Q4 2022 Innovate Corp Earnings Call
Speaker 2: Good afternoon and welcome to Innovate Corp's fourth quarter and full year 2022 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 Q&A isASS.
Speaker 2: This event is being recorded. I would now like to turn the conference over to Anthony Romas with Investor Relations. Thank you. Please go ahead. Good afternoon. Thank you for being with us to review Innovate's fourth quarter 2022 earnings results. We are joined today by Avi Glaser, Chairman of Innovate.
Speaker 3: Wayne Barr Jr., CEO of Innovate, and Mike Senna, Innovate's Chief Financial Officer. 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.
Speaker 3: This call is also being simulcast and will be archived on our website.
Speaker 3: During this call, management may make certain statements and assumptions which are not historical facts, will be forward-looking, and are being made pursuant to the Safe Harbor provisions of the Private Security Litigation Reform Act of 1995. Any such forward-looking statements involve risks.
Speaker 3: assumptions and uncertainties and are subject to certain assumptions and risk factors that could cause innovative actual results to differ materially from these forward-looking statements. The risk factors that could cause these differences are more fully disclosed in the cautionary statements that is included in our earnings release.
Speaker 3: and the slide presentation and further details in our 10K and other filings with the FCC. In addition, the board-looking statements included in this conference call are only made as of this date.
Speaker 3: And as stated in our FCC reports.
Speaker 3: Innovate disclaims any intent or obligation to update or revise these forward-looking statements except as expressly required by law.
Speaker 3: Management will also refer to certain non-GAAP financial measures, such as adjusted UDAF. We believe 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.
Speaker 3: At this point, it is my pleasure to turn things over to Avi Glaser.
Speaker 4: Good afternoon. Innovate finished the year on a strong note and is heading into 2023 with significant momentum across all of our business segments.
Speaker 4: Since Innovate's strategic transformation was announced over two years ago, we have built upon our success in each quarter and achieved record financial results in 2022. Our sharpened focus on Innovate's best-in-class business segments has allowed the company to deliver back-to-back years of record growth.
Speaker 4: Infrastructure achieved $1.6 billion in revenue for 2022, growing 37% over 2021 levels. That business continues to benefit from the strength in commercial, industrial, and construction markets, and has a runway for sustained growth supported by its backlog of $1.8 billion.
Speaker 4: In life sciences, we are encouraged by the positive indicators we are seeing in the Pan-Sen portfolio and remain excited about the upside of that business and the direction in which both R2 and MetaVegan are headed.
Speaker 4: R2 sequentially grew its top line every quarter in 2022 and Metabekan recently completed enrollment of both its US and China pivotal studies and is targeting its final FDA submission in the first half of this year.
Speaker 4: Broadcasting achieved positive Adjust EBITDA for all four quarters in 2022 and successfully completed its initial two-way spectrum demonstration in our Fort Wayne Market.
Speaker 4: Towards the end of the year, we made the strategic decision to shut down S-TECA, which will drive enhanced profitability in this segment going forward.
Speaker 4: We are pleased with the results in 2022 and plan to build on this progress as we see future growth in each of our three business segments.
Speaker 4: We remain focused on maximizing value in each of our best-in-class assets and remain excited about our future prospects. With that, I am pleased to turn the call over to Wayne Barr.
Speaker 5: Thanks, Bobby, and thank you all for joining us today.
Speaker 5: 2022 was another strong year for Innovate as we continue to execute our strategy.
Speaker 5: For the full year 2022, we achieved revenue growth of 36% and adjusted EBITDA growth of 55%.
Speaker 5: From a quarterly perspective, our results are trending in the right direction as well. In fact, we delivered year-over-year growth on both our top line and adjusted EBITDA in each quarter of 2022.
Speaker 5: Specifically for the 4th quarter 2022, we delivered consolidated revenues at 409.3M and adjusted the data of 28.1M.
Speaker 5: We believe that this trend of growing quarterly adjusted EBITDA on a year-over-year basis throughout 2022 is a testament to our strong execution and focus on operational initiatives that deliver growth and profitability. I will now share some fourth quarter highlights for each of our operating segments.
Speaker 5: EVM Global continues to deliver strong financial results.
Speaker 5: Revenue and adjusted EBITDA grew year over year 3.6% and 13.5% respectively in the 4th quarter of 2022.
Speaker 5: Adjust the EBITDA margin for the fourth quarter was 8.2%
Speaker 5: an expansion of 70 basis points year over year and 150 basis points sequentially.
Speaker 5: We saw significant margin improvement in the 4th quarter driven by larger projects. And the roll off of pandemic related jobs.
