INNOVATE Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 6, 2024

There are 5 speakers on the call.

Operator

Good afternoon, and welcome to Innovate Corp. 3rd Quarter 2024 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.

Operator

I would now like to turn the conference call over to Anthony Rasmus with Investor Relations. Please go ahead.

Speaker 1

Good afternoon. Thank you for being with us to review Innovate's Q3 2024 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 and A session.

Speaker 1

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, 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 ks and other filings with the SEC. In addition, the forward looking statements included in this conference call are only made as of this date of this call and as stated in our SEC report.

Speaker 1

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 Boyd.

Speaker 2

Good afternoon. We are pleased to report our strong Q3 financial results and we'll update you on key milestones reached that exemplify the progress across each business segment. Innovate delivered consolidated revenues of $242,200,000 and adjusted EBITDA of $16,800,000 in the Q3 of 2024. DBM Global achieved revenues of $232,800,000 and adjusted EBITDA of $20,900,000 During the quarter, DBM has seen gross margin improvement year over year of approximately 360 basis points to 18.8 percent and adjusted EBITDA year over year by approximately 70 basis points to 9%. As we've discussed on previous calls, we are expecting results for the full year to come in slightly lower versus last year.

Speaker 2

DBM delivered a very strong first half. However, as expected and as we signaled on previous calls, the back half of twenty twenty four will be lighter compared to the same period of 2023. This year has been unusual with the first half outperforming the second half and the results for the 1st 9 months have met our expectations aligning with results from the previous year. While 3rd quarter sales were lighter than expectations, this was offset by higher margins in the quarter. We still expect adjusted EBITDA to be slightly lower than last year results.

Speaker 2

CBM's total adjusted backlog, which takes into consideration awarded, but not yet signed contracts increased to $1,100,000,000 at the end of the Q3. There continues to be high volume of bidding opportunities in the commercial market today, although many projects have not yet been released to start construction. Moving on to Life Sciences, R2 posted another strong financial quarter and made significant commercial progress. Year to date, worldwide top line sales reached $5,700,000 a record high. R2's top line sales grew 2 17% for the 1st 9 months ended September 30, 2024 compared to the same period last year and also already 73% higher than top line sales for the full year 2023.

Speaker 2

System unit sales worldwide saw a massive increase of 4 16% growth from Q3 2023 to Q3 of 2024. R2 has also secured a robust backlog of over 60 systems worldwide, positioning the company well as it heads into the Q4. Since its commercial launch, R2 has sold systems into multiple countries outside the U. S, including Canada, Mexico, UAE, Saudi Arabia, Qatar, Hong Kong, Japan, Singapore, Vietnam and China. R2 plans to expand its international footprint in months to come.

Speaker 2

R2 is also pleased to announce the launch of a partnership with its very first national account chain. Glacial providers continue to see incredible results using glacial skin devices evidenced by 168% growth in patients treated and the increase in average monthly utilization by 58% per glacial provider over the same period. Glacial brand awareness has a significant impact on sales and we have seen repeated and continued growth in this area throughout 2024, exceeding industry competitor growth by 1429 percent. R2 experienced year over year growth of 4,086 percent increase in social mentions, 4 98% increase in web users and 104% increase in patient provider searches. We are extremely pleased with the progress and momentum of R2.

Speaker 2

They are well positioned in the market and have enough product capabilities to meet the current demand. MediBeacon remains dedicated to collaborating with the FDA as they conduct substantive review of the kidney monitoring program. MediBeacon continues to see great opportunities in the market for real time monitoring of kidney functions. The transdermal GFR is the 1st in kind product for real time assessment of kidney function, which is unlike any current methodologies in the market. And finally, Spectrum continues to achieve strong financial results with the launch of new networks and expanded coverage with existing customers.

Speaker 2

The quarter was highlighted by an improvement in profitability once again with adjusted EBITDA of $1,700,000 in the 3rd quarter, a $2,000,000 improvement year over year. Year to date, Spectrum has delivered $4,800,000 in adjusted EBITDA, a significant increase compared to $900,000 through the 1st 9 months of 2023. New launches once again drove higher revenue growth in the quarter. Of note, free TV's network, DeFi launched in the Q3. Broadcasting continues to see many OT8 network opportunities on the horizon of 2020 5 as streaming networks explore over the air coverage.

