PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for INNOVATE Corp Item 1. Financial Statements (Unaudited) This section presents INNOVATE Corp.'s unaudited condensed consolidated financial statements and related notes for periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Statements of Operations INNOVATE Corp. reported a net loss of $21.0 million for the three months and $46.8 million for the six months ended June 30, 2025, with revenue declines Condensed Consolidated Statements of Operations (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $242.0 | $313.1 | $516.2 | $628.3 | | Gross profit | $45.6 | $65.6 | $91.1 | $114.2 | | Income from operations | $4.9 | $28.8 | $8.3 | $31.6 | | Net (loss) income | $(21.0) | $13.9 | $(46.8) | $(6.2) | | Basic EPS | $(1.67) | $1.11 | $(3.56) | $(0.35) | | Diluted EPS | $(1.67) | $1.03 | $(3.56) | $(0.35) | Condensed Consolidated Statements of Comprehensive (Loss) Income The company reported a comprehensive loss of $20.1 million for three months and $45.7 million for six months ended June 30, 2025 Condensed Consolidated Statements of Comprehensive (Loss) Income (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net (loss) income | $(21.0) | $13.9 | $(46.8) | $(6.2) | | Other comprehensive income (loss) | $0.9 | $0.4 | $1.1 | $(0.7) | | Comprehensive (loss) income | $(20.1) | $14.3 | $(45.7) | $(6.9) | | Comprehensive (loss) income attributable to INNOVATE Corp. | $(19.0) | $14.8 | $(43.3) | $(3.6) | Condensed Consolidated Balance Sheets As of June 30, 2025, total assets were $890.9 million, with current liabilities increasing to $873.1 million and stockholders' deficit reaching $206.4 million Condensed Consolidated Balance Sheets (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Total current assets | $398.4 | $390.9 | | Total assets | $890.9 | $891.1 | | Total current liabilities | $873.1 | $483.0 | | Total liabilities | $1,080.2 | $1,034.8 | | Total stockholders' deficit | $(206.4) | $(159.3) | - Current portion of debt obligations increased significantly from $162.2 million as of December 31, 2024, to $477.5 million as of June 30, 202515 - Contract liabilities increased from $109.1 million as of December 31, 2024, to $172.8 million as of June 30, 202515 Condensed Consolidated Statements of Stockholders' Deficit Total stockholders' deficit increased to $206.4 million as of June 30, 2025, due to a $44.3 million net loss and $2.5 million in preferred dividends Condensed Consolidated Statements of Stockholders' Deficit (in millions) | Metric (in millions) | Balance as of December 31, 2024 | Balance as of June 30, 2025 | | :------------------- | :------------------------------ | :-------------------------- | | Total temporary equity | $15.6 | $17.1 | | Total INNOVATE Corp. stockholders' deficit | $(180.4) | $(224.8) | | Total stockholders' deficit | $(159.3) | $(206.4) | - Net loss attributable to INNOVATE Corp. for the six months ended June 30, 2025, was $44.3 million17 - Preferred dividends for the six months ended June 30, 2025, totaled $2.5 million17 Condensed Consolidated Statements of Cash Flows Cash from operations improved to $26.3 million for six months ended June 30, 2025, with increased cash used in investing and financing activities Condensed Consolidated Statements of Cash Flows (in millions) | Metric (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :----------------------------- | :----------------------------- | | Cash provided by (used in) operating activities | $26.3 | $(3.9) | | Cash used in investing activities | $(10.2) | $(0.7) | | Cash (used in) provided by financing activities | $(32.2) | $4.6 | | Net decrease in cash and cash equivalents, including restricted cash | $(15.3) | $(0.6) | | Cash, cash equivalents and restricted cash, end of period | $34.0 | $81.7 | Notes to Condensed Consolidated Financial Statements (Unaudited) These notes detail INNOVATE Corp.'s financial statements, covering accounting policies, revenue, debt, equity, and recent debt refinancing and MediBeacon FDA approval (1) Organization and Business INNOVATE Corp. is a diversified holding company with Infrastructure, Life Sciences, and Spectrum segments, focused on long-term free cash flow - INNOVATE Corp. is a diversified holding company with three reportable segments: Infrastructure, Life Sciences, and Spectrum2526 - The Infrastructure segment (DBMG) provides industrial construction, structural steel, and facility maintenance services, with INNOVATE holding a 91.2% controlling interest27 - The Life Sciences segment (Pansend) invests in healthcare companies, holding controlling interests in Genovel Orthopedics (80.0%) and R2 Technologies (81.0%), and significant interests in MediBeacon (44.7%) and Scaled Cell Solutions (20.1%)28 - The Spectrum segment (Broadcasting) acquires and operates over-the-air broadcasting stations, with INNOVATE maintaining a 98.0% controlling interest29 (2) Summary of Significant Accounting Policies Financial statements reflect a 1-for-10 reverse stock split and substantial doubt about going concern due to debt maturities, with management exploring mitigation - The financial statements have been retroactively adjusted to reflect a 1-for-10 reverse stock split effected on August 8, 202434 - There is substantial doubt about the Company's ability to continue as a going concern within one year due to upcoming debt maturities (R2 Technologies) and cross-default provisions in Senior Secured Notes3536 - Management plans to alleviate going concern conditions through asset sales, debt refinancing at corporate and subsidiary levels, and raising additional