INNOVATE Q1 2024 Earnings Call Transcript

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May 7, 2024

There are 4 speakers on the call.

Operator

Good afternoon, and welcome to Innovate Corp's First Quarter 20 24 Earnings Conference Call. All participants will be in a listen only mode. After the 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 Neil Cica with Investor Relations.

Operator

Please go ahead.

Speaker 1

Good afternoon. Thank you for being with us to review Innovate's Q1 2024 earnings results. We are joined today by Paul Voigt, Innovate's Interim CEO and Mike Senna, 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 the date of this call and as stated in our SEC reports.

Speaker 1

Innovea 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 At this point, it is my pleasure to turn things over to Paul Voigt. Good afternoon.

Speaker 2

We had a great start to the Q1 of 2024 by achieving strong operational and financial results. Innovate delivered revenues of $315,200,000 and adjusted EBITDA of $12,800,000 in the Q1 of 2024. Ruston and his team at DBM Global delivered another strong quarter with revenues of $307,900,000 and adjusted EBITDA of 18,300,000 dollars While top line results were relatively flat compared to a year ago, we experienced strong year over year adjusted EBITDA growth, which was driven by significant gross margin expansion of approximately 150 basis points to 14.6%. Adjusted EBITDA margin also expanded year over year by approximately 70 basis points to 5.9 percent in the Q1. DBM's total adjusted backlog, which takes into consideration awarded but not yet signed contracts remains at a healthy level of $1,200,000,000 dollars at the end of the Q1.

Speaker 2

Overall, the commercial construction sectors of the market continue to be very tight, although the bidding activity remains at high levels. However, we are seeing numerous opportunities both in industrial and modularization sectors of the market. This surge in new work activity will be a meaningful piece of our business in 2024 and beyond. Moving on to Life Sciences, Dave and Shireen and the R2 team had another exciting quarter and continues to gain traction. With yet another record breaking increase in North American system sales growth of 183% as compared to the prior year quarter.

Speaker 2

R2 achieved record high system sales in a single quarter in North America for the 2nd quarter in a row. R2 has continued to grow outside of North America by launching their product in the Middle East during the quarter. R2 continued its growth in other areas of the business, experiencing 115% increase in patients treated and 47% increase in average monthly utilization per glacial provider from the same period of last year. With a continued focus on market awareness initiatives, R2 experienced increases across the board from social media mentions and followers to website traffic. As these are clear indicators of qualified buyer interest, it is important to note that these initiatives have led to a significant increase in system sales opportunities in 2024.

Speaker 2

We are encouraged by the momentum R2 is beginning to build in the market as we continue to see expanded use and demand of their state of the art technology and this momentum has continued into the Q2. At MediBeacon, the company continues to work through their substantive review for kidney monitoring program with the FDA. As previously explained, MediBeacon met with the FDA in the 1st and second quarters of 2024 and is working interactively to resolve outstanding questions in order to move to approval status. We hope to provide an update on MediBeacon's process. As mentioned on our last call, MediBeacon's pivotal study results were posted on the clinicaltrials dot gov website on April 18.

Speaker 2

As noted on the clinicaltrialsgov website, MediBeacon's transdermal GFR measurement system met the predetermined primary and secondary endpoints established with the FDA prior to starting the study. We see great opportunity in the market for real time monitoring of kidney function and we have seen a number of recent studies and trends in the market. The IMPACT chronic kidney disease or the acronym CKD study forecasts that up to 16.5% of the population across 8 countries will suffer from CKD by 2,032. AstraZeneca sponsored and recently presented this study at the World Congress of Nephrology. The REVEAL DASH CK study concluded that a record CKD diagnosis was associated with significant improvements in CKD management and monitoring.

Speaker 2

Pharmaceutical companies are increasing investments in nephrology with a robust R and D pipeline that targets a range of kidney disease indications. It is estimated that there are approximately 500 pharmaceutical assets ranging from early development to approved therapeutics that target chronic kidney disease indications. We see a number of factors, including the growth of GLP-one agnostics like Ozempic that are likely to positively impact the growing addressable market for products that provide an accurate and clinically practical assessment of kidney functions. Lesson team at Spectrum delivered with a strong quarter and grew EBITDA to $1,600,000 in the first quarter. Of note, the new 2024 network launches are driving higher revenue growth, beginning with Free TV's January 1 network launches of 365 and Outlaw and subsequent launch of 3 new sports networks: Outdoor America, Motorsports 1 and Speed Sports TV.

Speaker 2

Network distribution revenues are growing as churn rates decline with existing network customers. Pricing has held and new programmers emerge, particularly for cable and streaming networks looking for over the air coverage. And in April, Spectrum participated in the NAB Conference in Las Vegas, which generated considerable interest in HC2 Broadcasting's robust national distribution platform from content providers and broadcasters. At the conference, we announced operating and revenue share agreements with large market public broadcast stations to provide 3.0 light housing and commercial applications. And given our continued efforts in exploring revenue opportunities for repurposed broadcast spectrum with new technology, we continue to work closely with Qualcomm, the technology leader in 5 gs broadcasting, as well as other strategic including equipment vendors of 5 gs broadcasting.

