INNOVATE Corp. announced its financial results for the fourth quarter of 2023, reporting a revenue of $361 million and adjusted EBITDA of $21.5 million. Despite experiencing significant growth over the past three years, the company saw a quarterly revenue decrease of 11.8% compared to the previous year. A net loss of $9.6 million was recorded for common stockholders.
The DBM Global segment performed well, but the company faced challenges in its Infrastructure and Spectrum segments. INNOVATE is focusing on optimizing asset value, restructuring capital, and planning a $35 million rights offering to enhance liquidity.
Key Takeaways
- INNOVATE Corp. reported a significant three-year growth with a 25.7% CAGR in revenues and a 36.6% CAGR in adjusted EBITDA.
- Fourth-quarter revenue declined by 11.8% year-over-year to $361 million; net loss for common stockholders was $9.6 million.
- DBM Global segment had a strong quarter, with revenues of $353.8 million and adjusted EBITDA of $30 million.
- Infrastructure segment revenue decreased by 10.9%, with a backlog of $1.1 billion and an adjusted backlog of $1.2 billion.
- Life Sciences segment faced increased adjusted EBITDA losses, primarily due to investment in MediBeacon.
- Spectrum segment revenue fell to $5.7 million due to the elimination of advertising revenues from Azteca.
- The company plans a $35 million rights offering and is engaging in M&A activities to improve liquidity and profitability.
Company Outlook
- INNOVATE is focused on optimizing the value of its assets and addressing its capital structure to improve profitability.
- A rights offering is planned to shore up liquidity, alongside engaging in mergers and acquisitions (M&A) activities.
Bearish Highlights
- Consolidated total revenue for Q4 decreased by 11.8% compared to the prior-year period.
- Net loss attributable to common stockholders was $9.6 million.
- Infrastructure segment revenue and adjusted EBITDA decreased due to project timing and size at the commercial steel fabrication and erection business.
Bullish Highlights
- The DBM Global segment reported strong quarterly performance.
- R2 Technologies, a subsidiary of INNOVATE, saw significant growth in North American system sales and patient treatments.
- Spectrum launched new networks and is exploring opportunities in 5G broadcast TV.
Misses
- The Spectrum segment's revenue decreased due to the elimination of advertising revenues.
- The Life Sciences segment saw increased adjusted EBITDA losses due to higher equity method losses from the investment in MediBeacon.
Q&A Highlights
- INNOVATE expressed gratitude for support from stakeholders and emphasized its efforts toward achieving profitability.
- The company discussed its plan to launch a fully backstop rights offering to improve liquidity.
- Management addressed the reduction of debt obligations and the extension of the maturity date of its revolving line of credit.
INNOVATE Corp. has shown resilience in its growth trajectory despite facing some headwinds in the fourth quarter of 2023. The company's strategic focus on optimizing its assets and capital structure, along with the planned rights offering, indicates a proactive approach to maintaining its growth momentum and achieving profitability.
InvestingPro Insights
INNOVATE Corp. has had a challenging quarter, but a closer look at the company through the lens of InvestingPro insights reveals more layers to the story. According to InvestingPro data, the company has a market capitalization of $57.31 million, which is relatively small, suggesting that it may have less liquidity and higher volatility in its stock price. Indeed, one of the InvestingPro Tips highlights that the stock generally trades with high price volatility, which could be a factor for potential investors to consider.
The company's P/E ratio stands at -1.36 for the last twelve months as of Q3 2023, indicating that the company is not currently profitable. This aligns with the net loss for common stockholders reported in the article. Moreover, the stock has fared poorly over the last month, with a price total return of -21.38%, and is trading near its 52-week low, which is only 20.49% of the 52-week high. This could represent a potential entry point for investors who believe in the company's long-term strategy and are comfortable with the associated risks.
Those interested in more detailed analysis can find additional InvestingPro Tips for INNOVATE Corp. on the InvestingPro platform. For instance, the company's weak gross profit margins and the fact that it does not pay a dividend to shareholders are factors worth considering. In total, there are 12 InvestingPro Tips available, which provide a comprehensive look at the company's financial health and stock performance.
For readers looking to delve deeper into INNOVATE Corp.'s financials and stock behavior, InvestingPro offers a suite of tools and insights. Use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription and access the full array of InvestingPro Tips.