capital, but there's no assurance of success38 (3) Revenue and Contracts in Process Total revenue decreased to $242.0 million (three months) and $516.2 million (six months) due to Infrastructure, with contract liabilities increasing Revenue by Segment (in millions) | Segment (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Infrastructure | $233.1 | $305.2 | $498.0 | $613.1 | | Life Sciences | $3.2 | $1.7 | $6.3 | $2.7 | | Spectrum | $5.7 | $6.2 | $11.9 | $12.5 | | Total revenue | $242.0 | $313.1 | $516.2 | $628.3 | Contract Assets and Liabilities (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Contract assets | $83.0 | $106.3 | | Contract liabilities | $(172.8) | $(109.1) | - Remaining unsatisfied performance obligations totaled $1,242.2 million as of June 30, 2025, with $1,065.3 million expected within one year53 (4) Accounts Receivable, Net Accounts receivable, net, increased to $242.7 million as of June 30, 2025, driven by higher contracts in progress in the Infrastructure segment Accounts Receivable, Net (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Contracts in progress | $237.3 | $184.9 | | Trade receivables | $3.6 | $3.3 | | Total | $242.7 | $194.0 | (5) Inventory Total inventory remained stable at $20.7 million as of June 30, 2025, with raw materials and consumables as the largest component Inventory (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Raw materials and consumables | $18.9 | $19.6 | | Work in process | $0.8 | $0.4 | | Finished goods | $1.0 | $0.8 | | Total inventory | $20.7 | $20.8 | (6) Investments Total investments increased to $4.4 million as of June 30, 2025, driven by marketable securities and a step-up gain from MediBeacon's FDA approval Investments by Category (in millions) | Investment Category (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Equity Method | $0.9 | $0.9 | | Fair Value | $2.6 | $1.8 | | Measurement Alternative | $0.9 | $0.9 | | Total | $4.4 | $3.6 | - MediBeacon received FDA approval for its Transdermal GFR Measurement System (TGFR) on January 17, 202564 - Pansend recognized a $4.4 million step-up gain on its MediBeacon investment due to FDA approval and a $7.5 million milestone payment from Huadong, leading to a decrease in Pansend's ownership from 45.9% to 44.7%64 (7) Property, Plant and Equipment, Net Net property, plant and equipment decreased slightly to $132.1 million as of June 30, 2025, reflecting depreciation, construction, and assets held-for-sale Property, Plant and Equipment, Net (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Total gross PP&E | $290.8 | $281.8 | | Accumulated depreciation | $158.7 | $148.2 | | Total net PP&E | $132.1 | $133.6 | - Depreciation expense for the six months ended June 30, 2025, was $11.4 million, including $6.5 million recognized in cost of revenue68 - Assets held-for-sale totaled $6.0 million as of June 30, 2025, primarily consisting of a building, equipment, and land in the Infrastructure segment70 (8) Goodwill and Intangibles, Net Goodwill increased slightly to $126.9 million, while definite-lived intangible assets, net, decreased to $60.9 million due to amortization Goodwill and Intangibles, Net (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Goodwill | $126.9 | $126.7 | | Indefinite-lived intangible assets (FCC licenses) | $107.7 | $107.7 | | Definite-lived intangible assets, net | $60.9 | $64.7 | - Amortization expense for definite-lived intangible assets was $3.9 million for the six months ended June 30, 202573 (9) Leases Right-of-use assets decreased to $50.2 million and lease liabilities to $52.5 million, with a $7.7 million gain on lease modification in the prior year Right-of-Use Assets and Lease Liabilities (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Total right-of-use assets | $50.2 | $54.2 | | Total lease liabilities | $52.5 | $57.0 | Lease Cost (in millions) | Lease Cost (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------- | :----------------------------- | :----------------------------- | | Total non-current lease cost | $9.3 | $9.0 | | Short-term lease costs | $15.5 | $15.2 | | Total lease cost | $24.8 | $24.2 | - A $7.7 million gain on lease modification was recognized for the six months ended June 30, 2024, due to early termination of three property leases by a DBMG subsidiary77 (10) Other Assets, Accrued Liabilities and Other Liabilities Other current assets decreased to $18.6 million, accrued liabilities increased to $125.4 million, and other non-current liabilities decreased to $42.5 million Other Assets and Liabilities (in millions) | Metric (in millions) | June 30, 2025 | December 31, 2024 | | :------------------- | :------------ | :---------------- | | Other current assets | $18.6 | $21.0 | | Other assets (non-current) | $58.9 | $62.3 | | Accrued liabilities | $125.4 | $109.7 | | Other current liabilities | $17.2 | $17.2 | | Other liabilities (non-current) | $42.5 | $46.8 | - Accrued interest and exit fees (current portion) increased from $61.0 million to $74.0 million80 - Accrued income taxes increased from $0.8 million to $9.9 million80 (11) Debt Obligations Total outstanding principal debt decreased to $641.3 million, but current portion increased to $477.5 million, with subsequent refinancing extending maturities Debt Obligations by Segment (in millions) | Segment (in millions) | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Infrastructure | $115.2 | $144.7 | | Spectrum | $69.7 | $69.7 | | Life Sciences | $26.5 | $24.0 | | Non-Operating Corporate | $429.9 | $429.9 | | Total outstanding principal | $641.3 | $668.3 | | Current portion of debt obligations | $477.5 | $162.2 | - Subsequent to quarter-end (August 4, 2025), the company closed a series of indebtedness refinancing transactions to extend debt maturities for its senior secured notes, convertible senior notes, revolving credit agreement, CGIC note, Spectrum debt, and R2 Technologies debt84183 - The Infrastructure segment (DBMG) entered into a new $220.0 million credit agreement maturing May 20, 2030, to refinance existing debt and provide working capital88 - R2 Technologies' 20% note with Lancer Capital was extended to August 1, 2025, with additional exit fees and a potential $5.0 million default fee if not repaid100 (12) Income Taxes Income tax expense increased to $4.2 million (three months) and $11.3 million (six months) due to pre-tax results and NOL limitations Income Tax (Expense) Benefit (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income tax (expense) benefit | $(4.2) | $2.5 | $(11.3) | $(0.8) | - The increase in tax expense is primarily due to the impact of projected pre-tax results on the annual effective tax rate and limitations on NOL utilization by INNOVATE's U.S. consolidated group115 - As of December 31, 2024, the company had gross U.S. NOL carryforwards of $174.3 million for the consolidated group and $149.4 million from subsidiaries not included in the consolidated return117118 (13) Commitments and Contingencies The company faces various legal proceedings and claims, with $406.1 million in outstanding performance bonds as of June 30, 2025 - The company is subject to claims and legal proceedings, including a lawsuit against its subsidiary Schuff Steel Company regarding alleged failures in a hospital construction project123125 - DBMG had outstanding performance bonds of $406.1 million as of June 30, 2025, significantly up from $183.9 million at December 31, 2024126 Revenue Concentration by Customer (in millions) | Customer | Segment | Three Months Ended June 30, 2025 Revenue Concentration | Three Months Ended June 30, 2024 Revenue Concentration | Six Months Ended June 30, 2025 Revenue Concentration | Six Months Ended June 30, 2024 Revenue Concentration | | :--------- | :------------- | :---------------------------------------------------- | :---------------------------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | | Customer A | Infrastructure | * | 12.7% | * | 20.2% | | Customer B | Infrastructure | * | 10.7% | * | * | | Customer C | Infrastructure | 12.2% | * | 10.6% | * | (14) Share-Based Compensation Share-based compensation expense was $0.7 million (three months) and $1.5 million (six months), with $1.0 million unrecognized as of June 30, 2025 Share-Based Compensation Expense (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Share-based compensation expense | $0.7 | $0.4 | $1.5 | $0.8 | - As of June 30, 2025, total unrecognized share-based compensation expense related to unvested restricted stock and units was $1.0 million, to be recognized over a weighted-average period of 1.3 years130 - As of June 30, 2025, there were 100,000 unvested stock options with $0.1 million of unrecognized expense, expected to be recognized over 0.2 years131 (15) Equity and Temporary Equity The company's equity structure includes common and preferred stock, with a 1-for-10 reverse stock split and $2.2 million in preferred dividends - A 1-for-10 reverse stock split was effected on August 8, 2024, to regain compliance with NYSE minimum bid price requirements133 - Preferred dividends of $2.2 million were recorded for the three months ended June 30, 2025, including $1.9 million in accretion of additional dividends due to the common stock's VWAP falling below a certain threshold139 - R2 Technologies' total liquidation preference was $149.1 million as of June 30, 2025, but it had negative net assets, meaning no funds would be legally available to satisfy these preferences upon a hypothetical liquidation156 (16) Related Parties Related party transactions involve Lancer Capital, CGIC, and R2 Technologies' dealings with Huadong and Blossom Innovations - Lancer Capital, controlled by Chairman Avram A. Glazer, increased its beneficial ownership to 51.0% as of June 30, 2025, following a rights offering and private placement in 2024157 - Lancer Capital holds $2.0 million in principal amount of the company's 7.50% 2026 Convertible Notes158 - R2 Technologies recognized $1.0 million in revenue from Huadong (a related party) for the three months ended June 30, 2025, and incurred $0.2 million in share-based compensation and royalty expenses related to Blossom Innovations (an investor)162163 (17) Operating Segments and Related Information The company operates through Infrastructure, Life Sciences, and Spectrum segments, with the Interim CEO monitoring performance via income (loss) from operations - The company has three reportable operating segments: Infrastructure, Life Sciences, and Spectrum, plus an 'Other' segment and a Non-Operating Corporate segment165 - The Interim CEO, Paul Voigt, is the CODM and uses income (loss) from operations as the primary metric to assess segment performance and allocate resources166 Income (Loss) from Operations by Segment (in millions) | Segment (in millions) | Three Months Ended June 30, 2025 Income (Loss) from Operations | Six Months Ended June 30, 2025 Income (Loss) from Operations | | :-------------------- | :------------------------------------------------------------- | :----------------------------------------------------------- | | Infrastructure | $10.6 | $19.7 | | Life Sciences | $(2.8) | $(5.8) | | Spectrum | $(0.3) | $(0.1) | | Non-Operating Corporate | $(2.6) | $(5.5) | | Total