Q3 2021 Innovate Corp Earnings Call
Good morning, and welcome to Innovate Corporation third quarter 2021 earnings call. During the presentation, all participants will be in a listen only mode.
Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone if at any time during the conference you need to reach an operator. Please press star Zero as a reminder, today's conference call is being recorded.
Now I'd like to turn the conference over to Anthony Rasmus Investor Relations for Innovate Corporation. Please go ahead.
Good afternoon. Thank you for being with US to review innovate third quarter 2021 earnings results. We are joined today by Abbvie Glaser Chairman of innovate waned bar Junior C E O of innovate Mike Sena Chief.
Chief Financial Officer, and Rustin Roach E B M <unk>, President and CEO as usual we are we have posted our earnings release and our slide presentation on our website at innovate Corp. Dotcom, we will begin our call with prepared remarks to be followed by Q&A session.
This call will also.
E simulcast and will be archived on our website.
Now for some brief disclaimer during the call management may make certain statements and assumptions, which are not historical facts will be forward looking and are.
Were being made pursuant to the safe Harbor provisions in the private Securities Litigation Reform Act of 1995.
Any such forward looking statements involve risks assumptions, uncertainties and are subject to certain assumptions and risk factors that could cause 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 and disclaim 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 for our financial and operational performance.
At this point it is my pleasure to turn things over to Blake.
Good afternoon, everyone and thank you all for joining us I'm pleased to be speaking to you today on our first earnings call under our company's new name innovate.
Innovation bodies, the vision for our best in class assets, we believe that each of our segments is primed to unlock significant value.
The structure the bankers steel acquisition now he's been a part of the DBM family for a full quarter and we are encouraged by the expanded footprint. We have in the steel erection in fabrication space in the United States DBM.
<unk> revenues increased 138% from the prior year quarter, and adjusted EBITDA was up almost 38%.
Moving on to pants, and one of the most exciting developments. This quarter came on argues glacial Rx earned its third FDA indication and unique product code.
Rachel Iraq is now the first and only class two dermal cooling system FDA cleared for general Dermabrasion scar and after scar revision and tattoo removal permanently changing this industry.
I mean is there a glacial Rx went from being part of one classification among hundreds of other devices to be in place and its very own FDA issued product code and this significant milestone for our two will help us further penetrate b $22 billion static dermatology market.
We invested an additional $15 million due to increase our ownership position, we continue to be excited by the opportunity.
And finally in spectrum.
We are adjusted EBITDA positive for the fourth consecutive quarter.
Continually expanding our nationwide broadcast station footprint and the business is positioned to take advantage of the opportunities lies ahead with the rise of OTT broadcast access homes across the country.
We couldnt be more excited for the future prospects of inmate Corporation in fact, I'd like to invite everyone to visit our new website innovate Corp, Dot com and once you're on the site you can download our latest investor presentation. I think it's a very informative overview of innovate in what we're doing and with that I'm pleased to turn the call over to Wayne Barr CEO.
Oh a innovate.
Thank you Avi and thank you all for joining us today.
For the third quarter, we delivered financial results that were in line with our expectations and reflective of the continued progress of innovates long term strategy.
We picked up right, where we left off in the second quarter and further execution in all of our segments.
Our team remains energized by the opportunities that lie ahead, especially with our unique set of assets that are currently growing as shown by our third quarter results and are positioned to unlock future value for our stockholders for years to come.
Turning now to some key accomplishments achieved in the third quarter that in conjunction with their financial results highlight the aforementioned progress made on the execution of our strategy.
As previously mentioned on our last earnings call. We completed the disposition of the insurance segment Continental General holdings, receiving $65 million of cash at closing and the return of approximately $25 million worth of spectrum Securities.
Also as mentioned on the last earnings call. We provided an additional $15 million in series seek funding to art to technologies to pants, and our life Sciences segment.
We also completed our name change to innovate Corp, launched our rebranding efforts and began trading under the ticker date D. T E on September 22021.
