
Realized/unrealized gains on investments		—		9.5
Total revenue		—		83.5
Cost of revenue		—		0.8
Policy benefits, changes in reserves, and commissions		—		56.1
Selling, general and administrative		—		12.4
Depreciation and amortization		—		(5.9)

Income from operations		—		20.1
Interest expense		—		(0.4)
Gain on sale and liquidation of subsidiaries		—		40.4

Other loss		—		(3.1)
Pre-tax income from discontinued operations		—		57.0
Income tax expense		—		(5.1)
Income from discontinued operations		$	—	$	51.9

Sale of ~~CGI~~CIG

~~On March 29,~~The sale of CIG closed on July 1, 2021 ~~the Company announced the definitive agreement to sell its Insurance segment~~ to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of March 31, 2022, a beneficial owner of approximately ~~6.6%~~10.7% of the Company's outstanding common stock (including the convertible preferred stock, on an as-converted basis) who has also served as executive chairman of Continental since October 2020. The ~~transaction~~Insurance segment, which primarily consisted of a closed block of long-term care insurance, had a book value, ~~is approximately $90 million,~~ inclusive of ~~$65 million in cash plus certain assets~~intercompany eliminations, at ~~CGI. The sale is pending regulatory approval. As of the first quarter of 2021, the Insurance segment met the held-for-sale criteria under ASC 205-20 and has been presented in discontinued operations.~~

~~Sale of GMSL~~

~~The sale of GMSL closed on February 28, 2020. 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 ~~recorded a $39.3 million loss on~~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 ~~inclusive of recognizing a $31.3 million~~and offset the loss from the realization of AOCI. During the fourth quarter of 2020, the Company recognized a gain on sale of $2.4 million as a result of the cash collateralized bonding facility release. During the first quarter of 2021, the Company recognized a gain of $1.2 million as a result of indemnity release.recognized.

~~The net proceeds from~~While several factors impacted the ~~sale of GMSL were used to repay $15.0 million under the Revolving Credit Agreement and redeem $76.9 million aggregate principal amount~~fair value of the ~~Company's 11.5% senior secured notes due 2021 (the "2021 Senior Secured Notes"), plus accrued~~Insurance segment at the end of 2019, following discussions with our domestic regulator, changes in the asset management fee arrangement and ~~unpaid interest since December 1, 2019 (the last regularly scheduled interest payment date).~~

~~F-11~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

~~As a result~~expectations of future dividends primarily and ultimately resulted in the full impairment of the ~~repayment of $15.0 million Revolving Credit Agreement, the Company allocated the following interest and the amortization of deferred financing costs for the three months ended March 31, 2021 and 2020~~goodwill associated with the ~~principal prepayment from continuing operations to discontinued operations~~Insurance segment during the year ended December 31, 2019. While these factors did not have a major impact on the ~~Company’s Condensed Consolidated Statement~~operations of ~~Operations:~~

Three Months Ended March 31,
2021 2020
Interest expense $ 0 $ 0.2
Amortization of deferred financing costs and original issuance discount $ 0 $ 0.1
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 ~~mandatory redemption of $76.9 million of 2021 Senior Secured Notes,~~factors described above, combined with the risks associated with the long-term care insurance industry, the Company ~~allocated~~exited the ~~following pro-rata interest~~segment and ~~amortization of deferred financing costs and original issuance discount for~~sold the ~~three months ended March 31, 2021 and 2020, from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statements of Operations:~~

Three Months Ended March 31,
2021 2020
Interest expense $ 0 $ 2.2
Amortization of deferred financing costs and original issuance discount $ 0 $ 0.2

~~Sale of ICS~~

~~The sale of ICS and its subsidiary, Go2 Tel, Inc., closed on October 31, 2020. The Company recorded~~business resulting in a ~~$0.9~~$200.8 million ~~gain~~loss on the sale ~~and recognized $8.2 million~~ of ~~accumulated other comprehensive loss related to~~CIG in the ~~realization~~third quarter of ~~foreign currency translation of PTGi International Carrier Services Ltd., which was essentially liquidated in conjunction with the sale. The proceeds were used for general corporate purposes.~~2021.

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~~INNOVATE as the Stockholder Representative for the Beyond6 stockholders. The sale closed on January 15, 2021. ~~The~~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.

A portion of the proceeds from the sale of Beyond6 were used to repay $15.0 million of the then outstanding balance under the Revolving Credit Agreement and repay $27.9 million of the Company's 2021 Senior Secured Notes.

~~As a result of the repayment of $15.0 million Revolving Credit Agreement, the Company allocated the following interest~~Assets Held for the three months ended March 31, 2021 and 2020 associated with the principal prepayment from continuing operations to discontinued operations on the Company’s Condensed Consolidated Statements of Operations:

Three Months Ended March 31,
2021 2020
Interest expense $ 0.1 $ 0
Sale

As ~~a result~~ of March 31, 2022 and December 31, 2021, the ~~repayment of $27.9~~Company had approximately $1.5 million of ~~the 2021 Senior Secured Notes, the Company allocated the following pro-rata interest and amortization of deferred financing costs and original issuance discount~~other current assets classified in Assets held for ~~the three months ended March 31, 2021 and 2020, from continuing operations to discontinued operations~~sale on the ~~Company’s~~ Condensed Consolidated ~~Statements of Operations:~~

Three Months Ended March 31,
2021 2020
Interest expense $ 0.3 $ 0.8
Amortization of deferred financing costs and original issuance discount $ 0 $ 0.1

~~F-12~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

~~Summarized assets and liabilities of the discontinued operations are as follows (in millions):~~

March 31,
2021 December 31,
2020

Assets
Current assets
Cash and cash equivalents $ 213.7 $ 195.2
Accounts receivable, net 0 13.6
Other current assets 8.1 8.7
Total current assets 221.8 217.5
Investments 4,361.3 4,610.2
Recoverable from reinsurers 953.4 957.5
Deferred tax asset 0 1.4
Property, plant and equipment, net 1.1 90.5
Goodwill 0 2.1
Intangibles, net 2.5 11.7
Other assets 48.2 51.2
Total assets held for sale $ 5,588.3 $ 5,942.1
Liabilities
Current liabilities
Accounts payable $ 0 $ 2.6
Accrued liabilities 15.4 35.8
Current portion of debt obligations 0 5.7
Other current liabilities 3.9 7.4
Total current liabilities 19.3 51.5
Life, accident and health reserves 4,632.2 4,627.5
Annuity reserves 227.2 228.8
Value of business acquired 193.6 199.8
Deferred tax liability 83.2 136.5
Debt obligations 0 50.6
Other liabilities 10.5 12.0
Total liabilities held for sale $ 5,166.0 $ 5,306.7
Balance Sheets.

4. Revenue

Revenue from contracts with customers consist of the following (in millions):

Three Months Ended March 31,
2021 2020
Revenue
Infrastructure $ 161.3 $ 176.5
Spectrum 10.5 10.1
Total revenue $ 171.8 $ 186.6

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)


	Three Months Ended March 31,
		2022		2021
Revenue
Infrastructure		$	402.2	$	161.3
Spectrum		9.8		10.5
Life Sciences		0.8		—

Total revenue		$	412.8	$	171.8

Accounts receivables, net from contracts with customers consist of the following (in millions):

March 31,
2021 December 31,
2020

Accounts receivables with customers
Infrastructure $ 165.3 $ 168.5
Spectrum 6.9 7.3
Total accounts receivables with customers $ 172.2 $ 175.8


	March 31, 2022		December 31, 2021

Accounts receivables with customers
Infrastructure	$	255.3	$	226.8
Spectrum	8.4		9.4
Life Sciences	0.5		0.3
Total accounts receivables with customers	$	264.2	$	236.5

~~F-13~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

Infrastructure Segment

The following table disaggregates DBMG's revenue by market (in millions):

Three Months Ended March 31,
2021 2020
Commercial $ 49.4 $ 62.8
Industrial 40.3 58.9
Transportation 13.9 16.3
Government 21.3 8.6
Leisure 7.5 16.0
Healthcare 8.9 8.0
Convention 9.4 2.4
Other 10.6 3.5
Total revenue from contracts with customers 161.3 176.5
Other revenue 0 0
Total Infrastructure segment revenue $ 161.3 $ 176.5


	Three Months Ended March 31,
		2022		2021
Commercial		$	238.2	$	49.4
Industrial		89.2		40.3
Convention		19.6		9.4
Government		7.4		21.3
Healthcare		26.1		8.9
Transportation		10.0		13.9
Leisure		4.2		7.5
Other		7.2		10.6
Total revenue from contracts with customers		401.9		161.3
Other revenue		0.3		—
Total Infrastructure segment revenue		$	402.2	$	161.3

Contract assets and contract liabilities consisted of the following (in millions):


		March 31, 2021				December 31, 2020					March 31, 2022		December 31, 2021

Cost in excess of billings								Cost in excess of billings			$	68.6	$	68.3
Conditional retainage								Conditional retainage			72.0		50.3
Contract assets	Contract assets			$	65.7				$	55.6		Contract assets	$	140.6	$	118.6

Billings in excess of costs								Billings in excess of costs			$	(101.3)	$	(137.6)
Conditional retainage								Conditional retainage			46.2		58.5
Contract liabilities	Contract liabilities	$	58.5			$	52.2	Contract liabilities			$	(55.1)	$	(79.1)

The change in contract assets is a result of the recording of ~~$35.5~~$96.5 million of ~~costs in excess of billings~~contract assets driven by new commercial projects, offset by ~~$25.4~~$74.5 million of ~~costs in excess of billings~~contract assets transferred to receivables from contract assets recognized at the beginning of the period.

The change in contract liabilities is a result of periodic ~~billing in excess~~contract liabilities of ~~costs of $38.7~~$40.7 million driven largely by new commercial projects, offset by revenue recognized that was included in the contract liability balance at the beginning of the period in the amount of ~~$32.4~~$64.7 million.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Transaction Price Allocated to Remaining Unsatisfied Performance Obligations

The transaction price allocated to remaining unsatisfied performance obligations consisted of the following (in millions):


		Within one year		Within five years		Total			Within one year		Within five years		Total
Commercial	Commercial	$	159.1	$	0	$	159.1	Commercial	$	503.4	$	229.5	$	732.9
Convention		67.3		0		67.3
Healthcare		33.8		0		33.8
Industrial	Industrial	182.2		2.3		184.5		Industrial	271.8		—		271.8
Transportation	Transportation	16.0		0		16.0		Transportation	31.6		2.1		33.7
Government	Government	39.6		0		39.6		Government	24.0		—		24.0
Leisure	Leisure	3.5		0		3.5		Leisure	16.3		—		16.3
Healthcare								Healthcare	135.9		4.1		140.0
Convention								Convention	127.8		17.9		145.7
Other	Other	10.0		0		10.0		Other	2.7		—		2.7
Remaining unsatisfied performance obligations	Remaining unsatisfied performance obligations	$	511.5	$	2.3	$	513.8	Remaining unsatisfied performance obligations	$	1,113.5	$	253.6	$	1,367.1

~~DBMG includes an additional $8.9 million in its backlog that is not included in the~~DBMG's remaining unsatisfied performance obligations ~~noted above. This backlog represents commitments under master service agreements that are estimated~~increase with awards of new contracts and decrease as it performs work and recognizes revenue on existing contracts. DBMG includes a project within its remaining unsatisfied performance obligations at such time the project is awarded and agreement on contract terms has been reached. DBMG's remaining unsatisfied performance obligations include amounts related to contracts for which a fixed price contract value is not assigned when a reasonable estimate of ~~work~~total transaction price can be made. DBMG expects to recognize this revenue over the next thirty-six months.

Remaining unsatisfied performance obligations include unrecognized revenues to be ~~performed based on customer communications, historic experience and knowledge~~realized from uncompleted construction contracts. Although many of ~~our customers' intentions.~~DBMG's contracts are subject to cancellation at the election of its customers, in accordance with industry practice, DBMG does not limit the amount of unrecognized revenue included within its remaining unsatisfied performance obligations due to the inherent substantial economic penalty that would be incurred by its customers upon cancellation.

Life Sciences Segment

The following table disaggregates the Life Sciences segment's revenue by type (in millions):


	Three Months Ended March 31,
		2022		2021
Systems and consumables revenue		$	0.8	$	—






Total Life Sciences segment revenue		$	0.8	$	—

Spectrum Segment

The following table disaggregates the Spectrum segment's revenue by type (in millions):

Three Months Ended March 31,
2021 2020
Network advertising $ 4.7 $ 5.0
Broadcast station 4.4 3.5
Network distribution 0.9 1.0
Other 0.5 0.6
Total revenue from contracts with customers 10.5 10.1
Other revenue 0 0
Total Spectrum segment revenue $ 10.5 $ 10.1

~~F-14~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~


	Three Months Ended March 31,
		2022		2021
Broadcast station		$	4.8	$	4.4
Network advertising		3.9		4.7
Network distribution		0.7		0.9
Other		0.4		0.5


Total Spectrum segment revenue		$	9.8	$	10.5

The transaction price allocated to remaining unsatisfied performance obligations consisted of ~~$2.3 million, $7.8 million, and $0.2~~$4.3 million of ~~network advertising, broadcasting~~broadcast station revenues and $0.1 million of other revenues, ~~respectively~~ of which ~~$6.2~~$2.8 million is expected to be recognized within one year and ~~$4.1~~$1.6 million is expected to be recognized within five years.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

5. Acquisitions, Dispositions, and Deconsolidations

Infrastructure Segment

Banker Steel Acquisition

On March 15, 2021, the Company announced that DBMG entered into an agreement to acquire 100% of Banker Steel Holdco LLC ("Banker Steel") for ~~approximately~~ $145.0 million, which ~~is expected to close~~closed on May 27, 2021. The acquisition was financed with $64.1 million from a partial draw on a 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 ~~second quarter~~settlement of ~~2021.~~ certain intercompany balances.

Banker Steel provides full-service fabricated structural steel and erection services primarily for the East Coast and Southeast commercial and industrial construction ~~industries.~~market, in addition to full design-assist services. Banker Steel consists of 6 operating companies: Banker Steel Co., LLC; NYC Constructors, LLC; Memco LLC; Derr & Isbell Construction LLC; Innovative Detailing and Engineering Solutions; and Lynchburg Freight and Specialty LLC.

~~Insurance Segment~~Pro Forma Adjusted Summary

~~Sale~~The following schedule presents unaudited consolidated pro forma results of ~~CGI~~

~~On March 29, 2021,~~operations data as if the ~~Company announced the definitive agreement~~acquisition of Banker Steel had occurred on January 1, 2021. This information does not purport to ~~sell its Insurance segment to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director~~be indicative of the ~~Company and a beneficial owner of approximately 6.6%~~actual results that would have occurred if the acquisitions had actually been completed on the date indicated, nor is it necessarily indicative of the ~~Company's outstanding common stock who has also served as executive chairman~~future operating results or the financial position of ~~Continental since October 2020. The transaction value is approximately $90 million, inclusive of $65 million in cash plus certain assets at CGI. The sale is pending regulatory approval.~~the combined company (in millions):


	Three Months Ended March 31,
		2021
Revenue		$	287.1
Loss from operations		$	(8.6)
Net income attributable to INNOVATE		$	13.1

Other Segment

Sale of GMSL

On January 30, 2020, the Company announced that, through its indirect subsidiary, GMH, in which the Company holds an approximately 73% controlling interest, the Company entered into a definitive agreement to sell 100% of the shares of GMSL to Trafalgar AcquisitionCo, Ltd. and an affiliate of J.F. Lehman & Company, LLC. The total base consideration was $250.0 million, subject to customary purchase price adjustments, working capital adjustments, and a potential earn-out of up to $12.5 million at such time, if any, if J.F. Lehman & Company, LLC and its investment affiliates achieve a specified multiple of their invested capital.

The purchase price is subject to customary potential downward or upward post-closing adjustments based on net working capital, cash, unpaid transaction expenses, indebtedness and certain of the Company’s pre-closing paid capital expenditures. The Share Purchase Agreement contained customary representations, warranties and covenants for a transaction of this nature.

The transaction closed on February 28, 2020. GMH received approximately $144.0 million of net proceeds from the sale, of which $36.8 million and $5.5 million were paid to noncontrolling interest holders and redeemable noncontrolling interest holders, respectively. ~~HC2~~INNOVATE received net proceeds of approximately $100.8 million. In connection with the closing of the transaction, the purchaser deposited (i) $1.25 million of the base price into an escrow fund for the purpose of securing certain indemnification obligations for losses payable in the first twelve months after closing and (ii) $1.91 million of the base price into an escrow fund for the purpose of securing a purchase price adjustment, if any, in favor of purchaser. Following the closing, the purchaser paid an amount equal to $2.4 million on the earlier of December 31, 2020 and the date on which a cash collateralized bonding facility was released.

In the first quarter of 2020, the Company recorded a $39.3 million loss ~~inclusive of recognizing~~on the sale and recognized a $31.3 million of Accumulated other comprehensive loss, ~~from the realization~~which was comprised of ~~AOCI.~~$17.2 million of actuarial losses on pension and $14.1 million of currency translation adjustments. During the fourth quarter of 2020, the Company recognized a gain on sale of $2.4 million as a result of the cash collateralized bonding facility release. During the first quarter of 2021, the Company recognized a gain of $1.2 million as a result of indemnity release.

~~F-15~~14

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

~~Sale of HMN~~

On October 30, 2019, the Company announced the sale of its stake in HMN, its 49% joint venture with Huawei Technologies Co., Ltd., to Hengtong Optic-Electric Co Ltd. The sale valued HMN at $285 million, and GMH's 49% stake, through New Saxon, at approximately $140 million.

Under the terms of the Sale and Purchase Agreement, the sale of New Saxon’s 49% interest in HMN will be affected in two tranches. The sale of the portion of New Saxon’s 30% interest of HMN, closed on May 12, 2020 (the "First HMN Close"). The remaining 19% interest of HMN is retained by New Saxon and subject to a put option agreement by New Saxon, exercisable starting on the second year anniversary of the closing date of the First HMN Close at a price equal to the greater of the share price paid for the 30% interest or fair market value as of the exercisable date.

For the three months ended June 30, 2020, in conjunction with the first tranche of the sale, the Company received $85.5 million in cash, of which $17.5 million and $2.1 million were paid to noncontrolling interest holders and redeemable noncontrolling interest holders, respectively. On the close date, New Saxon recorded a $71.1 million gain, included in Other income (loss) in the Condensed Consolidated Statements of Operations. The gain recognized includes $11.3 million related to the fair value of the put option. In addition, on the close date, the Company recorded a $7.2 million tax expense related to a foreign tax payment when the first tranche closed.

~~Sale of ICS~~

The sale of ICS and its subsidiary, Go2 Tel, Inc., closed on October 31, 2020. The Company recorded a $0.9 million gain on the sale and recognized $8.2 million of Accumulated other comprehensive loss related to the realization of foreign currency translation of PTGi International Carrier Services Ltd., which was essentially liquidated in conjunction with the sale. The proceeds were used for general corporate purposes.

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 the Parent, and an affiliate of ~~HC2~~INNOVATE as the Stockholder Representative for the Beyond6 stockholders, for a total purchase price, net of Beyond6's debt and transaction expenses, customary purchase price adjustments and escrow arrangements, of approximately $106.5 million. Net proceeds received by ~~HC2~~INNOVATE at closing was cash consideration of approximately $70.0 million. The sale closed on January 15, 2021. ~~The~~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.

Sale of CIG

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 March 31, 2022, a beneficial owner of approximately 10.7% of the Company's outstanding common stock (including the convertible preferred stock, on an as-converted basis) 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 in the third quarter of 2021.

See Note 3. Discontinued Operations for further details.

6. Accounts Receivable, net

Accounts receivable, net consist of the following (in millions):

March 31,
2021 December 31,
2020

Contracts in progress $ 114.6 $ 118.6
Unbilled retentions 50.9 50.3
Trade receivables 7.2 7.5
Other receivables 14.3 8.9
Allowance for doubtful accounts (0.6) (0.6)
Total $ 186.4 $ 184.7


	March 31, 2022		December 31, 2021

Contracts in progress	$	255.3	$	226.8
Unbilled retentions	0.5		0.4
Trade receivables	8.8		9.9
Other receivables	10.2		10.6
Allowance for doubtful accounts	(0.4)		(0.6)
Total	$	274.4	$	247.1

~~F-16~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

7. Property, Plant and Equipment, net

Property, plant and equipment, net consists of the following (in millions):


		March 31, 2021				December 31, 2020					March 31, 2022		December 31, 2021


Equipment, furniture and fixtures, and software	Equipment, furniture and fixtures, and software			$	114.6				$	113.7		Equipment, furniture and fixtures, and software	$	184.6	$	180.7
Building and leasehold improvements	Building and leasehold improvements	41.2				41.0		Building and leasehold improvements			42.0		43.0
Land	Land	24.1				24.1		Land			23.8		24.1
Construction in progress								Construction in progress			8.8		8.9
Plant and transportation equipment	Plant and transportation equipment	4.6				4.4		Plant and transportation equipment			8.2		8.3
Construction in progress		4.4				3.1
		188.9				186.3					267.4		265.0
Less: Accumulated depreciation	Less: Accumulated depreciation	78.2				73.5		Less: Accumulated depreciation			101.6		95.1
Total	Total	$	110.7			$	112.8	Total			$	165.8	$	169.9

Depreciation expense was ~~$4.7~~$6.4 million and ~~$5.1~~$4.7 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. These amounts included ~~$2.3~~$3.7 million and $2.3 million of depreciation expense recognized within cost of revenue for ~~each of~~ the three months ended March 31, 2022 and 2021, respectively.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

As of March 31, 2022 and ~~2020.~~December 31, 2021, the total net book value of equipment under capital leases consisted of $0.1 million and $0.2 million, respectively.

8. Goodwill and Intangibles, net

Goodwill

The carrying amount of goodwill by segment ~~were~~was as follows (in millions):

Infrastructure Spectrum Total
Balance at December 31, 2020 $ 89.6 $ 21.4 $ 111.0
Translation (0.1) 0 (0.1)
Balance at March 31, 2021 $ 89.5 $ 21.4 $ 110.9


	Infrastructure		Spectrum		Total
Balance at December 31, 2021	$	106.0	$	21.4	$	127.4




Translation	0.1		—		0.1
Balance at March 31, 2022	$	106.1	$	21.4	$	127.5

Indefinite-lived Intangible Assets

The carrying amount of indefinite-lived intangible assets ~~were~~was as follows (in millions):


		March 31, 2021				December 31, 2020					March 31, 2022		December 31, 2021

FCC licenses	FCC licenses			$	108.6				$	113.0		FCC licenses	$	106.4	$	106.5
Other		0				0

Total	Total	$	108.6			$	113.0	Total			$	106.4	$	106.5

For the three months ended March 31, 2022 and 2021, the Company recorded impairment charges of $0.1 million and $2.1 million, respectively, in Other operating (gain) loss related to non-core FCC licenses ~~decreased $4.4 million due~~which were sold in order to ~~reclassifications~~bring their carrying value equal to ~~held-for-sale as a result~~the agreed upon sales price prior to the execution of ~~our Spectrum segment entering into certain agreements to sell non-core FCC licenses.~~the sale.