INNOVATE | $4.9 | $8.3 | (18) Basic and Diluted (Loss) Income Per Common Share Basic and diluted loss per common share was $(1.67) (three months) and $(3.56) (six months), with anti-dilutive equivalents excluded Basic and Diluted (Loss) Income Per Common Share | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic EPS | $(1.67) | $1.11 | $(3.56) | $(0.35) | | Diluted EPS | $(1.67) | $1.03 | $(3.56) | $(0.35) | - Weighted-average common shares outstanding (basic) for the three and six months ended June 30, 2025, were 13,146,750 and 13,130,930, respectively176 - No dilutive common stock equivalents were included in EPS calculations for the three and six months ended June 30, 2025, due to net losses making their inclusion anti-dilutive174 (19) Fair Value of Financial Instruments Fair value of debt obligations used Level 2 inputs, while marketable securities used Level 1 inputs (publicly available quoted market prices) Fair Value of Financial Instruments (in millions) | Metric (in millions) | June 30, 2025 Carrying Value | June 30, 2025 Estimated Fair Value | December 31, 2024 Carrying Value | December 31, 2024 Estimated Fair Value | | :------------------- | :----------------------------- | :--------------------------------- | :------------------------------- | :--------------------------------- | | Measurement alternative investment | $0.9 | $0.9 | $0.9 | $0.9 | | Debt obligations | $637.4 | $573.0 | $662.2 | $577.1 | - Fair value of debt obligations is determined using Level 2 fair value measurements, combining externally quoted market prices for certain notes and quantitative pricing models for others179 - Investments in marketable securities are measured at fair value using Level 1 inputs (publicly available quoted market prices)180 (20) Supplementary Financial Information Other (expense) income, net, was $3.7 million for six months, driven by a $4.4 million gain on equity investment step-up, with increased cash paid for interest and taxes Total Other (Expense) Income, Net (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total other (expense) income, net | $(0.3) | $0.2 | $3.7 | $(1.0) | - A $4.4 million gain on step-up of equity method investment was recognized for the six months ended June 30, 2025181 Supplemental Cash Flow Information (in millions) | Supplemental Cash Flow Information (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :----------------------------------------------- | :----------------------------- | :----------------------------- | | Cash paid for interest | $23.8 | $22.7 | | Cash paid for income taxes (proceeds from tax refunds), net | $3.6 | $0.6 | (21) Subsequent Events Subsequent to quarter-end, INNOVATE Corp. completed debt refinancing on August 4, 2025, extending maturities for various corporate and subsidiary debts - On August 4, 2025, the company closed a series of indebtedness refinancing transactions to extend debt maturities183 - Existing Senior Secured Notes were exchanged for new 10.50% Senior Secured Notes due February 1, 2027, with initial interest paid in kind184187 - Existing Convertible Notes were exchanged for new 9.5% Convertible Senior Secured Notes due March 1, 2027, with initial interest paid in kind197201 - The Revolving Credit Agreement was extended to September 15, 2026, the CGIC Unsecured Note was extended to April 30, 2027 (with 8,063 Series A-4 Preferred Stock exchanged for $43.0 million principal), Spectrum debt was extended to September 30, 2026, and R2 Technologies debt was extended to August 1, 2026211212213214 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial condition and results, highlighting revenue and net income declines, debt refinancing, going concern status, and segment performance Our Business and Our Operations INNOVATE Corp. is a diversified holding company with Infrastructure, Life Sciences, and Spectrum segments, focused on sustainable free cash flow - INNOVATE Corp. is a diversified holding company with principal operations in Infrastructure (DBMG), Life Sciences (Pansend), and Spectrum segments217 - The company aims to grow its businesses to generate long-term sustainable free cash flow and attractive returns25 Cyclical Patterns Infrastructure segment operations are highly cyclical, subject to fluctuations from project delays, weather, customer spending, interest rates, and regulations - Operations in the Infrastructure segment are highly cyclical and can be affected by declines or delays in projects, varying by geographic region219 - Factors causing fluctuations include weather, project site conditions, customer spending, interest rates, inflation, and regulatory/economic conditions221 Recent Developments The company is evaluating strategic alternatives and completed significant debt refinancing on August 4, 2025, extending maturities for corporate and subsidiary debts - The company continually evaluates strategic and business alternatives, including asset sales, with proceeds intended to address its capital structure223 - Subsequent to quarter-end (August 4, 2025), a series of indebtedness refinancing transactions were closed, extending maturities for senior secured notes, convertible senior notes, revolving credit agreement, CGIC note, Spectrum debt, and R2 Technologies debt226 - MediBeacon received FDA approval for its Transdermal GFR Measurement System (TGFR) on January 17, 2025, leading to the conversion of Pansend's convertible notes and a $4.4 million step-up gain237 Financial Presentation Background This section compares the company's results of operations for the three and six months ended June 30, 2025, against 2024, per U.S. GAAP