INNOVATE (US:VATE)2022-11-02 20:15PART I: FINANCIAL INFORMATION Financial Statements INNOVATE Corp.'s unaudited financial statements show a reduced Q3 2022 net loss, increased assets, and widening deficit Condensed Consolidated Statements of Operations INNOVATE Corp. reported increased Q3 2022 revenue, positive operating income, and a significantly improved net loss Q3 and Nine Months 2022 vs 2021 Operating Results (in millions, except per share amounts) | Metric | Q3 2022 | Q3 2021 | 9 Months 2022 | 9 Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $423.0 | $394.8 | $1,228.0 | $810.4 | | Gross Profit | $58.4 | $55.1 | $158.5 | $122.0 | | Income (Loss) from Operations | $6.6 | $1.1 | $6.9 | $(17.5) | | Net Loss | $(6.7) | $(214.5) | $(34.7) | $(230.7) | | Net Loss Attributable to INNOVATE Corp. | $(5.4) | $(211.9) | $(30.2) | $(222.8) | | Basic and Diluted EPS | $(0.09) | $(2.75) | $(0.44) | $(2.92) | Condensed Consolidated Balance Sheets INNOVATE Corp.'s balance sheet shows increased assets and liabilities, resulting in a wider stockholders' deficit Balance Sheet Summary (in millions) | Account | Sep 30, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Current Assets | $544.3 | $442.6 | | Total Assets | $1,165.2 | $1,080.6 | | Total Current Liabilities | $498.1 | $439.5 | | Total Liabilities | $1,193.8 | $1,068.7 | | Total Stockholders' Deficit | $(91.5) | $(56.2) | Condensed Consolidated Statements of Cash Flows INNOVATE Corp.'s cash flow statement shows increased cash used in operations, decreased investing outflow, and increased financing inflow Cash Flow Summary for Nine Months Ended Sep 30 (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(72.2) | $(14.6) | | Net Cash Used in Investing Activities | $(18.3) | $(214.9) | | Net Cash Provided by Financing Activities | $73.2 | $54.6 | | Net Decrease in Cash | $(19.8) | $(176.6) | Notes to Condensed Consolidated Financial Statements The notes detail INNOVATE Corp.'s business segments, revenue growth drivers, major dispositions, debt, and litigation - The company operates through three reportable segments: Infrastructure (DBMG), Life Sciences (Pansend), and Spectrum (Broadcasting)26 Revenue by Segment - Nine Months Ended Sep 30 (in millions) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Infrastructure | $1,197.0 | $776.3 | | Life Sciences | $3.0 | $2.8 | | Spectrum | $28.0 | $31.3 | | Total Revenue | $1,228.0 | $810.4 | - The Infrastructure segment (DBMG) acquired Banker Steel on May 27, 2021, for $145.0 million, driving 2022 revenue growth65 - In 2021, the company sold its Insurance segment (CIG), resulting in a $200.8 million loss, and Beyond6, resulting in a $39.2 million gain, both reported as discontinued operations7074 - As of September 30, 2022, total principal debt obligations were $711.5 million, with $10.0 million and $52.2 million maturing in Q4 2022 for Life Sciences and Spectrum segments, respectively, under refinancing negotiation91292 Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses revenue and operating income increases, Spectrum segment challenges, liquidity, and increased Adjusted EBITDA - Revenue increase for the nine months ended Sep 30, 2022, was primarily due to the Infrastructure segment's acquisition of Banker Steel and increased market demand212 - The Spectrum segment's Network business faces decreasing advertising revenues and increasing costs, leading to a planned wind-down in Q4 2022209 Adjusted EBITDA by Segment - Nine Months Ended Sep 30 (in millions) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | Infrastructure | $69.0 | $49.6 | | Life Sciences | $(20.9) | $(19.4) | | Spectrum | $2.0 | $5.3 | | Non-Operating Corporate | $(13.0) | $(13.5) | | Other and Eliminations | $2.9 | $(0.2) | | Total Adjusted EBITDA | $40.0 | $21.8 | - As of September 30, 2022, the Non-Operating Corporate segment had $5.1 million in cash, down from $22.0 million at year-end 2021, but management believes liquidity is sufficient for the next twelve months268273 Quantitative and Qualitative Disclosures about Market Risk The company reported no new quantitative and qualitative disclosures about market risk for the period - There were no disclosures about market risk provided in this section323 Controls and Procedures Management concluded disclosure controls were effective, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of September 30, 2022, the company's disclosure controls and procedures were effective324 - No material changes in internal control over financial reporting occurred during the fiscal period ended September 30, 2022325 PART II: OTHER INFORMATION Legal Proceedings The company is involved in ordinary legal proceedings, not expected to materially affect its financial statements - The company is subject to ordinary course legal proceedings but does not anticipate a material adverse effect on its financial condition, with details cross-referenced to Note 17327 Risk Factors New risks include NYSE delisting notice due to low stock price and inflation impacting the Infrastructure segment - On October 27, 2022, the company received a NYSE non-compliance notice for its stock price falling below $1.00, with six months to regain compliance and avoid delisting329 - Persistent inflation poses a significant risk to the DBMG (Infrastructure) business by increasing material costs and potentially causing project delays or cancellations328 Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreement amendments, notes, and certifications - Key exhibits filed include an amendment to DBM Global Inc.'s credit agreement, a separation agreement with the former Chief Legal Officer, and senior secured promissory notes related to R2 Technologies, Inc331