Speaker 2

Broadcasting also continues to make progress on discussions with prospective strategic partners in pursuit of new spectrum related revenue opportunities in ATSC3.0, light housing, data casting and 5 gs broadcasting. We are very happy with the operational results of all three of our segments. DBM's margin continues to be strong and business has a robust pipeline well positioned for 2025. At PANSS end, R2 made significant progress in way of growth and we continue to make progress at MediBeacon. And Spectrum's profitability has improved dramatically in the quarter year to date.

Speaker 2

We continue to see the benefits firsthand of the strong management teams in place at each of our business segments with the right path forward as evidenced by key milestones achieved so far in 2024. Addressing our capital structure remains a primary focus. We are consistently making headway in exploring strategic alternatives with non cash flowing businesses. We are encouraged by 20 24 milestones we have seen at our non cash flowing businesses as we work to execute on a strategy to address the capital structure. Our strategy requires patience within our established timeframe to ensure we maximize the value of these assets.

Speaker 2

We maintain optimism about the overall M and A market and remain encouraged by the positive market indicators along with ongoing progress momentum around these assets. With that, I'll turn it over to Mike Senner, our CFO, for a review of our financials and capital structure.

Speaker 3

Thanks, Paul. Consolidated total revenue for the Q3 of 2024 was $242,200,000 a decrease of 35.5 percent compared to $375,300,000 in the prior year period. The decrease was primarily driven by our Infrastructure segment, which was partially offset by increases at our Life Sciences and Spectrum segments. Net loss attributable to common stockholders and participating preferred stockholders for the Q3 of 2024 was $15,300,000 or $1.18 per fully diluted share compared to a net loss of $7,300,000 or $0.93 per fully diluted share in the prior year period, which has been retroactively adjusted to reflect the one for-ten reverse stock split affected on August 8, 2024. Total adjusted EBITDA was $16,800,000 in the Q3 of 2024, a decrease from $22,100,000 in the prior year period.

Speaker 3

The decrease was driven by the Infrastructure segment, which was partially offset by our Spectrum, Life Sciences and Non Operating Corporate segments. At Infrastructure, revenue decreased 37% to $232,800,000 from $369,300,000 in the prior year quarter. The decrease was primarily driven by the timing and size of projects at Bankers Steel and DBMG's commercial structural steel fabrication erection business, both of which had increased activity in the comparable period on certain large commercial construction projects that are at that are now at or near completion in the current period. This is partially offset by an increase in the industrial maintenance and repair business as a result of an increase in project work. Infrastructure adjusted EBITDA for the Q3 of 2024 decreased to $20,900,000 from $30,800,000 in the prior year period.

Speaker 3

The decrease was driven by lower revenue at both DBMG's commercial structural steel fabrication and erection business and BAGGR Steel, partially offset by higher margins due to timing of projects that are now at or near completion as well as lower margins at the construction modeling and detail business. This was partially offset by an increase in revenue and margins at the Industrial Maintenance and Repair business and a decrease in recurring SG and A expenses, primarily as a result of the decrease due to timing of compensation related expenses in the current year period. As of September 30, 2024 and in line with our expectation, reported backlog was $916,100,000 and adjusted backlog, which takes into consideration awarded, but not yet signed contracts was $1,100,000,000 compared to reported backlog of $1,100,000,000 and adjusted backlog of $1,200,000,000 at the end of 2023. PBMG ended the quarter with $176,800,000 in principal amount of debt, which is an increase of $3,000,000 from the Q2, primarily driven by an increase in the credit line due to normal working capital fluctuations, which was partially offset by normal debt amortization payments. DBMG has been able to reduce its debt obligations since this time a year ago through line reduction as invested working capital has continued to return to the business, a trend that began at the end of 2023.

Speaker 3

As backlog stabilizes, working capital needs have flattened throughout 2024 and expect to continue as such. As a reminder, DBMG has reduced its outstanding debt by approximately $56,000,000 in the last 12 months. At Life Sciences, revenue increased 400% to $3,000,000 from $600,000 in the prior year quarter. The increase in revenue was attributable to R2, primarily due to an increase in glacial FX system sales in North America, which launched during the Q3 of 2023. An increase in consumable sales, incremental glacial spa unit sales outside of North America and the launch of the GlacialFX system outside North America subsequent to the prior period.

