INNOVATE (VATE) - 2022 Q2 - Quarterly Report

PART I: FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, and disclosures on market risk and internal controls Financial Statements The company reported significant revenue growth for Q2 and H1 2022, primarily from Infrastructure, but continued to post net losses and a stockholders' deficit, with negative operating cash flow Condensed Consolidated Statements of Operations Q2 2022 vs Q2 2021 Performance (in millions) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Revenue | $392.2 | $243.8 | | Gross Profit | $50.3 | $36.4 | | (Loss) from Operations | $(0.4) | $(7.7) | | Loss from Continuing Operations | $(13.9) | $(23.7) | | Net Loss | $(13.9) | $(25.2) | | Net Loss Attributable to INNOVATE Corp. | $(12.4) | $(23.5) | | Basic & Diluted Loss Per Share | $(0.18) | $(0.31) | H1 2022 vs H1 2021 Performance (in millions) | Metric | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Revenue | $805.0 | $415.6 | | Gross Profit | $100.1 | $66.9 | | Income (Loss) from Operations | $0.3 | $(18.6) | | Loss from Continuing Operations | $(28.0) | $(66.6) | | Net Loss | $(28.0) | $(16.2) | | Net Loss Attributable to INNOVATE Corp. | $(24.8) | $(10.9) | | Basic & Diluted Loss Per Share | $(0.35) | $(0.15) | - The significant increase in revenue for both the three and six-month periods ended June 30, 2022, was primarily driven by the Infrastructure segment[212] Condensed Consolidated Balance Sheets Balance Sheet Summary (in millions) | Account | June 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $482.3 | $442.6 | | Total Assets | $1,106.4 | $1,080.6 | | Total Current Liabilities | $461.7 | $439.5 | | Total Liabilities | $1,125.5 | $1,068.7 | | Total Stockholders' Deficit | $(84.1) | $(56.2) | - The company's total liabilities of $1.126 billion exceeded its total assets of $1.106 billion, resulting in a total stockholders' deficit of $84.1 million as of June 30, 2022[15] Condensed Consolidated Statements of Cash Flows Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(42.7) | $(0.4) | | Net cash used in investing activities | $(11.5) | $(31.2) | | Net cash provided by financing activities | $34.8 | $66.0 | - Cash used in operating activities increased significantly in H1 2022 compared to H1 2021, primarily due to changes in working capital components like accounts receivable and contract assets[19] - Cash used in investing activities decreased in H1 2022, mainly because the prior year period included $128.5 million paid for acquisitions, net of cash acquired[19] Notes to Condensed Consolidated Financial Statements - The company operates through three reportable segments: Infrastructure (DBMG), Life Sciences (Pansend), and Spectrum (Broadcasting)[23] - The company believes it can meet its liquidity requirements for the next twelve months through available cash and distributions from subsidiaries, but acknowledges risks and potential needs for additional capital or asset sales[33] - The company is involved in several legal proceedings, including a VAT assessment, a stockholder class action against DBMG (FVI Action), and a stockholder derivative litigation against DTV (Bocock, et al), with management believing the ultimate outcome will not have a material effect on its financial position[135][136][137][140] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes significant revenue growth to the Infrastructure segment, with narrowed operating losses, while managing liquidity through subsidiary distributions and addressing debt covenant compliance - Revenue for Q2 2022 increased by $148.4 million year-over-year, primarily due to the Infrastructure segment's acquisition of Banker Steel on May 27, 2021, and increased market demand[212] - The loss from operations for Q2 2022 decreased to $0.4 million from $7.7 million in Q2 2021, driven by improved profitability in the Infrastructure segment and reduced corporate expenses, partially offset by an asset impairment in the Spectrum segment[213] - As of June 30, 2022, the company had $24.9 million in consolidated cash and cash equivalents, with the Non-Operating Corporate segment holding $3.6 million of this total[262] Results of Operations Consolidated Results of Operations (in millions) | Line Item | Q2 2022 | Q2 2021 | Change | H1 2022 | H1 2021 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $392.2 | $243.8 | $148.4 | $805.0 | $415.6 | $389.4 | | Total (loss) income from operations | $(0.4) | $(7.7) | $7.3 | $0.3 | $(18.6) | $18.9 | | Loss from continuing operations | $(11.9) | $(21.1) | $9.2 | $(24.4) | $(62.9) | $38.5 | | Net loss attributable to INNOVATE Corp. | $(12.4) | $(23.5) | $11.1 | $(24.8) | $(10.9) | $(13.9) | Segment Results of Operations - Infrastructure: Revenue for Q2 2022 increased by $150.1 million YoY, primarily driven by the Banker Steel acquisition, which contributed an incremental $105.4 million[222] - Life Sciences: Revenue for Q2 2022 decreased slightly by $0.2 million YoY, and the segment's operating loss widened to $5.2 million from $4.5 million, driven by higher SG&A expenses at R2 Technologies[229] - Spectrum: Revenue for Q2 2022 decreased by $1.5 million YoY due to lower advertising revenues at the Azteca network, and the segment swung to an operating loss of $3.1 million from a $1.4 million income, partly due to a $1.7 million asset impairment[233][237] - Non-operating Corporate: The operating loss for Q2 2022 narrowed to $3.9 million from $6.6 million YoY, mainly due to a settlement expense for the company's former CEO accrued in the prior period and lower legal fees[239] Non-GAAP Financial Measures and Other Information Adjusted EBITDA by Segment (in millions) | Segment | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Infrastructure | $20.9 | $13.9 | $41.4 | $25.2 | | Life Sciences | $(7.5) | $(6.1) | $(13.3) | $(12.3) | | Spectrum | $0.4 | $2.7 | $1.7 | $3.5 | | Non-Operating Corporate | $(3.4) | $(5.7) | $(8.0) | $(9.7) | | Other and Eliminations | $1.7 | $1.7 | $1.8 | $0.8 | | Total Adjusted EBITDA | $12.1 | $6.5 | $23.6 | $7.5 | - The Infrastructure segment's backlog was $1.485 billion at June 30, 2022[260] Liquidity and Capital Resources - Consolidated cash and cash equivalents decreased to $24.9 million at June 30, 2022, from $45.5 million at December 31, 2021[262] - Consolidated principal indebtedness increased by $39.1 million to $669.9 million during the first half of 2022, mainly due to a $57.3 million increase in DBMG's line of credit to fund working capital[264] - The company was out of compliance with the Fixed Coverage Ratio covenant for its Infrastructure segment's UMB Revolving Line as of June 30, 2022, but finalized an amended agreement on August 2, 2022, which included a retrospective change that brought it back into compliance[91][285] Quantitative and Qualitative Disclosures about Market Risk The company reported no quantitative and qualitative disclosures about market risk for the period - The report states there are no quantitative and qualitative disclosures about market risk[318] Controls and Procedures Management concluded the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective[319] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[320] PART II. OTHER INFORMATION This section covers legal proceedings and exhibits filed with the financial report Legal Proceedings The company is subject to various claims and legal proceedings arising in the ordinary course of business, which management believes will not materially affect its financial statements - The company is subject to claims and legal proceedings that arise in the ordinary course of business but does not believe they will have a material adverse effect on its financial statements, with more details available in Note 13[321] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The exhibits filed with the report include certifications from the CEO and CFO under Rule 13a-14(a)/15d-14(a) and Section 1350, as well as XBRL financial data[323]