INNOVATE Q4 2024 Earnings Call Transcript

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Provided by Quartr
March 31, 2025

There are 5 speakers on the call.

Operator

Good afternoon, and welcome to Innovate Corp's Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. All participants will be in 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 call over to Neil Sikka with Investor Relations.

Operator

Please go ahead, Neil.

Speaker 1

Good afternoon. Thank you for being with us to review Innovate's fourth quarter and full year twenty twenty four 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 provision 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 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 are stated in our SEC reports.

Speaker 1

Innovate disclaims any intent or obligation to update or revise these forward looking statements, except 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's my pleasure to turn things over to Paul Voigt.

Speaker 2

Good afternoon. We are pleased to report our fourth quarter and full year 2024 financial results and will provide you an update on key milestones reached that showcase the progress across each business segment. Innovate delivered consolidated revenue of 236,600,000 and adjusted EBITDA of $15,000,000 in the fourth quarter of twenty twenty four. For the full year 2024, Innovate delivered consolidated revenues of $1,100,000,000 and adjusted EBITDA of $71,300,000 Our main objective for 2025 is to address our capital structure and the near term maturities of our debt obligations. We're making progress on our strategic objectives and our businesses continue to hit important milestones.

Speaker 2

We continue to believe that we have valuable assets that appreciate in value each day. Our focus is to leverage one or more of these assets prior to reaching the debt maturities in order to achieve sustainable capital structure that allows us to realize the full value of the remaining business. As we turn our attention to our operating segments, starting with Life Sciences, MediBeacon is thrilled to have received FDA approval for its transdermal GFR systems to assess kidney function. As many of you know, this has been something the team has been working towards for quite some time and we are very excited to have achieved this milestone. The FDA's approval of the tGFR indicates that MediBeacon's unique system offers an effective solution for evaluating kidney functions in patients with normal or impaired renal function.

Speaker 2

The potential applications for tGFR are numerous and MediBeacon looks forward to exploring them with clinicians both in the hospital and outpatient settings. Additionally, in February, the National Medical Products Administration in China also approved the MediBeacon TGFR monitor and TGFR sensor for the assessment of kidney functions in patients with normal or impaired renal functions. With FDA approval and in order to maximize shareholder value, MetaBeacon has engaged Jefferies Financial Group as their investment banker. The company is currently in discussions with medical device and pharmaceutical companies. Turning to R2, R2 broke sales records in both North America and worldwide, delivering record top line revenues of almost $10,000,000 for the full year 2024, which is 197% increase over 2023 of $3,300,000 dollars Led by system unit sales in North America, which experienced 238% growth for the full year, year over year versus 2023.

Speaker 2

R2 continues its global expansion into new markets with new distributor partnerships signed in Australia and several companies in South America. Combined worldwide system unit sales grew 113% in the fourth quarter of twenty twenty four compared to fourth quarter of twenty twenty three and grew 182% for the full year in 2024 year over year versus 2023. We believe achieving almost $10,000,000 of revenue is a significant milestone as we explore strategic alternatives to this business. In addition to its massive success during 2024, R2 has also secured a robust order backlog of over 75 systems worldwide at the end of the year. Glacial providers continue to see incredible results using glacial skin devices evidenced by the growth in patients treated by 170%, an increase in average monthly utilization of 49% per glacial provider over the same period last year.

Speaker 2

Glacial brand awareness has a significant impact on sales and has exceeded industry competitor growth by 1694%. R2 experienced year over year growth of 1659% increase in social mentions, 618% in website users and 132 in patient provider searches. With new distributor relationships secured in The UK and in France in 2025, R2 continues to expand its global reach. The dramatically increasing results of 2024 highlight our strong momentum in a market with vast potential. Having surpassed 700 shipments worldwide, we are extremely pleased with both our success and strong foundation built in 2024.