We are initiating a new feature on our quarterly calls and I've asked Rustin Roach, President and CEO of our infrastructure segment DBM global to join US today and walk you through an update on DBM before returning the call back to me to provide updates on Penn sand and spectrum.
Rustin.
Thanks, Wayne I'm happy to be joining today to speak to you all about the exciting prospects at DBM. The banker steel integration is on track and the company has made an immediate impact to DBM already.
Our exposure to commercial industrial services and public sector projects position, the DBM well for the post Covid recovery, we're seeing take place in the market today with that Dbm's total adjusted backlog was $1 $9 billion at quarter end comprised of one.
Zero 5 billion in legacy DBM backlog and $839 million of backlog at bankers steel our current backlog level provides us with great visibility into the potential revenue generation in 2022 and beyond.
We continue to keep our pulse on the various federal infrastructure bills as a potential catalyst for our business. We anticipate we would see the impact of potential new projects associated with a bill in the 12 to 18 month period. Following final passage. In addition to an infrastructure bills direct impacts we believe the.
Additional infrastructure spending.
<unk> correctly will add new projects to an already very busy market, which I'm optimistic we'll continue to relax the downward pressure on margins we've experienced over the past year. We continue to see point of sale margins improving on new bids the larger more complex projects have a bit higher margins than the smaller less.
Complex ones. Obviously this will all be a net positive for DBM, while there remains optimism in the construction industry. We also acknowledge various challenges in both the supply chain, which steel prices continuing to rise as well as in the labor market for our business. While these issues are there we are continuing to find.
Successes in our operational efficiencies and business development efforts as shown by the very large adjusted backlog number of $1 9 billion.
We will continue to monitor both of these elements and the potential impacts to our businesses as we look forward to 2022. Thank you for the time today and I'll now turn this back over to Wayne.
Thanks, Rustin now turning to life Sciences, we are encouraged by the recent developments in our pants and business as.
As we explained last quarter, we invested an additional $15 million and our two which hinders using to expand its corporate footprint accelerate U S commercialization of glacial Rx fuel global growth and fund further innovation and product development.
Infusion of capital will further support our coos prospects, especially with glacial Rx receiving its third FDA indication and unique product code.
This is a major milestone for our two in the quarter on the heels of the commercial rollout of its first product earlier in the year.
Our two did decide to delay the Chinese launch of the glacial spa product, which has been impacted by global supply chain issues.
The glacial spa English will Rx devices have certain components in common and at least one of which has been affected by the tightening supply chain.
Given the momentum and ample inventory so the glacial rx product or to meet what we believe was a prudent decision to allocate a greater portion of the shared components to satisfy the commercial demand for <unk> glacial Rx product in the United States.
Other than using such components in the glacial spud device, resulting in the decision to delay the launch.
At Meadowbank and the company remains in dialogue with the FDA regarding the commencement of its U S pivotal study.
Meta beacon hopes to begin that study in the fourth quarter. Although there is a possibility that it may be pushed into the first quarter of next year.
We are closely monitoring the situation and regardless of a potential delay are very excited about the opportunities we see at met or beat them.
We are happy with the momentum we continue to see at Penn sand.
Couldn't be more excited about the progress made across this portfolio and are optimistic about our ability to capitalize on the ongoing growth opportunities in this operating segment.
At spectrum, we have now achieved a full year profitability, establishing a track record of consistent performance.
Adjusted EBITDA grew year over year to $1 8 million, bringing our last 12 months adjusted EBITDA for spectrum to $6 $5 million.
We continue to focus on optimizing operations, taking cost out and improving revenue.
In the third quarter, specifically growth in our station group both T. A revenues helped drive profitability.
On the station group side, we reached an agreement with Susan Arrows media to launch <unk> on September one a new Spanish language network that broadcasts telenovelas and more than 70 markets in the U S on our platform.
Also in partnership with being media, we have increased the distribution of the being extra sports networks, which are 24 seven live sports channels offered in both English and Spanish offering the most comprehensive free AD supported live sports programming over the air.
