HC2 Holdings, Inc. — Form 10-Q Summary
The supplied filing is for HC2 Holdings, Inc. (NYSE: HCHC), for the quarter and six months ended June 30, 2021. The request metadata names INNOVATE Corp.; investors should confirm the issuer and filing identity. HC2 reported Infrastructure, Life Sciences, Spectrum and Other operations; Insurance was classified as discontinued operations and held for sale.
Financial performance
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Revenue | $243.8 million | $181.8 million | $415.6 million | $368.4 million |
| Gross profit | $36.4 million | $29.7 million | $66.9 million | $59.5 million |
| Gross margin | 14.9% | 16.3% | 16.1% | 16.2% |
| Operating loss | $(7.7) million | $(8.9) million | $(18.6) million | $(22.5) million |
| Continuing-operations loss | $(23.7) million | $21.0 million income | $(66.6) million | $(8.9) million |
| Net income (loss) attributable to common and participating preferred holders | $(23.7) million | $12.7 million | $(11.5) million | $(70.8) million |
| Adjusted EBITDA, non-GAAP | $6.5 million | $10.6 million | $7.5 million | $7.7 million |
Infrastructure generated $232.0 million of Q2 revenue, including $39.5 million from Banker Steel after its May acquisition. Q2 revenue growth was primarily acquisition-driven. Six-month discontinued-operations income of $50.4 million included $40.4 million of gains on sales or disposals; it materially reduced the reported net loss compared with the continuing-operations result.
Cash flow, debt and liquidity
- Cash and cash equivalents were $18.1 million at June 30, 2021, down from $43.8 million at year-end. Including restricted cash, the cash-flow statement reports $20.7 million at period-end.
- For the first half, cash used in operating activities was $34.7 million overall; continuing operations used $0.4 million, while discontinued operations provided $34.3 million. Continuing investing activities used $31.2 million, including acquisition spending; continuing financing activities provided $66.0 million.
- Consolidated debt principal was reported as $679.6 million, versus $576.6 million at December 31, 2020. The balance sheet reports $676.5 million of debt obligations net of unamortized financing items. HC2 refinanced its 11.5% notes due 2021 with $330 million of 8.5% senior secured notes due 2026 and exchanged $51.8 million of 7.5% convertible notes due 2022 for notes due 2026; $3.2 million of 2022 convertible notes remained outstanding.
- Management said it expected to meet liquidity needs for at least 12 months using cash, subsidiary distributions, financing and asset sales, while cautioning that financing or asset sales may not be available on satisfactory terms. HC2 and DBMG reported compliance with debt covenants at June 30.
Material changes and significant events
- DBMG acquired Banker Steel for stated gross consideration of $145 million on May 27. The acquisition contributed $39.5 million of revenue and $1.3 million of operating income after acquisition. Purchase accounting remained preliminary.
- HC2 completed the sale of its Insurance segment on July 1, 2021, after quarter-end. The stated transaction value was approximately $90 million, including $65 million in cash plus securities and certain assets. The buyer was controlled by a HC2 director and shareholder.
- Other post-quarter events included an additional $15 million investment in R2 Technologies and Spectrum asset sales. The filing reports a $15 million R2 investment on July 21, increasing HC2’s fully diluted ownership to 50.4%.
- Spectrum improved to $1.4 million of Q2 operating income from a $1.2 million loss, supported by cost reductions and higher station-group revenue. Life Sciences operating losses widened to $4.5 million in Q2 as R2 increased commercialization spending.
- DBMG backlog was $1.634 billion at June 30; 62.5% was attributable to five projects or commitments, creating customer/project concentration exposure.
Outlook, risks and contingencies
- No specific full-year revenue, earnings or cash-flow guidance was provided. Management noted that results are subject to project timing, backlog mix and cyclical market conditions.
- COVID-19 caused $4.0 million of Infrastructure costs in Q2 and $7.9 million in the first half. The company warned that variants, workforce disruption, supply-chain constraints and weaker demand could affect operations, profitability and liquidity.
- Liquidity depends in part on cash distributions from subsidiaries, which are constrained by subsidiary financing terms, regulatory requirements and available funds. The company warned that covenant compliance in future periods could require asset monetizations, refinancing, new debt or equity, or other transactions.
- Significant exposures include substantial debt, interest and covenant obligations; project execution and cost-overrun risk; backlog concentration; uncertain results from early-stage Life Sciences businesses; and the potential effects of COVID-19.
- Disclosed legal matters include shareholder litigation concerning DBMG and DTV, a former CEO’s arbitration and a shareholder books-and-records demand. HC2 said it intended to defend the matters; it reserved an amount consistent with a mediator’s proposal in the former CEO matter, but the amount was not stated. Management did not believe pending litigation would materially affect the financial statements.
Important facts for investors to verify
- Confirm the issuer identity and whether this HC2 filing is the intended filing for INNOVATE Corp.
- Review the post-quarter Insurance sale proceeds and related-party terms, including the cash-versus-securities/assets composition and use of proceeds.
- Track holding-company cash, subsidiary distributions, debt maturities, covenant headroom and the remaining 2022 convertible notes.
- Assess whether Banker Steel contributes sustainable margins and cash generation after integration; acquisition purchase accounting was preliminary.
- Monitor conversion of DBMG’s backlog into revenue and cash, including exposure to five concentrated projects, and the cash-flow effect of receivables and contract billing timing.