Speaker 2

While R2 has enjoyed recent success in 2024, the company has yet to really scratch the surface in terms of market penetration. We believe the opportunity for R2 is massive and we believe the momentum and the runway is big ahead. We are encouraged by recent milestones at these businesses and work to execute on our strategy to address the company's capital structure. Moving to Infrastructure, EBM Global achieved revenues to $225,700,000 and adjusted EBITDA of $17,400,000 in the fourth quarter. During the quarter, DBM has seen gross margin improvement year over year of approximately 180 basis points to 18.2%, while fourth quarter expectations as projects were pushed out in the second half of the year, which impacted our overall results.

Speaker 2

The delay of awards in the back half of 2024 has posed a challenge to the start of 2025, potentially leading to a year comparable to 2024. However, the surge of recent awards to begin 2025 has provided DBM with the opportunity to outperform 2024. Our backlog levels held steady and we ended the year with adjusted backlog of $1,100,000,000 In fact, the first quarter of twenty twenty five, DBM has added a few sizable projects that total over $500,000,000 to adjusted backlog across our companies and we remain very optimistic on the pipeline. Additionally, we are increasingly excited about our ability to capitalize on opportunities driven by growth in cloud computing and AI requiring substantial investments in data centers and power infrastructure. With a strong track record and strategic vision and with the best management team in the business, we are confident that DBMG's management team is well equipped to capitalize on these opportunities and drive continued success.

Speaker 2

Given the continuing unpredictability in the political landscape, there remains a cautious stance towards the cost of construction materials, especially concerning tariffs and inflation. We are closely following tariff announcements and have developed strategies to lessen the impact. At this juncture, we do not anticipate any material impact on our financials and will continue to assess and look for ways to minimize potential impacts. CBM is well positioned in 2025 with a strong backlog and robust pipeline. And finally, Spectrum.

Speaker 2

Spectrum delivered a strong year both financially and operationally. Fourth quarter and full year 2024 top line grew 19.314.2% respectively year over year. Fourth quarter adjusted EBITDA of $2,300,000 more than doubled compared to last year and full year 2024 adjusted EBITDA of $7,100,000 saw a significant improvement compared to $2,000,000 in 2023. Vector made significant strides in rightsizing the business over the last twelve to eighteen months, which has directly benefited our financial performance. The improvement in better quality network launches has helped drive outstanding improvement in financial performance.

Speaker 2

Of note, the successful new network launches of free TVs, new networks and Fubo Sports underscore the network debuts in 2024. The launch of Fubo Sports, a marquee network in the fourth quarter is another example of the continued improvement in the quality of the networks. Additionally, Broadcast is witnessing numerous over the air network opportunities for 2025 and signed a contract with Marathon Ventures to distribute new vibrant over the air networks, NOZY and Confess, which we placed on the air the week of March 17. We are likely to see new entrants into the OTA market throughout the rest of the year as more streaming networks are considering expanding to over the air coverage. Broadcast also continues to make progress with strategic partnerships in pursuit of new spectrum related revenue opportunities.

Speaker 2

With our ATS CE three point zero converted stations, we are actively pursuing commercial opportunities together with a major mobile network operator. Our efforts have been gaining traction and we are expecting to see revenues from this exciting new technology later this year. We will have more information in the next few months on this. We are making excellent progress as it relates to ATSC three point zero Lighthousing. In fact, we commenced installation of the Dallas Lighthouse Station for PBS Station, KERA.

Speaker 2

As we think about longer term opportunities with the change in administration, the new Chair of the FCC has talked about value creating opportunities for OTA spectrum that include a new incentive option, considerable deregulation in the broadcast TV industry and opportunities to repurpose our valuable UHF spectrum. Given our favorable view of five gs broadcasting technology and its potential to transform low power broadcasting, last Friday, we filed a petition with the FCC proposing that low power television stations be allowed to use the five gs broadcast transmission standard on a voluntary basis. We are simply asking the FCC to approve the technology as an alternative for low powers alongside the already approved standards like ATSC three point zero. As we have already seen with our experimental five gs broadcast license, the technology allows a low power TV station to transmit a single five gs signal to its entire service area, which could be received by compatible mobile phones. Low power stations utilizing five gs broadcast would be well positioned to deliver numerous benefits across multiple services, including enhanced programming, data casting, Internet connectivity and public safety.