Speaker 5: While we continue to see a gradual rise in margins over the pandemic lows. And are pleased with this quarter's margins. It is worth noting that we expect quarterly margins to fluctuate throughout 2023 due to the timing of jobs.
Speaker 5: DBM continues to see robust opportunities in the construction, commercial, and industrial markets, and we are evaluating measures that we believe will put DBM in a favorable position to take advantage of the strong market.
Speaker 5: The pipeline at DBM continues to be strong and our backlog at year end of 1.8 billion continues to provide visibility into 2023 and beyond.
Speaker 5: Turning now to life sciences, R2 has now shipped 230 glacial devices globally.
Speaker 5: R2 has delivered strong top-line growth over the past few quarters as a result of good receptivity in the market for their glacial products, as well as the implementation of a new subscription sales program which has helped fuel accelerated growth in a short time period.
Speaker 5: Metabeacon achieved key milestones by completing enrollment of both its US and China pivotal studies.
Speaker 5: The next step for MetaBeacon is to file its final submission with the FDA, which we expect to take place in the first half of 2023.
Speaker 5: Finally, at Spectrum, we have already begun to see improvement in profitability as a result of the strategic decision we made last quarter to right size that business and focus on profitability by exiting as Tech of America at the end of 2022.
Speaker 5: We are pleased to have been able to add new customers to backfill the previously occupied as stations.
Speaker 5: At year end, we signed new contracts with three major networks and have since launched new programming that replaces the Azteca America content.
Speaker 5: The new programming will have higher gross margin revenues compared to the Azteca America content.
Speaker 5: Our revenues at spectrum were flat in the quarter as a result of the tech shutdown.
Speaker 5: Revenues for Azteca decreased, however, that was offset by growth at the station group.
Speaker 5: While we expect revenue to decrease in the near term, the backfilled revenue in that business will be more profitable and will generate improved cash flow and adjusted EBITDA.
Speaker 5: to decrease in the near term, the backfilled revenue in that business will be more profitable and will generate improved cash flow and adjusted EBITDA going forward.
Speaker 5: Softness in the television advertising market in 2022, particularly in direct response, slowed the growth in multicast networks, which represent a large portion of our station group business. And there were no new network launches. In Q4 2022.
Speaker 5: Several of our large network clients saw sharp declines in profitability.
Speaker 5: Competitive pressure from full power stations in many of our markets has also impacted pricing and demand in broadcast leasing.
Speaker 5: As Avi mentioned, we are pleased to report on the success of our initial experiment using our LPTV channels in Fort Wayne, Indiana.
Speaker 5: Paired with 1.6 Spectrum, we demonstrated a fully mobile network capability comparable to carrier-based mobile networks in use today in the United States and worldwide.
Speaker 5: We believe that the experiment proved conclusively that our LPTV frequencies can be used to offer mobile connectivity for making calls and streaming high definition media content, while at the same time providing enhanced LPTV broadcast service to the public.
Speaker 5: The initial experiment was of necessity limited to operating as a 4G network.
Speaker 5: Over the course of the next several months, we intend to continue conducting additional experiments demonstrating a greater variety of two-way services.
Speaker 5: The successful initial step of HC2 broadcasting's testing is the first in a process that we believe will transform the use and value of LPTV while preserving linear broadcast television.
Speaker 5: Aside of our operating segments, we were pleased to announce on March 7th the consummation of our sale of the remaining 19% interest in HMN International Co.
Speaker 5: or HMN, to subsidiaries and an affiliate of Hangtong Optic Electrico.
Speaker 5: The sale was the final step in our disposition of our global marine operating segment and the company received approximately 32M dollars in cash proceeds as a result of the closing.
Speaker 5: The proceeds from this transaction add greater flexibility to our balance sheet.
Speaker 5: 2022 was another successful year for Innovate as we delivered record financial results in spite of a difficult operating environment.
Speaker 5: We continue to execute on our strategic initiatives, which have translated into strong operational and financial results in each quarter throughout the year, headlined by strong revenue and EBITDA expansion. We plan to continue our sharp focus on refining our portfolio and driving performance across our operating segments. We are pleased to have capped off 2022 with another strong quarter.
Speaker 5: We are investigating several initiatives that we believe will enable us to take advantage of these opportunities.
Speaker 5: With that, I'll turn it over to Mike for a review of our financials and capital structure.
Speaker 3: Thanks, Wayne. Consolidated total revenue for the fourth quarter of 2022 was 409.3 million, an increase of 3.7% compared to 394.8 million in the prior year period.
