INNOVATE - Earnings Call - Q3 2025

Executive Summary

• Q3 delivered a sharp top-line rebound on Infrastructure strength: revenue rose 43.3% YoY to $347.1M, Adjusted EBITDA increased to $19.8M; net loss narrowed to $9.4M (–$0.71/sh) as tax benefits and higher gross profit offset higher SG&A and interest.
• DBM Global’s backlog continues to compound (reported $1.5B; adjusted $1.6B) with $431M of new awards post-quarter, but margins compressed (GM –510 bps YoY; Adj. EBITDA margin –200 bps YoY) as mix/timing shifted to large projects.
• Spectrum remained a drag (revenue $5.6M; Adj. EBITDA $1.0M) amid ad softness and customer churn, though Q4 ad sales show early recovery; several network launches and ATSC 3.0 datacasting initiatives progressed.
• Balance sheet actions extended maturities but introduced milestone covenants; as milestones were missed, the company initiated a sale process for DBM Global and a strategic process for HC2 Broadcasting to comply with note requirements—key near-term stock catalysts.
• Life Sciences momentum: MediBeacon received full NMPA approval in China for Lumitrace®, enabling TGFR commercial launch before year-end; R2 posted 3.3% YoY revenue growth and strong unit/backlog KPIs.

What Went Well and What Went Wrong

What Went Well

• Infrastructure-led growth: Consolidated revenue +43.3% YoY to $347.1M; Infrastructure revenue +45.4% YoY to $338.4M as major projects advanced; Total Adjusted EBITDA rose to $19.8M.
• Backlog momentum and awards: DBM Global reported $1.5B backlog and $1.6B adjusted backlog at 9/30, +~$0.5B vs YE’24; added $431M to adjusted backlog for two new projects post-quarter.
• Life Sciences regulatory and growth milestones: MediBeacon obtained full China approval for Lumitrace® (completing TGFR package) with sales expected before year-end; R2 worldwide system unit sales +39.8% YoY and YTD revenue +~65%.
  • “MediBeacon’s regulatory approval to sell their product in China is a major milestone that broadens the scope of our addressable market.” — Interim CEO Paul Voigt.

What Went Wrong

• Margin compression at DBM Global: Gross margin 13.6% (–510 bps YoY) and Adj. EBITDA margin 6.9% (–200 bps YoY) on project mix/timing, partially offset by SG&A reductions.
• Spectrum headwinds: Revenue fell to $5.6M (–$0.8M YoY) and Adj. EBITDA to $1.0M (–$0.7M YoY) from customer terminations and direct-response ad downturn.
• Higher leverage and covenant milestones: Total principal outstanding reached $700.4M; current portion of debt rose to $571.8M (from $162.2M YE’24), and the company triggered mandated strategic processes at DBM Global and Spectrum following missed refinancing milestones.

Transcript

Operator (participant)

Good afternoon and welcome to the INNOVATE Corp third quarter 2025 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 Sikka with Investor Relations. Please go ahead.

Neel Sikka (IR)

Good afternoon. Thank you for being with us to review INNOVATE's third quarter 2025 earnings results. We are joined today by Paul Voight, 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&A session. 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-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. 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's my pleasure to turn things over to Paul Voight.

Paul Voigt (Interim CEO)

Good afternoon. We are pleased to report our third quarter 2025 financial results and will provide you with an update on our three operating segments. INNOVATE delivered consolidated revenues of 347.1 million and adjusted EBITDA of 19.8 million in the third quarter of 2025. INNOVATE's path to long-term value creation continued in the third quarter. Advancements toward our targets across all segments are ongoing as demonstrated by our third quarter results. We made progress across each operational area, and our commitment to performance remains strong. I am proud of the positive energy and momentum our teams have generated. Before we review our segments, we would like to provide an update on our strategic alternatives and recent refinancing transactions.

The company has engaged Jefferies & Company and initiated a sales process for DBM in accordance with our senior note requirements, and HC2 Broadcasting Holdings has engaged a banker and is exploring strategic alternatives in accordance with the spectrum debt requirements. We believe the market is ripe for an asset like DBM Global, given their positioning, to take advantage of the positive macro environment in the U.S., with continued commitments from companies to reinvest in the U.S. market, along with strong growth expected around data centers. We also see significant activity in the spectrum market that we believe has a positive impact on options for our spectrum business. We, of course, are still highly focused on our strategy of exiting our life science businesses. While this strategy has taken longer than expected, we remain steadfast in our ability to ultimately realize the value of these businesses.

With that, let's turn to our quarterly review of our segments. To start the review of the subs and infrastructure, DBM Global achieved revenues of 338.4 million and adjusted EBITDA of 23.5 million. During the quarter, DBM has seen gross margin compression year-over-year of approximately 510 basis points to 13.6% and adjusted EBITDA margin compression of approximately 200 basis points to 6.9% year-over-year. Despite the year-over-year decrease in margins, we remain impressed by the performance of DBM Global, evidenced in growth of our adjusted backlog, which has increased by approximately 500 million to just over 1.6 billion since the end of 2024. In fact, we have already added 431 million to the adjusted backlog for two newly awarded projects since the end of the third quarter. We remain highly impressed with DBM Global's revenue performance through the first nine months of 2025.