Nationwide, we broadcast bein sports and more than 120 channels in over 60 markets.
Altogether, there are 83 networks using our distribution platform today sponsored by a broad range of media companies that include CBS NBC Universal scripts, Weigel Fremantle pregnant Sinclair among others.
We also completed the debt refinancing extension, which allows the company to build profitability and provides more time to execute a longer term solution to its capital structure.
To provide an update on new station construction, we are targeting 24, new station builds which are on schedule for completion by the end of the first quarter 2022.
Seven of these 24 stations are already built when.
When completed these 24, new stations will bring us to a total of 251 stations in the station group.
We are funding the construction of these new stations with proceeds from noncore asset sales, including construction permit sales last quarter as well as cash from operations.
Overall, we are seeing the benefits of innovate sharpened focus on our three operating segments and we closed 2021 and enter 2022 with strong momentum.
We continue to make significant progress across all of our assets and believe that our businesses are exceptionally well positioned to benefit from the growth catalysts that are emerging as part of the new economy.
With that I'll turn it over to Mike for a review of our financials and capital structure.
Thanks Duane.
I will first review our financial performance and then I will walk you through key changes to our capital structure to help you bridge the quarter and the key transactions that have taken place during the quarter.
<unk> total revenue for the third quarter of 2021 was $394 8 million, an increase of 131, 6% compared to $175 million in the prior year period.
The increase was driven by our infrastructure segment, driven by the contribution from bankers steel as well as from higher revenues across DBM service offerings attributable to timing of project work under execution and backlog mix.
Net loss attributable to common and participating preferred stockholders for the third quarter of 2021 was $213 million or $2 75 per share.
Fair to a net loss of $17 7 million or <unk> 37 per share in the prior year period.
The loss was primarily driven by the loss on the sale of the insurance company in the quarter.
While the cash flow restrictions discussed on previous calls changed our risk versus reward outlook on the insurance company.
I wanted to spend a couple of minutes to discuss the U S. GAAP loss recognition on the SaaS.
The loss at the insurance company is reflective of the excess book value over purchase price insurance companies value is typically based on a multiple of the statutory capital. The multiple will vary depending on the type of policies and Innovates insurance company consisted primarily of long term care policies.
Long term care books of business typically trade at a discount to the surplus this reflects the inherent uncertainty and risk associated with the estimates utilized to determine their insurance reserves that fulfill the long term care insurance policy obligations.
Total adjusted EBITDA, which excludes discontinued operations was $14 3 million in the third quarter of 2021, an increase from adjusted EBITDA income of $7 8 million in the prior year period.
The increase was driven by the contribution from bankers steel with the infrastructure segment improvements at the spectrum segment, partially offset by increased expenses that are two and that it became.
Now onto some color for each of our three operating segments.
Infrastructure revenue increased to 138, 2% to $383 million from $168 million in the prior year quarter.
As discussed earlier this increase was due to the acquisition of banker steel, resulting in an additional $114 3 million of revenue as.
As well as higher revenues across DBM service offerings.
Infrastructure adjusted EBITDA for the third quarter 2021 increased to $24 4 million from $17 7 million in the prior year period.
The increase was driven by the contribution from bankers steel.
Which was offset in part by timing of project work under execution changes in backlog mix and the continued recognition of backlog with slower point of sale project margins.
Okay.
As of September 32021 reported backlog was $1 6 billion up from $395 million at the end of the fourth quarter 2020.
Adjusted backlog, which takes into consideration awarded but not yet signed contracts was $1 9 billion.
Up from $608 million at the end of last year, the Banker's field acquisition added roughly $839 million of backlog.
<unk> had another strong quarter on the sales front, so while our backlog remains flat, we recognized $383 million of revenue in the quarter.
Most importantly, we are starting to see improvement in point of sale margins as capacity fills up in the market.
We plan to burn off the backlog as we exit 2021 and head into 2022 and beyond.