Speaker 2

We believe our efforts in alternative technologies like ATS 3.0 and 5 gs Broadcasting will offer opportunities to optimize future revenues. We are very happy with the operational results of all three of our segments as DBM continues to perform at high levels with a robust pipeline, encouraging growth and momentum at R2, progress at MediBeacon on FDA approval and an increase in OTA demand combined with next gen opportunities continue to develop. We continue to be highly focused on addressing our capital structure, which we believe is the key driver in the underperformance of our stock price. We have now closed on our rights offering and combined with our expectation of upstream cash payments from our subsidiaries, we believe we have created sufficient runway to execute on a strategy to utilize our non cash flowing assets to address our capital structure and set the company up to refinance our debt in 2024. To that end, we continue to make progress exploring opportunities for our non cash flowing businesses.

Speaker 2

Our focus remains on being patient within the timeframe we have created to ensure that we maximize the value of these assets. Exiting these businesses for the right value takes time. We continue to be optimistic on the overall M and A market and hope to reach a resolution in 2024 as we continue to see positive indicators in the market along with continued progress and momentum surrounding these assets as discussed above. We look to build off this momentum in the Q2 and the remainder of the year. With that, I'll turn it over to Mike for a review of our financial and capital structure.

Speaker 3

Thanks, Paul. Consolidated total revenue for the first quarter of 2024 was $315,200,000 a decrease of 0.8% compared to 317,900,000 dollars in the prior year period. The decrease was primarily driven by our Infrastructure segment, which was partially offset by increases at our Spectrum and Life Sciences segments. Net loss attributable to common stockholders for the Q1 of 2024 was 17,700,000 dollars or $0.22 per share compared to a net loss of $10,200,000 or $0.13 per share in the prior year period. Total adjusted EBITDA was $12,800,000 in the Q1 of 2024, an increase from $4,900,000 in the prior year period.

Speaker 3

The increase was driven by all of our segments. At Infrastructure, revenue decreased 1.2 percent to $307,900,000 from $311,700,000 in the prior year quarter. This decrease was primarily driven by the timing and size of projects at DBMG's Commercial Steel Fabrication and Erection Business and Bankers Steel, which was partially offset by an increase in revenue the Industrial Maintenance and Repair business due to timing and size of projects. Infrastructure adjusted EBITDA for the Q1 of 2020 4 increased to $18,300,000 from $16,300,000 in the prior year period. The increase was driven by higher margins structural steel fabrication and erection and the industrial maintenance and repair businesses, which was partially offset by an increase in recurring SG and primarily as a result of compensation related expenses as well as a decrease in margin of the construction modeling and detailing business.

Speaker 3

As of March 31, 2024 and in line with our expectation, reported backlog was 939,100,000 and adjusted backlog, which takes into consideration awarded but not yet signed contracts, was $1,200,000,000 compared to reported backlog of $1,100,000,000 and adjusted backlog of $1,200,000,000 at the end of 2023. DBMG ended the quarter with $159,700,000 in principal amount of debt, which is a decrease of 39,100,000 dollars from year end 2023, primarily driven by the reduction of the credit facility and normal debt amortization payments. BBMG has been able to reduce its debt obligations through line reduction as invested working capital has continued to return to the business, a trend that began at the end of 2023. As backlog stabilizes, we expect flat working capital needs throughout 2024. And as a reminder, BBMG has reduced its outstanding debt by approximately $73,000,000 in the last 6 months.

Speaker 3

At Life Sciences, revenue was $1,000,000 an increase of $500,000 from the prior year quarter. The increase in revenue was attributable to R2, primarily due to growth in unit sales in North America. Life Sciences adjusted EBITDA losses decreased for the quarter, which was primarily due to lower equity method losses recognized from our investment in MetaBeacon and to a lesser extent a decrease in SG and A expenses at R2 as well as an increase in revenue primarily due to an increase in unit sales. At Spectrum, revenue was $6,300,000 an increase of $600,000 compared to the Q1 of 2023, primarily driven by the launch of knee networks and expanded coverage with existing customers. The increase is partially offset by the termination of a number of smaller networks and individual markets subsequent to the comparable period.

Speaker 3

Spectrum reported adjusted EBITDA in the first quarter increased to $1,600,000 from $400,000 in the prior year quarter. The increase is primarily due to the increase in revenue and the impact of the personnel realignment implemented in the second half of twenty twenty three. Non operating corporate adjusted EBITDA losses were $2,900,000 for the quarter of 2024, an improvement from the Q1 of 2023 of 600,000 dollars The improvement was primarily driven by decreases in compensation related expenses, consulting fees and insurance expense, which was partially offset by an increase in legal fees. At the end of the Q1, the company had 38,400,000 equivalents, excluding restricted cash, compared to $80,800,000 as of December 31, 2023. On a standalone basis, as of March 31, 2024, our non operating corporate segment had cash and cash equivalents of $9,200,000 compared to $2,500,000 at the end of 2023.

Speaker 3

As announced earlier in the year, we received notice that we are not in compliance with NYSE listing requirements as our stock price has fallen below 1 ballot per share. We are working on options to regain compliance with the NYSE, which includes the potential for a reverse stock split as disclosed in our recently filed proxy statement. As of March 31, 2024, Innovate had total principal outstanding indebtedness of $687,000,000 down $35,800,000 from $722,800,000 at the end of 2023, driven by the decrease of Infrastructure's outstanding debt, which was partially offset by R2's extension of Flancia Capital, which capitalized interest payments into the principal balance. With that, operator, we'd now like to open up the call for questions.

Operator

We will now begin the question and answer session. No questions at this time. I will turn the call back over to Paul.

Speaker 2

Yes. I appreciate everybody's time and support and patience and look forward to coming back to everybody with some positive news over the next quarter or 2. Thank you for your time.

Operator

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.

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