~~F-17~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

Definite Lived Intangible Assets

The gross carrying amount and accumulated amortization of ~~amortizable~~definite lived intangible assets by major intangible asset class were as follows (in millions):


		Weighted-Average Original Useful Life		March 31, 2021												December 31, 2020													Weighted-Average Original Useful Life		March 31, 2022												December 31, 2021
			Gross Carrying Amount	Accumulated Amortization						Net				Gross Carrying Amount		Accumulated Amortization						Net								Gross Carrying Amount	Accumulated Amortization						Net				Gross Carrying Amount		Accumulated Amortization						Net
Trade names	Trade names		14 years			$	18.0			$	(5.0)			$	13.0			$	18.0			$	(4.6)			$	13.4	Trade names		14 years			$	25.4			$	(6.7)			$	18.7			$	25.4			$	(6.3)			$	19.1
Customer relationships		9 years		36.4				(12.9)				23.5				36.4				(12.1)				24.3
Customer relationships and contracts																										Customer relationships and contracts			11 years		87.8				(25.1)				62.7				87.7				(21.6)				66.1
Channel sharing arrangements	Channel sharing arrangements	35 years		20.2				(1.8)				18.4				20.2				(1.6)				18.6		Channel sharing arrangements			35 years		12.6				(1.2)				11.4				12.6				(1.1)				11.5
Other	Other	7 years		6.5				(2.9)				3.6				5.5				(2.7)				2.8		Other			10 years		8.5				(3.5)				5.0				8.5				(3.3)				5.2
Total	Total			$	81.1			$	(22.6)			$	58.5			$	80.1			$	(21.0)			$	59.1	Total					$	134.3			$	(36.5)			$	97.8			$	134.2			$	(32.3)			$	101.9

Amortization expense for definite lived intangible assets was ~~$1.5~~$4.2 million and $1.5 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively, and was included in Depreciation and amortization in our Condensed Consolidated Statements of Operations.

Amortization

~~Excluding the impact of any future acquisitions, dispositions or change in foreign currency, the~~The Company estimates the annual amortization expense of amortizable intangible assets for the next five fiscal years will be as follows (in millions):


		Estimated Amortization			Estimated Amortization
2021		$	4.4
2022	2022	5.8		2022	$	12.9
2023	2023	5.6		2023	11.6
2024	2024	5.6		2024	8.0
2025	2025	4.9		2025	7.3
2026				2026	6.8
Thereafter	Thereafter	32.2		Thereafter	51.2
Total	Total	$	58.5	Total	$	97.8

~~F-18~~16

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

9. Debt Obligations

Debt obligations consist of the following (in millions):


		March 31, 2021				December 31, 2020			March 31, 2022		December 31, 2021
Infrastructure	Infrastructure			Infrastructure
LIBOR plus 5.85% Note, due 2023				$	70.6				$	71.6
LIBOR plus 1.50% Line of Credit		38.3				38.7
3.25% Note due 2026								3.25% Note due 2026	103.5		107.2
PRIME minus 1.10% Line of Credit								PRIME minus 1.10% Line of Credit	90.4		30.4
4.00% Note due 2024								4.00% Note due 2024	22.5		25.0
8.00% Note due 2024								8.00% Note due 2024	19.6		19.6
11.00% Note due 2024								11.00% Note due 2024	6.3		6.3
Obligations under finance leases	Obligations under finance leases	0.1				0.2		Obligations under finance leases	0.1		0.1
Spectrum	Spectrum							Spectrum
8.50% Note due 2021		19.3				19.3
10.50% Note due 2021		32.9				32.9
Other, various maturity dates		2.9				2.9
Obligations under finance leases		0.3				0.6
8.50% Note due 2022								8.50% Note due 2022	19.3		19.3
10.50% Note due 2022								10.50% Note due 2022	32.9		32.9

Non-Operating Corporate	Non-Operating Corporate							Non-Operating Corporate
11.50% Senior Secured Notes, due 2021		0				340.4
8.50% Senior Secured Notes, due 2026	8.50% Senior Secured Notes, due 2026	330.0				0		8.50% Senior Secured Notes, due 2026	330.0		330.0
7.50% Convertible Senior Notes, due 2022	7.50% Convertible Senior Notes, due 2022	3.2				55.0		7.50% Convertible Senior Notes, due 2022	3.2		3.2
7.50% Convertible Senior Notes, due 2026	7.50% Convertible Senior Notes, due 2026	51.8				0		7.50% Convertible Senior Notes, due 2026	51.8		51.8
LIBOR plus 5.75% Line of Credit	LIBOR plus 5.75% Line of Credit	0				15.0		LIBOR plus 5.75% Line of Credit	5.0		5.0
		549.4				576.6			684.6		630.8
Issuance discount, issuance premium, and deferred financing costs		(3.3)				(15.1)
Unamortized issuance discount, issuance premium, and deferred financing costs								Unamortized issuance discount, issuance premium, and deferred financing costs	(3.5)		(4.5)
Less: current portion of debt obligations	Less: current portion of debt obligations	(82.8)				(433.6)		Less: current portion of debt obligations	(80.1)		(69.5)
Debt obligations	Debt obligations	$	463.3			$	127.9	Debt obligations	$	601.0	$	556.8

Aggregate finance lease and debt payments, including interest are as follows (in millions):


		Finance Leases		Debt		Total			Finance Leases		Debt		Total
2021		$	0.4	$	107.6	$	108.0
2022	2022	0		48.3		48.3		2022	$	0.1	$	107.8	$	107.9
2023	2023	0		104.2		104.2		2023	—		57.9		57.9
2024	2024	0		39.7		39.7		2024	—		162.8		162.8
2025	2025	0		31.9		31.9		2025	—		42.2		42.2
2026								2026	—		471.3		471.3
Thereafter	Thereafter	0		413.6		413.6		Thereafter	—		0.1		0.1
Total minimum principal and interest payments	Total minimum principal and interest payments	0.4		745.3		745.7		Total minimum principal and interest payments	0.1		842.1		842.2
Less: Amount representing interest	Less: Amount representing interest	0		(196.3)		(196.3)		Less: Amount representing interest	—		(157.6)		(157.6)
Total aggregate finance lease and debt payments	Total aggregate finance lease and debt payments	$	0.4	$	549.0	$	549.4	Total aggregate finance lease and debt payments	$	0.1	$	684.5	$	684.6

The interest rates on the finance leases range from approximately 2.0% to ~~11.5%~~5.6%.

Infrastructure

In May 2021, DBMG repaid its LIBOR plus 1.50% revolving line of credit under the Credit and Security Agreement with Wells Fargo Bank and its term loan due 2023 under a financing agreement with TCW Asset Management Company LLC. In addition, DBMG entered into a new credit facility with UMB Bank ("UMB"). Under the terms of the agreement, UMB agreed to a $110.0 million term loan ("UMB Term Loan") and $110.0 million revolving credit agreement ("UMB Revolving Line"). The UMB Term loan expires in 2026 and will bear interest at a rate of 3.25% with an effective interest rate of 3.25%. The UMB Revolving Line expires in 2024 and will bear interest at a rate of Prime Rate minus 1.10%. The proceeds were used to fully repay DBMG's existing debt obligations, fund a portion of the Banker Steel acquisition, and provide additional working capital capacity to DBMG.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Spectrum

On October 24, 2019, Spectrum issued $78.7 million 364-day secured notes (the "2020 Notes"). The 2020 Notes were comprised of a $36.2 million, 8.50% tranche funded by an affiliate of MSD Partners, L.P. (the “8.50% Note”). The remaining $42.5 million, 10.50% tranche (the “10.50% Note”) was a modification of the existing Secured Note, with certain institutional investors. The 2020 Notes had an original maturity date of October 2020, and were amended multiple times during 2020 as further described below. The net proceeds from the financing were used to retire Broadcasting’s existing debt, as well as fund pending acquisitions, working capital and general corporate purposes. In connection with the issuance of the 10.50% Note due 2020, Spectrum issued warrants to the same institutional investors to purchase 50,000 shares of common stock at $176.4 per share for a total purchase price of $8.8 million, or net settled, if exercised as of the issuance date, and as may be adjusted at any future exercise of the warrant pursuant to its terms. The warrant has a five-year term and is immediately exercisable.

In February 2020, Spectrum amended its agreement governing its 8.50% Note funded by MSD Partners, L.P., increasing the principal balance to $39.3 million. The proceeds were used to repay principal and interest on existing debt. In August 2020, Spectrum modified its agreement with MSD Partners, L.P. and Great American Life Insurance Company to extend the maturity on its 8.50% Note and 10.50% Note to October 2021. In September 2020, Spectrum further amended its agreement governing its 8.50% Note, increasing the principal balance by $4.0 million to $43.3 million. The proceeds were used to repay principal and interest on existing debt and for general business purposes. In November 2020, Spectrum paid down $2.9 million of its 8.50% Note and $3.0 million on other various notes. In December 2020, Spectrum paid down $21.0 million and $9.6 million of its 8.50% Note and 10.50% Note, respectively from the proceeds from the sale of stations. On August 30, 2021, Broadcasting repurchased $1.0 million of DTV's outstanding notes payable, inclusive of accrued interest, to certain institutional investors. Also on August 30, 2021, DTV extended its remaining outstanding notes by 60 days.

On October 21, 2021, 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. Concurrently, Broadcasting completed the last of a series of repurchases of all the outstanding secured notes, inclusive of accrued interest, of DTV America Corporation (“DTV”) for a total consideration of $6.2 million using a combination of cash on hand and proceeds from the sales on non-core assets.

On October 26, 2021, Broadcasting repurchased the outstanding convertible promissory notes of DTV for a total consideration of $0.7 million using proceeds from the sales of non-core assets. Subsequent to these acquisitions, DTV’s debt is held by Broadcasting and eliminated in consolidation.

Non-Operating Corporate

On February 1, 2021, ~~HC2~~INNOVATE repaid its 2021 Senior Secured Notes and issued $330.0 million aggregate principal amount of ~~8.5%~~8.50% 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%~~7.50% convertible senior notes due 2022 (the "2022 Convertible Notes"), pursuant to which the Company exchanged such holders' 2022 Convertible Notes for newly issued ~~7.5%~~7.50% convertible notes due 2026 (the "2026 Convertible Notes"). The 2026 Senior Secured Notes were issued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

The Company accounted for the transactions under the debt extinguishment model as the present value of cash flows under the terms of the 2026 Senior Secured Notes and 2026 Convertible Notes was at least 10% different from the present value of the remaining cash flows under the 2021 Senior Secured Notes and the 2022 Convertible Notes.

The extinguishment of the 2021 Senior Secured Notes yielded a loss on extinguishment of $4.5 million. The extinguishment of the $51.8 million of 2022 Convertible Notes yielded a loss on extinguishment of ~~$5.4~~$5.5 million, an acceleration of the amortization of discount of $5.3 million, and extinguishment of the bifurcated conversion option classified as equity of $7.7 million.

~~F-19~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

2026 Senior Secured Notes

The 2026 Senior Secured Notes were issued under an indenture dated February 1, 2021, by and among the Company, the guarantors party thereto and U.S. Bank National Association, a national banking association ("U.S. Bank"), as trustee (the "Secured Indenture"). The 2026 Senior Secured Notes were issued at 100% of ~~par.~~

~~Convertible Notes~~

~~The 2026 Convertible Notes were issued under~~par, with a ~~separate indenture dated February 1, 2021, between the Company~~stated interest rate of 8.50% and ~~U.S. Bank, as trustee (the "Convertible Indenture"). The 2026 Convertible Notes were issued at 100% of par.~~

Each $1,000 of principal of the 2026 Convertible Notes will initially be convertible into 234.2971 shares of our common stock, which is equivalent to an initial conversion price of approximately $4.27 per share, subject to adjustment upon the occurrence of specified events.

The fair value of the embedded conversion feature contained in the 2026 Convertible Notes had a fair value of $12.3 million, which was recorded as a premium on the 2026 Convertible Notes. The 2026 Convertible Notes have an effective interest rate of ~~3.16%~~9.26%, which reflects ~~the $12.3 million premium and $1.0~~$2.7 million of deferred financing fees. For the three months ended March 31, 2022 and 2021, interest expense recognized for the period relating to both the contractual interest coupon and amortization of the deferred financing fees was $7.6 million and $4.9 million, respectively.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

2022 Convertible Notes

At March 31, ~~2021,~~2022, the ~~2026~~2022 Convertible Notes had a net carrying value of ~~$62.8~~$3.2 million and an unamortized ~~premium~~discount of ~~$12.0~~$0.1 million. Based on the closing price of our common stock of ~~$3.94~~$3.69 on March 31, 2022, the if-converted value of the Convertible Notes did not exceed its principal value. For the three months ended March 31, 2022 and 2021, interest expense recognized for the period relating to both the contractual interest coupon and amortization of the discount on the Convertible Notes was $0.1 million.

2026 Convertible Notes

At March 31, 2022, the 2026 Convertible Notes had a net carrying value of $60.7 million and an unamortized premium of $9.9 million. Based on the closing price of our common stock of $3.69 on March 31, 2022, the if-converted value of the 2026 Convertible Notes did not exceed its principal value.

For the three months ended March 31, 2022 and 2021, interest ~~cost~~expense recognized for the period relating to both the contractual interest coupon and amortization of discount net of premium was ~~$0.6~~$0.5 million and 0,$0.3 million, respectively.

Line of Credit

On February 23, 2021, the Company entered into a third amendment (the "Amendment") of the 6.75% line of credit with MSD PCOF Partners IX, LLC ("Revolving Credit Agreement"). Among other things, the Amendment (i) increases the aggregate principal amount of the Revolving Credit Agreement to $20.0 million, (ii) extends the maturity date of the Revolving Credit Amendment to February 23, 2024, (iii) updates the affirmative and negative covenants contained in the Amended Credit Agreement so that they are substantially consistent with the affirmative and negative covenants contained in the indenture that governs the 2026 Senior Secured Notes and (iv) reduces the interest rate margin applicable to loans borrowed under the Amended Credit Agreement to 5.75% from the 6.75% described above. Except as modified by the Amendment, the terms of the Revolving Credit Agreement remain in effect. ~~There are 0 outstanding borrowings on~~In May 2021, INNOVATE drew $5.0 million under the Revolving Credit ~~Agreement as of March 31, 2021.~~Agreement.

~~HC2~~INNOVATE is in compliance with ~~our~~its debt covenants as of March 31, ~~2021.~~2022.

10. Supplementary Financial Information

Contracts in Progress

~~Costs~~Contract assets and contract liabilities and recognized earnings ~~in excess of billings on uncompleted contracts and billings in excess of costs and recognized earnings on uncompleted contracts~~ consist of the ~~following:~~following (in millions):


	March 31, 2022		December 31, 2021

Costs incurred on contracts in progress	$	2,591.9	$	2,161.5
Estimated earnings	368.1		316.4
Contract revenue earned on uncompleted contracts	2,960.0		2,477.9
Less: progress billings	2,874.5		2,438.4
	$	85.5	$	39.5

The above is included in the accompanying consolidated balance sheet under the following line items:
Contract assets	$	140.6	$	118.6
Contract liabilities	(55.1)		(79.1)
	$	85.5	$	39.5

Inventory

March 31,
2021 December 31,
2020
Costs incurred on contracts in progress $ 658.3 $ 752.9
Estimated earnings 132.8 139.0
791.1 891.9
Less progress billings 783.9 888.5
$ 7.2 $ 3.4
The above is included in the accompanying condensed consolidated balance sheet under the following line items:
Costs and recognized earnings in excess of billings on uncompleted contracts $ 65.7 $ 55.6
Billings in excess of costs and recognized earnings on uncompleted contracts (58.5) (52.2)
$ 7.2 $ 3.4
Inventory consists of the following (in millions):


	March 31, 2022		December 31, 2021

Raw materials and consumables	$	16.7	$	14.3
Work in process	1.1		1.2
Finished goods	1.7		1.5
Total inventory	$	19.5	$	17.0

~~F-20~~19

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Investments

Carrying values of other invested assets were as follows (in millions):


	March 31, 2022						December 31, 2021
	Measurement Alternative(1)		Equity Method		Total		Measurement Alternative(1)		Equity Method		Total
Common stock	$	—	$	2.9	$	2.9	$	—	$	2.1	$	2.1
Preferred stock	—		5.7		5.7		—		7.5		7.5
Fixed maturities	5.0		—		5.0		0.5		—		0.5
Put option	11.3		—		11.3		11.3		—		11.3
Equity method securities	—		35.3		35.3		—		34.6		34.6
Total	$	16.3	$	43.9	$	60.2	$	11.8	$	44.2	$	56.0

(1) The Company accounts for its equity securities without readily determinable fair values under the measurement alternative election of ASC 321, whereby the Company can elect to measure an equity security without a readily determinable fair value, that does not qualify for the practical expedient to estimate fair value (net asset value), at its cost minus impairment, if any.

March 31, 2021 December 31, 2020
Measurement
Alternative Equity
Method Total Measurement
Alternative Equity
Method Total
Common stock $ 0 $ 2.5 $ 2.5 $ 0 $ 2.5 $ 2.5
Preferred stock 0 13.8 13.8 0 15.4 15.4
Fixed Maturities 0.5 0 0.5 0.5 0 0.5
Other 11.3 24.6 35.9 11.3 25.7 37.0
Total $ 11.8 $ 40.9 $ 52.7 $ 11.8 $ 43.6 $ 55.4
During the three months ended March 31, 2022, the Company's fixed maturities increased $4.5 million to $5.0 million from $0.5 million. The increase was due to Pansend's equity method investment, MediBeacon, which issued Pansend a $4.5 million 8.0% convertible note due March 2025.

Fair Value of Financial Instruments Not Measured at Fair Value

The following table presents the carrying amounts and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis. The table excludes carrying amounts for cash and cash equivalents, accounts receivable, accounts payable and other current liabilities, and other assets and liabilities that approximate fair value due to relatively short periods to maturity (in millions):


March 31, 2021						Fair Value Measurement Using:
		Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
March 31, 2022												March 31, 2022					Fair Value Measurement Using:
													Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Assets	Assets											Assets

Other invested assets	Other invested assets	$	11.3	$	11.3	$	0	$	0	$	11.3	Other invested assets	$	11.3	$	11.3	$	—	$	—	$	11.3
Total assets not accounted for at fair value	Total assets not accounted for at fair value	$	11.3	$	11.3	$	0	$	0	$	11.3	Total assets not accounted for at fair value	$	11.3	$	11.3	$	—	$	—	$	11.3
Liabilities	Liabilities											Liabilities

Debt obligations (1)	Debt obligations (1)	$	545.7	$	558.3	$	0	$	558.3	$	0	Debt obligations (1)	$	681.1	$	692.0	$	—	$	692.0	$	—
Total liabilities not accounted for at fair value	Total liabilities not accounted for at fair value	$	545.7	$	558.3	$	0	$	558.3	$	0	Total liabilities not accounted for at fair value	$	681.1	$	692.0	$	—	$	692.0	$	—


December 31, 2020						Fair Value Measurement Using:
		Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
December 31, 2021												December 31, 2021					Fair Value Measurement Using:
													Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3
Assets	Assets											Assets

Other invested assets	Other invested assets	$	11.3	$	11.3	$	0	$	0	$	11.3	Other invested assets	$	11.3	$	11.3	$	—	$	—	$	11.3
Total assets not accounted for at fair value	Total assets not accounted for at fair value	$	11.3	$	11.3	$	0	$	0	$	11.3	Total assets not accounted for at fair value	$	11.3	$	11.3	$	—	$	—	$	11.3
Liabilities	Liabilities											Liabilities

Debt obligations (1)	Debt obligations (1)	$	560.7	$	579.2	$	0	$	579.2	$	0	Debt obligations (1)	$	626.3	$	648.2	$	—	$	648.2	$	—
Total liabilities not accounted for at fair value	Total liabilities not accounted for at fair value	$	560.7	$	579.2	$	0	$	579.2	$	0	Total liabilities not accounted for at fair value	$	626.3	$	648.2	$	—	$	648.2	$	—

(1) Excludes certain lease obligations accounted for under ASC 842, Leases.

Debt Obligations. The fair value of the Company’s long-term obligations was determined using Bloomberg Valuation Service BVAL. The methodology combines direct market observations from contributed sources with quantitative pricing models to generate evaluated prices and classified as Level 2.

~~F-21~~20

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Equity Method Investments

For the three months ended March 31, 2022, certain investments subject to Regulation S-X Rule 4-08(g) held by the Company in aggregate have met the significance criteria as defined under SEC guidance. In accordance with Rule 8-03(b)(3) of Regulation S-X, the Company must assess whether its equity method investment is a significant equity method investment. In evaluating the significance of this investment, the Company performed the income, asset, and investment tests described in S-X 3-05 and S-X 1-02(w). Rule 8-03(b)(3) of Regulation S-X requires summarized financial information in a quarterly report if any of the three tests exceeds 20%. Under the assets test, the Company’s proportionate share of its equity method investee's aggregated assets exceeded the applicable threshold of 20%, and accordingly it is required to provide summarized balance sheet and income statement information for this investee for all periods presented. The Company's share of net loss from its equity method investment totaled $0.5 million and $2.1 million for the three months ended March 31, 2022 and 2021, respectively.

The following tables provide summarized financial information for the Company's equity method investments (in millions):


	March 31, 2022		December 31, 2021

Assets	$	594.7	$	604.5
Liabilities	469.6		481.5
Equity	$	125.1	$	123.0


	Three Months Ended March 31,
		2022		2021
Total revenues		$	70.2	$	80.3
Gross profit		$	17.6	$	8.2
Loss from continuing operations		$	(1.2)	$	(6.7)
Net income (loss)		$	1.9	$	(6.0)

Other Non-Current Assets

The following tables provide information relating to Other non-current assets (in millions):

March 31,
2021 December 31,
2020
Right of use asset $ 38.6 $ 39.8
Other 2.9 2.4
Total other non-current assets $ 41.5 $ 42.2


	March 31, 2022		December 31, 2021

Right of use asset	$	71.2	$	69.6
Other	3.6		3.7
Total other non-current assets	$	74.8	$	73.3

Accrued Liabilities

Accrued liabilities consist of the following (in millions):

March 31,
2021 December 31,
2020

Accrued expenses and other current liabilities $ 34.0 $ 27.9
Accrued payroll and employee benefits 26.2 34.7
Accrued interest 17.8 13.9
Accrued income taxes 0.6 0.6
Total accrued liabilities $ 78.6 $ 77.1


	March 31, 2022		December 31, 2021

Accrued expenses and other current liabilities	$	27.2	$	24.5

Accrued payroll and employee benefits	36.4		38.9
Accrued interest	22.5		29.6
Accrued income taxes	—		0.4
Total accrued liabilities	$	86.1	$	93.4

Other Non-Current Liabilities

The following tables provide information relating to Other non-current liabilities (in millions):


		March 31, 2021				December 31, 2020					March 31, 2022		December 31, 2021

Lease liability				$	31.6				$	31.6
Lease liability, net of current portion								Lease liability, net of current portion			$	58.4	$	58.5

Other	Other	2.4				8.2		Other			4.9		4.8
Total other non-current liabilities	Total other non-current liabilities	$	34.0			$	39.8	Total other non-current liabilities			$	63.3	$	63.3

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

11. Leases

Operating lease right-of-use-assets and finance leases are recognized in the Condensed Consolidated Balance Sheets within Other assets and Property, plant and equipment, net, respectively. Operating lease liability and finance lease liability are recognized in the Condensed Consolidated Balance Sheets within Other liabilities and Debt obligations, respectively. As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, lease right-of-use assets and lease liabilities ~~consists~~consist of the following (in millions):


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021

Right-of-use assets:	Right-of-use assets:							Right-of-use assets:
Operating lease (Other non-current assets)	Operating lease (Other non-current assets)	$	38.6	$	39.8	Operating lease (Other non-current assets)	$	71.2	$	69.6
Finance lease (Property, plant and equipment, net)	Finance lease (Property, plant and equipment, net)	0.6		0.9		Finance lease (Property, plant and equipment, net)	0.1		0.2
Total right-of-use assets	Total right-of-use assets	$	39.2	$	40.7	Total right-of-use assets	$	71.3	$	69.8

Lease liabilities:	Lease liabilities:					Lease liabilities:
Current portion of operating lease (Other current liabilities)	Current portion of operating lease (Other current liabilities)	$	11.5	$	11.2	Current portion of operating lease (Other current liabilities)	$	17.1	$	15.5
Non-current portion of operating lease (Other non-current liabilities)	Non-current portion of operating lease (Other non-current liabilities)	31.6		31.6		Non-current portion of operating lease (Other non-current liabilities)	58.4		58.5
Finance lease (Debt obligations)	Finance lease (Debt obligations)	0.4		0.8		Finance lease (Debt obligations)	0.1		0.1
Total lease liabilities	Total lease liabilities	$	43.5	$	43.6	Total lease liabilities	$	75.6	$	74.1

The tables below present financial information associated with the Company's leases. This information is presented as of, and for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021. The Company has entered into operating and finance lease agreements primarily for land, office space, equipment and vehicles, expiring between ~~2021~~2022 and 2045.

