Q2 2023 INNOVATE Corp Earnings Call

Good afternoon, and welcome to innovate Corp's second 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 call over to Anthony Rasmus with Investor Relations. Please go ahead.

Good afternoon. Thank you for being with US to review innovate second quarter 2023 earnings results. We are joined today by Abbvie Glaser Chairman of innovate poor boy and interim CEO and Mike Sena Chief.

Chief Financial Officer, we have posted our earnings release and slide presentation on our website at MBIA Corp. Dotcom will begin our call with prepared remarks to be followed by Q&A session. This call is also being simulcast and will be archived on our website.

During this call management may make certain statements assumptions.

<unk> are not historical facts 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, 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 <unk>.

<unk> 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 reports <unk> disclaims any intent or obligation to update or.

These forward looking statements, except as expressly required by law.

Well 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's my pleasure.

To turn things over to Avi Glaser.

Good afternoon.

<unk> achieved strong second quarter results with revenue of $368 8 million and adjusted EBITDA of $16 5 million.

Being focused on increasing profitability by driving growth across all of our operating segments.

Infrastructure brake business GBM global.

Delivered second quarter revenue of $362 4 million in DBM expanded gross margin by approximately 160 basis points and adjusted EBITDA margin by approximately 100 basis points to 13, 7% and six 5% respectively.

As anticipated gross margins for the business of Colgate above the lows we saw in 2022.

However, you will see lower revenue so far in 2023. This is driven in part by project delays in the commercial sector due to the tightening of the credit markets would you primarily impacted office buildings in the western half of the country DBS.

Dbm's topline in the quarter was also impacted by delays with the startup of new projects and the industrials business as it expands into new markets. While it took longer to work out. The details of this first project. We are excited about this project and future opportunities in this space, we continue to utilize DBS capabilities to capitalize on its expertise.

Pivoting to different market opportunities.

When looking at earned gross margins.

<unk> delivered better margins versus last year, which we expect to continue as we work our way through the balance of 2023.

As a reminder, <unk> does not always control the timing of when projects are awarded or whether project may experienced delays. It ultimately push out revenue recognition the right from one quarter to another that said total adjusted backlog remains strong at $1 5 billion at the end of the second quarter providing.

<unk> ability into future periods GBM continues to see sizable see some sizeable opportunities in the market and we are focused on converting these opportunities into backlog.

Turning to life Sciences are two technologies continues to make progress. In addition to an increase in worldwide units shipped <unk> utilization social media presence have experienced notable increases throughout 2023, indicating growth in market awareness and penetration.

In the second quarter <unk> also showcased glacial Rx five major tradeshows.

The American society of aesthetic plastic surgery, the American Society for laser medicine and surgery.

Cosmetic surgery, the international aesthetics, cosmetics, and Spa conference and aesthetic show.

For better begin subsequent to completion of the phase III transdermal GFR pivotal study the phase III clinical study report and other related information was included in the final FTE module submission to.

Jeff gave you the full module submission package for completeness is now conducting a substantive review.

In addition, the FDA provided formal feedback on <unk> clinical program plans for other applications.

The fluorescent technology platform and gastro Enterology ophthalmology surgical visualization.

The company expanded their management team in May by appointing Dr. Steve Miller as Chief Medical Officer.

We are excited to have him onboard to drive a range of clinical and strategic initiatives at better BK.

We are pleased with the progress of our life Sciences portfolio. We believe we are well positioned to generate long term value by executing our strategy and further leveraging these innovative solutions to meet key needs of the market.

At spectrum linear broadcast TV networks, particularly digital ads have been experiencing.

<unk> seen falling AD dollars in the face of a softer economy and increased competition from streaming that works and fast channels, including mounting pressure from smart Tvs.

We're seeing indications of market stabilization in the second quarter.

Did you guys are looking ahead and anticipating a stronger 2024.

New business opportunities are emerging in other areas, including for religious networks best channels looking for over the air distribution.

We are also in the midst of discussions for new revenue opportunities and light housing and data casting which are moving forward. We expect to start realizing revenues in those in 2024 and believe this is the beginning of expanding the utilization of the spectrum beyond current use.

Lastly, we were pleased to appoint Matt cast Droser as CEO of our spectrum business in July .

Matt joins us from Paramount Global where he was vice president of sales, leading the streaming and programmatic sales functions. We are excited for him to help our spectrum business continue to execute on the numerous opportunities in the market.

From a corporate perspective, we recently announced the appointment of our interim CEO Paul Voip. All previously served as senior managing director of investments and innovate for four years until 2018, given pulse prior experience and his knowledge of our three business segments.

Confident in our ability to execute our near term opportunities.

Before I turn the call over to Paul I'd like to pay tribute to Wade bar.

We are deeply saddened by wade's, passing and we will forever be grateful for his leadership.

