INNOVATE (VATE) - 2022 Q1 - Quarterly Report

PART I Financial Statements The company's Q1 2022 financial statements reflect significant revenue growth to $412.8 million, a net loss of $14.1 million, and increased total assets and liabilities Condensed Consolidated Statements of Operations | Financial Metric | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Revenue | $412.8 | $171.8 | | Gross Profit | $49.8 | $30.5 | | Income (Loss) from Operations | $0.7 | $(10.9) | | Loss from Continuing Operations | $(14.1) | $(42.9) | | Net (Loss) Income | $(14.1) | $9.0 | | Diluted (Loss) Per Share - Continuing Operations | $(0.18) | $(0.51) | - The significant increase in revenue was primarily driven by the Infrastructure segment. The net loss in Q1 2022 contrasts with net income in Q1 2021, which was bolstered by $51.9 million in income from discontinued operations, including a $40.4 million gain on disposal[10] Condensed Consolidated Balance Sheets | Balance Sheet Item | March 31, 2022 (in millions) | December 31, 2021 (in millions) | | :--- | :--- | :--- | | Cash and cash equivalents | $26.4 | $45.5 | | Total current assets | $476.6 | $442.6 | | Total assets | $1,112.2 | $1,080.6 | | Total current liabilities | $441.5 | $439.5 | | Debt obligations (Current + Long-term) | $681.1 | $626.3 | | Total liabilities | $1,115.3 | $1,068.7 | | Total stockholders' deficit | $(69.3) | $(56.2) | Condensed Consolidated Statements of Cash Flows | Cash Flow Activity | Three Months Ended March 31, 2022 (in millions) | Three Months Ended March 31, 2021 (in millions) | | :--- | :--- | :--- | | Cash used in operating activities | $(63.4) | $(2.5) | | Cash (used in) provided by investing activities | $(7.4) | $67.9 | | Cash provided by (used in) financing activities | $51.2 | $(35.9) | | Net change in cash, cash equivalents and restricted cash | $(19.1) | $10.9 | - The increase in cash used in operating activities was primarily due to changes in working capital. The significant shift in investing activities from providing cash to using cash was mainly because the prior year period included $71.2 million in proceeds from dispositions[19] Notes to Condensed Consolidated Financial Statements - The company operates as a diversified holding company with three reportable segments: Infrastructure (DBMG), Life Sciences (Pansend), and Spectrum (Broadcasting)[22][23] - The results of Beyond6, Inc. ("Beyond6") and Continental Insurance Group ("CIG") are reported as discontinued operations following their sales[42] - On March 15, 2021, the company's subsidiary DBMG entered into an agreement to acquire 100% of Banker Steel Holdco LLC for $145.0 million, which closed on May 27, 2021[63] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management attributes 140% revenue growth to the Infrastructure segment, with operating income turning positive and Adjusted EBITDA significantly increasing, despite decreased corporate liquidity and increased consolidated debt for working capital Results of Operations - Revenue for Q1 2022 increased by $241.0 million (140%) to $412.8 million, primarily due to the Infrastructure segment's acquisition of Banker Steel in Q2 2021 and increased market demand[203] - Income from operations improved by $11.6 million to $0.7 million in Q1 2022 from a loss of $10.9 million in Q1 2021, largely driven by the contribution from Banker Steel and reduced corporate legal expenses[204] - Interest expense decreased by $8.8 million to $12.6 million, mainly due to the refinancing of Non-Operating Corporate's senior secured notes in Q1 2021[205] Segment Results of Operations | Segment | Q1 2022 Revenue (in millions) | Q1 2021 Revenue (in millions) | Q1 2022 Operating Income (Loss) (in millions) | Q1 2021 Operating Income (Loss) (in millions) | | :--- | :--- | :--- | :--- | :--- | | Infrastructure | $402.2 | $161.3 | $11.9 | $2.2 | | Life Sciences | $0.8 | $0.0 | $(5.0) | $(4.8) | | Spectrum | $9.8 | $10.5 | $(0.4) | $(1.2) | | Non-operating Corporate | N/A | N/A | $(5.7) | $(6.7) | - The Infrastructure segment's revenue growth was driven by the Banker Steel acquisition, which contributed an incremental $136.1 million[211] - The Spectrum segment's operating loss narrowed due to a decrease in salaries and severance expense, despite a slight revenue decline from lower advertising at the Azteca network[220][222] Non-GAAP Financial Measures and Other Information | Segment | Q1 2022 Adjusted EBITDA (in millions) | Q1 2021 Adjusted EBITDA (in millions) | | :--- | :--- | :--- | | Infrastructure | $20.5 | $11.3 | | Life Sciences | $(5.8) | $(6.2) | | Spectrum | $1.3 | $0.8 | | Non-Operating Corporate | $(4.6) | $(4.0) | | Total Adjusted EBITDA | $11.5 | $1.0 | - The significant increase in total Adjusted EBITDA was primarily driven by the Infrastructure segment, which benefited from the Banker Steel acquisition and higher sales at its fabrication and erection business[230] Liquidity and Capital Resources - As of March 31, 2022, the company had $26.4 million in consolidated cash and cash equivalents, down from $45.5 million at year-end 2021. The Non-Operating Corporate segment held $5.3 million of this cash[239] - Consolidated indebtedness increased by $53.8 million during the quarter to $684.6 million, mainly due to a $60.0 million draw on DBMG's line of credit to fund working capital[242] - Management believes it can meet liquidity needs for at least the next twelve months through available cash and distributions from subsidiaries, but notes that such distributions are subject to various factors and restrictions[245] Quantitative and Qualitative Disclosures about Market Risk The company did not provide any quantitative or qualitative disclosures about market risk in this report - The report states "None" for this item, indicating no new or updated disclosures regarding market risk for the period[298] Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2022, with no material changes to internal controls - Based on an evaluation as of the end of the period, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective[299] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[300] PART II: OTHER INFORMATION Legal Proceedings The company is involved in ordinary course legal proceedings, but management does not anticipate any material adverse effect on its financial statements - The company is subject to ordinary course claims and legal proceedings but does not believe any pending matters will have a material adverse effect on its Condensed Consolidated Financial Statements[301] - A liability is recorded when a loss is considered probable and can be reasonably estimated. For more detailed information, the report refers to Note 13, "Commitments and Contingencies"[301] Exhibits This section lists the exhibits filed with the Form 10-Q, which include CEO and CFO certifications as required by the Sarbanes-Oxley Act and financial data formatted in XBRL - The exhibits filed with this report include certifications from the Chief Executive Officer and Chief Financial Officer under Rule 13a-14(a)/15d-14(a) and Section 1350[304] - Financial statements and notes are also provided in extensible business reporting language (XBRL) format as an exhibit[304]