~~F-22~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

The following table summarizes the components of lease expense for the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 (in millions):


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020				2022		2021
Finance lease cost:	Finance lease cost:					Finance lease cost:
Amortization of right-of-use assets	Amortization of right-of-use assets	$	0.3	$	0.3	Amortization of right-of-use assets		$	—	$	0.3

Interest on lease liabilities						Interest on lease liabilities		—		—
Net finance lease cost	Net finance lease cost	0.3		0.3		Net finance lease cost		—		0.3
Operating lease cost	Operating lease cost	3.5		3.5		Operating lease cost		5.9		3.5

Variable lease cost	Variable lease cost	0.1		0.1		Variable lease cost		0.1		0.1

Sublease income						Sublease income		(0.2)		—
Total lease cost	Total lease cost	$	3.9	$	3.9	Total lease cost		$	5.8	$	3.9

Cash flow information related to leases for the three months ended March 31, ~~2021and 2020 are~~2022 and 2021 is as follows (in millions):


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020				2022		2021
Cash paid for amounts included in the measurement of lease liabilities:	Cash paid for amounts included in the measurement of lease liabilities:					Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from finance leases						Operating cash flows from finance leases		$	—	$	—
Financing cash flows from finance leases	Financing cash flows from finance leases	$	0.3	$	0.2	Financing cash flows from finance leases		$	—	$	0.3
Operating cash flows from operating leases	Operating cash flows from operating leases	$	3.7	$	3.5	Operating cash flows from operating leases		$	6.2	$	3.7
Right-of-use assets obtained in exchange for new lease liabilities	Right-of-use assets obtained in exchange for new lease liabilities					Right-of-use assets obtained in exchange for new lease liabilities

Finance leases						Finance leases		$	—	$	—
Operating leases	Operating leases	$	3.9	$	8.5	Operating leases		$	6.5	$	3.9

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

As of March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, the weighted-average remaining lease term and the weighted-average discount rate for finance leases and operating leases are as follows:


		March 31, 2021			December 31, 2020				March 31, 2022			December 31, 2021

Weighted-average remaining lease term (years) - operating lease	Weighted-average remaining lease term (years) - operating lease			5.1				4.4		Weighted-average remaining lease term (years) - operating lease		7.5		7.5
Weighted-average remaining lease term (years) - finance lease	Weighted-average remaining lease term (years) - finance lease	0.7			0.9		Weighted-average remaining lease term (years) - finance lease		2.6			2.3
Weighted-average discount rate - operating lease	Weighted-average discount rate - operating lease	7.3	%		6.2	%	Weighted-average discount rate - operating lease		5.3		%	5.4	%
Weighted-average discount rate - finance lease	Weighted-average discount rate - finance lease	8.6	%		8.9	%	Weighted-average discount rate - finance lease		3.7		%	4.2	%

As of March 31, ~~2021,~~2022, undiscounted cash flows for finance and operating leases are as follows (in millions):


	Operating Leases		Finance Leases
2022	$	15.2	$	0.1
2023	18.3		—
2024	12.5		—
2025	9.2		—
2026	6.4		—
Thereafter	31.2		—
Total future lease payments	92.8		0.1
Less: Present values	(17.3)		—
Total lease liability balance	$	75.5	$	0.1

Operating
Leases Finance
Leases
2021 $ 13.6 $ 0.4
2022 11.4 0
2023 9.1 0
2024 6.9 0
2025 4.1 0
Thereafter 5.1 0
Total future lease payments 50.2 0.4
Less: Present values (7.1) 0
Total lease liability balance $ 43.1 $ 0.4
In November 2021, INNOVATE Corp. entered into a ten-year lease agreement for a special purpose space in Palm Beach, Florida. The new lease has not yet commenced, but will require future monthly lease payments of approximately $0.2 million over the entire lease term and yearly common area maintenance charges of $0.6 million, both of which are subject to 3% annual upward adjustments, with total square footage of 20,950. The new lease also provides for the Company to receive an allowance from the landlord of $2.1 million to be used toward costs to design, engineer, install, supply and construct improvements, payable at the end of the lease. The future lease payments and the allowance are not yet recorded on our consolidated balance sheet. We expect the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin no later than November 2023.

In December 2021, the Company entered into a five-year lease agreement with an option to extend the lease for another five years for office space in West Palm Beach, Florida. The new lease has not commenced yet, but will require future monthly lease payments of approximately $0.14 million over the entire lease term, subject to 3% annual upward adjustment, with total square footage of 15,786. The future lease payments are not yet recorded on our consolidated balance sheet, as the building is still under construction. We expect the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin in the fourth quarter of 2023.

12. Income Taxes

The Company used the Annual Effective Tax Rate ("ETR") approach of ASC 740-270, Interim Reporting, to calculate its ~~2021~~2022 interim tax provision.

Income tax expense was ~~$1.1~~$1.6 million and ~~an income tax benefit of $9.7~~$1.1 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The income tax expense recorded for the three months ended March 31, 2022 and 2021 relates to the projected expense as calculated under ASC 740 for taxpaying entities. Additionally, the tax benefits associated with losses generated by ~~the HC2 Holdings, Inc.~~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 benefit recorded for the three months ended March 31, 2020 primarily relates to a one-time, discrete tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act on March 27, 2020. Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc. 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.

~~F-23~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

utilized.

Net Operating Losses

At December 31, ~~2020,~~2021, the Company had gross U.S. net operating loss carryforwards available to reduce future taxable income in the amount of ~~$170.3~~$164.5 million, of which a portion is subject to annual limitation under IRC Sec. 382. Based on estimates as of March 31, ~~2021,~~2022, the Company expects that approximately ~~$96.0~~$95.7 million of the gross U.S. net operating loss carryforwards would be available to offset taxable income in ~~2021.~~2022. This estimate may change based on changes to ~~the quarterly forecasts and~~ actual results reported on the 2021 U.S. tax return. The amount of U.S. net operating loss carryforwards reflected in the financial statements differs from the amounts reported on the U.S. tax return due to uncertain tax positions related to tax laws and regulations that are subject to varied interpretation by the IRS.

Additionally, at December 31, ~~2020,~~2021, the Company had ~~$112.6~~$103.6 million of gross U.S. net operating loss carryforwards from its subsidiaries that do not qualify to be included in the ~~HC2 Holdings, Inc.~~INNOVATE Corp. U.S. consolidated income tax ~~return. This balance includes $29.3~~return, including $66.2 million from ~~ANG which was sold during the first quarter~~R2, $33.1 million from DTV America, and other entities of ~~2021.~~$4.3 million.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Unrecognized Tax Benefits

The Company follows the provision of ASC 740-10, Income Taxes, which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. The Company is subject to challenge from various taxing authorities relative to certain tax planning strategies, including certain intercompany transactions as well as regulatory taxes.

The Company did not have any unrecognized tax benefits as of December 31, ~~2020~~2021 related to uncertain tax positions that would impact the effective income tax rate if recognized. The Company has reduced the net operating loss carryforward by ~~$69.6~~$58.7 million for uncertain tax positions based on our interpretation of tax laws and regulations that are subject to varied interpretation by the IRS.

Examinations

The Company conducts business globally, and as a result, the Company or one or more of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business the Company is subject to examination by taxing authorities throughout the world. The open tax years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the applicability of income tax credits for the relevant tax period. Given the nature of tax audits there is a risk that disputes may arise. Tax years 2002 - 2020 remain open for examination.

13. Commitments and Contingencies

Litigation

~~Litigation~~

The Company is subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company’s Condensed Consolidated Financial Statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its Condensed Consolidated Financial Statements. The Company records a liability in its Condensed Consolidated Financial Statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the ~~amounts~~amount of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary for its Condensed Consolidated Financial Statements not to be misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the Company's Condensed Consolidated Financial Statements. Any legal or other expenses associated with the litigation are accrued for as the expenses are incurred.

Based on a review of the current facts and circumstances with counsel in each of the matters disclosed, management has provided for what is believed to be a reasonable estimate of loss exposure. While acknowledging the uncertainties of litigation, management believes that the ultimate outcome of litigation will not have a material effect on its financial position and will defend itself vigorously.

VAT assessment

On February 20, 2017, and on August 15, 2017, the Company's subsidiary, PTGi International Carrier Services Ltd. (“PTGi-ICS Ltd”), received notices from Her Majesty’s Revenue and Customs office in the U.K. (the "HMRC") indicating that it was required to pay certain Value-Added Taxes ("VAT") for the 2015 and 2016 tax years. ~~The Company disagrees with HMRC’s assessments on technical~~On February 15, 2022, the Upper Tribunal (Tax and ~~factual grounds~~Chancery) Chamber (the "Tax Tribunal") found in favor of PTGi-ICS Ltd. HMRC has acknowledged that it will not appeal the Tax Tribunal’s decision and ~~intends to dispute~~it must pay reasonable legal fees incurred by PTGi-ICS Ltd. While repayment of the ~~assessed liabilities and vigorously defend its interests. We do not believe the assessment~~outstanding VAT payment is expected to be ~~probable and expect to prevail based on~~made soon, the ~~facts and merits~~Company shall separately pursue reimbursement of ~~our existing VAT position.~~legal fees.

~~F-24~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

Fair Value Investments Litigation

On October 1, 2020, Fair Value Investments Incorporated (“FVI”) filed a putative stockholder class action and derivative complaint in the Delaware Court of Chancery (the "Court") against ~~HC2~~INNOVATE Corp. and certain of DBMG’s current and former officers and directors, including current and former ~~HC2~~INNOVATE officers and directors AJ Stahl, Kenneth S. Courtis, Robert V. Leffler, Jr., Philip A. Falcone, Michael J. Sena, and Paul Voigt (together with ~~HC2,~~INNOVATE, the ~~“HC2~~“INNOVATE Defendants”) styled Fair Value Investments Incorporated v. Roach, et al., C.A. No. 2020-0847-JTL (Del. Ch.) (the “FVI Action”). In the FVI Action, FVI alleges that ~~HC2,~~the Company, in its capacity as DBMG’s controlling stockholder, and DBMG’s current and former officers and directors breached their fiduciary duties to DBMG and DBMG’s minority stockholders by approving certain transactions that allegedly provide disproportionate benefits to ~~HC2.~~the Company. FVI challenges the following transactions: (i) DBMG’s payments to ~~HC2~~the Company from 2016–present pursuant to a Tax Sharing Agreement between DBMG and ~~HC2;~~the Company; (ii) DBMG acting as a guarantor or providing collateral for loans taken on by ~~HC2;~~the Company; (iii) DBMG’s issuance of dividends to its common and preferred stockholders in 2017–2020; (iv) DBMG’s issuance of preferred stock to ~~HC2~~the Company to finance DBMG’s 2018 acquisition of GrayWolf Industrial; and (v) ~~HC2’s~~the Company’s appointment of directors to DBMG’s board of directors by written consent in lieu of holding an annual stockholder meeting.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

On February 23, 2021, FVI filed an Amended Verified Stockholder Class Action Complaint (the "Amended Complaint"). In the Amended Complaint, FVI named two additional defendants: ~~HC2’s~~the Company’s Chief Executive Officer, Wayne Barr, and DBMG’s General Counsel, Scott D. Sherman. The Amended Complaint includes additional fact allegations in support of the largely similar claims raised in the original complaint. Defendants moved to dismiss the Amended Complaint on April 23, 2021. ~~HC2~~The Court heard argument on the motions to dismiss on January 21, 2022. Ruling from the bench, the Court granted Defendants’ motions to dismiss, in part. The Court dismissed all claims against all individual defendants other than Ronald Yagoda, including all claims against Messrs. Barr, Stahl, Courtis, Leffler, Falcone, Sena, and Voigt. As to the two remaining defendants - INNOVATE Corp. and Yagoda - the Court dismissed all claims regarding: (i) DBMG acting as a guarantor or providing collateral for loans by the Company; (ii) DBMG’s issuance of dividends to its common and preferred stockholders in 2017–2020; (iii) the Company’s appointment of directors to DBMG’s board of directors by written consent in lieu of holding an annual stockholder meeting; and (iv) DBMG’s payments to the Company in 2016 and May 2017 pursuant to a Tax Sharing Agreement between DBMG and the Company. The Company believes the ~~allegations~~surviving claims in the FVI Amended Complaint relating to (i) DBMG’s payments to the Company after May 2017 pursuant to a Tax Sharing Agreement between DBMG and the Company and (ii) DBMG’s issuance of preferred stock to the Company to finance DBMG’s 2018 acquisition of GrayWolf Industrial are without ~~merit~~merit. Discovery on the 2 remaining claims is underway and, if necessary, trial in this action is expected to occur in the ~~HC2-related defendants have filed a motion to dismiss the complaint, which continues to be pending. HC2~~second quarter of 2023. The Company intends to vigorously defend this litigation.

DTV Derivative Litigation

On March 15, 2021, NaN DTV ~~America Corporation (“DTV”)~~ stockholders and 8 holders of DTV stock options filed a stockholder class action and derivative complaint in the Delaware Court of Chancery in an action styled Bocock, et al., v. HC2 Holdings, Inc. et al., C.A. No. 2021-0224 (Del. Ch.). Plaintiffs named as defendants INNOVATE Corp. (f/k/a HC2 Holdings, Inc.), HC2 Broadcasting Holdings, Inc., HC2 Broadcasting Inc., and Continental General Insurance Corporation (the ~~“HC2~~“INNOVATE Entities”) and certain current and former officers and directors of the ~~HC2~~INNOVATE Entities and DTV, including ~~Phillip~~Philip Falcone, Michael Sena, Wayne Barr, Jr., Les Levi, Paul Voigt, Ivan Minkov, and Paul Robinson (the “Individual Defendants”). Plaintiffs principally allege that the defendants breached their fiduciary duties and/or aided and abetted breaches of fiduciary duty by participating in a “scheme” in which the ~~HC2~~INNOVATE Entities (i) acquired majority voting and operating control over DTV; (ii) exploited that control to misappropriate DTV’s assets and business opportunities for the benefit of the ~~HC2~~INNOVATE Entities; and (iii) purchased DTV stock at a discount to fair value and diminished the value of DTV stock options. Plaintiffs allege that the Individual Defendants (i) “prompted” the ~~HC2~~INNOVATE Entities to purchase more than 100 low-power television (“LPTV”) broadcast stations originally identified for potential acquisition by DTV, (ii) allowed the ~~HC2~~INNOVATE Entities to misappropriate DTV technology, known as “DTV Cast,” (iii) caused DTV to transfer unspecified LPTV broadcasting station licenses to ~~HC2~~INNOVATE affiliates “without paying any value,” and (iv) transferred to the ~~HC2~~INNOVATE Entities unspecified DTV broadcasting stations that had been “repacked” by the FCC. ~~HC2~~Defendants moved to dismiss the Complaint on May 19, 2021. On June 23, 2021, plaintiffs amended their complaint. In the amended complaint, plaintiffs assert the same claims they asserted in their initial complaint, added a claim for waste associated with DTV’s purported transfer of licenses and construction permits for less than fair value, and dropped Paul Robinson as a defendant. Defendants moved to dismiss the amended complaint in its entirety on August 25, 2021, and the parties completed briefing on the motions to dismiss on November 10, 2021. The Court heard argument on the motions to dismiss on March 29, 2022 and a decision is expected by the end of June 2022. The Company believes the allegations in the ~~Bocock Complaint~~amended complaint are without merit and the ~~HC2-related defendants intend to move to dismiss the complaint. HC2~~Company intends to vigorously defend this litigation.

~~OSHA Complaint~~Books and Records Demand

On ~~November 4, 2020,~~July 28, 2021, the Company received ~~notice that~~ a ~~complaint was filed on August 27, 2020, with the U.S. Department of Labor (OSHA Complaint Number 2-4173-20-156), by~~demand from a ~~former employee of Continental Insurance Group Ltd. alleging retaliatory employment practices in violation~~company stockholder pursuant to 8 Del. C. § 220 to inspect books and records of the ~~whistleblower provisions~~Company relating to, among other things, the Company's sale of ~~the Sarbanes-Oxley Act.~~its Insurance segment. The Company ~~submitted a position statement~~has responded to the ~~DOL denying~~demand and cannot determine at this time if the ~~material allegations in the complaint. On April 27, 2021, the matter was resolved pursuant~~books and records demand will lead to ~~a confidential settlement agreement that did not have a material impact on the Company's financial statements.~~litigation.

~~Separation from Philip A. Falcone~~

The Company has engaged in ongoing negotiations with Philip A. Falcone, the former Chairman, President and Chief Executive Officer of the Company, regarding his separation. Mr. Falcone rejected the Company’s most recent severance offer, and on December 18, 2020, Mr. Falcone filed a demand for arbitration against the Company with the American Arbitration Association. The Company filed its Answering Statement and Counterclaims with the AAA on March 5, 2021. The Company contends that the claims in Mr. Falcone’s demand are without merit and that the Company has both factual and legal defenses. Mr. Falcone filed his Answer to the Company’s Counterclaims on March 19, 2021.

~~In addition, Mr. Falcone made two books and records demands of the Company, which the Company has denied, including in light of the fact that Mr. Falcone is no longer a director of the Company.~~

~~Tax Matters~~

Currently, the Canada Revenue Agency ("CRA") is auditing a subsidiary previously held by the Company. The Company intends to cooperate in audit matters. To date, CRA has not proposed any specific adjustments and the audit is ongoing.

~~F-25~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

14. Share-based Compensation

Total share-based compensation expense recognized by the Company and its subsidiaries under all equity compensation arrangements was ~~$0.5~~$0.8 million and ~~$1.5~~$0.5 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

All grants are time based and vest either immediately or over a period established at ~~grant.~~grant, typically with a requisite service period of two to three years for the employee to vest in the stock-based award, subject to discretion by Compensation Committee of the Board of Directors. There are no other substantive conditions for vesting. The Company recognizes compensation expense for equity awards, reduced by actual forfeitures, using the straight-line basis.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Restricted Stock

A summary of ~~HC2’s~~INNOVATE’s restricted stock activity is as follows:

Shares Weighted Average Grant Date Fair Value
Unvested - December 31, 2019 2,213,775 $ 5.12
Granted 1,152,202 $ 2.74
Vested (2,258,905) $ 4.08
Forfeited (478,639) $ 5.87
Unvested - December 31, 2020 628,433 $ 3.93
Granted 462,864 $ 3.75
Vested (234,710) $ 4.47
Forfeited (31,171) $ 2.62
Unvested - March 31, 2021 825,416 $ 3.73


	Shares	Weighted Average Grant Date Fair Value
Unvested - December 31, 2020	628,433	$	3.93
Granted	593,458	$	3.81
Vested	(514,543)	$	3.89
Forfeited	(151,469)	$	4.13
Unvested - December 31, 2021	555,879	$	3.79
Granted	592,045	$	3.58
Vested	(163,028)	$	3.73
Forfeited	—	$	—
Unvested - March 31, 2022	984,896	$	3.67

At March 31, ~~2021,~~2022, the total unrecognized stock-based compensation expense related to unvested restricted stock was ~~$2.1~~$3.0 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of ~~2.4~~2.6 years.

Stock Options

A summary of ~~HC2’s~~INNOVATE’s stock option activity is as follows:

Shares Weighted Average Exercise Price
Outstanding - December 31, 2019 7,067,592 $ 6.52
Granted 143,096 $ 2.62
Exercised 0 $ 0
Forfeited (142,503) $ 5.45
Expired (2,328,327) $ 9.18
Outstanding - December 31, 2020 4,739,858 $ 5.13
Granted 0 $ 0
Exercised 0 $ 0
Forfeited 0 $ 0
Expired 0 $ 0
Outstanding - March 31, 2021 4,739,858 $ 5.13
Eligible for exercise 4,738,508 $ 5.13


	Shares	Weighted Average Exercise Price
Outstanding - December 31, 2020	4,739,858	$	5.13
Granted	—	$	—
Exercised	—	$	—
Forfeited	—	$	—
Expired	(23,999)	$	5.31
Outstanding - December 31, 2021	4,715,859	$	5.13
Granted	280,791	$	3.25
Exercised	—	$	—
Forfeited	—	$	—
Expired	(1,500)	$	4.06
Outstanding - March 31, 2022	4,995,150	$	5.02

Eligible for exercise	4,995,150	$	5.02

At March 31, ~~2021,~~2022, the intrinsic value and average remaining life of the Company's outstanding options were ~~$0.2~~$0.3 million and approximately ~~3.4~~2.6 years, and intrinsic value and average remaining life of the Company's exercisable options were ~~$0.2~~$0.3 million and approximately ~~3.4~~2.6 years.

~~At March 31, 2021,~~ The maximum contractual term of the ~~total~~Company's exercisable options is approximately 10 years. There were no unvested stock options and no unrecognized stock-based compensation ~~expense~~expenses related to unvested stock options was $0.1 million. The unrecognized compensation cost is expected to be recognized over the remaining weighted average period of 0.96 years. There are 1,350 unvested stock options expected to vest, with a weighted average remaining life of 8.0 years, a weighted average exercise price of $2.62, and an intrinsic value of $0.1 million.options.