and SEC rules - The discussion compares results of operations for the three and six months ended June 30, 2025, to the same periods in 2024, adhering to U.S. GAAP and SEC disclosure rules238 Results of Operations Overall revenue decreased by $71.1 million (three months) and $112.1 million (six months), with net loss widening, driven by Infrastructure and increased interest Key Financial Metrics (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $242.0 | $313.1 | $516.2 | $628.3 | | Total income from operations | $4.9 | $28.8 | $8.3 | $31.6 | | Interest expense | $(21.4) | $(16.5) | $(41.6) | $(33.7) | | Net (loss) income attributable to INNOVATE Corp. | $(19.8) | $14.4 | $(44.3) | $(3.0) | - Revenue decrease was primarily driven by the Infrastructure segment due to project timing and size, and to a lesser extent, the Spectrum segment239240 - Interest expense increased due to higher exit fees and outstanding principal balance at Life Sciences, and increased interest rates at Infrastructure243 - Loss from equity investees increased for the six-month period due to a $5.9 million increase in recognized losses from MediBeacon, following a $4.4 million step-up gain and $1.5 million from convertible note interest conversion245 Segment Results of Operations Infrastructure revenue and income decreased, Life Sciences revenue grew with losses, Spectrum revenue declined, and Non-Operating Corporate improved operating loss Infrastructure Segment Infrastructure segment revenue decreased by $72.1 million (three months) and $115.1 million (six months) due to project timing, with income also declining Infrastructure Segment Performance (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $233.1 | $305.2 | $498.0 | $613.1 | | Income from operations | $10.6 | $35.5 | $19.7 | $44.8 | - Revenue decrease was driven by project timing and size at Banker Steel and the industrial maintenance and repair business251252 - Other operating loss increased by $11.7 million (three months) and $10.0 million (six months) due to unrepeated gains on lease modifications and asset sales in the prior year, and current period losses258 Life Sciences Segment Life Sciences revenue increased by $1.5 million (three months) and $3.6 million (six months) driven by R2 Technologies, but reported operating losses Life Sciences Segment Performance (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $3.2 | $1.7 | $6.3 | $2.7 | | Loss from operations | $(2.8) | $(4.0) | $(5.8) | $(7.2) | - Revenue increase was attributable to R2 Technologies, driven by increases in Glacial Spa unit sales, consumable sales, and Glacial fx unit sales both in and outside North America259260 - Cost of revenue increased due to higher unit and consumable sales, and related warranty/royalty/freight costs, partially offset by changes in product mix261 Spectrum Segment Spectrum segment revenue decreased by $0.5 million (three months) and $0.6 million (six months) due to customer losses and reduced advertising Spectrum Segment Performance (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $5.7 | $6.2 | $11.9 | $12.5 | | (Loss) income from operations | $(0.3) | $0.1 | $(0.1) | $0.3 | - Revenue decreases were primarily driven by the loss of certain customers and a decrease in direct response advertising, partially offset by the launch of new networks265 Non-Operating Corporate Non-Operating Corporate's loss from operations decreased by $0.2 million (three months) and $0.8 million (six months) due to lower legal fees Non-Operating Corporate Performance (in millions) | Metric (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Loss from operations | $(2.6) | $(2.8) | $(5.5) | $(6.3) | - Selling, general and administrative expenses decreased primarily due to lower legal fees from settled matters and slight decreases in other employee-related, accounting, and insurance expenses269 Loss from Equity Investees Loss from equity investees was zero for three months, but increased to $5.9 million for six months, driven by MediBeacon's FDA approval Loss from Equity Investees by Segment (in millions) | Segment (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Life Sciences | $0.0 | $(1.1) | $(5.9) | $(2.3) | - For the three months ended June 30, 2025, Pansend recognized no losses from MediBeacon as its carrying amount was zero272 - For the six months ended June 30, 2025, the increase in loss was due to a $5.9 million increase in Pansend's basis in MediBeacon (from a $4.4 million step-up gain and $1.5 million from converted accrued interest), allowing recognition of previously unrecognized equity method losses273 Non-GAAP Financial Measures and Other Information Adjusted EBITDA, a non-GAAP measure, decreased by $11.0 million (three months) and $16.6 million (six months) year-over-year, driven by Infrastructure Adjusted EBITDA Adjusted EBITDA decreased to $15.7 million (three months) and $22.9 million (six months), primarily due to lower revenue and gross margins in Infrastructure - Adjusted EBITDA is a non-GAAP measure used by management to provide insight into operating trends and facilitate peer comparisons276 Adjusted EBITDA by Segment (in millions) | Segment (in millions) | Three Months Ended June 30, 2025 Adjusted EBITDA | Three Months Ended June 30, 2024 Adjusted EBITDA | Six Months Ended June 30, 2025 Adjusted EBITDA | Six Months Ended June 30, 2024 Adjusted EBITDA | | :-------------------- | :----------------------------------------------- | :----------------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Infrastructure | $19.3 | $32.5 | $36.0 | $50.8 | | Life Sciences | $(2.6) | $(4.8) | $(11.3) | $(9.0) | | Spectrum | $1.0 | $1.5 | $2.4 | $3.1 | | Non-Operating Corporate | $(2.0) | $(2.5) | $(4.2) | $(5.4) | | Total Adjusted EBITDA | $15.7 | $26.7 | $22.9 | $39.5 | - The decrease in Adjusted EBITDA was primarily driven by lower revenue and gross margins in the Infrastructure segment279284 Backlog Backlog represents estimated future revenues from awarded contracts, fluctuating with new awards and revenue recognition Infrastructure Segment DBMG's backlog was $1,254.4 million as of June 30, 2025, with 58.8% attributable to five large contracts, indicating a concentration risk - DBMG's backlog was $1,254.4 million as of June 30, 2025, consisting of $1,140.8 million under contracts/purchase orders and $113.6 million under letters of intent/notices to proceed289 - Approximately 58.8% of DBMG's backlog ($737.1 million) was attributable to five contracts, indicating a concentration risk289 Liquidity and Capital Resources The company's liquidity needs are for debt service and operations, with $33.4 million cash and $641.3 million debt, and subsequent refinancing Short- and Long-Term Liquidity Considerations and Risks Consolidated cash was $33.4 million and principal indebtedness $641.3 million, with substantial doubt about going concern due to debt maturities - Consolidated cash and cash equivalents (excluding restricted cash) were $33.4 million as of June 30, 2025, down from $48.8 million at December 31, 2024292 - Total consolidated principal indebtedness was $641.3 million as of June 30, 2025, a net decrease of $27.0 million from December 31, 2024294 - The company faces substantial doubt about its ability to continue as a going concern within one year due to upcoming debt maturities (R2 Technologies) and cross-default provisions in its Senior Secured Notes300301 Rights Offering and Concurrent Private Placement In April 2024, the company completed a rights offering and private placement, raising $35.0 million for general corporate purposes - The company completed a rights offering and concurrent private placement in April 2024, raising $35.0 million in aggregate gross proceeds298 - Net proceeds were used for general corporate purposes, including debt service and working capital299 - A mandatory prepayment of $4.1 million was made on the CGIC Unsecured Note on April 26, 2024, as a result of the offering299 Going Concern Substantial doubt exists about the company's ability to continue as a going concern due to debt maturities, despite management's mitigation plans - Substantial doubt exists about the company's ability to continue as a going concern within one year due to upcoming debt maturities and cross-default provisions300301 - Management plans include asset sales, debt refinancing, and raising additional capital, but success is not assured303 - DBMG, the largest subsidiary, is operationally profitable and in good standing with its lenders, despite the parent company's going concern issues305 Capital Expenditures Total capital expenditures for six months ended June 30, 2025, increased to $10.8 million, driven by Infrastructure and Spectrum Capital Expenditures by Segment (in millions) | Segment (in millions) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Infrastructure | $5.1 | $2.7 | $9.2 | $7.9 | | Life Sciences | $(0.1) | $0.0 | $0.0 | $0.1 | | Spectrum | $1.1 | $0.4 | $1.6 | $0.7 | | Total | $6.1 | $3.1 | $10.8 | $8.7 | Indebtedness The company's consolidated principal debt was $641.3 million, with subsequent refinancing extending maturities for various corporate and subsidiary debts - Total outstanding principal debt was $641.3 million as of June 30, 2025294 - Subsequent to quarter-end (August 4, 2025), the company closed a series of indebtedness refinancing transactions to extend debt maturities307 Non-Operating Corporate Non-Operating Corporate had $429.9 million in principal debt, with subsequent refinancing extending maturities for its Senior Secured Notes and other debt - Non-Operating Corporate segment indebtedness was $429.9 million as of June 30, 2025, including $330.0 million in 8.50% 2026 Senior Secured Notes and $48.9 million in 7.50% 2026 Convertible Notes295 - The Revolving Line of Credit with MSD had a $20.0 million outstanding balance as of June 30, 2025, with a maturity date extended to August 1, 2025 (and further to September 15, 2026, post-quarter)311211 - The CGIC Unsecured Note had a principal amount of $35.1 million, with interest rates increasing over time (32.0% per annum after May 8, 2025), and was subject to mandatory prepayments from asset/equity sales313 Infrastructure Infrastructure segment's outstanding debt was $115.2 million, with DBMG entering a new $220.0 million credit agreement maturing May 20, 2030 - Infrastructure segment had $115.2 million in aggregate principal outstanding debt as of June 30, 2025315 - DBMG entered into a new $220.0 million credit agreement (revolving facility of $135.0 million and term loan of $85.0 million) maturing May 20, 2030, to repay existing debt and provide working capital316 Life Sciences Life Sciences had $26.5 million in outstanding debt, primarily R2 Technologies' note with Lancer Capital, extended to August 1, 2026 - Life Sciences segment had $26.5 million in aggregate principal outstanding debt as of June 30, 2025319 - R2 Technologies' 20% senior secured promissory note with Lancer Capital had a total carrying amount of $41.6 million as of June 30, 2025, including principal, capitalized interest, and accrued exit fees321 - Pansend closed on new $3.5 million and $3.0 million convertible note instruments with R2 Technologies in February and