His contributions to innovate over the last three plus years have been instrumental in guiding our transformation, helping to tighten our focus on our three segments.

Setting up the company for future success.

Wayne was an outstanding colleague and an incredible person who will be greatly missed by all of our database.

With that I turn the call over to Paul void.

Thanks Avi.

First I'd like to extend my gratitude and say thank you for this opportunity to Avi the board of directors Susie Herbst in like setup.

Avi Uzi and Mike have made the seamless transition and a very difficult time for the entire <unk>.

As the majority equity holder of innovate I know Avi is committed to ensuring decisions are being made in the best interest of investors and I will partner closely with him and the entire team to unlock future value for our shareholders.

Across the innovate three business segments, we have world class management teams in place and.

My experience, having a strong engaged management, it's the most important trade for successful business.

And I believe and Rustin Roach, and Mike Hill with GBM Global.

Marine Homemaker adopter gate present at pants and life Sciences.

And that <unk>.

Controls and less levy at the spectrum platform.

Look forward to working closely alongside all of them to drive future value and innovate.

Rest assured that stepping into position unacquainted with either the.

Or its business segments does that explain I am very familiar with the businesses having worked with them during my previous tenure at ABB.

To briefly touch on the businesses and reiterate some of the obvious prior commentary.

Im extremely excited to work with the three operating segments with all three having a strong foundation.

In infrastructure <unk>.

<unk> is has a $1 5 billion backlog and sizeable opportunities in their markets.

Full confidence and rustin and the rest of the management team to capitalize on those opportunities.

At life Sciences Pan sand continues to reach critical milestones embedded beacon or kidney machine and argue is gaining strong momentum.

In their markets and.

And lastly spectrum is exploring future prospects and opportunities with over 250 broadcast television stations covering approximately 70% of the United States with 2.4 billion beggar hurts pop.

<unk> valuable UHF spectrum that will be included as band one or late in the <unk> spectrum lineup.

While the businesses continued to perform well and have substantial opportunities ahead, we are taking steps to strategically address short term liquidity challenges for the company.

In order to strengthen the company's balance sheet and address liquidity.

We'll evaluate potential divestitures of one or more of our non cash flowing businesses will provide an update when we have additional information to share on this front.

With that I'll turn it over to Mike <unk> CFO for a review of our financials and capital structure. Thank you.

Thanks, Paul consolidated total revenue for the second quarter 2023 was $368 8 million a decrease of 6% compared to $392 2 million in the prior year period.

The decrease was primarily driven by the infrastructure segment and to a lesser extent our spectrum segment.

Net loss attributable to common stockholders for the second quarter of 2023 was $10 5 million or <unk> 13 per share compared to a net loss of $13 six or <unk> 18 per share in the prior year period.

Total adjusted EBITDA was $16 5 million in the second quarter of 2023, an increase from $12 1 million in the prior year period.

The increase was primarily driven by the life Sciences infrastructure and spectrum segments, which was partially offset by the elimination of equity method income from our investment in HMA, which was sold in March 2023.

At infrastructure revenue decreased five 2% to $362 4 million from $382 1 million in the prior year quarter.

As discussed earlier. This decrease was primarily driven by the timing and size of projects at the steel fabrication business and lower revenue at DBM, Jay's maintenance and repair business, which was partially offset by an increase in revenue at bankers steel due to timing and size of projects and backlog.

Infrastructure adjusted EBITDA for the second quarter of 2023 increased to $23 5 million from $20 9 million in the prior year period.

The increase was primarily driven by timing of higher margin projects that the steel fabrication business.

This was partially offset by lower contributions in the maintenance or repair business and bankers steel due to timing and size of projects as well as an increase in SG&A.

As of June 32023 reported backlog at adjusted backlog, which takes into consideration awarded but not yet signed contracts was $1 5 billion compared to $1 8 billion at the end of 2022.

As Avi explained earlier, we continue to see meaningful opportunities in the market and DBM remains focused on converting those opportunities into backlog.

<unk> ended the quarter with $234 4 million of debt, which is a decrease of $8 6 million from year end 2022, driven by normal debt amortization payments and a partial repayment and was offset in part by an increase in the credit facility.

At life Sciences, the decrease in adjusted EBIT losses was primarily due to <unk> net carrying amount of its investment in <unk> zero, which resulted in no additional losses being recognized in our equity investment in that of Beacon in the current period as well as the decrease in SG&A expense at arc.

At spectrum revenue was $5 7 million, a decrease of $3 4 million compared to the second quarter of 2022.

Primarily driven by the elimination and advertising revenues that Azteca, which ceased operations at the end of 2022.

This was partially offset by an increase in station revenues, which launched new markets and networks with its customers in the current period.

Spectrum delivered adjusted EBITDA of $800000 in the second quarter compared to adjusted EBITDA of 400000 in the prior year quarter.