Full transcript - Ptgi Holding, Inc. (VATE) Q4 2023:
Operator: Good afternoon, and welcome to INNOVATE Corp.'s Fourth Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After prepared remarks and presentation, there will be a question-and-answer session. Please note, this event is being recorded. I would now like to turn the conference over to Anthony Rozmus with Investor Relations. Please go ahead.
Anthony Rozmus: Good afternoon. Thank you for being with us to review INNOVATE's fourth quarter 2023 earnings results. We are joined today by Paul Voigt, INNOVATE's Interim CEO, and Mike Sena, INNOVATE's CFO. We have posted our earnings release and our slide presentation on our website at innovatecorp.com. We will begin our call with prepared remarks to be followed by a Q&A session. This call is also being simulcast and will be archived on our website. During this call, management may make certain statements and assumptions, which are not historical facts and will be forward looking, and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements involve risks, assumptions and uncertainties and are subject to certain assumptions and risk factors that could cause INNOVATE's actual results to differ materially from these forward-looking statements. The risk factors that could cause these differences are more fully discussed in the cautionary statement that is included in our earnings release and the slide presentation and further detailed in our 10-K and other filings with the SEC. In addition, the forward-looking statements included in this conference call are only made as of the date of this call and as stated in our SEC report. INNOVATE disclaims any intent or obligation to update or revise these forward-looking statements, except as expressly required by law. Management will also refer to certain non-GAAP financial measures such as adjusted EBITDA. We believe that these measures provide useful supplemental data that while not a substitute for GAAP measures allow for greater transparency in the review of our financial and operational performance. At this point, it is my pleasure to turn things over to Paul Voigt.
Paul Voigt: Good afternoon. INNOVATE delivered revenues of $361 million and adjusted EBITDA of $21.5 million in the fourth quarter, and revenues of $1.4 billion and adjusted EBITDA of $65 million for the full year of 2023. We are pleased with these results and the performance of our three operating segments in 2023. To provide some perspective of the magnitude of progress at INNOVATE, when we made the strategic decision to start the transformation of HC2 to INNOVATE back in 2020, at that time, annual revenue was $716.9 million, adjusted to exclude our former insurance company, and adjusted EBITDA for only approximately $25.5 million. Since then, INNOVATE has experienced significant growth and today's results represent roughly a three-year 25.7% CAGR on the top-line and approximately 36.6% CAGR for the adjusted EBITDA. Over that time, DBM has continued to be a cash flow machine for INNOVATE, and most recently, experienced strong margin expansions in 2023. Pansend has benefited from key milestones hit each year by MediBeacon and R2, and Spectrum remains focused on delivering profitability by adding new station bills, launching new networks and existing -- exiting unprofitable operations. We are pleased with the progress that INNOVATE has made over the last three years, but there is still much work to be done. We will continue to look for ways to optimize the value in each of our assets and remain encouraged by the future prospects at INNOVATE. Now, moving on to the fourth quarter highlights and results. In the fourth quarter, DBM Global delivered another strong quarter with revenues of $353.8 million and adjusted EBITDA of $30 million. Year-over- year, DBM significantly expanded gross margins by approximately 200 basis points and adjusted EBITDA margin by 25 basis points to 16.4% and 8.5%, respectively. As we forecasted at the beginning of 2023, DBM delivered increased adjusted EBITDA margins for the full year 2023 of 7.2% compared to 6.4% for the full year 2022 DBM's total adjusted backlog, which takes into consideration awarded but not yet signed contracts, is beginning to stabilize and was at $1.2 billion at the end of the year. Given the trend in backlog DBM experienced in the past year, we would expect 2024 results for DBM to be slightly lower than 2023. That being said, we are optimistic that this will only be a short-lived phenomenon as opportunities at DBM looks strong exiting the year into 2025 and beyond, when we expect to see more projects of size to enter the pipeline. Moving on to Life Sciences, R2 Technologies had another incredible quarter. On the heels of launching its new Glacial fx system in Q3 2023, R2 sold out of Glacial fx inventory in Q4, securing R2's best system sales growth in