June 2025, respectively, with maturities extended to July 31, 2026, post-quarter323 Spectrum Spectrum segment had $69.7 million in outstanding debt, with its notes' maturity extended to September 30, 2026, and $15.9 million in exit fees - Spectrum segment had $69.7 million in aggregate principal outstanding debt as of June 30, 2025325 - The maturity date of Spectrum's 8.50% and 11.45% Notes was August 15, 2025 (extended to September 30, 2026, post-quarter)325213 - Exit fees of $15.9 million associated with the notes are recorded as a liability, amortized over the remaining life of the notes326 Restrictive Covenants The company's debt instruments contain restrictive covenants; a minimum liquidity covenant non-compliance was subsequently cured post-quarter-end - The Secured Indenture governing the 2026 Senior Secured Notes contains affirmative and negative covenants, including limitations on indebtedness, liens, dividends, and asset sales329 - The company was in non-compliance with the minimum liquidity covenant as of June 30, 2025, but cured it post-quarter-end by liquidating $2.9 million in marketable securities331 - DBMG is in compliance with its debt covenants, including Fixed Charge Coverage Ratio and Senior Funded Indebtedness to EBITDA Ratio96335 Summary of Consolidated Cash Flows For six months ended June 30, 2025, cash from operations improved to $26.3 million, with increased cash used in investing and financing activities Summary of Consolidated Cash Flows (in millions) | Metric (in millions) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change | | :------------------- | :----------------------------- | :----------------------------- | :----- | | Cash provided by (used in) operating activities | $26.3 | $(3.9) | $30.2 | | Cash used in investing activities | $(10.2) | $(0.7) | $(9.5) | | Cash (used in) provided by financing activities | $(32.2) | $4.6 | $(36.8) | | Net decrease in cash and cash equivalents, including restricted cash | $(15.3) | $(0.6) | $(14.7) | Operating Activities Cash from operating activities improved by $30.2 million to $26.3 million, driven by Infrastructure, partially offset by Non-Operating Corporate - Cash provided by operating activities improved by $30.2 million, from cash used of $3.9 million in 2024 to cash provided of $26.3 million in 2025339 - Improvement was primarily driven by decreased working capital outflows at the Infrastructure segment339 - Partially offset by increased cash used in operating activities at the Non-Operating Corporate segment due to higher cash paid for taxes and interest339 Investing Activities Cash used in investing activities increased by $9.5 million to $10.2 million due to higher capital expenditures and new marketable investment purchases - Cash used in investing activities increased by $9.5 million, from $0.7 million in 2024 to $10.2 million in 2025340 - Increase driven by higher capital expenditures in Infrastructure and Spectrum, fewer proceeds from prior year asset disposals, and new marketable investment purchases340 Financing Activities Cash used in financing activities increased by $36.8 million to $32.2 million, due to absence of prior year's rights offering proceeds and increased debt repayments - Cash used in financing activities increased by $36.8 million, from cash provided of $4.6 million in 2024 to cash used of $32.2 million in 2025341 - The increase in cash outflows was primarily due to the absence of $33.2 million in net proceeds from the 2024 Rights Offering and Concurrent Private Placement341 - Net repayments on other debt obligations increased by $17.4 million, driven by Infrastructure's debt refinancing341 Infrastructure DBMG's operating cash flows are its primary funding source, relying on credit facilities for working capital and anticipating adequate funds - DBMG's cash flows from operating activities are the principal source of cash for operating expenses, interest payments, and capital expenditures342 - DBMG relies on its credit facilities to meet working capital needs and believes available funds will be adequate for the foreseeable future342 - DBMG anticipates monthly interest payments of approximately $2.2 million for each remaining quarter of 2025343 New Accounting Pronouncements This section refers to Note 2 for details on new accounting pronouncements, including several ASUs, which the company is currently evaluating - Refer to Note 2 for details on recent accounting pronouncements, including ASU 2025-05 (Financial Instruments - Credit Losses), ASU 2025-04 (Compensation—Stock Compensation), ASU 2025-03 (Business Combinations), ASU 2023-09 (Income Taxes), and ASU 2024-04 (Debt - Debt with Conversion and Other Options)4142434445344 - The company is currently evaluating the potential effect of these ASUs on its condensed consolidated financial statements4142434546 Critical Accounting Estimates No material changes occurred in critical accounting policies during the period ended June 30, 2025, with details in the 2024 Annual Report on Form 10-K - No material changes occurred in the company's critical accounting policies during the period ended June 30, 2025345 - Refer to 'Critical Accounting Estimates' under Item 7 of the 2024 Annual Report on Form 10-K for detailed information345 Related Party Transactions This section directs readers to Note 16 for a discussion of related party transactions, including Lancer Capital, CGIC, Huadong, and Blossom Innovations - Refer to Note 16 for a discussion of related party transactions346 - Related parties include Lancer Capital (controlled by Chairman Avram A. Glazer), CGIC, Huadong, and