~~F-26~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

15. Equity

Preferred Shares

The Company’s preferred shares authorized, issued and outstanding consisted of the following:


	March 31, 2022	December 31, 2021

Preferred shares authorized, $0.001 par value	20,000,000	20,000,000


Series A-3 shares issued and outstanding	6,125	6,125
Series A-4 shares issued and outstanding	10,000	10,000

March 31,
2021 December 31,
2020
Preferred shares authorized, $0.001 par value 20,000,000 20,000,000
Series A shares issued and outstanding 6,375 6,375
Series A-2 shares issued and outstanding 4,000 4,000

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Preferred Share Activity

Series ~~A Shares~~A-3 and A-4 Share Issuance and Conversion

~~In connection~~On July 1, 2021 (the "Exchange Date") and as a part of the sale of CIG, INNOVATE entered into an exchange agreement (the "Exchange Agreement") with the now deconsolidated CGIC, who held the remaining shares of the Series A and Series A-2 Preferred Stock and was eliminated in consolidation prior to the sale of the Insurance segment on July 1, 2021. Per the Exchange Agreement, INNOVATE exchanged 6,125 shares of the Series A and 10,000 shares of the Series A-2 shares that CGIC held for an equivalent number of Series A-3 Convertible Participating Preferred Stock ("Series A-3") and Series A-4 Convertible Participating Preferred Stock ("Series A-4"), respectively. The terms remained substantially the same, except that the Series A-3 and Series A-4 will mature on July 1, 2026. A cash payment of $0.3 million was made as a part of the exchange for accrued and unpaid dividends on the Series A and Series A-2 being exchanged.

Upon issuance of the Series ~~A Convertible Preferred Stock, the Company adopted a Certificate of Designation of~~A-3 and Series ~~A Convertible Participating~~A-4 Preferred Stock on ~~May 29, 2014 (the "Series A Certificate"). In connection with the issuance of~~July 1, 2021, the Series ~~A-1 Preferred Stock on September 22, 2014,~~A-3 and Series A-4 have been classified as temporary equity in the ~~Company adopted the Certificate~~Company's Balance Sheet with a combined redemption value of ~~Designation~~$16.1 million with a current fair value as of ~~Series A-1 Convertible Participating Preferred Stock (the "Series A-1 Certificate") and also amended and restated the Series A Certificate. In connection with the issuance~~March 31, 2022 of the Series A-2 Preferred Stock on January 5, 2015, the Company adopted the Certificate of Designation of Series A-2 Convertible Participating Preferred Stock (the "Series A-2 Certificate") and also amended and restated the Series A Certificate and the Series A-1 Certificate. On August 10, 2015, the Company adopted certain Certificates of Correction of the Certificates of Amendment to the Certificates of Designation of the Series A Certificate, the Series A-1 Certificate and the Series A-2 Certificate, and on June 24, 2016 the Company adopted certain amendments to the Series A-1 Certificate of Designation. The Series A Certificate, the Series A-1 Certificate and the Series A-2 Certificate together, as amended, are referred to as the "Certificates of Designation."

~~The following summary of the terms of the Preferred Stock and the Certificates of Designation is qualified in its entirety by the complete terms of the Certificates of Designation.~~$18.5 million.

~~Dividends~~Dividends.. The Series A-3 and Series A-4 Preferred Stock accrues a cumulative quarterly cash dividend at an annualized rate of 7.50%. The accrued value of the Series A-3 and Series A-4 Preferred Stock will accrete quarterly at an annualized rate of 4.00% that is reduced to 2.00% or ~~0.00%~~0.0% if the Company achieves specified rates of growth measured by increases in its net asset value; provided, that the accreting dividend rate will be 7.25% in the event that ~~(i)~~(A) the daily volume weighted average price ("VWAP") of the Company's common stock is less than a certain threshold amount, ~~(ii)~~(B) the Company's common stock is not registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, ~~(iii) following May 29, 2015,~~(C) the Company's common stock is not listed on certain national securities exchanges or ~~(iv)~~ the Company is delinquent in the payment of any cash dividends. The Series A-3 and Series A-4 Preferred Stock is also entitled to participate in cash and in-kind distributions to holders of shares of Company's common stock on an as-converted basis.

Subsequent Measurement. The Company has elected to account for the Series A-3 and Series A-4 Preferred Stock by immediately recognizing changes in the redemption value as they occur. The carrying value of the Series A-3 and Series A-4 Preferred Stock will be adjusted to equal what the redemption amount would be as if the redemption were to occur at the end of the reporting period as if it were also the redemption date for the Series A-3 and Series A-4 Preferred Stock. Any cash dividends paid will directly reduce the carrying value of the Series A-3 and Series A-4 Preferred Stock until the carrying value equals the redemption value. The Company has a history of paying dividends on its preferred stock and expects to continue to pay such dividends each quarter.

Optional Conversion.Each share of ~~Preferred Stock~~Series A-3 and Series A-4 may be converted by the holder into shares of the Company's common stock at any time based on the ~~then applicable conversion price. Pursuant to the Series A Certificate, each~~then-applicable Conversion Price.Each share of Series ~~A Preferred Stock~~A-3 is ~~currently~~initially convertible at a conversion price of ~~$3.52. Pursuant~~$4.25 (as it may be adjusted from time to time, the ~~Series A-2 Certificate,~~"Series A-3 Conversion Price"), and each share of Series ~~A-2 Preferred Stock~~A-4 is ~~currently~~initially convertible at a conversion price of ~~$5.34. Such conversion prices~~$8.25 (as it may be adjusted from time to time, the "Series A-4 Conversion Price") (“collectively the “Conversion Prices”). The Conversion Prices are subject to adjustment for dividends, certain distributions, stock splits, combinations, reclassifications, reorganizations, mergers, recapitalizations and similar events, as well as in connection with issuances of equity or equity-linked or other comparable securities by the Company at a price per share (or with a conversion or exercise price or effective issue price) that is below the ~~applicable conversion price~~Conversion Prices’ (which adjustment shall be made on a weighted average basis). Actual conversion prices at the time of the exchange were $3.52 for the Series A and $5.33 for the Series A-2.

Redemption by the ~~Holders~~Holder / Automatic Conversion. On ~~May 29, 2021,~~July 1, 2026, holders of the ~~Preferred Stock are~~Series A-3 and Series A-4 shall be entitled to cause the Company to redeem the ~~Preferred Stock~~Series A-3 and Series A-4 at the accrued value per share plus accrued but unpaid dividends (to the extent not included in the accrued value of ~~Preferred Stock)~~Series A-3 and Series A-4). Each share of ~~Preferred Stock~~Series A-3 and Series A-4 that is not so redeemed will be automatically converted into shares of the Company's common stock at the ~~conversion price~~Conversion Price then in effect.

Upon a change of control (as defined in ~~the Certificates~~each Certificate of Designation) holders of the ~~Preferred Stock are~~Series A-3 and Series A-4 shall be entitled to cause the Company to redeem their ~~Preferred Stock~~shares of Series A-3 and Series A-4 at a price per share of ~~Preferred Stock~~Series A-3 and Series A-4 equal to the greater of (i) the accrued value of the ~~Preferred Stock, which amount would be multiplied by 150% in the event of a change of control occurring on or prior to May 29, 2017,~~Series A-3 and Series A-4, plus any accrued and unpaid dividends (to the extent not included in the accrued value of Series A-3 and Series A-4 Preferred Stock), and (ii) the value that would be received if the share of ~~Preferred Stock~~Series A-3 and Series A-4 were converted into shares of the Company's common stock immediately prior to the change of control.

Redemption by the ~~Company.~~Company / "Company Call Option". At any time after ~~May 29, 2017,~~the third anniversary of the Original Issue Date, the Company may redeem the ~~Preferred Stock,~~Series A-3/Series A-4, in whole but not in part, at a price per share generally equal to 150% of the ~~original~~ accrued value ~~or on that date,~~per share, plus accrued but unpaid dividends (to the extent not included in the accrued value of ~~Preferred Stock)~~the Series A-3/Series A-4), subject to the ~~holder’s~~holder's right to convert prior to such redemption.

Forced ~~Conversion.~~Conversion ~~After May 29, 2017, the~~. The Company may force conversion of the ~~Preferred Stock~~Series A-3 and Series A-4 into shares of the Company's common stock if the common ~~stock’s~~stock's thirty-day VWAP exceeds 150% of the then-applicable Conversion Price and the ~~common stock’s~~Common Stock’s daily VWAP exceeds 150% of the ~~then applicable~~then-applicable Conversion Price for at least twenty trading days out of the thirty trading day period used to calculate the thirty-day VWAP. In the event of a forced conversion, the holders of ~~Preferred Stock~~Series A-3 and Series A-4 will have the ability to elect cash settlement in lieu of conversion if certain market liquidity thresholds for the Company's common stock are not achieved.

~~F-27~~27

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Liquidation ~~Preference.~~Preference ~~The Series A Preferred Stock ranks at parity with the Series A-2 Preferred Stock.~~. In the event of any liquidation, dissolution or winding up of the Company (any such event, a ~~"Liquidation Event"~~“Liquidation Event”), the holders of ~~Preferred Stock are~~Series A-3 and Series A-4 will be entitled to receive per share the greater of (i) the accrued value of the ~~Preferred Stock, which amount would be multiplied by 150% in the event of a Liquidation Event occurring on or prior to May 29, 2017,~~Series A-3 and Series A-4, plus any accrued and unpaid dividends (to the extent not included in the accrued value of ~~Preferred Stock)~~Series A-3 and Series A-4), and (ii) the value that would be received if the share of ~~Preferred Stock~~Series A-4 and Series A-4 were converted into shares of the Company's common stock immediately prior to such occurrence. The ~~Preferred Stock~~Series A-3 and Series A-4 will rank junior to any existing or future indebtedness but senior to the Company's common stock and any future equity securities other than any future senior or ~~pari-passu~~pari passu preferred stock issued in compliance with ~~the Certificates~~each Certificate of Designation. The Series A-3 Preferred Stock and the Series A-4 Preferred Stock rank at parity.

Voting Rights.Except as required by applicable law, the holders of the shares of ~~each series of Preferred Stock are~~the Series A-3 and Series A-4 will be entitled to vote on an as-converted basis with the holders of the ~~other series of~~Series A-3 Preferred Stock and the Series A-4 Preferred Stock (on an as-converted basis), as applicable, and the holders of the Company’s common stock on all matters submitted to a vote of the holders of the Company's common ~~stock. Certain series of Preferred Stock are entitled to vote~~stock with the holders of ~~certain other series of~~New Preferred Stock on certain matters, and separately as a class on certain limited matters. Subject to maintenance of certain ownership thresholds by the initial purchasers of the Series A Preferred Stock also have the right to vote shares of Preferred Stock as a separate class for at least one director, as discussed below under "Board Rights."

Consent Rights.For so long as any of the ~~Preferred Stock~~Series A-3 and Series A-4 is outstanding, consent of the holders of shares representing at least 75% of certain of the ~~Preferred Stock~~Series A-3 and Series A-4 then outstanding is required for certain material actions.

Participation Rights. Pursuant to the securities purchase agreements entered into with the initial purchasers of the Series AA-3 Preferred Stock and the Series ~~A-2~~A-4 Preferred Stock, subject to meeting certain ownership thresholds, certain purchasers of the Series AA-3 Preferred Stock and the Series ~~A-2~~A-4 Preferred Stock are entitled to participate, on a pro-rata basis in accordance with their ownership percentage, determined on an as-converted basis, in issuances of equity and equity linked securities by the Company. In addition, subject to meeting certain ownership thresholds, certain initial purchasers of the Series AA-3 Preferred Stock and the Series ~~A-2~~A-4 Preferred Stock will be entitled to participate in issuances of preferred securities and in debt transactions of the Company.

~~As of~~At March 31, ~~2021,~~2022, Series A-3 Preferred ~~A shares~~Stock and Series A-4 Preferred ~~A-2 shares~~Stock were convertible into ~~1,835,695~~1,740,700 and ~~751,880~~1,875,533 shares, respectively, of ~~HC2~~INNOVATE's common ~~stock, excluding CGI shares eliminated in consolidation, as discussed below.~~

~~Preferred Share Activity~~

~~Series A Shares~~

~~CGI Purchase~~

On December 18, 2018, and December 20, 2018, CGI, a wholly owned subsidiary of the Company closed on the purchase of 6,125 shares of Series A Preferred Stock, which, as of March 31, 2021, is convertible into a total of 1,763,706 shares of the Company's common stock. ~~The shares and dividends accrued related to the Series A Preferred shares owned by CGI are eliminated in consolidation.~~

On January 11, 2019, CGI purchased 10,000 shares of Series A-2 Preferred Stock, which, as of March 31, 2021, is convertible into a total of 1,879,699 shares of the Company's common stock. The shares and dividends accrued related to the Series A-2 Preferred Stock owned by CGI are eliminated in consolidation.

~~Luxor and Corrib Conversions~~

On August 2, 2016, the Company entered into separate agreements with each of Corrib Master Fund, Ltd. ("Corrib"), then a holder of 1,000 shares of Series A Preferred Stock, and certain investment entities managed by Luxor Capital Group, LP ("Luxor"), that together then held 9,000 shares of Series A-1 Preferred Stock. In conjunction with the conversions, the Company agreed to provide the following two forms of additional consideration for as long as the Preferred Stock remained entitled to receive dividend payments (the "Additional Share Consideration"):

•The Company agreed that in the event that Corrib and Luxor would have been entitled to any Participating Dividends payable, had they not converted the Preferred Stock (as defined in the respective Series A and Series A-1 Certificate of Designation), after the date of their Preferred Share conversion, then the Company will issue to Corrib and Luxor, on the date such Participating Dividends become payable by the Company, in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) the value of the Participating Dividends Corrib or Luxor would have received pursuant to Sections (2)(c) and (2)(d) of the respective Series A and Series A-1 Certificates of Designation, divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificates of Designation) for the period ending ~~two~~ ~~business days prior to the underlying event or transaction that would have entitled Corrib or Luxor to such Participating Dividend had Corrib’s or Luxor’s Preferred Stock remain unconverted.~~

~~F-28~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

•The Company agreed that it will issue to Corrib and Luxor, on each quarterly anniversary commencing May 29, 2017 (or, if later, the date on which the corresponding dividend payment is made to the holders of the outstanding Preferred Stock), through and until the Maturity Date (as defined in the respective Series A and Series A-1 Certificates of Designation), in a transaction exempt from the registration requirements of the Securities Act the number of shares of common stock equal to (a) 1.875% the Accrued Value (as defined in the respective Series A and Series A-1 Certificates of Designation) of Corrib’s or Luxor’s Preferred Stock as of the Closing Date (as defined in applicable Voluntary Conversion Agreements) divided by (b) the Thirty Day VWAP (as defined in the respective Series A and Series A-1 Certificate of Designation) for the period ending ~~two~~ ~~business days prior to the applicable Dividend Payment Date (as defined in the respective Series A and Series A-1 Certificate of Designation).~~

For the three months ended March 31, 2021, 49,075 and 5,521 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the conversion agreements. For the three months ended March 31, 2020, 77,794 and 8,752 shares of the Company's common stock have been issued to Luxor and Corrib, respectively, in conjunction with the conversion agreements.

The fair value of the Additional Share Consideration for the three months ended March 31, 2021 and 2020 was valued by the Company at $0.2 million on the date of issuance and was recorded within Preferred stock and deemed dividends from conversion line item of the Consolidated Statements of Operations as a deemed dividend.

Preferred Share Dividends

During the three months ended March 31, 2022 and 2021, ~~and 2020, HC2's~~INNOVATE's Board of Directors (the "Board") declared cash dividends with respect to ~~HC2’s~~INNOVATE’s issued and outstanding Preferred Stock, excluding the Series A and Series A-2 Preferred Stock which was owned by ~~CGI which is~~CGIC and was eliminated in consolidation prior to the sale of the Insurance segment on July 1, 2021, as presented in the following table (in millions):

~~2021~~

2022

Declaration Date

March 31, 2022

Holders of Record Date

March 31, 2022

Payment Date

April 15, 2022

Total Dividend

0.3

2021

Declaration Date

March 31, 2021

Holders of Record Date

March 31, 2021

Payment Date

April 15, 2021

Total Dividend

0.2

DBMGi Series A Preferred Stock Issuance

On November 30, 2018, CGIC purchased 40,000 shares of DBMGi's Series A Preferred Stock, which was eliminated in consolidation. On July 1, 2021, as a part of the sale of CIG which resulted in the deconsolidation of the entity, INNOVATE was deemed to have issued $40.9 million of DBMGi Series A Preferred Stock to the now deconsolidated CGIC.

Upon issuance of the DBMGi Series A Preferred Stock on July 1, 2021, the DBMGi Series A Preferred Stock has been classified as temporary equity in the Company's Balance Sheet.

Redemption Option. The DBMGi Preferred Stock is redeemable at any time, in whole or in part, at the option of the Company, or at any time or by the holder prior to July 2026.

Dividends. The DBMGi Series A Preferred Stock will accrue a cumulative quarterly cash or payment in kind dividend at a rate of (a) for the first five years following the date of issuance, (i) 9.00% per annum if dividends are paid in kind or (ii) 8.25% per annum if dividends are paid in cash and (b) starting on the fifth anniversary of the date of issuance, a rate per annum equal to (i) LIBOR (as defined in the Certificate of Designation) plus a spread of 5.85% (together, the “LIBOR Rate”) per annum, plus 0.75% if dividends are paid in kind or (ii) the LIBOR Rate per annum in the case of dividends paid in cash.

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Subsequent Measurement. The DBMGi Series A Preferred Stock will be subsequently measured each reporting period at its maximum redemption value, which is equal to the stated value plus all accrued, accumulated and unpaid dividends as of the end of each reporting period as they are currently redeemable. The Company pays accrued dividends quarterly in cash (with an option to PIK), and the Company does not expect to make any subsequent measurement adjustments recorded to the initial carrying amount. As such no accretion will be recognized until future dividend payments would otherwise reduce the carrying value below its redemption value. In such a case, the Company will adjust the carrying value to its maximum redemption amount.

During the three months ending March 31, 2022, DBMGi's Board of Directors declared cash dividends with respect to DBMGi’s issued and outstanding Preferred Stock, as presented in the following table (in millions):

2022


Declaration Date	March 31, ~~2021~~2022
Holders of Record Date	March 31, ~~2021~~2022
Payment Date	April 15, ~~2021~~2022
Total Dividend	$	~~0.2~~

~~2020~~


~~Declaration Date~~	~~March 31, 2020~~
~~Holders of Record Date~~	~~March 31, 2020~~
~~Payment Date~~	~~April 15, 2020~~
~~Total Dividend~~	$	~~0.2~~0.9

16. Related Parties

~~HC2~~

Pansend has an investment in Triple Ring Technologies, Inc. ("Triple Ring"). Various subsidiaries of HC2 utilize the services of Triple Ring, incurring 0 and $0.7 million in services for the three months ended March 31, 2021 and 2020, respectively.Non-Operating Corporate

In September 2018, the Company entered into a 75-month lease for office space. As part of the agreement, ~~HC2~~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.~~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.

~~F-29~~

~~HC2 HOLDINGS, INC.~~Infrastructure

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

Banker Steel, a subsidiary of DBMG, has leased 2 office spaces from 2940 Fulks St LLC, a related party that is owned by Donald Banker, CEO of Banker Steel and a related party, with monthly lease payments of $10 thousand and a total lease liability of $0.2 million. For the three months ended March 31, 2022 and 2021, DBMG incurred lease expense of $8 thousand and zero, respectively.

Banker Steel has leased 2 planes from Banker Aviation LLC, a related party that is owned by Donald Banker, a related party, with monthly lease payments of $0.1 million and a total lease liability of $2.2 million. During the three months ended March 31, 2022, 1 of the 2 plane leases was terminated. For the three months ended March 31, 2022 and 2021, DBMG incurred lease expense of $0.1 million and zero, respectively.

Banker Steel also has a subordinated note payable of $6.3 million to Donald Banker, a related party, that has a maturity date of June 30, 2024 at a 11.0% interest rate. For the three months ended March 31, 2022 and 2021, DBMG incurred interest expense of $0.2 million and zero, respectively. Refer to Note 9. Debt Obligations to our Condensed Consolidated Financial Statementsfor additional information.

Life Sciences

R2 Technologies incurred approximately $0.1 million of stock compensation and royalty expenses that were paid to Blossom Innovations, LLC, a related party of R2 Technologies.

17. Operating Segment and Related Information

The Company currently has 1 primary reportable geographic segment - United States. The Company has 43 reportable operating segments, plus our Other segment, based on management’s organization of the enterprise - Infrastructure, Life Sciences, Spectrum, ~~Insurance,~~ and Other. We also have included a Non-operating Corporate segment. All inter-segment revenues are eliminated. The Company's revenue concentration of 10% and greater are as follows:

As a result of the sale of GMSL, ICS, and Beyond6, and in accordance with ASC 280, the Company no longer considers the results of operations and balance sheets of these entities and related subsidiaries as separate segments. Formerly part of the Marine Services, Telecommunications, and Clean Energy segments, these entities and the investment in HMN have been reclassified to the Other segment. In addition, as GMSL, ICS, Beyond6, and CIG are discontinued operations, all operating results of these entities have been reclassified to discontinued operations. This has been reflected in the tables below for both the current and historical periods presented.