Speaker 3: The increase was driven by our infrastructure segment led by Banker Steel and an increase in the infrastructure market demand.
Speaker 3: Net loss attributable to common and participating preferred stockholders for the fourth quarter of 2022 was $7 million, or $0.09 per share, compared to a net loss of $5.2 million, or $0.07 per share in the prior year period.
Speaker 3: Total adjusted EBITDA, which excludes discontinued operations, was $28.1 million in the fourth quarter of 2022.
Speaker 3: an increase from an adjusted EBITDA of $22.1 million in the prior year period.
Speaker 3: The increase was primarily driven by the infrastructure segment, life sciences, spectrum, and non-operating corporate segments. The increase was primarily driven by the infrastructure segment, life sciences, spectrum, and non-operating
Speaker 3: This is partially offset by a decrease in equity method income from our investment in HMN. This is partially offset by a decrease in equity method income from our investment in
Speaker 3: which has previously discussed the sale of the remaining 19% closed in March of 2023.
Speaker 3: At infrastructure, revenue increased 3.6 percent to $397.3 million from $383.4 million in the prior year quarter.
Speaker 3: As discussed earlier, this increase is driven by bankers' steel as they earn full swing into the work at 270 Park.
Speaker 3: We also saw an increase in DBM's commercial, structural, steel fabrication and erection business.
Speaker 3: As they work through some of the larger winds from 2021, including I-BEC Clippers Arena and larger winds from 2022, including Stellantis, which is a lithium-ion battery production plant in Kokomo, Indiana. The increase is offset in part by the industrial maintenance and repair and construction.
Speaker 3: improvement in margin at the commercial structural steel fabrication erection, industrial maintenance and repair and construction modeling detail businesses, as projects sold in the first half of 2021 and earlier are working their way through the system.
Speaker 3: and projects subsequently sold in the second half of 2021 are now beginning to ramp up.
Speaker 3: Additionally, contributing to the increase is a decrease in G&A expenses.
Speaker 3: which was partially offset by a decrease in the contribution from bankers' field.
Speaker 3: While we experience strong margin improvement in the 4th quarter, our expectations for just an EBITDA margin for the full year 2023 will be a slight improvement to what was delivered in the full year of 2022. As of December 2022, reported backlog was $1.8 billion, up from $1.6 billion as of December 31, 2021.
Speaker 3: Adjusted backlog, which takes into consideration awarded but not yet signed contracts, was 1.8 billion.
Speaker 3: Compared to 1.9 going in at the end of December 2021. FEMA DBMG continues to see a robust pipeline in 2023.
Speaker 3: CBMG ended the quarter with $243 million of debt, which is an increase of $54.4 million from year-end 2021, driven by working capital movements resulting from top-line business growth. Archaeological Yacht
Speaker 3: At Life Sciences, the decrease in adjusted EBITDA losses was primarily driven by a decrease in equity method losses recorded from our investment in MetaBeacon.
Speaker 3: Pansend's net carrying amount of its investment in Metabeacon was reduced to zero in the current year as losses incurred exceeded Pansend's net basis in Metabeacon, resulting in fewer losses recognized in the comparable period.
Speaker 3: However, as discussed above, we are encouraged by the progress of MetaVeacon with the company completing enrollment in both their US and China Pivotal studies.
Speaker 3: At Spectrum, revenue remained consistent year over year at $10.7 million.
Speaker 3: Bump setting drivers included a decrease in advertising revenue at the Azteca network driven by decreased footprint and declines in paid programming.
Speaker 3: and an offsetting increase in station revenues as they launched new customers and grew the number of its operating stations.
Speaker 3: Spectrum delivered adjusted EBITDA of $2.5 million in the fourth quarter, compared to adjusted EBITDA of $1.6 million in the prior year quarter. The increase is driven by higher station revenues and a decrease in professional fees, legal expenses, and salary and benefit expenses. This is partially offset by higher station costs as a result of the newly built stations.
Speaker 3: to 11.45% and the accrued interest and fees of $17.5 million were capitalized into the principal balance. For more information, visit www.fema.gov
Speaker 3: The terms of the 8.5% notes remain the same. The total outstanding principal after the refinancing was $69.7 million.
Speaker 3: As part of the consideration for extending the 10.5% senior secured notes, our spectrum segment amended the warrants held by the lenders of the notes by extending the time to exercise the second half of 2026 and reducing the exercise price per share to a penny.
Speaker 3: Non-operating corporate adjusted EBITDA losses were $3.7 million for the fourth quarter of 2022. The EBITDA is a non-operating corporate adjusted EBITDA.