The increase was primarily driven by the elimination of networks EBITDA losses in the comparable period as a result of the termination of network and an increase in revenues at station group, which was partially offset by an increase in salaries and benefits.

Non operating corporate adjusted EBITDA losses were $3 4 million for the second quarter of 2023, which was consistent with prior year.

At the end of the second quarter the company at $28 8 million of cash and cash equivalents compared to $80 4 million as of December 31, 2022.

Standalone basis as of June 32023, the corporate segment had cash and cash equivalents of $9 5 million compared to $9. One at the end of 2022.

As mentioned 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, the receivables collected prior to the end of the year.

As of June 32023, innovate at total principal outstanding indebtedness of $749 7 million up $24 4 million from $725 3 million at the end of 2022.

Primarily by corporates, new unsecured note with CGI C and art choose additional borrowings from the answer capital, which was off which was partially offset by infrastructures principal payments and corporates net decrease in the credit line.

Additionally, spectrum reached a short term extension on this respect this debt while we work on a longer term solution over the next few months.

Subsequent to the end of the quarter. We also borrowed an additional $7 million on the credit line, we recognize that liquidity remains tight as we work to build value in each of the three segments and explore various strategic options to address liquidity and the capital structure.

Before I turn the call over to the operator, I would like to acknowledge Wayne bar and his many contributions to innovate as CEO over the past several years. We're all fortunate to have known and worked with way. He was an excellent leader and a tremendous person that we're all miss dearly on behalf of innovate I'd like to extend our condolences to Wayne's families.

<unk>.

With that operator, we'd now like to open up the call for questions.

Ladies and gentlemen, if you would like to ask a question at this time. Please press star followed by one on you touched on phones. You will then hear three Tom prompt acknowledging your request.

And if you would like to withdraw from the question queue. Please press Star then number two.

And if you're using a speaker phone, we do ask that you. Please lift the handset before pressing any keys. Please go ahead and Crestar one now.

You have a question.

And your first question will be from Brian Charles at RW Prestwich. Please go ahead.

Hi, good afternoon, Thanks for taking my call and Yeah first I'd like to extend my condolences on lanes, passing as well, it's a real loss that was lucky to meet them.

Welcome Paul.

Look forward to a strong second half of 2023 and 24.

Couple of quick questions if I can.

Regarding just the pace of EBITDA at the infrastructure business. It did pop a little bit in the second quarter positively from the first quarter is there any guidance you have on how that transpired I guess it is timing, but like what effect that might have in the second half of the year in terms of EBITDA generation.

Yes, thanks for the question Bryan condolences.

Yes, I mean similar to what we've seen historically.

Over the past few years with GBM.

Half of the year tends to be a lot stronger than the first half and we do expect a strong back half similar to what we've seen in prior years and the historical numbers.

Okay good enough.

Backlog has come down a bit is that you are being more selective do you have any color on like the state of the market and the opportunity Youre looking at now.

Yes. This is Paul Thanks, Brian .

What I would say to you is if you look at the margins the margins are expanding.

Our backlog is still at $1 5 billion.

And there are a lot of big opportunity still out there to be had that we're pursuing so we're very confident that.

The market is still very strong.

Okay, Yes.

Think so that's what I've heard but I wonder if just one question I thought about just on the call do you have any thoughts on.

C.

Yes.

The potential decline in demand for office construction, given what people are expecting in terms of office occupancy like CBD, particularly down the real estate would that affect your business much and to what extent might that offset the tailwind you're expecting from the recent infrastructure Bill passed.

Okay.

The first part of the question there is a component.

You touched on it earlier on the call.

Where we are seeing tightening, but we are seeing opportunities in other areas that have not seen the same thing such as stadiums arenas.

Things in Vegas, such a there are a lot of opportunities out there outside of what we've seen.

This office part of the sector.

Okay.

Okay. One last question and then I'll just get back in the queue just regarding strategic.

I'm not sure I'd call with initiatives like <unk>.

Exploration of potential divestitures to address liquidity is that across your segments are like within segments like within the spectrum. What are you thinking about selling some stations or are you thinking about potentially selling the segment itself.

What I said.

The.

Presentation, we're looking to divest.

Noncash flowing assets.

So you can read into that what you may and as we get closer down the path.

We will keep everybody abreast.

Okay. That's fair enough. Thanks, that's it for me for now.

Thanks, Brian .

As a reminder, ladies and gentlemen, if you would like to ask a question at this time. Please press star followed by one on your Touchtone phone.

Yes.

And at this time, we have no other questions. Please proceed with closing remarks.

Yes, thanks to everyone for their time on the conference call today.

I think we have a vision and we have four or five chess moves that we plan to implement into the company to unlock value for all shareholders.

We look forward to keeping in contact with you and <unk> Communications, we look forward to.

Okay. Good.

Fitting shareholder value here. Thank you.

Thank you ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time, we do ask you to please disconnect your lines.

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