a single quarter. From Q3 to Q4, R2 experienced a 76% increase in North American system sales, and in the full year 2023, experienced 111% increase in North American system sales year-over-year. This growth lent to R2's single largest revenue earnings quarter since inception. R2 continued its growth in other areas of the business, experiencing 173% increase in monthly patient treated year-over-year, and 106% increase in average monthly utilization per Glacial provider from the same period last year. The machine is being used post operatively to reduce inflammation, pain, recovery time and for skin conditions and greatly expanded the usefulness of the machine. To date, R2 has provided over 20,000 patient treatments. R2 continues to expand global reach in fourth quarter, with market approvals received in both Saudi Arabia and the UAE. Additionally, market awareness continues to skyrocket. From 2022 to 2023, R2 experienced a 213% increase in social media impressions, a 491% increase in provider location searches, and a 50% increase in lead generation and product interest. R2 Glacial providers surveyed say that the customer satisfaction and practice retention rates have dramatically increased since the introduction of a Glacial product. Solidifying that the Glacial product portfolio's ability to improve patient outcomes through the reduction of inflammation is the new standard of care. At MediBeacon, the company continues to work through their substantive review for the kidney monitoring program with the FDA. MediBeacon met with the FDA in the first quarter of 2024 and is working interactively to resolve outstanding questions in order to move to approval status. MediBeacon has disclosed positive findings in its pivotal study in 2023 for which it met the pre-negotiated primary and secondary endpoints for efficacy and safety respectively. The study can be found at clinicalstudies.gov. The study results are expected to post on this site within the next 30 days. As a reminder, the FDA previously granted FDA breakthrough device designation in the United States. We continue to be pleased with the progress across the Pansend portfolio. And, at Spectrum, the company is gaining considerable traction with sizable new network launches. Specifically, we've launched FreeTV and three large sports networks. These new network launches include favorable revenue agreements across the board, and early results are promising. As a reminder, we are also focused on repurposing our spectrum to maximize revenues. We are entering into an agreement with the public broadcasters to provide ATSC 3.0 stations to lighthouse their network signals. We are pursuing a much larger relationship with public media venture group who represent over a hundred PBS stations in major markets across the country. In addition to lighthousing PBS signals, we will be pursuing PBS station commercial opportunities and data casting and other profit applications. As it relates to 5G broadcast TV, we are actively exploring opportunities in the United States and have filed an application with the FCC to convert existing stations to 5G broadcast in order to participate in Phase 2 proof of concept. The most important reminder here is that 5G technology will be able to readily deliver broadcast signals to hundreds of millions of smartphones across the United States using its existing technology. We are working closely with Qualcomm (NASDAQ:QCOM), the technology leader in 5G broadcasting. This will allow broadcasting to optimize for future revenues moving forward. We are highly focused on addressing our capital structure, which we believe is the key driver to underperformance of our stock price. Our focus for 2024 will be to utilize our non-cash flowing assets to address our capital structure and set the company up for refinance in 2024. To that end, we continue to make progress exploring opportunities for our non-cash-flowing businesses. However, exiting these businesses for the right value takes time. We are optimistic on the overall M&A market and hope to reach resolution in 2024 as we are beginning to see positive indicators in the market along with positive momentum with these assets as discussed above. We have engaged bankers as there has been incoming interest from strategics on both R2 and MediBeacon. As we announced in late February, we are launching a fully backstop $35 million rights offering and a private sale to shore up our liquidity needs for 2024 and believe this will give us the runway we need to push our non-cash flowing assets past important milestones and exit these businesses for the right value. As we move into 2024 here, we are encouraged by the positioning of each of our business segments and look forward to updating you on their progress throughout the year. With that, I'll turn it over to Mike for review of our financials and capital structure.