Speaker 3: down from the fourth quarter of 2021 by $800,000, driven mostly by a decrease in bonus expense, which was partially offset by an increase in professional fees. At the end of the fourth quarter, the company had $80.4 million of cash and cash equivalents compared to Necessary
Speaker 3: $45.5 million as of December 31, 2021. On a standalone basis as of December 31, 2022.
Speaker 3: The corporate segment had cash and cash equivalents of $9.1 million compared to $22 million at the end of 2021.
Speaker 3: As Wayne mentioned, we recently closed the sale of the remaining 19% interest in HMM.
Speaker 3: The 19% HMN stake was held by Global Marine Holdings LLC.
Speaker 3: an entity in which Innovate holds approximately 73% controlling interest.
Speaker 3: The sale was consummated pursuant to the terms of a supplemental agreement entered into by the parties in June of 2022.
Speaker 3: After taxes and transaction fees, Innovate received approximately $32 million in cash, which would be used for reinvestment, debt repayment, and other financial services.
Speaker 3: Specifically, the $15 million of the outstanding credit line and general working capital.
Speaker 3: As of December 31, 2022, Innovate had total principal outstanding indebtedness of $725.3 million, up $94.5 million from $630.8 million at the end of 2021, driven primarily by infrastructure's increase in its credit line as a result of work...
Speaker 3: and with the progress made across all three of our business segments.
Speaker 3: Infrastructure continues to deliver reliable results with visibility into the runway for future growth in 2023 and beyond.
Speaker 3: Pan-Sens R2 revenue is also trending in the right direction as it continues to benefit from the sale of its glacial products, while Meadow Beacon is on track to submit their FDA trial this year.
Speaker 3: As we are seeing spectrum's profitability improve immediately as a result of the recent operational changes made to the business.
Speaker 3: as we continue to explore expanding the value of spectrum.
Speaker 3: through the benefits of next-gen technology.
Speaker 3: We look to build upon the results in 2022 and are well positioned to continue our strong momentum in 2023.
Speaker 2: With that, operator, we'd now like to open up to call for questions. Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue.
Speaker 2: And for participants using speaker equipment, it may be necessary to pick up your headset before pressing the star keys. One moment while we poll for questions.
Speaker 2: Our first question is from Brian Charles with RW Press Bridge. Please proceed. Please proceed.
Speaker 6: Good afternoon. Thanks for taking my question and congratulations on the quarter. I've got a couple questions and I can get to them.
Speaker 6: back in the queue. But the first one, I guess I just want to understand, as of December 31st, you
Speaker 6: you cease doing business with Azteca America and as you are getting out of the business you were replacing some of that business by assigning other customers and networks and such.
Speaker 6: To what extent have you kind of replaced all the business that is left with Esteca?
Speaker 6: Have you signed that up almost completely or just like what's the progress on that?
Speaker 5: Yeah, we, we, we've substantially completed. Putting putting additional content on channels that were previously dedicated to the programming. Those were typically dot 1 channels and in large markets and so it was considered to be.
Speaker 5: You know, very, very favorable real estate for content providers and programmers. And so we were able to quickly replace that content.
Speaker 3: The one thing to point out is that whether revenues won't be equal when you're doing that.
Speaker 3: It's also very profitable revenues that we're at so as tech they had a big cost structure you could imagine because they were a Network all of that goes away, and you're adding revenues on those channels that Will in essence drop to the bottom line.
Speaker 6: Okay, fair enough. Thanks. And then secondly, your cash balance really did bounce at the end of the year. I guess most of it that they are the most of the improvement is at the subsidiary level. Where abouts is that? The $80.4 million I guess of total cash.
Speaker 6: 9.1 at the corporate, the rest is.
Speaker 3: Yeah, and that would be really DBM and you kind of see that swinging, right? You saw last year it's swinging too and collections were good, working capital dipped, but it moves around and I think that will just depend on where they're ramping up, finishing jobs, things like that. And so day to day you practice.
Speaker 3: working capital will move pretty significantly and they have some favorable collections at the end of the year that resulted in sort of that increase in cash. And you see it move around quite a bit throughout the year.
Speaker 6: Okay, good enough. Okay, thanks. That's it. I'll get back in queue.
Speaker 6: Okay, good enough. Okay, thanks. That's it, I'll get back in queue. Thank you.
Speaker 2: As a reminder to star 1 on your telephone keypad if you would like to ask a question, we will pause for brief moments and see if there are any final questions. With no further questions at this time, we will close the session.
Speaker 2: you may disconnect your lines at this time.
Speaker 1: The to.
Speaker 1: Oh.