Q1 2023 INNOVATE Corp. Earnings Call
We are pleased with the progress we are making in the life Sciences portfolio.
And we believe we are well positioned to generate long term value by executing our strategy and further leveraging these innovated solutions.
At spectrum to new customers added to backfill that previously occupied as Texas stations are up and running.
However, several of the channels that were expected to begin their programming in January did not start until March.
Which impacted first quarter results.
The new programming will be additive to spectrum over the long term as we expect the higher gross margins to lead to greater profitability going forward.
Among the new networks launched on broadcasting was long Prime a pause.
Popular live trial network founded by Dan Abrams of ABC News previously available only on cable.
Industry wide broadcast television has experienced shortfalls in advertising revenues in the face of a weaker economy and increased competition from streaming networks and fast channels.
The industry is looking ahead to more positive trends in 2024.
As we reported last quarter, we were happy with the results of our initial two way experiment using certain of our LP TV channels in Fort Wayne, Indiana.
We are currently working with our engineering and spectrum consultants to design additional experiments and expect to see continuing positive results as we seek to expand the uses of LPTA, while maintaining the quality of our legacy linear broadcast service we.
We will continue to keep you apprised of developments as they occur.
While our overall results were impacted by seasonality and delays we remain encouraged by the fundamentals across each of our operating segments and are focused on achieving results through execution and operational excellence in the coming quarters.
Finally yesterday, we consummated the purchase of all of the series a fixed to floating rate perpetual preferred stock issued by DBM Global Intermediate Holdco, Inc, and helped by Continental General Insurance company.
The purchase price for the series, a preferred was $42 million consisting of $7 million in cash and a $35 million subordinated unsecured note that is due in 2026.
The purchase was precipitated by a redemption notice received from CGI, which notice was permitted to be delivered by CGI see under the terms of the series a preferred.
The unsecured note is in interest rates that will substantially increase on the first and second anniversaries of issuance and as certain requirements to make partial payments under certain circumstances and events such as a qualified equity rates.
The board believes that while a full redemption and cash was not an option and the purchase of the series a preferred and this structure is aligned with our short to medium term strategic planning.
With that I'll turn it over to Mike for a review of our financials and capital structure.
Thanks, Wang consolidated total revenue for the first quarter of 2023 was $317 9 million a decrease of 23% compared to $412 8 million in the prior year period.
Decrease was primarily driven by our infrastructure segment and to a lesser extent our spectrum segment.
<unk> fabrication, and erection and maintenance and repair businesses.
Encountered customer and general contractor driven delays resulted in the timing of work performed by the BMG to be delayed in the current period.
Revenues at our spectrum segment decreased primarily as a result in the termination of <unk> network and its associated Azteca America network content at the end of last year.
Net loss attributable to common stockholders for the first quarter of 2023 was $10 2 million or <unk> 13 per share compared to a net loss of $13 6 million or <unk> 18 per share in the prior year period.
Total adjusted EBITDA was $4 9 million in the first quarter of 2023, a decrease from an adjusted EBITDA of $11 5 million in the prior year period the.
The decrease was primarily driven by the infrastructure life Sciences and spectrum segments.
As well as a decrease in our equity method income from our investment in HMS.
As previously disclosed the sale of the remaining 19% of our HOS investment closed in March of 2020 trip.
The decrease was partially offset by lower EBITDA losses at the non operating corporate segment.
And infrastructure revenue decreased 22, 5% to $311 7 million from $402 2 million in the prior year quarter.
As discussed earlier. This decrease was primarily driven by the timing of projects at <unk> fabrication, and erection and maintenance and repair businesses, both of which encountered customer in general contractor driven delays, resulting in the timing of work performed by DBM Jay to be delayed at several projects, including the <unk>.
<unk>, AIPAC and AIPAC and JFK.
Infrastructure adjusted EBITDA for the first quarter of 2023 decreased to $16 3 million from $20 5 million in the prior year period.
The decrease was largely driven by the decrease in revenue as previously discussed and a slight increase in SG&A.