Despite a challenging macro environment for project sales in 2024, along with project timing shifts, DBM has delivered strong year-to-date results supported by disciplined execution and a robust backlog. Revenue for the year-to-date stands at 836.4 million, reflecting DBM's ability to secure and execute complex projects across its diversified portfolio. As we talked about earlier, DBM's backlog remains extremely strong. We are optimistic about several key project awards expected in the fourth quarter, which would not only boost our adjusted backlog but also enhance visibility into the coming quarters. These sales, along with the anticipated awards, represent significant opportunities in both commercial and industrial sectors, reinforcing DBM's leadership position and growth trajectory. Our world-class management team remains focused on margin discipline and operational excellence as we prepare to execute these projects.

While we anticipate EBITDA to come in slightly below 2024 levels, we are encouraged by the momentum building for 2026, driven by the growing adjusted backlog and improving market conditions. The majority of the work across the platform is primarily associated with infrastructure, data centers, and advanced manufacturing. We expect this trend to continue. Conversely, when looking at the northeast region of the United States, we are seeing the commercial market showing some positive signs, with a few sizable projects starting to move forward. Turning to life sciences, MediBeacon continues to hit key milestones as we previously expected. On October 21, 2025, MediBeacon received full regulatory approval from China's National Medical Products Administration for its Lumitrace injection, a non-radioactive, non-iodinated fluorescent agent.

This approval completes the regulatory package required for the commercial launch of MediBeacon Transdermal GFR system in China, which combines the Lumitrace injection with the TGFR monitor and TGFR sensor. This approval unlocks access to a critical healthcare market, as chronic kidney disease is estimated to affect 11% of China's 1.4 billion people, representing approximately 154 million potential patients who may benefit from improved diagnostic tools. MediBeacon's commercial and clinical development partnership with Wadong Medicine, established in July 2019, will support the introduction of the TGFR system into clinics across China, where it's expected to become an important tool for physicians managing kidney health. In addition, MediBeacon's Transdermal GFR system was highlighted in the August cover of the Journal of the American Society of Nephrology. JASN is one of the most respected peer-reviewed kidney journals in the world.

The peer-reviewed article in the journal included data that demonstrated the Transdermal GFR system point-of-care methodology for the assessment of kidney functions in patients with normal to impaired kidney function and for full range of skin color types. R2 delivered another solid quarter with top-line revenue of 3.1 million in the third quarter of 2025, compared to 3 million in the third quarter of 2024. R2 also has year-to-date revenues of 9.4 million, representing an approximate increase of 65% over the same period from last year. This momentum was fueled by the increased demand outside of North America, which surged 206% in the top-line revenue for the nine months of 2025 compared to 2024, with an associated 392% increase in system sales for the same comparable period. R2 now carries a backlog of approximately 70 units globally.

With this sizable backlog, growing consumable revenue associated with a continually increasing install base, and opening new markets in Bolivia, the Netherlands, and Belgium, we expect R2 to end the year strongly. We are happy with their progress and growth despite industry-level challenges in this market. R2 providers love Glacial Skin for their device's unique ability to deliver controlled cooling for inflammation reduction, skin brightening, and pigment correction, all without any downtime. Along with providing stunning results for patients, Glacial Skin devices deliver impressive business outcomes for providers. In the third quarter of 2025, patient treatments grew 102%, while average monthly utilization per provider increased 24% compared to the same period last year. Glacial Skin's rising brand awareness is proving to be a powerful sales driver, with social media engagement growth outperforming industry competitors by 3,687%.

Supporting the surge for the nine months of 2025, R2 saw year-over-year increases of 88% in patient-provider searches and 127% in website users. Our confidence in R2's significant market opportunity remains strong, and we are highly content with the company's accomplishments. Over the last year, we have been particularly impressed by the advancements R2 has achieved. Moving to Spectrum, third quarter revenues were 5.6 million, and adjusted EBITDA was 1 million. Spectrum strengthened its content portfolio this quarter with several exciting new network launches. The August 1 debut of Lionsgate Moviesphere Gold Channel was a success, with HC2 Broadcasting serving as one of the principal distributors. In October, we introduced Sports First, a dynamic sports news channel now reaching 45 US markets. Looking ahead, Black Vision, a new entertainment network, will be distributed exclusively by HC2 Broadcasting both over the air and via streaming platforms.

These additions underscore our commitment to delivering diverse, high-quality content and expanding our reach in key audience segments. Spectrum continues to face a challenging advertising environment, with softness in ad sales persisting through the third quarter. However, new network launches are underway, and fourth quarter ad sales are showing signs of strength. We continue to make meaningful progress in next-generation broadcast technology through its collaboration with a large mobile carrier. Over the past three months, the team has worked closely to optimize the software and service performance. We will conduct extensive trials for major enterprise customers that will showcase the technology's unique capabilities during live sporting events. We are also actively exploring broader applications with hospitals, government-first responders, utilities, and automotive manufacturers. Our petition to the FCC seeking voluntary conversion of LPTV stations to 5G broadcast continues to receive strong support from industry stakeholders during the comment period.