Three Months Ended March 31,

Segment

2022

2021

Customer A

Infrastructure

23.3%

Customer B

Infrastructure

11.8%

*Less than 10% revenue concentration

INNOVATE CORP.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Summary information with respect to the Company’s operating segments is as follows (in millions):


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020				2022		2021
Revenue	Revenue					Revenue
Infrastructure	Infrastructure	$	161.3	$	176.5	Infrastructure		$	402.2	$	161.3

Life Sciences						Life Sciences		0.8		—
Spectrum	Spectrum	10.5		10.1		Spectrum		9.8		10.5

Total revenue	Total revenue	$	171.8	$	186.6	Total revenue		$	412.8	$	171.8


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020				2022		2021
Loss (income) from operations
Income (loss) from operations						Income (loss) from operations
Infrastructure	Infrastructure	$	2.2	$	2.6	Infrastructure		$	11.9	$	2.2
Life Sciences	Life Sciences	(4.8)		(3.2)		Life Sciences		(5.0)		(4.8)
Spectrum	Spectrum	(1.2)		(2.9)		Spectrum		(0.4)		(1.2)

Other	Other	(0.4)		(1.0)		Other		(0.1)		(0.4)
Non-operating Corporate	Non-operating Corporate	(6.7)		(9.1)		Non-operating Corporate		(5.7)		(6.7)

Total loss from operations		$	(10.9)	$	(13.6)
Total income (loss) from operations						Total income (loss) from operations		$	0.7	$	(10.9)

A reconciliation of the Company's consolidated segment operating income to consolidated earnings before income taxes is as follows (in millions):

Three Months Ended March 31,
2021 2020
Loss from operations $ (10.9) $ (13.6)
Interest expense (21.4) (19.2)
Loss on early extinguishment or restructuring of debt (10.8) (5.8)
Loss from equity investees (2.1) (2.5)
Other income 3.4 1.5
Loss from continuing operations before income taxes (41.8) (39.6)
Income tax (expense) benefit (1.1) 9.7
Loss from continuing operations (42.9) (29.9)
Income (loss) from discontinued operations (including gain on disposal of $40.4 million and loss on disposal of $39.3 million for the three months ended March 31, 2021 and 2020, respectively) 51.9 (71.1)
Net income (loss) 9.0 (101.0)
Net income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest 3.6 17.9
Net income (loss) attributable to HC2 Holdings, Inc. 12.6 (83.1)
Less: Preferred dividends and deemed dividends from conversions 0.4 0.4
Net income (loss) attributable to common stock and participating preferred stockholders $ 12.2 $ (83.5)


	Three Months Ended March 31,
		2022		2021
Income (loss) from operations		$	0.7	$	(10.9)
Interest expense		(12.6)		(21.4)

Loss on early extinguishment or restructuring of debt		—		(10.8)


Loss from equity investees		(0.5)		(2.1)

Other (loss) income		(0.1)		3.4
Loss from continuing operations before income taxes		(12.5)		(41.8)
Income tax expense		(1.6)		(1.1)
Loss from continuing operations		(14.1)		(42.9)
Income from discontinued operations (including gain on sale of $40.4 million for the three months ended March 31, 2021)		—		51.9
Net (loss) income		(14.1)		9.0
Net income attributable to noncontrolling interest and redeemable noncontrolling interest		1.7		3.6
Net (loss) income attributable to INNOVATE Corp.		(12.4)		12.6
Less: Preferred dividends and deemed dividends from conversions		1.2		0.4
Net (loss) income attributable to common stock and participating preferred stockholders		$	(13.6)	$	12.2

Three Months Ended March 31,
2021 2020
Depreciation and Amortization
Infrastructure $ 2.4 $ 2.6
Spectrum 1.5 1.7
Total $ 3.9 $ 4.3


	Three Months Ended March 31,
		2022		2021
Depreciation and Amortization
Infrastructure		$	5.3	$	2.4
Infrastructure recognized within cost of revenue		3.7		2.3
Total Infrastructure		9.0		4.7
Life Sciences		0.1		—
Spectrum		1.5		1.5


Total depreciation and amortization		$	10.6	$	6.2

~~F-30~~30

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020				2022		2021
Capital Expenditures (*)	Capital Expenditures (*)					Capital Expenditures (*)
Infrastructure	Infrastructure	$	1.6	$	2.3	Infrastructure		$	2.9	$	1.6
Life Sciences	Life Sciences	0.2		0		Life Sciences		0.1		0.2
Spectrum	Spectrum	1.4		2.7		Spectrum		1.6		1.4

Non-operating Corporate		0		0
Total	Total	$	3.2	$	5.0	Total		$	4.6	$	3.2

(*) The above capital expenditures exclude assets acquired under terms of capital lease and vendor financing obligations.


		March 31, 2021		December 31, 2020			March 31, 2022		December 31, 2021

Investments	Investments							Investments
Infrastructure	Infrastructure	$	0.9	$	0.9	Infrastructure	$	1.0	$	0.7
Life Sciences	Life Sciences	16.9		18.4		Life Sciences	13.5		10.2

Other	Other	34.9		36.1		Other	45.7		45.1

Total	Total	$	52.7	$	55.4	Total	$	60.2	$	56.0

March 31,
2021 December 31,
2020

Total Assets
Infrastructure $ 503.1 $ 494.8
Life Sciences 26.0 21.4
Spectrum 209.7 213.6
Insurance 5,627.0 5,854.0
Other 38.8 167.3
Non-operating Corporate 41.4 30.1
Eliminations (40.0) (38.4)
Total $ 6,406.0 $ 6,742.8


	March 31, 2022		December 31, 2021

Equity Method Investees
Infrastructure	$	1.0	$	0.7
Life Sciences	8.6		9.6

Other	34.3		33.9
Total	$	43.9	$	44.2


	March 31, 2022		December 31, 2021

Total Assets
Infrastructure	$	834.6	$	786.4
Life Sciences	22.2		22.0
Spectrum	198.6		198.9
Other	48.4		48.0
Non-operating Corporate	8.4		25.3

Total	$	1,112.2	$	1,080.6

18. Basic and Diluted Income (Loss) Per Common Share

Earnings per share ("EPS") is calculated using the two-class method, which allocates earnings among common stock and participating securities to calculate EPS when an entity's capital structure includes either two or more classes of common stock or common stock and participating securities. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. As such, shares of any unvested restricted stock of the Company are considered participating securities. The dilutive effect of options and their equivalents (including non-vested stock issued under stock-based compensation plans), is computed using the ~~"treasury" method~~"if-converted method" as this measurement was determined to be more dilutive between the two available methods in each period.

The Company had 0no dilutive common share equivalents during the three months ended March 31, ~~2021~~2022 and ~~2020~~2021 due to results from continuing operations being a loss, net of tax. The following table presents a reconciliation of net income (loss) used in basic and diluted EPS calculations (in millions, except per share amounts):


	Three Months Ended March 31,
		2022		2021
Loss from continuing operations		$	(14.1)	$	(42.9)
Income from continuing operations attributable to noncontrolling interest and redeemable noncontrolling interest		1.7		2.8
Loss from continuing operations attributable to the Company		(12.4)		(40.1)
Less: Preferred dividends, deemed dividends and repurchase gains		1.2		0.4
Loss from continuing operations attributable to INNOVATE common stockholders		(13.6)		(40.5)

~~F-31~~31

~~HC2 HOLDINGS, INC.~~INNOVATE CORP.

NOTES TO ~~CONDENSED~~ CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)


		Three Months Ended March 31,
		2021			2020
Loss from continuing operations		$	(42.9)		$	(29.9)
Loss attributable to noncontrolling interest and redeemable noncontrolling interest		2.8			2.8
Loss from continuing operations attributable to the Company		(40.1)			(27.1)
Less: Preferred dividends, deemed dividends and repurchase gains		0.4			0.4
Loss from continuing operations attributable to HC2 common stockholders		(40.5)			(27.5)
Income (loss) from discontinued operations		51.9			(71.1)
Income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest		0.8			15.1
Income (loss) from discontinued operations, net of tax and noncontrolling interest		52.7			(56.0)
Net income (loss) attributable to common stock and participating preferred stockholders		$	12.2		$	(83.5)
Income from discontinued operations								Income from discontinued operations	—			51.9
Income from discontinued operations attributable to noncontrolling interest and redeemable noncontrolling interest								Income from discontinued operations attributable to noncontrolling interest and redeemable noncontrolling interest	—			0.8
Income from discontinued operations, net of tax and noncontrolling interest								Income from discontinued operations, net of tax and noncontrolling interest	—			52.7
Net (loss) income attributable to common stock and participating preferred stockholders								Net (loss) income attributable to common stock and participating preferred stockholders	$	(13.6)		$	12.2

Earnings allocable to common shares:	Earnings allocable to common shares:							Earnings allocable to common shares:
Participating shares at end of period:	Participating shares at end of period:							Participating shares at end of period:
Weighted-average common stock outstanding	Weighted-average common stock outstanding	76.9			45.9			Weighted-average common stock outstanding	77.3			76.9
Unvested restricted stock	Unvested restricted stock	0.4			0			Unvested restricted stock	—			0.4
Preferred stock (as-converted basis)	Preferred stock (as-converted basis)	2.6			0			Preferred stock (as-converted basis)	—			2.6
Total	Total	79.9			45.9			Total	77.3			79.9

Percentage of loss allocated to:
Percentage of (loss) income allocated to:								Percentage of (loss) income allocated to:
Common stock	Common stock	96.2		%	100.0		%	Common stock	100.0		%	96.2		%
Unvested restricted stock	Unvested restricted stock	0.5		%	0		%	Unvested restricted stock	—		%	0.5		%
Preferred stock	Preferred stock	3.3		%	0		%	Preferred stock	—		%	3.3		%

Numerator for earnings per share, basic:	Numerator for earnings per share, basic:							Numerator for earnings per share, basic:
Net loss from continuing operations attributable to common stock, basic	Net loss from continuing operations attributable to common stock, basic	$	(39.0)		$	(27.5)		Net loss from continuing operations attributable to common stock, basic	$	(13.6)		$	(39.0)
Net income (loss) from discontinued operations attributable to common stock, basic		$	50.7		$	(56.0)
Net income (loss) attributable to common stock, basic		$	11.7		$	(83.5)
Net income from discontinued operations attributable to common stock, basic								Net income from discontinued operations attributable to common stock, basic	$	—		$	50.7
Net (loss) income attributable to common stock, basic								Net (loss) income attributable to common stock, basic	$	(13.6)		$	11.7

Earnings allocable to common shares, diluted:	Earnings allocable to common shares, diluted:							Earnings allocable to common shares, diluted:
Numerator for earnings per share, diluted	Numerator for earnings per share, diluted							Numerator for earnings per share, diluted
Effect of assumed shares under the if-converted method for convertible instruments	Effect of assumed shares under the if-converted method for convertible instruments	$	0		$	0		Effect of assumed shares under the if-converted method for convertible instruments	$	—		$	—

Net loss from continuing operations attributable to common stock, basic	Net loss from continuing operations attributable to common stock, basic	$	(39.0)		$	(27.5)		Net loss from continuing operations attributable to common stock, basic	$	(13.6)		$	(39.0)
Net income (loss) from discontinued operations attributable to common stock, basic		$	50.7		$	(56.0)
Net income (loss) attributable to common stock, basic		$	11.7		$	(83.5)
Net income from discontinued operations attributable to common stock, basic								Net income from discontinued operations attributable to common stock, basic	$	—		$	50.7
Net (loss) income attributable to common stock, basic								Net (loss) income attributable to common stock, basic	$	(13.6)		$	11.7

Denominator for basic and dilutive earnings per share	Denominator for basic and dilutive earnings per share							Denominator for basic and dilutive earnings per share
Weighted average common shares outstanding - basic	Weighted average common shares outstanding - basic	76.9			45.9			Weighted average common shares outstanding - basic	77.3			76.9
Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments	Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments	0			0			Effect of assumed shares under treasury stock method for stock options and restricted shares and if-converted method for convertible instruments	—			—
Weighted average common shares outstanding - diluted	Weighted average common shares outstanding - diluted	76.9			45.9			Weighted average common shares outstanding - diluted	77.3			76.9

Loss per share - continuing operations	Loss per share - continuing operations							Loss per share - continuing operations
Basic	Basic	$	(0.51)		$	(0.60)		Basic	$	(0.18)		$	(0.51)
Diluted	Diluted	$	(0.51)		$	(0.60)		Diluted	$	(0.18)		$	(0.51)

Income (loss) per share - discontinued operations
Income per share - discontinued operations								Income per share - discontinued operations
Basic	Basic	$	0.66		$	(1.22)		Basic	$	—		$	0.66
Diluted	Diluted	$	0.66		$	(1.22)		Diluted	$	—		$	0.66

Income (loss) per share - Net income (loss) attributable to common stock and participating preferred stockholders
(Loss) income per share - Net (loss) income attributable to common stock and participating preferred stockholders								(Loss) income per share - Net (loss) income attributable to common stock and participating preferred stockholders
Basic	Basic	$	0.15		$	(1.82)		Basic	$	(0.18)		$	0.15
Diluted	Diluted	$	0.15		$	(1.82)		Diluted	$	(0.18)		$	0.15

~~F-32~~

~~HC2 HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED~~

19. Subsequent Events

In preparing the unaudited Condensed Consolidated Financial Statements, the Company has evaluated events and transactions occurring after March 31, 2021 for recognition and/or disclosure purposes. Based on this evaluation, there were no subsequent events from March 31, 2021 through the date the financial statements were issued.

None.

~~F-33~~32

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the ~~information in our~~ consolidated annual audited financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 9, 2022 (the "2021 Annual Report") and the unaudited financial statements and related notes ~~thereto, each of which are contained~~included in ~~Item 8 entitled "Financial Statements and Supplementary Data," and other financial information included herein.~~this Quarterly Report on Form 10-Q. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section in our 2021 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"~~"INNOVATE" means ~~HC2 Holdings, Inc.~~INNOVATE Corp. and the "Company," "we" and "our" mean ~~HC2~~INNOVATE together with its consolidated subsidiaries. "U.S. GAAP" means accounting principles accepted in the United States of America.

Our Business

We are a diversified holding company with principal operations conducted through ~~four~~three operating platforms or reportable segments: Infrastructure ("DBMG"), Life Sciences ("Pansend"), and Spectrum ~~and Insurance~~ ("~~CIG"~~Broadcasting"), 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:~~

•As a result of the sale of ICS, and in accordance with ASC 280, the Company no longer considers the results of operations and Balance Sheets of ICS as a separate segment. Formerly the Telecommunications segment, this entity has been reclassified to the Other segment. See Note 17. Operating Segment and Related Information for further information; and

Our Operations

Refer to Note 1. Organization and Business to our Condensed Consolidated Financial Statements for additional information.

Cyclical Patterns

Our segments' operations can be highly cyclical. Our volume of business in our Infrastructure segment may be adversely affected by declines or delays in projects, which may vary by geographic region. Project schedules, particularly in connection with large, complex, and longer-term projects can also create fluctuations in the services provided, which may adversely affect us in a given period.

For example, in connection with larger, more complicated projects, the timing of obtaining permits and other approvals may be delayed, and we may need to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on such projects when they move forward.

Examples of other items that may cause our results or demand for our services to fluctuate materially from quarter to quarter include: weather or project site conditions, financial condition of our customers and their access to capital; margins of projects performed during any particular period; economic, and political and market conditions on a regional, national or global scale.

Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.

Recent Developments

COVID-19 Impact on our Business

On March 11, 2020, the World Health Organization declared the outbreak of ~~the~~a novel coronavirus ("COVID-19") as a pandemic, ~~resulting in action from federal, state~~ and ~~local governments that~~on March 13, 2020, the United States declared the pandemic to be a national emergency. As COVID-19 spread throughout the country, the situation has ~~significantly affected virtually all facets~~continued to evolve, including, more recently, the increasing adoption of the ~~U.S.~~COVID-19 vaccine and ~~global~~the reopening of state economies. ~~The U.S. federal and various state governments, have implemented enhanced screenings, quarantine requirements, and travel restrictions in connection with the COVID-19 outbreak.~~

The Company’s top priority ishas been to protect its employees and their families, and those of the Company’s customers. The Company continues to take precautionary measures as directed by health authorities and local governments, including changing operational procedures as necessary, providing additional protective gear and cleaning to protect personnel and customers, which has resulted and may continue to result in disruptions to and increased costs of the Company’s operations. We may take further ~~actions~~action as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, vendors, and suppliers. Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our operations. As the vaccine rollout has commenced, certain employees have begun to return to the office, either full-time or part-time. There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, including any new strains of the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions.

The extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including, but not limited to, the ~~duration and spread of the outbreak, the effectiveness of the vaccine program, the~~ outbreak of any new strains of the coronavirus, ~~and~~any related travel advisories and restrictions, and its impact to the U.S. and global financial markets, all of which are highly uncertain and cannot be predicted. 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 continued to rise due to driver shortages and increased labor costs, and new federal and state safety, environmental and labor regulations could be implemented. These changes may disrupt our supply chain, which may result in a delay in the completion of our projects or manufacturing of our products and may 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. In these circumstances, there may be developments outside our control requiring us to adjust our plans. As such, given the dynamic nature of this situation, we cannot reasonably estimate the continued impact of COVID-19 on our results of operations, financial condition, or cash flows in the ~~future. However, we do expect that~~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 three months ended March 31, ~~2021,~~2022, 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:

Infrastructure

DBMG ~~is dependent on its workforce to carry out its services. Developments resulting from governmental responses to~~was not materially impacted by COVID-19 ~~such as social distancing~~ and shelter-in-place directives have impacted, and will continue to impact, DBMG’s ability to deploy its workforce in its facilities and project sites efficiently. The nature of DBMG’s business does not permit alternative workforce arrangements in its facilities and project sites such as remote work schemes to be implemented effectively, and as a result of potential workforce disruptions, DBMG may continue to experience delays or suspensions of projects. DBMG has incurred ~~significant~~zero COVID-19 costs ~~related to additional procedures to maintain COVID-19 related safety measures. During~~during the three months ended March 31, ~~2021, $3.9 million~~2022. DBMG continues to perform work on jobs contracted during the last twelve to twenty-four months that had lower point of ~~COVID-19 related expenses were incurred. DBMG may also experience disruptions~~sale margins to maintain shop capacity and utilization, but is beginning to see an increase in ~~the supply chain depending~~point of sale margins on ~~the spread of COVID-19~~newer contracted work.

Life Sciences

R2 Technologies' supplier has encountered difficulties obtaining certain materials to manufacture its Glacial Spa and ~~related governmental orders. These delays, suspensions, and impacts~~Glacial Rx devices due to supply chain may negatively impact DBMG’s results of operations, cash flows or financial condition. While this could cause the timing of revenue to be delayed and possibly impact earnings, as the vaccination program within the U.S. progresses, DBMG could see continued increases in its backlog position as companies re-engage on previously delayed or postponed projects and could see decreases in COVID-19 related expenses.constraints.

Spectrum

~~As a result of~~Spectrum was not materially impacted by COVID-19 ~~our Spectrum segment has experienced adverse effects on its advertising business because of weakness in~~during the advertising market as advertisers seek to reduce their own costs in response to the pandemic’s impact on their businesses. While we are not able to predict when or whether advertising budgets and the advertising market generally will return or be comparable to historical levels, our Spectrum segment's advertising business appears to have begun to stabilize as the vaccination program within the U.S. progresses and additional businesses begin to reopen.

~~In addition, COVID-19 could impact our Spectrum segment’s business, financial condition and results of operations in a number of other ways, including, but not limited to:~~

•~~negative impact on our broadcast station revenue, as many of our customers also rely on advertising revenues and might be negatively affected by COVID-19;~~

•slow-down of our ability to build out additional broadcast television stations, as illness, social distancing, and other pandemic-related precautions may result in equipment delivery delays and labor shortages, including the availability of tower crews, an already limited, highly-specialized work force necessary to install broadcast equipment;

•negative impact on our network distribution revenues, as consumers may seek to reduce discretionary spending by cutting back or foregoing subscriptions to cable television or other multichannel video programming distributors;

•negative impact on our financial condition or our ability to fund operations or future investment opportunities due to an increase in the cost or difficulty in obtaining debt or equity financing, or refinancing our debt in the future, or our ability to comply with our covenants;

•~~impairments of our programming inventory, goodwill and other indefinite-lived intangible assets, and other long-lived assets; and~~

•~~increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online activity.~~

The magnitude of the impact on our Spectrum segment will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19. Even after COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

~~For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company's liquidity and capital resources, see "Part II-Item 1A-Risk Factors."~~

~~Acquisitions and Dispositions~~

~~Infrastructure~~

~~Banker Steel Acquisition~~

Onthree months ended March 15, 2021, the Company announced that DBMG entered into an agreement to acquire 100% of Banker Steel Holdco LLC ("Banker Steel") for $145.0 million, which is expected to close in the second quarter of 2021. Banker Steel provides fabricated structural steel and erection services primarily for East Coast and Southeast commercial and industrial construction industries.

~~Insurance~~

~~Sale of CGI~~

On March 29, 2021, the Company announced the entry into a definitive agreement to sell its Insurance segment to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and a beneficial owner of approximately 6.6% of the Company's outstanding common stock who has also served as executive chairman of Continental since October 2020. The transaction value is approximately $90.0 million, inclusive of $65.0 million in cash plus the return of a portion of the affiliated assets held by CGI.

~~Other~~

~~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. The sale closed on January 15, 2021. The Company recognized a $39.2 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"). 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"). The 2026 Senior Secured Notes were issued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

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.

~~Other~~

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. Huadong’s investment will be used to fund the launch of R2 Technologies’ first-to-market innovations Glacial Rx and Glacial Spa. As part of its equity investment in R2, Huadong receives exclusive distribution rights for R2’s products in the China and selected Asia-Pacific markets.2022.

Financial Presentation Background

In the below section within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we compare, pursuant to U.S. GAAP and SEC disclosure rules, the Company’s results of operations for the three months ended March 31, ~~2021~~2022 as compared to the three months ended March 31, ~~2020.~~2021.

Results of Operations

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


		Three Months Ended March 31,							Three Months Ended March 31,
		2021		2020		Increase / (Decrease)				2022		2021		Increase / (Decrease)
Revenue	Revenue							Revenue
Infrastructure	Infrastructure	$	161.3	$	176.5	$	(15.2)	Infrastructure		$	402.2	$	161.3	$	240.9

Life Sciences								Life Sciences		0.8		—		0.8
Spectrum	Spectrum	10.5		10.1		0.4		Spectrum		9.8		10.5		(0.7)

Total revenue	Total revenue	171.8		186.6		(14.8)		Total revenue		412.8		171.8		241.0

Income (loss) from operations	Income (loss) from operations							Income (loss) from operations
Infrastructure	Infrastructure	$	2.2	$	2.6	$	(0.4)	Infrastructure		$	11.9	$	2.2	$	9.7
Life Sciences	Life Sciences	(4.8)		(3.2)		(1.6)		Life Sciences		(5.0)		(4.8)		(0.2)
Spectrum	Spectrum	(1.2)		(2.9)		1.7		Spectrum		(0.4)		(1.2)		0.8

Other	Other	(0.4)		(1.0)		0.6		Other		(0.1)		(0.4)		0.3
Non-operating Corporate	Non-operating Corporate	(6.7)		(9.1)		2.4		Non-operating Corporate		(5.7)		(6.7)		1.0

Total loss from operations		(10.9)		(13.6)		2.7
Total income (loss) from operations								Total income (loss) from operations		0.7		(10.9)		11.6

Interest expense	Interest expense	(21.4)		(19.2)		(2.2)		Interest expense		(12.6)		(21.4)		8.8

Loss on early extinguishment or restructuring of debt	Loss on early extinguishment or restructuring of debt	(10.8)		(5.8)		(5.0)		Loss on early extinguishment or restructuring of debt		—		(10.8)		10.8

Loss from equity investees	Loss from equity investees	(2.1)		(2.5)		0.4		Loss from equity investees		(0.5)		(2.1)		1.6

Other income		3.4		1.5		1.9
Other (loss) income								Other (loss) income		(0.1)		3.4		(3.5)
Loss from continuing operations	Loss from continuing operations	(41.8)		(39.6)		(2.2)		Loss from continuing operations		(12.5)		(41.8)		29.3
Income tax (expense) benefit		(1.1)		9.7		(10.8)
Income tax expense								Income tax expense		(1.6)		(1.1)		(0.5)
Loss from continuing operations	Loss from continuing operations	(42.9)		(29.9)		(13.0)		Loss from continuing operations		(14.1)		(42.9)		28.8
Income (loss) from discontinued operations (including gain on disposal of $40.4 million and loss on disposal of $39.3 million for the three months ended March 31, 2021 and 2020, respectively)		51.9		(71.1)		123.0
Net income (loss)		9.0		(101.0)		110.0
Net income (loss) attributable to noncontrolling interest and redeemable noncontrolling interest		3.6		17.9		(14.3)
Net income (loss) attributable to HC2 Holdings, Inc.		12.6		(83.1)		95.7
Income from discontinued operations (including gain on disposal of $40.4 million for the three months ended March 31, 2021)								Income from discontinued operations (including gain on disposal of $40.4 million for the three months ended March 31, 2021)		—		51.9		(51.9)
Net (loss) income								Net (loss) income		(14.1)		9.0		(23.1)
Net income attributable to noncontrolling interest and redeemable noncontrolling interest								Net income attributable to noncontrolling interest and redeemable noncontrolling interest		1.7		3.6		(1.9)
Net (loss) income attributable to INNOVATE Corp.								Net (loss) income attributable to INNOVATE Corp.		(12.4)		12.6		(25.0)
Less: Preferred dividends, deemed dividends, and repurchase gains	Less: Preferred dividends, deemed dividends, and repurchase gains	0.4		0.4		—		Less: Preferred dividends, deemed dividends, and repurchase gains		1.2		0.4		0.8
Net income (loss) attributable to common stock and participating preferred stockholders		$	12.2	$	(83.5)	$	95.7
Net (loss) income attributable to common stock and participating preferred stockholders								Net (loss) income attributable to common stock and participating preferred stockholders		$	(13.6)	$	12.2	$	(25.8)

Revenue: Revenue for the three months ended March 31, ~~2021 decreased $14.8~~2022 increased $241.0 million to ~~$171.8~~$412.8 million from ~~$186.6~~$171.8 million for the three months ended March 31, ~~2020.~~2021. The ~~decrease~~increase in revenue was ~~driven by our Infrastructure segment,~~ primarily due to ~~lower revenues from our structural steel fabrication~~the Infrastructure segment, which acquired Banker Steel in the second quarter of 2021, and ~~erection business, driven by timing of project work under execution and changes~~increases in ~~backlog mix, as well as a decrease in power and industrial maintenance and repair work performed.~~Infrastructure market demand along with larger projects entering the market.