By the fabrication and erection business experienced delays in the current period that impacted revenue. The decrease in adjusted EBITDA was partially offset by a margin improvement as the projects completed in the comparable period.
<unk> had lower margins due to market pressure on point of sale project margins. During the COVID-19 pandemic will replace with more recent projects with higher point of sale margins in the current period.
EBIT margin was up slightly year over year EBITDA margin was sequentially lower as a result of the lower profit contribution caused by the project delays and largely fixed SG&A costs.
As of March 31, 2023 reported backlog was one 6 billion compared to $1 8 billion as of December 31, 2022.
Adjusted backlog, which takes into consideration awarded but not yet signed contracts was $1 7 billion compared to $1 8 billion at the end of December 2022.
While we have now seen our revenues exceed our backlog sales for the past two quarters. Besides of the projects in the market that <unk> is pursuing would have a meaningful impact on backlog in the upcoming quarters if successful in their bid process.
<unk> ended the quarter with $237 million of debt, which is a decrease of $6 million from year end 2022.
By normal debt amortization payments and a small reduction in the credit facility.
At life Sciences, the increase in adjusted EBITDA losses, primarily driven by higher equity method losses from our investment in matter of BK.
In February of 2023, and <unk> issued $7 5 million of preferred stock to <unk> in exchange for additional shares of preferred stock.
As a result of this equity transaction.
<unk> recognized $3 8 million of unrecognized equity method losses as <unk> carrying amount of its investment in <unk> can have been previously reduced to zero.
At spectrum revenue decreased $4 1 million or <unk> 41, 8% to $5 7 million, primarily driven by the elimination of advertising revenues at Azteca, which ceased operations at the end of last year.
This was partially offset by an increase in station revenues, which launched new customers in the current period.
Spectrum delivered adjusted EBITDA of.
$4 million in the first quarter compared to adjusted EBITDA of $1 3 million in the prior year quarter.
The decrease was primarily driven by the termination of this Q2 network and increases in SG&A to satisfy responsibilities previously performed by the network group.
Our spectrum as backfill to channels that were broadcasting Azteca content. Several of the channels were not launched until the back end of the quarter.
And thus impacted their revenue contribution for the quarter.
Non operating corporate adjusted EBITDA losses were $3 5 million for the first quarter of 2023 down from the first quarter of 2022 by $1 1 million.
The improvement was driven mostly by unrest period expenses related to the settlement with the former CEO recorded in the prior period and a decrease in accounting and employee costs.
During the first quarter the company closed on the sale of its 19% interest in nature men and received $32 million in proceeds.
Proceeds were used to repay $50 million of the corporate credit line and provide $10 million of working capital funding <unk> through inter company and fund normal overhead costs in the first quarter.
At the end of the first quarter the company at $16 6 million of cash and cash equivalents compared to $80 4 million as of December 31, 2022.
On a standalone basis as of March 31, 2023, the corporate segment had cash and cash equivalents of $3 6 million compared to $9 1 million at the end of 2022.
As mentioned in the previous call the cash balance at year end was elevated due to a temporary reduction in working capital as a result of the receivables collected prior to the end of the year.
As of March 31, 2023, innovate at total principal outstanding indebtedness was 700, $706 5 billion down $18 8 million from $725 3 million at the end of 2022, driven primarily by corporate credit line, new payment and infrastructures.
Principal payments, which was partially offset by <unk> additional borrowings from <unk> capital.
As Wayne mentioned above after the quarter. We also entered into a new 35 million unsecured note yesterday.
Additionally, subsequent to the quarter the company amended the credit agreement.
Corporate credit agreement, which pushed the majority date to March 16, 2025, with the other terms materially unchanged and borrowed an additional $8 million on the credit line.
For the most part that drove us to purchase the <unk> preferred stock previously discussed.
With that operator, we'd now like to open up the call for questions.
Thank you ladies and gentlemen.
I'll now begin the question and answer session.
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Hey, Tom.
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Thank you and your first question comes from the line of Brian <unk> from R. W.