Mike Sena: Thanks, Paul. Consolidated total revenue for the fourth quarter of 2023 was $361 million, a decrease of 11.8% compared to $409.3 million in the prior-year period. The decrease was primarily driven by our Infrastructure segment and to a lesser extent our Spectrum segment. Net loss attributable to common stockholders for the fourth quarter of 2023 was $9.6 million or $0.12 per share compared to a net loss of $7 million or $0.09 per share in the prior-year period. Total adjusted EBITDA was $21.5 million in the fourth quarter of 2023, a decrease from $28.1 million in the prior-year period. The decrease was driven by our Infrastructure, Life Sciences, and Spectrum segments and by the elimination of equity method income from our investment in HMN, which was sold in March of 2023, which was partially offset by our non-operating corporate segment. At Infrastructure, revenue decreased 10.9% to $353.8 million from $397.3 million in the prior-year quarter. This decrease was primarily driven by the timing and size of projects at DBMG's commercial steel fabrication and erection business, which was partially offset by an increase in revenue at the industrial maintenance and repair business, Banker Steel, and the construction modeling and detail business due to timing and size of projects. Infrastructure adjusted EBITDA for the fourth quarter of 2023 decreased to $30 million from $32.7 million in the prior-year period. The decrease is primarily driven by an increase in recurring SG&A expenses and lower contributions from Banker Steel, which was partially offset by increased margins at the industrial maintenance and repair business. As of December 31, 2023, reported backlog was $1.1 billion, and adjusted backlog, which takes into consideration awarded but not yet signed contracts, was $1.2 billion, compared to reported and adjusted backlog of $1.8 billion at the end of 2022. As Paul explained earlier, we continue to see meaningful opportunities in the market and DBM remains focused on converting those opportunities into backlogs. [DBMG] (ph) ended the quarter with $198.8 million principal amount of debt, which is a decrease of $44.2 million from year-end 2022, primarily driven by an early note repayment, normal debt amortization payments, and the reduction of the credit facility. DBMG has been able to reduce its debt obligations through early payments and line reductions as invested working capital has begun to return to the business, a trend we continue to see in early 2024. As the backlog stabilizes, we expect flat working capital needs in 2024. Additionally, on December 12, 2023, DBMG and [UBM] (ph) entered into an amendment that extended the maturity date of the revolving line from May 31, 2024 to August 15, 2025, increased the interest rate spread for the revolving line by 0.35% across all tiers and established an interest rate of 4.25%. At Life Sciences, the increase in adjusted EBITDA losses for the quarter was primarily due to higher equity method losses recognized from Pansend's investment in MediBeacon due to our additional investment into MediBeacon, which resulted in previously suspended losses to be recognized due to the investments carrying and not being reduced to zero. This was partially offset by a decrease in SG&A expenses at R2, driven by a decrease in marketing costs as a result of cost reduction initiatives and a decrease in compensation expenses. At Spectrum, revenue was $5.7 million, a decrease of $5 million compared to the fourth quarter of 2022, primarily driven by the elimination of advertising revenues at Azteca, which ceased operations at the end of 2022. This was partially offset by an increase in station revenue, which launched new markets and networks with its customers during 2023. Spectrum reported adjusted EBITDA in the fourth quarter decreased to $1.1 million from $2.5 million in the prior-year quarter. The decrease was primarily due to a one-time benefit related to the termination of Azteca in the prior-year period, which was partially offset by a decrease in unrepeated SG&A expenses in the prior period. Non-operating corporate adjusted EBITDA losses were $2.5 million for the fourth quarter of 2023, an improvement from the fourth quarter of 2022 of $1.2 million. The improvement was primarily driven by a decrease in bonus expense and legal expenses. So, the full year adjusted EBITDA losses for 2023 were $13.5 million, an improvement from the full year 2022 of $3.2 million. At the end of the fourth quarter, the company had $80.8 million of cash and cash equivalents excluding restricted cash compared to $80.4 million as of December 31, 2022. On a standalone basis, as of December 31, our non-operating corporate segment had cash and cash equivalents of $2.5 million compared to $9.1 million at the end of 2022. As mentioned by Paul, we are launching a fully backstop rights offering in private sale to shore up liquidity. The proceeds would be used to settle an intercompany advance used for our February 1, 2024 interest payment and to help meet our liquidity needs while we execute our strategy in 2024. As of December 31, 2023, INNOVATE had total principal outstanding indebtedness of $722.8 million, down $2.5 million from $725.3 million at the end of 2022, driven primarily by the decrease in Infrastructure's outstanding debt, which is partially offset by corporate's new unsecured note with CGIC and R2's additional borrowings from Lancer Capital. With that, operator, we'd now like to open up the call for questions.
Operator:
Paul Voigt: Yeah, thank you. I just want to say thank you to everybody for your continued support and we're working very hard and diligently to make this a very profitable company. Thank you very much.
Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.