However, progress on the next steps has been temporarily delayed due to the ongoing government shutdown. With that, I'll turn it over to Mike for a review of our financial and capital structure. Thanks, Paul. Consolidated total revenue for the third quarter of 2025 was 347.1 million, an increase of 43.3% compared to 242.2 million in the prior year period. The increase was primarily driven by our infrastructure segment, which was partially offset by a decrease in our spectrum segment. Net loss attributable to common stockholders and participating preferred stockholders for the third quarter of 2025 decreased to 9.4 million, or 0.71 per fully diluted share, compared to 15.3 million, or $18 per fully diluted share in the prior year period. Total adjusted EBITDA was 19.8 million in the third quarter of 2025, an increase from 16.8 million in the prior year period.

The increase was primarily driven by our infrastructure, non-operating corporate, and life sciences segments, which was partially offset by our spectrum segment. At infrastructure, revenue increased 45.4% to $338.4 million from $232.8 million in the prior year quarter. This increase was primarily driven by the timing and size of projects at DBM Global's commercial structural steel fabrication and erection business and a slight increase at Banker Steel, which had increased activity subsequent to the comparable period on certain large commercial construction projects as several projects progressed into more advanced phases of fabrication and erection during the current year period. These increases were partially offset by the industrial maintenance and repair business due to increased activity in the comparable period on certain large commercial construction and industrial maintenance projects that have since been completed.

Infrastructure adjusted EBITDA for the third quarter of 2025 increased to 23.5 million from 20.9 million in the prior year period. The increase was primarily driven by the increase in revenue and gross profit at DBM Global's commercial structural steel fabrication and erection business, which had increased activity subsequent to the comparable period on certain large commercial construction projects, and an improvement in gross profit at Banker Steel and a decrease in recurring SG&A expenses primarily due to a decrease in compensation-related expenses and consulting fees. These increases were partially offset by the decrease in revenue and gross profit at the industrial maintenance and repair business due to increased activity in the comparable period on certain large commercial construction and industrial maintenance projects that have since been completed.

As of September 30, 2025, reported backlog was 1.5 billion, and adjusted backlog, which takes into consideration awarded but not yet signed contracts, was 1.6 billion, compared to reported backlog of 1 billion and adjusted backlog of 1.1 billion at the end of 2024. DBM Global ended the quarter with 104.1 million in principal amount of debt, which is a decrease of 40.6 million from the end of 2024, primarily driven by its refinancing and a decrease in their credit line. As a reminder, the credit line balance tends to fluctuate based on the timing of DBM Global collections. At the end of the third quarter, the balance dipped due to collection timing. However, we anticipate it to increase by the end of the year to support network and capital needs as the backlog expands. At life sciences, revenue increased 3.3% to 3.1 million from 3 million in the prior year quarter.

The increase in revenue was attributable to R2, primarily driven by increases in Glacial Spa unit sales and Glacial FX unit sales outside of North America, as well as an increase in consumable sales in North America. The increase was mostly offset by a decrease in Glacial FX unit sales in North America and a decrease in consumable sales outside of North America. Life sciences adjusted EBITDA losses decreased for the quarter, which was primarily driven by a reduction in compensation-related expenses at Fansone. At Spectrum, year-over-year revenue decreased 800,000 to 5.6 million, and adjusted EBITDA decreased 700,000 to 1 million. The decreases were primarily driven by the termination of certain customers in the current period and a downturn in the direct response advertising market. Non-operating corporate adjusted EBITDA losses were 2.1 million for the third quarter of 2025, a 700,000 improvement from the third quarter of 2024.

The decrease in losses was primarily driven by a decrease in non-refinancing-related legal fees due to legal matters settled subsequent to the comparable period, as well as slight decreases in other professional expenses, insurance expense, and employee-related expenses. At the end of the third quarter, the company had 35.5 million of cash and cash equivalents, excluding restricted cash, compared to 48.8 million as of December 31, 2024. On a standalone basis, as of September 30, 2025, our non-operating corporate segment had cash and cash equivalents of 1.9 million, compared to cash and cash equivalents of 13.8 million at the end of 2024.

As of September 30, 2025, INNOVATE had total principal outstanding indebtedness of 700.4 million, up 32.1 million from 668.3 million at the end of 2024, driven by the indebtedness refinancing transactions at our non-operating and life sciences segments, which was partially offset by the decrease in infrastructure's outstanding debt. With that, Operator, we'd now like to open up the call for questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press Star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. One moment, please, while we pull for questions. There are currently no questions.

I would like to turn the floor back over to Mike Sena for closing comments. Mike, you can go ahead.

Yes, sorry. We appreciate everyone's time this afternoon and look forward to providing you updates on our initiatives in the future. Thanks.