Your line is now open.
Hi, good afternoon, thanks for taking my call.
I am.
I'm, just wondering I guess about the the.
The trend for EBITDA. It is infrastructure going forward over the course of the year the delays that affected the first quarter.
Pushed some revenue I guess into the second quarter is that would that makes the second quarter sort of a catch up quarter or are we just sort of a delayed environment in which we might see some headwinds over the course of the year.
Yeah.
Right now.
Current thinking is that this these are just project delays in the start of the projects or the delays in completing certain work in the case of add back but.
They expect I Wouldnt say that <unk> made up in the quarter everything ships right. So.
By year end I think they are still largely in line with what we were expecting to happen.
Okay, Okay fair enough and the other projects Youre looking at now you see I guess youre, saying that the environment is getting a bit more competitive but there are still some large scale projects.
That youre bidding on that you can reasonably expect to land that wouldnt be still in that sort of margin improved margin area that you were discussing at year end and I guess today.
Yes.
Thank.
Like like we said, we're starting to see some tightening in certain areas that were previously we were rustin and his team were able to negotiate around.
We still see.
Better margins or the margins haven't really been impacted in the process at this point.
From what Rustin has told us.
Okay.
Another quick question about broadcasting I guess, you weak I think you had said you had signed up to be.
Bandwidth vacated by Astrazeneca.
By quarter end is there any kind of guidance you can give us on maybe the run rate might be for EBITDA. Once now that this space is filling up.
Yes, I mean, I think we'll continue to fill space largely filled.
Exceeded what we were from an intercompany perspective charging us check at our broadcast stations and still have more space to sell.
<unk>.
I think when you think about how the quarters progressed last year.
One through four as as tech.
<unk> was profitable in 2021 and really into the first quarter of 2022.
And then started to.
Go flat to a slight loss by the by the end of the third quarter. When we made the decision to shut it down there were some one time good guys small things best helped a little bit in the fourth quarter.
But we.
We should continue to see.
Improvement as we.
Get the full impact of the quarter for those new customers and.
Yes.
And continue to sell out the space, but.
I think you have to be cautions.
What youre thinking as far as it's not going to all of a sudden jump up significantly it's going to gradually increase we should see a pretty decent bump into them by getting the full quarter impact in Q2, but.
Sure.
Yeah.
I think.
It's going to increase gradually over the course of.
Got it.
Okay. Thanks, and just one last question about the unsecured note.
Issued to continental.
You say the the coupon is going to jump up I guess, one on an annual basis.
Four years.
What are your plans for.
Dealing with that.
You tried to pay it off sooner than later over.
Right.
Danny for Awhile.
Yes, I think we wanted to have a little bit of a runway and a little bit of flexibility. So that the board can continue to.
Made good decisions and not not be forced into having to do something because of timing of maturities and so our plan definitely is to take a look at the at the entirety of the debt across the holding company and we're obviously looking at.
Different opportunities too.
And all that debt to refinance it Dan.
The subordinated note would be no different.
And I think you can get to the second anniversary.
We're already.
Well inside a year when our.
Senior secured notes mature so we would obviously have to take care of the St. Charles So.
That's the thought process there.
Okay.
Okay. That's all I've got for now jump back in queue. Thanks, Alright. Thank you.
Thank you once again should you have a question. Please press star followed by Don and your next question comes from the line.
Andrew <unk> from <unk>. Please proceed.
Hey, guys can you clarify if that new node.
Issued by DBM are issued by the Holdco. Thank you.
Sure. So it was issued by the old code.
<unk> Corp.
And we know the Holdco owns that preferred stock as well.
So sorry, Frank Thank you.
It's unsecured debt subordinated notes on your convert.
Correct got it.
Thanks, Ken.
Thank you.
Thank you there are no further questions at this time please continue.
Very good I would like to thank everybody for joining US today, we will continue to keep you apprised.
Each warrant we look forward to speaking to you next quarter. Thank you.
Thank you and that does conclude our conference for today. Thank you all for participating you may now disconnect.