~~Loss~~Income (loss) from operations: ~~Loss~~Income from operations for the three months ended March 31, ~~2021 decreased $2.7~~2022 increased $11.6 million to ~~a loss~~income of ~~$10.9~~$0.7 million from a loss of ~~$13.6~~$10.9 million for the three months ended March 31, ~~2020.~~2021. The ~~decrease is~~increase in Income from operations was attributable to ~~lower overhead costs at~~the Infrastructure segment as a result of the contribution from Banker Steel, which was acquired in the second quarter of 2021, the Non-operating Corporate, ~~driven by by lower bonus expense~~which had decreases in legal expenses and ~~additional cost saving measures implemented, and by our Spectrum segment driven by cost reductions at Network, a decrease~~non-recurring costs related to the proxy contest in ~~compensation and overhead expenses. This~~the comparable period, which was partially offset by ~~our Life Sciences segment driven by R2, which~~ increased ~~spending~~professional service fees mainly due to timing, increased discretionary bonus due to the anticipated cash versus equity split and increased stock compensation expense, as well as additional expenses incurred in relation to the ~~comparable period~~settlement with the Company's former CEO. The increase in Income from operations is also attributable to ~~support commercialization efforts~~decreased salaries and ~~further develop its product platform.~~severance expense at the Spectrum segment.

Interest expense: Interest expense for the three months ended March 31, ~~2021 increased $2.2~~2022 decreased $8.8 million to ~~$21.4~~$12.6 million from ~~$19.2~~$21.4 million for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease was primarily attributable to ~~the acceleration of original issue discount at~~ Non-Operating ~~Corporate related to the~~Corporate's refinancing of ~~its debt during~~ the ~~period.~~2021 Senior Secured Notes in the first quarter of 2021, which decreased interest expense in the first quarter of 2022.

Loss on early extinguishment or restructuring of debt: Loss on early extinguishment or restructuring of debt for the three months ended March 31, ~~2021 increased $5.0~~2022 decreased $10.8 million to ~~$10.8 million~~zero from ~~$5.8~~a loss of $10.8 million for the three months ended March 31, ~~2020.~~2021. This expense in the comparable period was driven by the write-off of deferred financing costs and original issuance discount related to the refinancing of the 2021 Senior Secured Notes and the 2022 Convertible Notes in the first quarter of ~~2021, partially offset by the partial pay down of the 2021 Senior Secured Notes~~2021. There was no comparable expense in the ~~prior year.~~current period.

Loss from equity investees: Loss from equity investees for the three months ended March 31, ~~2021~~2022 decreased ~~$0.4~~$1.6 million to ~~a loss of $2.1~~$0.5 million from ~~a loss of $2.5~~$2.1 million for the three months ended March 31, ~~2020.~~2021. The decrease in loss was driven by increase in the equity ~~investment~~income in HMN ~~as the joint venture~~Technologies Co., Ltd. ("HMN"), which produced higher profits ~~than~~ in the first quarter of 2022 as compared to the comparable period, ~~which is~~and was generally attributable to the timing of turnkey project ~~work, and a reduction in HC2's ownership~~work. Additionally contributing to the decrease in the ~~second quarter of 2020. This~~loss was higher equity method income generated from our investment in Triple Ring, which was partially offset by ~~an increase in~~higher equity method losses recorded from our investment in MediBeacon, ~~due~~which is getting ready to submit an Investigational Device Exemption ("IDE") application to the ~~timing~~Food and Drug Administration ("FDA"), the first step toward receiving approval from the FDA to commence its US Pivotal Study of ~~clinical trials.~~the Transdermal Glomerular Filtration Rate ("TGFR"), which enables real-time, direct monitoring of kidney function.

Other (loss) income: Other (loss) income for the three months ended March 31, ~~2021 increased $1.9~~2022 decreased $3.5 million to ~~$3.4~~a loss of $0.1 million from ~~$1.5~~income of $3.4 million for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease was ~~primarily~~predominantly driven by the income recognized on a litigation settlement in the ~~current~~comparable period.

Income tax ~~(expense) benefit~~expense: Income tax ~~(expense) benefit~~expense was ~~an expense of $1.1~~$1.6 million and ~~a benefit of $9.7~~$1.1 million for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively. The income tax expense recorded for the three months ended March 31, 2022 and 2021 primarily relates to the ~~projected~~tax expense as calculated under ASC 740 for ~~tax paying~~taxpaying entities. Additionally, the tax benefits associated with losses generated by the ~~HC2 Holdings, Inc.~~INNOVATE Corp. 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 benefit recorded for March 31, 2020 primarily relates to a one-time, discrete benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the CARES Act in the first quarter of 2020. Additionally, the tax benefits associated with losses generated by the HC2 Holdings, Inc. U.S. tax consolidated group and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized.

Segment Results of Operations

In the Company's Condensed Consolidated Financial Statements, other operating (income) expense includes (i) (gain) loss on sale or disposal of assets, (ii) lease termination costs, (iii) asset impairment expense, (iv) accretion of asset retirement obligations, and (v) FCC reimbursements. Each table summarizes the results of operations of our operating segments and compares the amount of the change between the periods presented (in millions).

Infrastructure Segment

Three Months Ended March 31,
2021 2020 Increase / (Decrease)
Revenue $ 161.3 $ 176.5 $ (15.2)
Cost of revenue 137.0 151.2 (14.2)
Selling, general and administrative 19.7 19.9 (0.2)
Depreciation and amortization 2.4 2.6 (0.2)
Other operating expense — 0.2 (0.2)
Income from operations $ 2.2 $ 2.6 $ (0.4)


	Three Months Ended March 31,
		2022		2021		Increase / (Decrease)
Revenue		$	402.2	$	161.3	$	240.9

Cost of revenue		357.7		137.0		220.7
Selling, general and administrative		27.9		19.7		8.2
Depreciation and amortization		5.3		2.4		2.9
Other operating income		(0.6)		—		(0.6)
Income from operations		$	11.9	$	2.2	$	9.7

Revenue:Revenue from our Infrastructure segment for the three months ended March 31, ~~2021 decreased $15.2~~2022 increased $240.9 million to ~~$161.3~~$402.2 million from ~~$176.5~~$161.3 million for the three months ended March 31, ~~2020.~~2021. The ~~decrease~~increase was primarily driven by ~~lower revenues~~DBMG’s acquisition of Banker Steel, which was acquired in the second quarter of 2021 and contributed an incremental $136.1 million of revenue as well as an increase from ~~our structural steel~~the legacy fabrication and erection ~~business, driven~~business. This was partially offset by ~~timing of project work under execution and changes in backlog mix, as well as~~ a decrease at the construction modeling and detailing business due to the completion of projects in ~~power~~2021 and the industrial maintenance and repair ~~work performed. These decreases were partially offset by increases from our construction modeling and detailing~~ business.

Cost of revenue: Cost of revenue from our Infrastructure segment for the three months ended March 31, ~~2021 decreased $14.2~~2022 increased $220.7 million to ~~$137.0~~$357.7 million from ~~$151.2~~$137.0 million for the three months ended March 31, ~~2020.~~2021. The ~~decrease~~increase was primarily driven by DBMG’s acquisition of Banker Steel, which was acquired in the ~~timing~~second quarter of ~~project work under execution~~2021 and ~~change~~contributed incremental cost of revenue of $119.8 million for the three months ended March 31, 2022, as well as the revenue improvements described above.

Selling, general and administrative: Selling, general and administrative expense from our Infrastructure segment for the three months ended March 31, 2022 increased $8.2 million to $27.9 million from $19.7 million for the three months ended March 31, 2021. The increases were primarily driven by the acquisition of Banker Steel, which was acquired in ~~backlog mix, partially offset by higher costs incurred~~the second quarter of 2021 and contributed an incremental $6.7 million of selling, general and administrative expenses, as well as increases in ~~response~~consulting fees, travel, and meals and entertainment.

Depreciation and amortization: Depreciation and amortization from our Infrastructure segment for the three months ended March 31, 2022 increased $2.9 million to $5.3 million from $2.4 million for the three months ended March 31, 2021. The increase was largely due to the ~~COVID-19 pandemic.~~additional amortization and depreciation of assets obtained in the acquisition of Banker Steel in the second quarter of 2021, which contributed an additional $2.8 million of depreciation and amortization expense in the first quarter of 2022.

Other operating income: Other operating income from our Infrastructure segment for the three months ended March 31, 2022 increased $0.6 million to $0.6 million from zero for the three months ended March 31, 2021. The increase in other operating income was driven by an asset sale.

3836

Life Sciences Segment


	Three Months Ended March 31,
		2022		2021		Increase / (Decrease)
Revenue		$	0.8	$	—	$	0.8

Cost of revenue		0.6		—		0.6
Selling, general and administrative		5.1		4.8		0.3
Depreciation and amortization		0.1		—		0.1

Loss from operations		$	(5.0)	$	(4.8)	$	(0.2)

Three Months Ended March 31,
2021 2020 Increase / (Decrease)
Selling, general and administrative $ 4.8 $ 3.2 $ 1.6
Loss from operations $ (4.8) $ (3.2) $ (1.6)

Revenue: Revenue from our Life Sciences segment for the three months ended March 31, 2022 increased $0.8 million to $0.8 million from zero for the three months ended March 31, 2021. The increase in revenue was attributable to R2, which began the sale of its Glacial Rx products in the second quarter 2021 and its Glacial Spa products in the first quarter 2022.

Cost of revenue: Cost of revenue from our Life Sciences segment for the three months ended March 31, 2022 increased $0.6 million to $0.6 million from zero for the three months ended March 31, 2021. The increase in cost of revenue was attributable to R2, which began the sale of its Glacial Rx products in the second quarter 2021 and its Glacial Spa products in the first quarter 2022.

Selling, general and administrative: Selling, general and administrative expenses from our Life Sciences segment for the three months ended March 31, ~~2021~~2022 increased ~~$1.6~~$0.3 million to ~~$4.8~~$5.1 million from ~~$3.2~~$4.8 million for the three months ended March 31, ~~2020.~~2021. 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 ~~ramp up operations to support commercialization efforts and further develop~~build out its ~~product platform.~~sales team which was partially offset by a decrease in professional fees.

Spectrum Segment


		Three Months Ended March 31,							Three Months Ended March 31,
		2021		2020		Increase / (Decrease)				2022		2021		Increase / (Decrease)
Revenue	Revenue	$	10.5	$	10.1	$	0.4	Revenue		$	9.8	$	10.5	$	(0.7)

Cost of revenue	Cost of revenue	4.3		5.6		(1.3)		Cost of revenue		4.7		4.3		0.4
Selling, general and administrative	Selling, general and administrative	5.5		5.7		(0.2)		Selling, general and administrative		3.8		5.5		(1.7)
Depreciation and amortization	Depreciation and amortization	1.5		1.7		(0.2)		Depreciation and amortization		1.5		1.5		—
Other operating expense	Other operating expense	0.4		—		0.4		Other operating expense		0.2		0.4		(0.2)
Loss from operations	Loss from operations	$	(1.2)	$	(2.9)	$	1.7	Loss from operations		$	(0.4)	$	(1.2)	$	0.8

Revenue: Revenue from our Spectrum segment for the three months ended March 31, ~~2021 increased $0.4~~2022 decreased $0.7 million to ~~$10.5~~$9.8 million from ~~$10.1~~$10.5 million for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease was primarily driven ~~by higher station revenues as our Spectrum segment launched new customers and grew the number of its operating stations, partially offset~~ by a decrease in advertising revenues at the Azteca network ~~driven by unrepeated political campaign expenditures and U.S. census advertising campaigns~~as a result of a decreased footprint, primarily in the ~~comparable period.~~Los Angeles market. This was partially offset by an increase in station revenues as they launched new customers and increased the number of operating stations.

Cost of revenue: Cost of revenue from our Spectrum segment for the three months ended March 31, ~~2021 decreased $1.3~~2022 increased $0.4 million to ~~$4.3~~$4.7 million from ~~$5.6~~$4.3 million for the three months ended March 31, ~~2020.~~2021. The overall increase was primarily driven by costs associated with higher number of operating stations and an increase in expenses at the Azteca network as a result of Program Licensing Agreement royalty expense starting in the first quarter of 2022.

Selling, general and administrative: Selling, general and administrative expense from our Spectrum segment for the three months ended March 31, 2022 decreased $1.7 million to $3.8 million from $5.5 million for the three months ended March 31, 2021. The overall decrease was primarily driven by ~~cost reductions at Network, partially offset by increased cost of revenues associated with the higher number of operating stations.~~a decrease in salaries and severance expense.

Other operating expense: Other operating expense from our Spectrum segment for the three months ended March 31, ~~2021~~2022 decreased ~~$0.4~~$0.2 million to ~~loss of~~$0.2 million from $0.4 million ~~from zero~~ for the three months ended March 31, ~~2020.~~2021. The decrease in other operating expense was primarily ~~due~~related to ~~an impairment of~~ a ~~right of use~~decrease in asset ~~as a result of subletting office space,~~impairments, partially offset by ~~an increase~~a decrease in gains from FCC reimbursements.

Non-operating Corporate

Three Months Ended March 31,
2021 2020 Increase / (Decrease)
Selling, general and administrative $ 6.7 $ 9.1 $ (2.4)
Loss from operations $ (6.7) $ (9.1) $ 2.4


	Three Months Ended March 31,
		2022		2021		Increase / (Decrease)
Selling, general and administrative		$	5.7	$	6.7	$	(1.0)
Depreciation and amortization		—		—		—

Loss from operations		$	(5.7)	$	(6.7)	$	1.0

Selling, general and administrative: Selling, general and administrative expenses from our Non-operating Corporate segment for the three months ended March 31, ~~2021~~2022 decreased ~~$2.4~~$1.0 million to ~~$6.7~~$5.7 million from ~~$9.1~~$6.7 million for the three months ended March 31, ~~2020.~~2021. The decrease was driven by ~~unrepeated~~decreases in legal expenses and non-recurring costs related to the proxy contest in the comparable ~~period as well as decreases in stock compensation expense, bonus expense, rent expense and various consulting expenses in the current period,~~period. This was partially offset by increased ~~legal expenses.~~professional service fees due mainly to timing, increased discretionary bonus due to the anticipated cash versus equity split and increased stock compensation expense, as well as additional expenses incurred in relation to the settlement with the Company's former CEO.

Loss from Equity Investees

Three Months Ended March 31,
2021 2020 Increase / (Decrease)
Life Sciences $ (1.5) $ (1.0) $ (0.5)
Other (0.6) (1.5) 0.9
Loss from equity investees $ (2.1) $ (2.5) $ 0.4


	Three Months Ended March 31,
		2022		2021		Increase / (Decrease)

Life Sciences		$	(1.0)	$	(1.5)	$	0.5
Other		0.5		(0.6)		1.1
Loss from equity investees		$	(0.5)	$	(2.1)	$	1.6

Life Sciences: Loss from equity investees within our Life Sciences segment for the three months ended March 31, ~~2021 increased~~2022 decreased $0.5 million to ~~$1.5~~$1.0 million from ~~$1.0~~$1.5 million for the three months ended March 31, ~~2020.~~2021. The increase in loss was ~~largely~~primarily due to higher equity method income recorded from our investment in Triple Ring, which was partially offset by higher equity method losses recorded from our ~~investment~~ in MediBeacon, ~~due~~which is getting ready to submit an IDE application to the ~~timing~~FDA, the first step toward receiving approval from the FDA to commence its US Pivotal Study of ~~clinical trials.~~the TGFR, which enables real-time, direct monitoring of kidney function.

Other: ~~Loss~~Income from equity investees within our Other segment for the three months ended March 31, ~~2021 decreased $0.9~~2022 increased $1.1 million to ~~$0.6~~$0.5 million from ~~$1.5~~a loss of $0.6 million for the three months ended March 31, ~~2020.~~2021. The ~~decrease in loss~~increase was driven by the equity investment in HMN, which produced higher income the first quarter of 2022 as compared to the ~~joint venture produced a lower loss than in the comparable period,~~first quarter of 2021, which is generally attributable to the timing of ~~turnkey~~ project ~~work, and a reduction in ownership from 49% to 19% as a result of the partial sale of HC2's investment in the second quarter of 2020.~~work.

Non-GAAP Financial Measures and Other Information

Adjusted EBITDA

Adjusted EBITDA is not a measurement recognized under U.S. GAAP. In addition, other companies may define Adjusted EBITDA differently than we do, which could limit its usefulness.

Management believes that Adjusted EBITDA provides investors with meaningful information for gaining an understanding of our results as it is frequently used by the financial community to provide insight into an organization’s operating trends and facilitates comparisons between peer companies, since interest, taxes, depreciation, amortization and the other items listed in the definition of Adjusted EBITDA below can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA can also be a useful measure of a company’s ability to service debt. While management believes that non-U.S. GAAP measurements are useful supplemental information, such adjusted results are not intended to replace our U.S. GAAP financial results. Using Adjusted EBITDA as a performance measure has inherent limitations as an analytical tool as compared to net income (loss) or other U.S. GAAP financial measures, as this non-GAAP measure excludes certain items, including items that are recurring in nature, which may be meaningful to investors. As a result of the exclusions, Adjusted EBITDA should not be considered in isolation and does not purport to be an alternative to net income (loss) or other U.S. GAAP financial measures as a measure of our operating performance. Adjusted EBITDA excludes the results of operations and any consolidating eliminations of our Insurance segment.

The calculation of Adjusted EBITDA, as defined by us, consists of Net income (loss) as adjusted for discontinued operations; depreciation and amortization; Other operating (income) expense, which is inclusive of (gain) loss on sale or disposal of assets, lease termination costs, asset impairment expense and FCC reimbursements; interest expense; other (income) expense, net; ~~net gain (loss) on contingent consideration;~~ loss on early extinguishment or restructuring of debt; ~~foreign currency transaction (gain) loss included in cost of revenue;~~ income tax (benefit) expense; noncontrolling interest; ~~bonus to be settled in equity;~~ share-based ~~payment~~compensation expense; non-recurring items; costs associated with the COVID-19 pandemic; and acquisition and disposition costs.


(in millions)	(in millions)	Three months ended March 31, 2021												(in millions)	Three months ended March 31, 2022
		Infrastructure		Life Sciences		Spectrum		Non-operating Corporate		Other and Eliminations		HC2			Infrastructure		Life Sciences		Spectrum		Non-operating Corporate		Other and Eliminations		INNOVATE
Net Income (loss) attributable to HC2 Holdings, Inc.												$	12.6
Net (loss) attributable to INNOVATE Corp.														Net (loss) attributable to INNOVATE Corp.											$	(12.4)
Less: Discontinued operations	Less: Discontinued operations											51.9		Less: Discontinued operations											—
Net Income (loss) attributable to HC2 Holdings, Inc., excluding discontinued operations		$	—	$	(4.2)	$	(4.4)	$	(30.8)	$	0.1	$	(39.3)
Net Income (loss) attributable to INNOVATE Corp., excluding discontinued operations														Net Income (loss) attributable to INNOVATE Corp., excluding discontinued operations	$	6.1	$	(4.1)	$	(3.4)	$	(11.3)	$	0.3	$	(12.4)
Adjustments to reconcile net income (loss) to Adjusted EBITDA:	Adjustments to reconcile net income (loss) to Adjusted EBITDA:													Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization	Depreciation and amortization	2.4		—		1.5		—		—		3.9		Depreciation and amortization	5.3		0.1		1.5		—		—		6.9
Depreciation and amortization (included in cost of revenue)	Depreciation and amortization (included in cost of revenue)	2.3		—		—		—		—		2.3		Depreciation and amortization (included in cost of revenue)	3.7		—		—		—		—		3.7

Other operating (income) expenses		—		—		0.4		—		—		0.4
Other operating (income) expense														Other operating (income) expense	(0.6)		—		0.2		—		—		(0.4)

Interest expense	Interest expense	1.9		—		2.3		17.2		—		21.4		Interest expense	2.2		—		2.0		8.4		—		12.6
Other (income) expense, net		0.2		—		0.4		(4.0)		—		(3.4)
Loss on early extinguishment or restructuring of debt		—		—		0.9		9.9		—		10.8
Other expense (income), net														Other expense (income), net	0.1		0.1		1.5		(1.6)		—		0.1

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

Income tax expense (benefit)														Income tax expense (benefit)	2.9		—		—		(1.3)		—		1.6
Noncontrolling interest	Noncontrolling interest	—		(2.1)		(0.5)		—		(1.1)		(3.7)		Noncontrolling interest	0.6		(2.0)		(0.6)		—		0.3		(1.7)

Share-based compensation expense	Share-based compensation expense	—		0.1		0.1		0.4		—		0.6		Share-based compensation expense	—		0.1		—		0.7		—		0.8
Nonrecurring Items		0.2		—		—		0.5		—		0.7
COVID-19 Costs		3.9		—		—		—		—		3.9

Acquisition and disposition costs	Acquisition and disposition costs	0.4		—		0.1		1.7		0.1		2.3		Acquisition and disposition costs	0.2		—		0.1		0.5		(0.5)		0.3
Adjusted EBITDA	Adjusted EBITDA	$	11.3	$	(6.2)	$	0.8	$	(4.0)	$	(0.9)	$	1.0	Adjusted EBITDA	$	20.5	$	(5.8)	$	1.3	$	(4.6)	$	0.1	$	11.5