Speaker 2

Lastly, our total consolidated debt decreased by $54,500,000 compared to last year, which was mostly a function of improved working capital returning to the business at DBMG. As a reminder, our strategic vision for the business anchors upon maximizing the value of these assets. Given the recent success in our businesses, we are very encouraged in our ability to execute on behalf of shareholders. With that, I'll turn it over to Mike for review of our financials and our capital structure.

Speaker 3

Thanks, Paul. Consolidated total revenue for the fourth quarter of twenty twenty four was $236,600,000 a decrease of 34.5% compared to $361,000,000 in the prior year period. The decrease is 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 fourth quarter of twenty twenty four was $16,900,000 or $1.29 per fully diluted share compared to a net loss of $9,600,000 or $1.22 per fully diluted share in the prior year period, which has been retroactively adjusted to reflect the one for 10 reverse stock split affected on 08/08/2024. Total adjusted EBITDA was $15,000,000 for the fourth quarter of twenty twenty four, a decrease from $21,500,000 in the prior year period.

Speaker 3

The decrease was driven by the Infrastructure segment, which was partially offset by our Life Sciences, Spectrum and Nonoperating Corporate segments. At Infrastructure, revenue decreased 36.2% to $225,700,000 from $353,800,000 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 and erection business, both of which had increased activity in the comparable period on certain large commercial construction projects that have since been completed. This is partially offset by an increase at the industrial maintenance and repair business as a result of an increase in project work. Infrastructure adjusted EBITDA for the fourth quarter of twenty twenty four decreased to $17,400,000 from $30,000,000 in the prior year period.

Speaker 3

The decrease was driven by lower revenue and gross margins at Bankers Steel and lower revenue, partially offset by an increase in gross margins at DBMG's commercial Structural Steel Fabrication and erection business due to the timing of projects as well as lower revenue and gross margins at the Construction Modeling and Detail business. This was partially offset by an increase in revenue and gross margins at the Industrial Maintenance and Repair business and a decrease in recurring SG and A expenses, primarily as a result of timing of compensation related expenses. As of 12/31/2024, reported backlog was $1,000,000,000 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 twenty twenty three. DBMG ended the quarter with $144,700,000 in principal amount of debt, which is a decrease of $32,100,000 from the third quarter, primarily driven by a decrease in the credit line and normal debt amortization payments. Since this time a year ago, DBMG 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 twenty twenty three.

Speaker 3

As a reminder, DBMG has reduced its outstanding debt by approximately 54,100,000 during 2024. At Life Sciences, revenue increased 173.3% to $4,100,000 from $1,500,000 in the prior year quarter. The increase in revenue was attributable to R2 primarily due to an increase in glacial FX systems and consumable sales in North America and worldwide, as well as an increase in glacial RX systems in North America, which was partially offset by a decrease in glacial RX systems outside of

Speaker 4

The U. S. Life

Speaker 3

Sciences adjusted EBITDA losses decreased for the quarter, which is primarily due to fewer equity method losses recognized from our investment in MetaBeacon and an increase in gross profit at R2 driven by the increase in revenue, which is partially offset by a slight increase in selling costs at R2. At Spectrum, revenue was 6,800,000 an increase of $1,100,000 compared to the fourth quarter of twenty twenty three, primarily driven by network launches and expanded coverage with existing customers, which is partially offset by the termination of a number of smaller networks and individual markets subsequent to the comparable period. Spectrum reported adjusted EBITDA for the fourth quarter increased to $2,300,000 from $1,100,000 in the prior year quarter. The increase was primarily due to an increase in revenue. It's worth noting Spectrum's fourth quarter results on the top line and adjusted EBITDA are generally higher than the previous three quarters due to seasonal advertising and revenue shares in the fourth quarter, a trend that is expected to continue in 2025.