Speaker 3

Life Sciences adjusted EBITDA losses decreased for the quarter, which was primarily due to fewer equity method losses recognized from our investment in MetaBeacon and Triple Ring and an increase in gross profit at our peer driven by the increase in revenue, which was partially offset by a slight increase in recurring SG and A expenses. At Spectrum, revenue was $6,400,000 an increase of $1,000,000 compared to the Q3 of 2023, primarily driven by network launches and expanded coverage with existing customers, which was partially offset by the termination of a small number of smaller networks in individual markets subsequent to the comparable period. Spectrum reported adjusted EBITDA in the 3rd quarter increased to $1,700,000 from a loss of $300,000 in the prior year quarter. The increase is primarily due to the increase in revenue and unrepeated severance in the prior year period. Non operating corporate EBITDA losses were $2,800,000 for the Q3 of 2024, a $1,300,000 improvement from the Q3 of 2023.

Speaker 3

The improvement was primarily driven by unrepeated severance in the prior year period. At the end of the Q3, the company had $51,000,000 of cash and cash equivalents, excluding restricted cash compared to $80,800,000 as of December 31, 2023. On a standalone basis, as of September 30, 2024, our non operating corporate segment had cash and cash equivalents of $20,200,000 compared to $2,500,000 at the end of 2023. As announced earlier in the year, we received notice that we were not in compliance with NYSE listing requirements as our stock price had fallen below $1 per share. As a result of the reverse stock split, we were notified by the NYSE that as of August 26, we have regained our compliance.

Speaker 3

As of September 30, 2024, Innovate had total principal outstanding indebtedness of $699,200,000 down $23,600,000 from $722,800,000 at the end of 2023, driven by the decrease in infrastructure's outstanding debt, a decrease in corporate debt as a result of partial redemption of the CGIC note and partial convertible note repurchases, which partially offset which was partially offset by R2's extension with Lancer Capital, which capitalized interest payments into the principal balance. With that, operator, we'd now like to open the call up for questions.

Operator

Thank you. Your first question comes from the line of Brian Charles from R. W. Prestige. Your line is now open.

Operator

Please go ahead.

Speaker 4

Thanks for taking my question. Couple of questions. I'm just wondering, I know you're waiting for approval from the FDA at MediBeacon. Do you have any color on like the communication that you've had with the FDA? Is it ongoing?

Speaker 4

Are they asking for more material? Or are you just sort of in waiting mode until they come back with an approval?

Speaker 3

No, we continue to work with the FDA. I mean, we can't really get too far into the details, but we continue working with the FDA as we work towards hopefully getting approval.

Speaker 4

Okay. So have there been any developments that you were not expecting or things just sort of progressing as expected?

Speaker 3

As soon as we have something to update the market with, we certainly will. We need to just continue through the process. And as the FDA gets comfortable, that time will come and we'll obviously update the market when we can.

Speaker 4

Okay. Good enough. Then over to DBM Global, it looks like the year end guidance or full year guidance is coming in pretty much as expected. Is it with the bump in the backlog, is it too soon to talk about 2025 and what that profile might look like in terms of revenue and EBITDA?

Speaker 3

It is. I mean, look, we are expecting as we kind of said in the beginning of the year, we expect the backlog to kind of settle in around that around this area. It's continued to do that throughout the year. We continue to see a lot of activity in the market. There has been some holdback in the leasing jobs, but we're expecting at some point those to get released.

Speaker 3

And I think we have great confidence in the DBM team and their ability to win projects at a with a good profit.

Speaker 4

Okay, thanks. And then finally, I know sort of a monetization of life sciences could help refinance the HoldCo notes that are coming up. Are there other avenues you're also exploring as you wait for approval?

Speaker 3

Yes. I mean, we continue to explore strategic alternatives with the non cash flowing assets, and we are looking at a host of other ways to address the capital structure. But I think as we continue to make progress on these initiatives, we're very happy with the way everything is our operating subs are performing. As you kind of noted, R2 had a great quarter. Spectrum continues to improve and infrastructure is coming in as we kind of expected.

Speaker 4

Okay, fair enough. Thanks. I'll get back in the queue.

Speaker 3

Thank

Operator

There are no further questions at this time. Please continue, Mr. Paul Voigt.

Speaker 2

Yes. We appreciate everybody's support, time and patience. Again,

Speaker 3

all

Speaker 2

of our platforms are performing very well. And hopefully, we'll have some very, very positive news in the very near future for everyone. Thanks again.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
INNOVATE Q3 2024
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