(in millions)	(in millions)	Three months ended March 31, 2020												(in millions)	Three months ended March 31, 2021
		Infrastructure		Life Sciences		Spectrum		Non-operating Corporate		Other and Eliminations		HC2			Infrastructure		Life Sciences		Spectrum		Non-operating Corporate		Other and Eliminations		INNOVATE
Net Income (loss) attributable to HC2 Holdings, Inc.												$	(83.1)
Net income attributable to INNOVATE Corp.														Net income attributable to INNOVATE Corp.											$	12.6
Less: Discontinued operations	Less: Discontinued operations											(71.1)		Less: Discontinued operations											51.9
Net Income (loss) attributable to HC2 Holdings, Inc., excluding discontinued operations		$	(0.1)	$	(3.2)	$	(5.5)	$	(25.8)	$	22.6	$	(12.0)
Net Income (loss) attributable to INNOVATE Corp., excluding discontinued operations														Net Income (loss) attributable to INNOVATE Corp., excluding discontinued operations	$	—	$	(4.2)	$	(4.4)	$	(30.8)	$	0.1	$	(39.3)
Adjustments to reconcile net income (loss) to Adjusted EBITDA:	Adjustments to reconcile net income (loss) to Adjusted EBITDA:													Adjustments to reconcile net income (loss) to Adjusted EBITDA:
Depreciation and amortization	Depreciation and amortization	2.6		—		1.7		—		—		4.3		Depreciation and amortization	2.4		—		1.5		—		—		3.9
Depreciation and amortization (included in cost of revenue)	Depreciation and amortization (included in cost of revenue)	2.3		—		—		—		—		2.3		Depreciation and amortization (included in cost of revenue)	2.3		—		—		—		—		2.3

Other operating (income) expenses		0.2		—		—		—		—		0.2
Other operating expense														Other operating expense	—		—		0.4		—		—		0.4
Interest expense	Interest expense	2.2		—		3.2		13.8		—		19.2		Interest expense	1.9		—		2.3		17.2		—		21.4
Loss on early extinguishment or restructuring of debt	Loss on early extinguishment or restructuring of debt	—		—		—		5.8		—		5.8		Loss on early extinguishment or restructuring of debt	—		—		0.9		9.9		—		10.8
Other (income) expense, net		0.2		—		0.6		(2.4)		—		(1.6)
Other expense (income), net														Other expense (income), net	0.2		—		0.4		(4.0)		—		(3.4)

Income tax (benefit) expense		0.2		—		—		(0.4)		(9.5)		(9.7)
Income tax expense														Income tax expense	—		—		—		1.1		—		1.1
Noncontrolling interest	Noncontrolling interest	—		(1.0)		(1.1)		—		(15.7)		(17.8)		Noncontrolling interest	—		(2.1)		(0.5)		—		(1.1)		(3.7)

Share-based compensation expense	Share-based compensation expense	—		—		0.1		1.4		—		1.5		Share-based compensation expense	—		0.1		0.1		0.4		—		0.6
Nonrecurring Items		0.9		—		—		1.4		—		2.3
COVID-19 Costs		0.4		—		—		—		—		0.4
Nonrecurring items														Nonrecurring items	0.2		—		—		0.5		—		0.7
COVID-19 costs														COVID-19 costs	3.9		—		—		—		—		3.9
Acquisition and disposition costs	Acquisition and disposition costs	0.1		—		—		1.2		0.9		2.2		Acquisition and disposition costs	0.4		—		0.1		1.7		0.1		2.3
Adjusted EBITDA	Adjusted EBITDA	$	9.0	$	(4.2)	$	(1.0)	$	(5.0)	$	(1.7)	$	(2.9)	Adjusted EBITDA	$	11.3	$	(6.2)	$	0.8	$	(4.0)	$	(0.9)	$	1.0

Infrastructure: Net income from our Infrastructure segment for the three months ended March 31, ~~2021~~2022 increased ~~$0.1~~$6.1 million to ~~zero~~$6.1 million from ~~a loss of $0.1 million~~zero for the three months ended March 31, ~~2020.~~2021. Adjusted EBITDA from our Infrastructure segment for the three months ended March 31, ~~2021~~2022 increased ~~$2.3~~$9.2 million to ~~$11.3~~$20.5 million from ~~$9.0~~$11.3 million for the three months ended March 31, ~~2020.~~2021. The increase in Adjusted EBITDA can be attributed to ~~infrastructure work performed~~the contribution from Banker Steel, which was acquired in the second quarter of 2021 and increased profit as a result of higher sales at the fabrication and erection business. The increase was partially offset by lower margins in the industrial maintenance and repair business and the construction modeling and detailing business as a result of the ~~timing~~completion of high margin project ~~work under execution and change~~ in ~~backlog mix~~prior year, as well as an increase in G&A expenses due to the ~~fabrication and erection business, partially offset by a decline in power and industrial repair and maintenance work performed.~~acquisition of Banker Steel.

Life Sciences: Net loss from our Life Sciences segment for the three months ended March 31, ~~2021~~2022 decreased ~~$1.0~~$0.1 million to ~~$4.2~~$4.1 million from ~~$3.2~~$4.2 million for the three months ended March 31, ~~2020.~~2021. Adjusted EBITDA loss from our Life Sciences segment for the three months ended March 31, ~~2021 increased $2.0~~2022 decreased $0.4 million to ~~$6.2~~$5.8 million from ~~$4.2~~$6.2 million for the three months ended March 31, ~~2020.~~2021. The ~~increase~~decrease in Adjusted EBITDA loss was primarily driven by higher ~~expenses at R2,~~equity method income recorded from our investment in Triple Ring, which ~~increased spending from the comparable period to support commercialization efforts and further develop its product platform, and~~was partially offset by higher equity method losses recorded from our investment in MediBeacon, ~~due~~which is getting ready to submit an IDE application to the ~~timing~~FDA, the first step toward receiving approval from the FDA to commence its US Pivotal Study of ~~clinical trials.~~the TGFR, which enables real-time, direct monitoring of kidney function.

4139

Spectrum: Net loss from our Spectrum segment for the three months ended March 31, ~~2021~~2022 decreased ~~$1.1~~$1.0 million to ~~$4.4~~$3.4 million from ~~$5.5~~$4.4 million for the three months ended March 31, ~~2020.~~2021. Adjusted EBITDA from our Spectrum segment for the three months ended March 31, ~~2021~~2022 increased ~~$1.8~~$0.5 million to ~~income of $0.8~~$1.3 million from ~~an Adjusted EBITDA loss of $1.0~~$0.8 million for the three months ended March 31, ~~2020.~~2021. The overall increase in Adjusted EBITDA ~~to income~~ was primarily driven by ~~cost reductions at Network,~~ a decrease in ~~compensation~~salaries and ~~overhead~~severance expenses ~~as well as higher~~and an increase in station revenues as ~~our Spectrum segment grew the number of operating stations and~~they launched new ~~customers across its broadcast platform.~~customers. This was partially offset by a decrease in advertising ~~revenues~~revenue at ~~the Azteca network driven by unrepeated political campaign expenditures~~Network and ~~U.S. census advertising campaigns~~an increase in ~~the comparable period and severance~~station costs ~~incurred in the current period.~~as a result of new station builds.

Non-operating Corporate: Net ~~income (loss)~~loss from our Non-operating Corporate segment for the three months ended March 31, ~~2021 increased $5.0~~2022 decreased $19.5 million to ~~net loss of $30.8~~$11.3 million from ~~$25.8~~$30.8 million for the three months ended March 31, ~~2020.~~2021. Adjusted EBITDA loss from our Non-operating Corporate segment for the three months ended March 31, ~~2021 decreased $1.0~~2022 increased $0.6 million to ~~$4.0~~$4.6 million from ~~$5.0~~$4.0 million for the three months ended March 31, ~~2020.~~2021. The ~~decrease~~increase in Adjusted EBITDA loss was driven by ~~a decrease in~~increased professional service expenses mainly due to timing, increased discretionary bonus ~~and a general reduction in overhead expenses, including professional fees, travel and entertainment expenses, and rent expense,~~due to the anticipated cash versus equity split, as well as the settlement with the Company's former CEO. This was partially offset by ~~an increase~~decreased legal expenses driven by the reduced legal activity in ~~legal fees resulting from an increase in activity.~~2022.

Other and ~~Elimination:~~Eliminations: Net ~~loss~~income from our Other and Eliminations segment for the three months ended March 31, 2022 increased $0.2 million to $0.3 million from $0.1 million for the three months ended March 31, 2021. Adjusted EBITDA from our Other segment for the three months ended March 31, ~~2021 decreased $22.5~~2022 increased $1.0 million to $0.1 million from ~~$22.6~~an Adjusted EBITDA loss of $0.9 million for the three months ended March 31, ~~2020. Adjusted EBITDA losses from our Other segment for the three months ended March 31, 2021 decreased $0.8 million to $0.9 million from $1.7 million for the three months ended March 31, 2020.~~2021. The ~~decrease~~increase in Adjusted EBITDA ~~loss~~ for our Other and Eliminations segment was primarily driven by the equity investment in HMN, as ~~the joint venture~~it produced ~~fewer losses~~higher income than in the comparable period, which is generally attributable to the timing of ~~turnkey~~ project ~~work, and a reduction in ownership from 49% to 19% as a result of the partial sale of HC2's investment in the second quarter of 2020.~~work.


(in millions):	(in millions):	Three months ended March 31,						(in millions):	Three months ended March 31,
		2021		2020		Increase / (Decrease)				2022		2021		Increase / (Decrease)
Infrastructure	Infrastructure	$	11.3	$	9.0	$	2.3	Infrastructure		$	20.5	$	11.3	$	9.2
Life Sciences	Life Sciences	(6.2)		(4.2)		(2.0)		Life Sciences		(5.8)		(6.2)		0.4
Spectrum	Spectrum	0.8		(1.0)		1.8		Spectrum		1.3		0.8		0.5
Non-Operating Corporate	Non-Operating Corporate	(4.0)		(5.0)		1.0		Non-Operating Corporate		(4.6)		(4.0)		(0.6)
Other and Eliminations	Other and Eliminations	(0.9)		(1.7)		0.8		Other and Eliminations		0.1		(0.9)		1.0
Adjusted EBITDA	Adjusted EBITDA	$	1.0	$	(2.9)	$	3.9	Adjusted EBITDA		$	11.5	$	1.0	$	10.5

Backlog

Projects in backlog consist of awarded contracts, letters of intent, notices to proceed, change orders, and purchase orders obtained. Backlog increases as contract commitments are obtained, decreases as revenues are recognized and increases or decreases to reflect modifications in the work to be performed under the contracts. Backlog is converted to sales in future periods as work is performed or projects are completed. Backlog can be significantly affected by the receipt or loss of individual contracts.

Infrastructure Segment

At March 31, ~~2021,~~2022, DBMG's backlog was ~~$522.7~~$1,382.9 million, consisting of ~~$329.1~~$1,328.8 million under contracts or purchase orders and ~~$193.6~~$54.1 million under letters of intent or notices to proceed. Approximately ~~$217.1~~$729.3 million, representing ~~41.5%~~52.7% of DBMG’s backlog at March 31, ~~2021,~~2022, 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. DBMG includes an additional $15.8 million in its backlog that is not included in the remaining unsatisfied performance obligations noted in Note 4. Revenue. This backlog includes commitments under master service agreements that are estimated amounts of work to be performed based on customer communications, historic performance and knowledge of our customers' intentions.

Liquidity and Capital Resources

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 March 31, ~~2021,~~2022, the Company had ~~$54.2~~$26.4 million of cash and cash equivalents compared to ~~$43.8~~$45.5 million as of December 31, ~~2020.~~2021. On a stand-alone basis, as of March 31, ~~2021,~~2022, the Non-Operating Corporate segment had cash and cash equivalents of ~~$36.4~~$5.3 million compared to ~~$27.5~~$22.0 million at December 31, ~~2020.~~2021.

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

As of March 31, ~~2021,~~2022, the Company had ~~$549.4~~$684.6 million of indebtedness on a consolidated basis compared to ~~$576.6~~$630.8 million as of December 31, ~~2020.~~2021, an increase of $53.8 million, which was primarily due to a $60.0 million increase in DBMG's Line of Credit to fund working capital requirements. On a stand-alone basis, as of March 31, ~~2021~~2022 and December 31, ~~2020, HC2~~2021, INNOVATE had indebtedness of ~~$385.0~~$390.0 million and ~~$410.4~~$390.0 million, respectively.

~~HC2's~~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. HC2~~Notes, and $5.0 million aggregate principal amount drawn on its 2024 Revolving Credit Agreement. 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 ~~if applicable,~~ on its 2024 Revolving Credit Agreement.

INNOVATE received $13.7 million in dividends from its Infrastructure segment during the three months ended March 31, 2022.

~~HC2~~

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

~~HC2 received $1.3 million in net management fees from its Insurance segment during the three months ended March 31, 2021.~~

The maturity date for the Company's Preferred Stock is May 29, 2021. Our Insurance segment subsidiary, CGIC, is a holder of our Preferred Stock, owning 6,125 Series A and 10,000 Series A-2 shares. In connection with the sale of the Insurance segment to Continental General Holdings LLC, the buyer has agreed to extend the maturity date for the Preferred Stock owned by CGIC by five years from the closing date of the sale and has agreed to such other amendments to the certificates of designation for our Preferred Stock necessary to give effect to such extension of the maturity date. External holders of our Preferred Stock, which include 6,375 Series A and 4,000 Series A-2 shares, have the right to require the Company to redeem each such holder’s shares in whole or in part at a redemption price equal to the accrued value of the shares plus any accrued and unpaid dividends; however, certain of the external holders of our Preferred Stock may, but are under no obligation to, agree to a similar extension of the maturity date of our Preferred Stock held by such holder. We believe our current liquidity sources, including our available cash and cash equivalents, borrowing capacity under our Revolving Credit Agreement and dividends and tax sharing agreement from our DBMG subsidiary are sufficient to meet the redemption obligations on our Preferred Stock.

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 from the issuance of the Condensed Consolidated Financial Statements through a combination of available cash ~~on hand,~~and 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.subsidiaries. The ability of ~~HC2’s~~INNOVATE’s subsidiaries to make distributions to ~~HC2~~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. ~~Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments.~~ Although the Company believes, to the extent needed, that it will be able to raise additional equity capital, refinance ~~or renegotiate terms of our~~ indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that we are not able to satisfy with the funds on hand or expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company, if at all. Such financing options, if pursued, may also ultimately have the effect of negatively impacting our liquidity profile and prospects over the long-term. Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments. In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners.

43In September 2018, the Company entered into a 75-month lease for office space. 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 March 31, 2022 included letters of credit of $13.5 million under Credit and Security Agreements and performance bonds of $779.0 million. DBMG’s contract arrangements with customers sometimes require DBMG to provide performance bonds to partially secure its obligations under its contracts. Bonding requirements typically arise in connection with private contracts and sometimes with respect to certain public work projects. DBMG’s performance bonds are obtained through surety companies and typically cover the entire project price.

COVID-19 Expenditures

We have historically seen significant ~~costs~~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 months ended March 31, 2021, $3.9 million of COVID-19 costs were incurred. Although the COVID-19 pandemic did not have a material impact on ~~the HC2’s~~INNOVATE’s liquidity for the three months ended March 31, ~~2021,~~2022, management believes the continuation of the pandemic and its related effect on the U.S. and global economies could introduce added pressure on the Company’s liquidity position and financial performance. Our sources of liquidity are primarily from the dividends and tax sharing agreement with DBMG, cash proceeds from completed and anticipated monetization’s and other arrangements.

Additionally, in response to the COVID-19 pandemic, our corporate staff is predominantly working remotely and many of our key vendors, and consultants similarly work remotely. As a result of such remote work arrangements, certain operational, reporting, accounting and other processes may slow, which could result in longer time to execute critical business functions.

Capital Expenditures

Capital expenditures for the ~~years~~periods ended March 31, ~~2021~~2022 and ~~2020~~2021 are set forth in the table below (in millions):

Three Months Ended March 31,
2021 2020
Infrastructure $ 1.6 $ 2.3
Life Sciences 0.2 —
Spectrum 1.4 2.7
Total $ 3.2 $ 5.0


	Three Months Ended March 31,
		2022		2021
Infrastructure		$	2.9	$	1.6
Life Sciences		0.1		0.2
Spectrum		1.6		1.4


Total		$	4.6	$	3.2

Indebtedness

Non-Operating Corporate

2026 Senior Secured Notes Terms and Conditions

Maturity. The 2026 Senior Secured Notes mature on ~~August~~February 1, 2026.

Interest. The 2026 Senior Secured Notes accrue interest at a rate of 8.50% per year. Interest on the 2026 Senior Secured Notes is paid semi-annually on February 1 and August 1 of each year.

Issue Price. The issue price of the 2026 Senior Secured Notes was 100% of par.

Ranking. The notes and the note guarantees are the Company’s and certain of its direct and indirect domestic subsidiaries’ (the "Subsidiary Guarantors") general senior secured obligations. The notes and the note guarantees will rank: (i) senior in right of payment to all of the Company’s and the Subsidiary Guarantors’ future subordinated debt; (ii) equal in right of payment, subject to the priority of any First-Out Obligations (as defined in the Secured Indenture), with all of the Company’s and the Subsidiary Guarantors’ existing and future senior debt and effectively senior to all of its and the Subsidiary Guarantor’s unsecured debt to the extent of the value of the collateral; and (iii) effectively subordinated to all liabilities of its non-guarantor subsidiaries. The notes and the note guarantees are secured on a first-priority basis by substantially all of the Company’s assets and the assets of the Subsidiary Guarantors, subject to certain exceptions and permitted liens.

Collateral. The 2026 Senior Secured Notes are secured by a first priority lien on substantially all of the Company’s assets (except for certain "Excluded Assets," and subject to certain "Permitted Liens," each as defined in the Secured Indenture), including, without limitation:

•all equity interests owned by the Company or a Subsidiary Guarantor (which, in the case of any equity interest in a foreign subsidiary, will be limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary) and the related rights and privileges associated therewith (but excluding Equity Interests of Insurance Subsidiaries (as defined in the Secured Indenture), to the extent the pledge thereof is deemed a "change of control" under applicable insurance regulations);

•all equipment, goods and inventory owned by the Company or a Subsidiary Guarantor;

•all cash and investment securities owned by the Company or a Subsidiary Guarantor;

•all documents, books and records, instruments and chattel paper owned by the Company or a Subsidiary Guarantor;

•all general intangibles owned by the Company or a Subsidiary Guarantor; and

•any proceeds and supporting obligations thereof.

The Secured Indenture permits the Company, under specified circumstances, to incur additional debt in the future that could equally and ratably share in the collateral. The amount of such debt is limited by the covenants contained in the Secured Indenture.

Events of Default. The Secured Indenture contains customary events of default which could, subject to certain conditions, cause the 2026 Senior Secured Notes to become immediately due and payable.

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2022 Convertible Notes Terms and Conditions

Maturity. The 2022 Convertible Notes mature on June 1, 2022 unless earlier converted, redeemed or purchased.

Interest. The 2022 Convertible Notes accrue interest at a rate of 7.5% per year. Interest on the 2022 Convertible Notes is paid semi-annually on December 1 and June 1 of each year.

Issue Price. The issue price of the Convertible Notes was 100% of par.

Ranking. The notes are the Company’s general unsecured and unsubordinated obligations and will rank equally in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness, and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the notes. The notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness, including the Company’s Secured Notes, to the extent of the value of the collateral securing that indebtedness, and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries, including trade credit.

Optional Redemption. The Company could not redeem the notes prior to June 1, 2020. From or after June 1, 2020, the Company may redeem for cash all of the notes if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (which need not be consecutive trading days) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption. The redemption price will equal 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date.

Conversion Rights. The 2022 Convertible Notes are convertible into shares of the Company’s common stock based on a conversion rate of 234.2971 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to ~~an initial~~a conversion price of approximately $4.27 per share of the Company’s common stock), at any time prior to the close of business on the business day immediately preceding the maturity date, in principal amounts of $1,000 or an integral multiple of $1,000 in excess thereof. In addition, following a Make-Whole Fundamental Change (as defined in the indenture governing the 2022 Convertible Notes) or the Company’s delivery of a notice of redemption for the 2022 Convertible Notes, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2022 Convertible Notes in connection with (i) such Make-Whole Fundamental Change or (ii) such notice of redemption. However, to comply with certain listing standards of The New York Stock Exchange, the Company will settle in cash its obligation to increase the conversion rate in connection with a Make-Whole Fundamental Change or redemption until it has obtained the requisite stockholder approval.

Events of Default. The indenture governing the 2022 Convertible Notes contains customary events of default which could, subject to certain conditions, cause the 2022 Convertible Notes to become immediately due and payable.

2026 Convertible Notes Terms and Conditions

Maturity. The 2026 Convertible Notes mature on August 1, 2026 unless earlier converted, redeemed or purchased.

Interest. The 2026 Convertible Notes accrue interest at a rate of 7.5% per year. Interest on the 2026 Convertible Notes is paid semi-annually on February 1 and August 1 of each year.

Issue Price. The issue price of the 2026 Convertible Notes was 100% of par.

Ranking. The notes are the Company’s general unsecured and unsubordinated obligations and will rank equally in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness, and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the notes. The notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness, including the Company’s 2026 Senior Secured Notes, to the extent of the value of the collateral securing that indebtedness, and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries, including trade credit.

Optional Redemption. The Company may not redeem the notes prior to August 1, 2023. On or after August 1, 2023, the Company may redeem for cash all of the notes if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (which need not be consecutive trading days) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption. The redemption price will equal 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date.

4543

Conversion Rights. The 2026 Convertible Notes are convertible into shares of the Company’s common stock based on an initial conversion rate of 234.2971 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to ~~an initial~~a conversion price of approximately $4.27 per share of the Company’s common stock), at any time prior to the close of business on the business day immediately preceding the maturity date, in principal amounts of $1,000 or an integral multiple of $1,000 in excess thereof. In addition, following a Make-Whole Fundamental Change (as defined in the Convertible Indenture) or the Company’s delivery of a notice of redemption for the 2026 Convertible Notes, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2026 Convertible Notes in connection with (i) such Make-Whole Fundamental Change or (ii) such notice of redemption. However, to comply with certain listing standards of The New York Stock Exchange, the Company will settle in cash its obligation to increase the conversion rate in connection with a Make-Whole Fundamental Change or redemption until it has obtained the requisite stockholder approval.

Events of Default. The Convertible Indenture contains customary events of default which could, subject to certain conditions, cause the Convertible Notes to become immediately due and payable.

Revolving Credit Agreement

Lender. MSD PCOF Partners IX, LLC (“MSD”)

Maturity: The Revolving Credit Agreement has a maturity date of February 23, 2024.

Ranking. Obligations under the Revolving Credit Agreement constitute a First-Out Debt, as defined in the ~~Senior~~ Secured Indenture, and are secured on a pari passu basis with the 2026 Senior Secured ~~Notes with a maturity date of February 23, 2024.~~Notes.

Collateral: As provided under a Collateral Trust Joinder, the lender was added as a secured party to the Collateral Trust Agreement, and accordingly the pari passu obligations and commitments under the Revolving Credit Agreement are secured equally and ratably by the collateral of the Secured Notes.

Infrastructure

The ~~Wells Fargo Facility~~UMB Term Loan and ~~the TCW Loan~~UMB Revolving Line associated with our Infrastructure segment ~~contain~~contains customary restrictive and financial covenants related to debt levels and performance. As of March 31, ~~2021,~~2022, DBMG was in compliance with all of the financial covenants to its debt agreements.