Speaker 3

Non operating corporate adjusted EBITDA losses were $2,200,000 for the fourth quarter of twenty twenty four, a $300,000 improvement from the fourth quarter of twenty twenty three. For the full year 2024, adjusted EBITDA losses were $10,400,000 an improvement of $3,100,000 from 2023. The decrease in losses was driven by an unrepeated severance expense in the prior year, a decrease in salaries and benefits from a reduced headcount, decreases in accounting and consulting fees and a decrease in rent expense, primarily as a result of the termination of leases in the current year. At the end of the fourth quarter, the company had $48,800,000 of cash and cash equivalents, excluding restricted cash compared to $80,800,000 as of 12/31/2023. On a standalone basis, as of 12/31/2024, our non operating corporate segment had cash and cash equivalents of $13,800,000 compared to cash and cash equivalents of $2,500,000 at the end of twenty twenty three.

Speaker 3

As of 12/31/2024, Innovate had total principal outstanding indebtedness of 668,300,000 down $54,500,000 from $722,800,000 at the end of twenty twenty three, driven by the decrease in infrastructure's outstanding debt, a decrease in corporate debt as a result of the partial redemption of the unsecured notes and a partial convertible note repurchase, which was partially offset by R2's extension with Lancer Capital, which capitalized interest into the principal balance. With that, operator, we'd now like to open up the call for questions.

Operator

Thank you. Thank you. And our first question is from the line of Brian Charles with R. W. Prestige.

Operator

Please proceed with your questions.

Speaker 4

Hi, thanks for taking my questions. I got a couple. First off, congratulations on the FDA approval of MediBeacon. And you did mention you've engaged Jefferies to help you explore options on maybe monetizing part or all of that business. Can I ask like how deep into discussions are is Jefferies right now?

Speaker 4

Is this a relatively recent development or is this something they've been retained since say right after the FDA approval? Sorry, can you all hear me?

Speaker 3

Sorry. Hi, Brian. Thanks for the question. So back in the end of twenty twenty three, we had indicated that we had hired bankers. We've been working on this process for some time.

Speaker 3

FDA approval was pretty critical and we're happy to finally receive the long awaited FDA approval. It's been a lot of time and effort since our original investment back in 2015. And we're in discussions with medical device and pharmaceutical companies at this point.

Speaker 4

Okay, fair enough. I imagine you can't go into too much detail, but just throwing it out there. I know when Waddawn injected equity, it was at a $400,000,000 valuation. Is that fair to say that's still the context of discussions you're holding with people?

Speaker 3

Well, as you know, that deal was done back in 2019 as a milestone. So that was a commitment that was made back in 2019. And so what I'd say is, we're going to have to see how the process pans out, but we're happy that we had had that arrangement in the first place, but it was some evaluation point that was set back in 2019.

Speaker 4

Yes, fair enough. Thanks. And just one follow-up in general, I guess, across DVM Global two. To what extent like should I think about the tariffs or potential kind of cloudiness coming from uncertainty around tariffs? A, would that impact any discussions or delay any kind of resolution about MetaBeacon?

Speaker 4

Because I'm not sure exactly to the extent to which potential tariffs could impact MetaBeacon business model or at least uncertainty around tariffs.

Speaker 3

It's still I think the initial rollout and the approval today is in The U. S. And so I know we're working on a subsequent stream in China, But we don't think that that I guess at this time, we don't think that there's that big of an impact from it.

Speaker 4

Yes, fair enough. Thank you. And then finally, So it's

Speaker 3

a little early. It's just early in the process. That's all for us. Yes, I understand.

Speaker 4

I guess I just had to ask. But secondly, any thoughts on to what extent the that this uncertainty might impact the adjusted backlog at DBM Global? Would it impact margins or could it impact volume?

Speaker 3

Well, what I'd say is that typically when DBM goes out and bids their projects, they are locking in prices with the mills. And so we tend to not take risk on the steel prices and that ends up getting passed along. So I don't see it as an issue from a backlog perspective at this point. And right now, Ruston and the team are kind of saying they don't see a big impact, but they're continuing to assess it.

Speaker 4

Okay, fair enough. Excellent. Thank you. I'll get back in queue.

Speaker 3

Great. Thanks, Brian.

Operator

Thank you. At this time, I'll turn the floor back to management for further remarks.

Speaker 2

Yes, I want to thank everybody for their time, effort and support. Hopefully, one of these asset potential sales will hit here very soon. We look forward to updating you the minute that happens. Appreciate again all your support. Thank you.

Operator

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

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