Blossom Innovations157159162163 Special Note Regarding Forward-Looking Statements This section emphasizes that the report contains forward-looking statements subject to risks and uncertainties, advising against undue reliance - The report contains forward-looking statements that inherently involve risks and uncertainties and are not guarantees of performance347 - Key factors that could cause actual results to differ include dependence on subsidiary distributions, substantial doubt about going concern, inability to refinance debt, capital market conditions, and changes in regulations and taxes348351 - Specific risk factors are also outlined for the Infrastructure, Life Sciences, and Spectrum segments, such as adverse weather, cost overruns, governmental regulation, and competitive markets352354 INNOVATE Corp. and Subsidiaries Forward-looking statements for INNOVATE Corp. and subsidiaries are subject to risks including dependence on subsidiary distributions, going concern, and debt refinancing - Risks include dependence on subsidiary distributions to fund operations and obligations351 - Substantial doubt about the ability to continue operating as a going concern351 - Possible inability to refinance existing debt or raise additional capital351 - Impact of covenants in debt indentures and preferred stock certificates on business operations and financing351 Infrastructure / DBM Global Inc. Specific risks for Infrastructure include adverse weather, inability to refinance debt, cost overruns, uncertain contract timing, and material/labor cost changes - Risks include adverse impacts from weather affecting performance and timeliness of project completion354 - Possible inability to refinance existing debt or raise additional capital354 - Cost overruns on fixed-price contracts or failure to receive timely payments on cost-reimbursable contracts354 Life Sciences / Pansend Life Sciences, LLC Risks for Life Sciences include inability to refinance debt, challenges in product development for development-stage companies, medical advances, and governmental regulation - Risks include possible inability to refinance existing debt or raise additional capital354 - Ability to invest in development stage companies and develop products/treatments related to portfolio companies354 - Impact of medical advances in healthcare and biotechnology, and governmental regulation in the healthcare industry354 Spectrum / HC2 Broadcasting Holdings Inc. Risks for Spectrum include inability to refinance debt, challenges in competitive markets, maintaining market share, new competition, and FCC regulation - Risks include possible inability to refinance existing debt or raise additional capital354 - Ability to operate in highly competitive markets and maintain market share354 - Impact of new and growing sources of competition and FCC regulation of the television broadcasting industry354 Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated as effective as of June 30, 2025355 - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2025356 PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, equity security sales, and a list of exhibits Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings and claims, which management does not believe will have a material adverse effect - The company is subject to claims and legal proceedings arising in the ordinary course of business357 - Management does not believe pending claims and legal proceedings will have a material adverse effect on the Condensed Consolidated Financial Statements357 - Liabilities are recorded when a loss is known or considered probable and the amount can be reasonably estimated357 Item 1A. Risk Factors No material changes occurred in risk factors from the Fiscal Year 2024 Form 10-K, which provides a complete description of material risks - No material changes in risk factors from those disclosed in the Fiscal Year 2024 Form 10-K358 - Refer to 'Risk Factors' in Item 1A of Part I of the Fiscal Year 2024 Form 10-K for a complete description of material risks358 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details equity award share withholdings, with 80 shares withheld for taxes at $5.55 per share during the three months ended June 30, 2025 Issuer Purchases of Equity Securities During the three months ended June 30, 2025, 80 shares of common stock were withheld for taxes at $5.55 per share for equity award vesting - 80 shares of common stock were withheld for taxes in connection with equity award vesting during the three months ended June 30, 2025359 - The weighted-average price for withheld shares was $5.55 per share359 Item 5. Other Information No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the six months ended June 30, 2025 - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the six months ended June 30, 2025360 Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including indentures for new and existing notes, credit agreements, and certifications - Exhibits include indentures for new 10.500% senior secured notes due 2027 and 9.500% convertible senior secured notes due 2027362 - Amendments to credit agreements (Seventh and Eighth Amendments to Credit Agreement, Tenth Omnibus Amendment to Secured Notes) are also filed362 - Certifications by the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are included363 SIGNATURES The report is signed by Michael J. Sena, Chief Financial Officer, on August 5, 2025, affirming compliance with the Securities Exchange Act - The report was signed by Michael J. Sena, Chief Financial Officer, on August 5, 2025367
INNOVATE (VATE) - 2025 Q2 - Quarterly Report