At life Sciences, the increase in adjusted EBITDA losses were primarily driven by the continued scaling of operations at our two technologies, including an increase in sales and marketing expense to support sales revenue growth and further commercialization efforts as well as the continued development of its product platform and an.
<unk> spend that matter beacon as they prepare for their final pivotal study.
At spectrum revenue increased five 2% to $10 2 million driven by high station revenues as we launch new customers and grew the number of its operating stations, which was partially offset by a decrease in revenue as a result of the sale of full power stations.
<unk> delivered adjusted EBITDA of $1 8 million in the third quarter compared to an adjusted EBITDA loss of $1 2 million in the prior year quarter.
For the nine months ended September 32021 spectrum recorded adjusted EBITDA of $5 3 million compared to EBIT of losses in the prior year.
Results reflect improved operations and cost reductions across the platform the sale of higher cost noncore stations and revenue improvements described above.
Station group sales grew revenues by approximately 20% for the nine months ended September 32021.
Nonoperating corporate adjusted EBITDA losses were $3 8 million for the third quarter of 2021 up from the third quarter of 2020 by $2 1 million.
At the end of the third quarter. The company had $55 5 million of cash and cash equivalents compared to $43 8 million as of December 31, 2020.
On a standalone basis as of September 32021.
The corporate segment had cash and cash equivalents of $31 6 million compared to $27 5 million at the end of 2020.
During the quarter, we closed on the sale of Continental insurance as part of the transaction, we exchanged $16 million of existing series, a and <unk> preferred stock.
New series with identical terms in the new redemption date of July 2026.
We also modified the $40 9 million of preferred stock at DBM G Intermediate company.
These securities had previously been eliminated in consolidation prior to the sale of the insurance company and you will now see them included as mezzanine or temporary equity on our consolidated balance sheet.
In addition, subsequent to the quarter, we extended the maturity on the 52 million of outstanding debt of broadcasting.
To November of 2022, and repurchased approximately $2 million of debt outstanding at DTE via using proceeds from noncore station sales.
As of September 32021, innovate had total principal outstanding indebtedness of $676 million up.
99.4 dollars 4 million from $576 6 million at the end of 2020, driven primarily by infrastructures financing related to the banker acquisition.
In conclusion, the third quarter results showed consistent improvement across all of our business segments. We were still in the early innings of a long term strategy.
Which we implemented last year and are committed to driving performance in infrastructure life Sciences, and spectrum and efforts to unlock the value in each of our best in class assets.
With that operator, we'd now like to open up the call for questions.
Alright, Thank you very much.
So everyone if you'd like to register a question. Please press the one followed by the four on your telephone.
Here are three Tom prompt acknowledging your request.
If your question has been answered and you'd like to withdraw your registration. Please press. The one followed by the three but once again, it's one four for any questions in just a moment. Please.
And nobody in the queue at the moment, but one additional reminder, everyone. Its one four if you have a question or comment just one moment. Please.
And our first question comes from the line of Nintendo <unk> with papyrus. Please go ahead.
Hi, guys nice quarter.
For all the color on the DBM too. So just curious if you could talk about the continental insurance sale and sort of anything on the balance sheet or anything that was sort of a holdco guarantee that might be gone that kind of strengthens the overall business now.
Yeah. Thanks Nathan.
So.
Yes, there is no.
No guarantee.
All obligations or commitments that we may have had prior to.
Prior to the sale are now gone so theres nothing theres nothing legacy that hangs over of course.
As far as guarantee.
We do have our preferred shares that youll see on the balance sheet that I just mentioned.
That the insurance company holds both fee.
Innovate.
Series, <unk> four and the DB.
DBM I press that I mentioned.
Okay. Thanks.
Alright, Thank you very much.
We have no further questions in the queue at the moment I'll turn the call back to Wayne bar for any closing comments great.
Great. Thank you Eric I'd like to thank everybody for participating this afternoon and the earnings call and we look forward to getting back in front of you next quarter have a nice day.
That does conclude the conference call for today, we thank you for your participation and you may now disconnect your lines.
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