See Note 9. 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,~~INNOVATE, the guarantors party thereto and U.S. Bank National Association, a national banking association, ~~("U.S. Bank"),~~ as trustee (the ~~"Senior Secured~~"Secured Indenture"), contains certain affirmative and negative covenants limiting, among other things, the ability of the Company, and, in certain cases, the Company’s subsidiaries, to incur additional indebtedness; create liens; engage in sale-leaseback transactions; pay dividends or make distributions in respect of capital stock; make certain restricted payments; sell assets; engage in transactions with affiliates; or consolidate or merge with, or sell substantially all of its assets to, another person. These covenants are subject to a number of important exceptions and qualifications.

The Company is also required to comply with certain financial maintenance covenants, which are similarly subject to a number of important exceptions and qualifications. These covenants include maintenance of (1) liquidity and (2) collateral coverage.

The maintenance of liquidity covenant provides that the Company will not permit the aggregate amount of (i) all unrestricted cash and Cash Equivalents of the Company and the Subsidiary Guarantors, (ii) amounts available for drawing under revolving credit facilities and undrawn letters of credit of the Company and the Subsidiary Guarantors and (iii) dividends, distributions or payments that are immediately available to be paid to the Company by any of its Restricted Subsidiaries to be less than the Company’s obligation to pay interest on the 2026 Senior Secured Notes and all other Debt, including Convertible Preferred Stock mandatory cash dividends or any other mandatory cash pay Preferred Stock but excluding any obligation to pay interest on Convertible Preferred Stock or any other mandatory cash pay Preferred Stock which, in each case, may be paid by accretion or in-kind in accordance with its terms of the Company and its Subsidiary Guarantors for the next six months. As of March 31, ~~2021,~~2022, the Company was in compliance with this covenant.

The maintenance of collateral coverage provides that the certain subsidiaries' Collateral Coverage Ratio (as defined in the Secured Indenture as the ratio of (i) the Loan Collateral to (ii) Consolidated Secured Debt (each as defined therein)) calculated on a pro forma basis as of the last day of each fiscal quarter may not be less than 1.50 to 1.00. As of March 31, ~~2021,~~2022, 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; issue additional Preferred Stock; engage in transactions with affiliates; and make certain restricted payments. These limitations are subject to a number of important exceptions and qualifications.

4644

The Company conducted its operations in a manner that resulted in compliance with the ~~prior~~ Secured Indenture; however, compliance with certain financial covenants for future periods may depend on the Company or one or more of the Company’s subsidiaries undertaking one or more non-operational transactions, such as the management of operating cash outflows, a monetization of assets, a debt incurrence or refinancing, the raising of equity capital, or similar transactions. If the Company is unable to remain in compliance and does not make alternate arrangements, an event of default would occur under the Company’s Secured Indenture which, among other remedies, could result in the outstanding obligations under the indenture becoming immediately due and payable and permitting the exercise of remedies with respect to the collateral. There is no assurance the Company will be able to complete any non-operational transaction it may undertake to maintain compliance with covenants under the Secured Indenture or, even if the Company completes any such transaction, that it will be able to maintain compliance for any subsequent period.

Summary of Consolidated Cash Flows

The below table summarizes the cash provided or used in our activities and the amount of the respective changes between the periods (in millions):

Three Months Ended March 31, Increase / (Decrease)
2021 2020
Operating activities from Continuing Operations $ (23.2) $ (4.3) $ (18.9)
Investing activities from Continuing Operations 66.4 140.8 (74.4)
Financing activities from Continuing Operations (31.6) (142.1) 110.5
Effect of exchange rate changes on cash and cash equivalents (0.3) 0.4 (0.7)
Cash flows from discontinued operations 17.9 (47.2) 65.1
Net increase (decrease) in cash, cash equivalents and restricted cash $ 29.2 $ (52.4) $ 81.6
Less: Net increase (decrease) in cash and cash equivalents classified within current assets held for sale 18.3 (44.0) 62.3
Net change in cash, cash equivalents and restricted cash $ 10.9 $ (8.4) $ 19.3


	Three Months Ended March 31,				Increase / (Decrease)
	2022		2021
Cash used in continuing operating activities	$	(63.4)	$	(23.2)	$	(40.2)
Cash provided by discontinued operating activities	—		20.7		(20.7)
Cash used in operating activities	(63.4)		(2.5)		(60.9)

Cash (used in) provided by continuing investing activities	(7.4)		66.4		(73.8)
Cash provided by discontinued investing activities	—		1.5		(1.5)
Cash (used in) provided by investing activities	(7.4)		67.9		(75.3)

Cash provided by (used in) continuing financing activities	51.2		(31.6)		82.8
Cash used in discontinued financing activities	—		(4.3)		4.3
Cash provided by (used in) financing activities	51.2		(35.9)		87.1

Effect of exchange rate changes on cash and cash equivalents	0.5		(0.3)		0.8
Net decrease in cash, cash equivalents and restricted cash	$	(19.1)	$	29.2	$	(48.3)
Less: Net increase in cash and cash equivalents from discontinued operations	—		18.3		(18.3)
Net change in cash, cash equivalents and restricted cash	$	(19.1)	$	10.9	$	(30.0)

Operating Activities

Cash used in operating activities was $63.4 million for the three months ended March 31, 2022 as compared to cash used in operating activities of $23.2 million for the three months ended March 31, ~~2021 as compared to~~2021. The $40.2 million increase in cash used infrom operating activities ~~of $4.3 million for the three months ended March 31, 2020. The $18.9 million change~~ was primarily ~~related~~due to an increase in working capital ~~due to the timing~~at Infrastructure as a result of ~~interest payments~~increased activity as a result of the ~~refinancing,~~Banker Steel acquisition, which was not present in the comparable period, and larger backlog combined with the timing of receipt of receivables, as well as Non-operating Corporate due to the change in timing of our interest payments on our Senior Secured Notes and 2026 Convertible Notes. This was partially offset by increases in working capital at both our Spectrum segment as a result of improvements in results and our Life Sciences segment, which had additional working capital outlays in the prior year as it began its initial ramp up of expenses related to its product ~~launch at R2, scheduling of payments at Spectrum, and project timing at Infrastructure.~~launch.

Investing Activities

Cash used by investing activities was $7.4 million for the three months ended March 31, 2022 as compared to cash provided by investing activities ~~was~~of $66.4 million for the three months ended March 31, ~~2021 as compared to~~2021. The $73.8 million decrease in cash ~~provided by~~from investing activities ~~of $140.8 million for the three months ended March 31, 2020. The $74.4 million change~~ was ~~from the reduction in proceeds from the sale of subsidiaries.~~primarily due to Beyond6, which was sold in first quarter of 2021 for net proceeds of $70.0 million, ~~while compared to GMSL sold~~additional investing outlays in the ~~prior year for net proceeds~~current period at our Life Sciences segment to purchase an additional convertible note from MediBeacon, and our Spectrum segment, which had a decrease in FCC reimbursements and increases in payments related to the completion of ~~$144.0 million.~~the station build.

Financing Activities

Cash provided by financing activities was $51.2 million for the three months ended March 31, 2022 as compared to cash used in financing activities ~~was~~of $31.6 million for the three months ended March 31, ~~2021 as compared to~~2021. The $82.8 million increase in cash ~~used in~~from financing activities was primarily due to an increase at Infrastructure on its revolving line of ~~$142.1 million~~credit to fund working capital requirements on larger, more complex jobs and Non-operating Corporate to fund the 2021 refinancing of the Company's Senior Secured Notes.

Discontinued Operations

Cash used by discontinued operations was zero for the three months ended March 31, 2020. The $110.5 million change was primarily a result of the larger principal payments on debt obligations at our Non-Operating Corporate segment in the comparable period and payments to minority stockholders at our Other segment for the portion of the proceeds received from the sale of GMSL in the comparable period.

~~Discontinued Operations~~

~~Cash provided by discontinued operations was $17.9 million for the three months ended March 31, 2021~~2022 as compared to cash used by discontinued operations of ~~$47.2~~$20.7 million for the three months ended March 31, ~~2020.~~2021. The ~~$65.1~~$20.7 million ~~increase~~decrease was largely due to ~~a decline in net investment spend at our~~the 2021 sales of the Insurance segment ~~compared to~~and Beyond6, which did not have any activity in the ~~prior year.~~current period.

Infrastructure

Cash Flows

Cash flows from operating activities are the principal source of cash used to fund DBMG’s operating expenses, interest payments on debt, and capital expenditures. DBMG's short-term cash needs are primarily for working capital to support operations including receivables, inventories, and other costs incurred in performing its contracts. DBMG attempts to structure the payment arrangements under its contracts to match costs incurred under the project. To the extent it is able to bill in advance of costs incurred, DBMG generates working capital through billings in excess of costs and recognized earnings on uncompleted contracts. DBMG relies on its credit facilities to meet its working capital needs. DBMG believes that its existing borrowing availability together with cash from operations will be adequate to meet all funding requirements for its operating expenses, interest payments on debt and capital expenditures for the foreseeable future.

DBMG is required to make monthly or quarterly interest payments on all of its debt. Based upon the March 31, ~~2021~~2022 debt balance, DBMG anticipates that its interest payments will be approximately ~~$1.7~~$2.0 million each quarter of ~~2021.~~2022.

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. However, DBMG may expand its operations through future acquisitions and may require additional equity or debt financing.

Discontinued Operations

We have ~~reclassified~~ several entities classified as discontinued operations for the three months ended March 31, ~~2021~~2022 and ~~2020.~~2021. Accordingly, revenue, costs, and expenses of the discontinued operations have been excluded from continuing operations. The entities reported in discontinued operations are as follows:

•The sale of GMSL closed on February 28, 2020. At the time of the sale, the Company recorded a $39.3 million loss on the sale, inclusive of recognizing a $31.3 million loss from the realization of AOCI. During the fourth quarter of 2020, the Company recognized a gain of $2.4 million as a result of bonding releases related to projects which existed prior to sale. During the first quarter of 2021, the Company recognized a gain of $1.2 million as a result of indemnity release.

•The sale of ICS and its subsidiary, Go2 Tel, Inc., closed on October 31, 2020. The Company recorded a $0.9 million gain on the sale and recognized $8.2 million of Accumulated other comprehensive loss related to the foreign currency translation of PTGi International Carrier Services Ltd., which was essentially liquidated in conjunction with the sale. The proceeds were used for general corporate purposes.

•On December 31, 2020, the Company signed the Merger Agreement to sell Beyond6. The sale closed on January 15, 2021. ~~The~~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.

•~~On March 29,~~The sale of CIG closed on July 1, 2021 ~~the Company announced the definitive agreement to sell its Insurance segment~~ to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of March 31, 2022, a beneficial owner of approximately ~~6.6%~~10.7% of the Company's outstanding common stock (including the convertible preferred stock, on an as-converted basis) 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.

In the absence of cash flows from the discontinued operations, the Company does not expect there to be an impact on liquidity at the Company.

~~Off-Balance Sheet Arrangements~~

In September 2018, the Company entered into a 75-month lease for office space. As part of the agreement, HC2 was able to pay a lower security deposit and lease payments, and received favorable lease terms as consideration for landlord required cross default language in the event of default of the shared space leased by Harbinger Capital Partners, formerly a related party, as disclosed in Note 16. Related Parties to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q. With the adoption of ASC 842, as of January 1, 2019, this lease was recognized as a right of use asset and lease liability on the Consolidated Balance Sheets.

DBMG’s off-balance sheet arrangements at March 31, 2021 included letters of credit of $9.8 million under Credit and Security Agreements and performance bonds of $107.0 million. DBMG’s contract arrangements with customers sometimes require DBMG to provide performance bonds to partially secure its obligations under its contracts. Bonding requirements typically arise in connection with public works projects and sometimes with respect to certain private contracts. DBMG’s performance bonds are obtained through surety companies and typically cover the entire project price.

New Accounting Pronouncements

For a discussion of our New Accounting Pronouncements, refer to Note 2. Summary of Significant Accounting Policies to our Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Critical Accounting ~~Policies~~Estimates

There have been no material changes in the Company’s critical accounting policies during the quarter ended March 31, ~~2021.~~2022. For information about critical accounting policies, refer to “Critical Accounting ~~Policies”~~Estimates” under Item 7 of ~~the Company’s~~our 2021 Annual ~~Report on Form 10-K for the year ended December 31, 2020.~~Report.

Related Party Transactions

For a discussion of our Related Party Transactions, refer to Note 16. Related Parties to our Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Corporate Information

~~HC2,~~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~~www.innovatecorp.com. We make available free of charge through our Internet website our 2021 Annual ~~Reports~~Report 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. The information on or accessible through our website is not a part of this Quarterly Report on Form 10-Q.

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains or incorporates a number of "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on current expectations, and are not strictly historical statements. In some cases, you can identify forward-looking statements by terminology such as "if," "may," "should," "believe," "anticipate," "future," ~~"forward,~~"forward," "potential," "estimate," "opportunity," "goal," "objective," "growth," "outcome," "could," "expect," "intend," "plan," "strategy," "provide," "commitment," ~~"result,~~"result," "seek," "pursue," "ongoing," "include" or in the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties and are not guarantees of performance, results, or the creation of stockholder value, although they are based on our current plans or assessments which we believe to be reasonable as of the date hereof.

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~~INNOVATE or the applicable subsidiary of ~~HC2,~~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.

Forward-looking statements are not guarantees of performance. You should understand that the following important factors, in addition to those discussed under the section entitled "Risk Factors" in our 2021 Annual Report, ~~on Form 10-K for the year ended December 31, 2020 and in the documents incorporated by reference,~~ could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. You should also understand that many factors described under one heading below may apply to more than one section in which we have grouped them for the purpose of this presentation. 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

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

•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;

•our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital from our operating segments;

•the impact of catastrophic events, including natural disasters, pandemic illness and the outbreak of war, including in Ukraine, or acts of terrorism;

•our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations;

•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~~INNOVATE’s new notes, the Certificates of Designation governing ~~HC2’s~~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;

•our dependence on certain key personnel;

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

•the ability of our operating segments to attract and retain customers;

•increased competition in the markets in which our operating segments conduct their businesses;

•our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending;

•management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results;

•management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings;

•the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting;

•the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated;

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

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

•the possibility of indemnification claims arising out of divestitures of businesses;

•tax consequences associated with our acquisition, holding and disposition of target companies and assets;

•the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved;

•our ability to effectively increase the size of our organization, if needed, and manage our growth;

•the potential for, and our ability to, remediate future material weaknesses in our internal controls over financial reporting;

•our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all; and

•our possible inability to hire and retain qualified executive management, sales, technical and other personnel.

Infrastructure / DBM Global Inc.

Our actual results or other outcomes of DBM Global, Inc. and its wholly-owned subsidiaries ("DBMG"), and, thus, our Infrastructure segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

•our ability to maintain efficient staffing and productivity as well as delays and cancellations as a result of the COVID-19 pandemic;

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

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

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

•uncertain timing and funding of new contract awards, as well as project cancellations;

•cost overruns on fixed-price or similar contracts or failure to receive timely or proper payments on cost-reimbursable contracts, whether as a result of improper estimates, performance, disputes, or otherwise;

•risks associated with labor productivity, including performance of subcontractors that DBMG hires to complete projects;

•its ability to settle or negotiate unapproved change orders and claims;

•changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors;

•adverse impacts from weather affecting DBMG’s performance and timeliness of completion of projects, which could lead to increased costs and affect the quality, costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors;

•fluctuating revenue resulting from a number of factors, including the cyclical nature of the individual markets in which our customers operate;

•adverse outcomes of pending claims or litigation or the possibility of new claims or litigation, and the potential effect of such claims or litigation on DBMG’s business, financial condition, results of operations or cash flow; and

•lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing DBMG’s obligations under bids and contracts or to finance expenditures prior to the receipt of payment for the performance of contracts.

Life Sciences / Pansend Life Sciences, LLC

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

•our Life Sciences segment’s ability to invest in development stage companies;

•our Life Sciences segment’s ability to develop products and treatments related to its portfolio companies;

•medical advances in healthcare and biotechnology; and

•governmental regulation in the healthcare industry.

Spectrum / HC2 Broadcasting Holdings Inc.

Our actual results or other outcomes of ~~HC2~~ Broadcasting, ~~Holdings Inc.,~~ and, thus, our Spectrum segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

•our ability to attract advertisers during the COVID-19 pandemic;

•our Spectrum segment’s ability to operate in highly competitive markets and maintain market share;

•our Spectrum segment’s ability to effectively implement its business strategy or be successful in the operation of its business;

•new and growing sources of competition in the broadcasting industry; and

•FCC regulation of the television broadcasting industry.

Other

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

•risks associated with our equity method investment that operates in China (i.e., HMN International Co., Ltd F/K/A Huawei Marine Systems Co. Limited, a Hong Kong holding company with a Chinese operating subsidiary), including the exercisability of New Saxon 2019 Ltd.'s put option pertaining to its 19% interest in HMN starting on the second year anniversary of the closing date of the First HMN Close.

We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this document. Neither we nor any of our subsidiaries undertake any duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this document or to reflect actual outcomes, except as required by applicable law.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

None.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange Act") as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of March 31, ~~2021,~~2022, our disclosure controls and procedures were effective. Disclosure controls and procedures mean our controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in our reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, ~~2021,~~2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

~~PART II~~

ITEM 1. LEGAL PROCEEDINGS

The Company is subject to claims and legal proceedings that arise in the ordinary course of business. Such matters are inherently uncertain, and there can be no guarantee that the outcome of any such matter will be decided favorably to the Company or that the resolution of any such matter will not have a material adverse effect upon the Company’s Condensed Consolidated Financial Statements. The Company does not believe that any of such pending claims and legal proceedings will have a material adverse effect on its Condensed Consolidated Financial Statements. The Company records a liability in its Condensed Consolidated Financial Statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary for the Condensed Consolidated Financial Statements not to be misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in its Condensed Consolidated Financial Statements. See Note 13. Commitments and Contingencies to our unaudited financial statements included elsewhere in this Quarterly Report on Form 10-Q.

~~ITEM 1A. RISK FACTORS~~

Other than noted below, there have been no additional material changes to the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 10, 2021.

~~ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~None.~~

~~ITEM 3. Defaults upon Senior Securities~~

~~None.~~

~~ITEM 4. MINE SAFETY DISCLOSURES~~

~~Not applicable.~~

~~ITEM 5. OTHER INFORMATION~~

~~None.~~

ITEM 6. EXHIBITS

(a) Exhibits

Please note that the agreements included as exhibits to this Form 10-Q are included to provide information regarding their terms and are not intended to provide any other factual or disclosure information about ~~HC2 Holdings, Inc.~~INNOVATE Corp. or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement that have been made solely for the benefit of the other parties to the applicable agreement and may not describe the actual state of affairs as of the date they were made or at any other time.


Exhibit Number						Description

~~2.1~~						~~First Amendment to Agreement and Plan of Merger, dated as of January 15, 2021 (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K filed by HC2 on January 19, 2021~~) ~~(File No. 021-35210)~~

~~2.2~~						Membership Interest Purchase Agreement, dated March 12, 2021 by and among DBM Global Inc., Bridge Fabrication Banker Holdings LLC, The Banker Family Irrevocable Trust #3 U/A/D December 22, 2009, Chesley F. McPhatter, III, Richard Plant and Bridge Fabrication Banker Holdings LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by HC2 on March 15, 2021) (File No. 021-35210)

~~2.3~~						Stock Purchase Agreement, dated March 26, 2021, by and among HC2 Holdings 2, Inc., Continental Insurance Group, Ltd. and Continental General Holdings LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed by HC2 on March 29, 2021) (File No. 021-35210)

~~4.1~~						Indenture governing the 8.500% senior secured notes due 2026, dated as of February 1, 2021, by and among HC2 Holdings, Inc., the guarantors party thereto and U.S. Bank National Association (incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed by HC2 on February 1, 2021 ) ~~(File No. 021-35210)~~

~~4.2~~						Form of 8.500% senior secured notes due 2026 (included in exhibit 4.1) (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed by HC2 on February 1, 2021) (File No. 021-35210)

~~4.3~~						Indenture governing the 7.5% convertible senior notes due 2026, dated as of February 1, 2021, by and between HC2 Holdings, Inc. and U.S. Bank National Association (incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed by HC2 on February 1, 2021) (File No. 021-35210)

~~4.4~~						Form of 7.5% convertible senior notes due 2026 (included in exhibit 4.3) (incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed by HC2 on February 1, 2021) (File No. 021-35210)

31.1						Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer (filed herewith).

31.2						Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer (filed herewith).

32.1*						Section 1350 Certification of Chief Executive Officer and Chief Financial ~~Officer.~~Officer (furnished herewith).

101						The following materials from the registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, ~~2021,~~2022, formatted in extensible business reporting language (XBRL); (i) Condensed Consolidated Statements of Operations for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, (iii) Condensed Consolidated Balance Sheets at March 31, ~~2021~~2022 and December 31, ~~2020,~~2021, (iv) Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, (v) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2021~~2022 and ~~2020,~~2021, and (vi) Notes to Condensed Consolidated Financial Statements (filed herewith).


*			These certifications are being "furnished" and will not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such certifications will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

5450

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

~~HC2 Holdings, Inc.~~

INNOVATE Corp.

Date:

May ~~7, 2021~~4, 2022

By:

/S/ ~~Michael~~MICHAEL J. ~~Sena~~SENA

Michael J. Sena

Chief Financial Officer

(Duly Authorized Officer and Principal Financial and Accounting Officer)


	March 31, 2021						December 31, 2020
	Measurement Alternative		Equity Method		Total		Measurement Alternative		Equity Method		Total
Common stock	$	0	$	2.5	$	2.5	$	0	$	2.5	$	2.5
Preferred stock	0		13.8		13.8		0		15.4		15.4
Fixed Maturities	0.5		0		0.5		0.5		0		0.5
Other	11.3		24.6		35.9		11.3		25.7		37.0
Total	$	11.8	$	40.9	$	52.7	$	11.8	$	43.6	$	55.4


	Shares	Weighted Average Grant Date Fair Value
Unvested - December 31, 2019	2,213,775	$	5.12
Granted	1,152,202	$	2.74
Vested	(2,258,905)	$	4.08
Forfeited	(478,639)	$	5.87
Unvested - December 31, 2020	628,433	$	3.93
Granted	462,864	$	3.75
Vested	(234,710)	$	4.47
Forfeited	(31,171)	$	2.62
Unvested - March 31, 2021	825,416	$	3.73


	Shares	Weighted Average Exercise Price
Outstanding - December 31, 2019	7,067,592	$	6.52
Granted	143,096	$	2.62
Exercised	0	$	0
Forfeited	(142,503)	$	5.45
Expired	(2,328,327)	$	9.18
Outstanding - December 31, 2020	4,739,858	$	5.13
Granted	0	$	0
Exercised	0	$	0
Forfeited	0	$	0
Expired	0	$	0
Outstanding - March 31, 2021	4,739,858	$	5.13

Eligible for exercise	4,738,508	$	5.13