INNOVATE (VATE) - 2023 Q1 - Quarterly Report

Filing Information INNOVATE Corp. filed its Q1 2023 10-Q, reporting 79 million common shares outstanding and listing on the New York Stock Exchange - INNOVATE Corp. filed a Quarterly Report on Form 10-Q for the period ended March 31, 2023[2] Securities Registered on Exchange | Title of each class | Trading Symbol | Name of each exchange on which registered | | :------------------ | :------------- | :---------------------------------------- | | Common Stock, par value $0.001 per share | VATE | New York Stock Exchange | | Preferred Stock Purchase Rights | N/A | New York Stock Exchange | - As of May 8, 2023, 79,049,423 shares of common stock, par value $0.001, were outstanding[5] Item 1. Financial Statements (Unaudited) This section presents INNOVATE Corp.'s unaudited condensed consolidated financial statements and accompanying notes for the reporting period Condensed Consolidated Statements of Operations INNOVATE Corp. reported a net loss of $8.0 million for Q1 2023, an improvement from $14.1 million net loss in the prior year period, despite revenue decreased significantly to $317.9 million from $412.8 million Condensed Consolidated Statements of Operations (in millions, except per share) | Metric (in millions, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Revenue | $317.9 | $412.8 | | Gross profit | $43.6 | $49.8 | | (Loss) income from operations | $(4.0) | $0.7 | | Interest expense | $(15.6) | $(12.6) | | Net loss | $(8.0) | $(14.1) | | Net loss attributable to INNOVATE Corp. | $(9.0) | $(12.4) | | Loss per share - basic and diluted | $(0.13) | $(0.18) | - Revenue decreased by $94.9 million, primarily driven by the Infrastructure segment and, to a lesser extent, the Spectrum segment[11] - Net loss attributable to common stockholders improved to $(10.2) million from $(13.6) million year-over-year[11] Condensed Consolidated Statements of Comprehensive Loss INNOVATE Corp. reported a comprehensive loss of $18.1 million for the three months ended March 31, 2023, an increase from $13.4 million in the prior year, primarily due to dispositions of investments and foreign currency translation adjustments Condensed Consolidated Statements of Comprehensive Loss (in millions) | Metric (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------- | :-------------------------------- | :-------------------------------- | | Net loss | $(8.0) | $(14.1) | | Other comprehensive (loss) income | | | | Foreign currency translation adjustment, net of tax | $(1.0) | $0.7 | | Dispositions of investments, net of tax | $(9.1) | — | | Other comprehensive (loss) income | $(10.1) | $0.7 | | Comprehensive loss | $(18.1) | $(13.4) | | Comprehensive loss attributable to INNOVATE Corp. | $(16.4) | $(11.8) | - The increase in comprehensive loss was significantly impacted by a $9.1 million loss from dispositions of investments in the current period[14] Condensed Consolidated Balance Sheets As of March 31, 2023, INNOVATE Corp.'s total assets decreased to $1,044.1 million from $1,151.7 million at December 31, 2022, primarily driven by a significant reduction in cash and cash equivalents and investments Condensed Consolidated Balance Sheets (in millions) | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | Cash and cash equivalents | $16.6 | $80.4 | | Total current assets | $486.5 | $536.4 | | Investments | $7.7 | $59.5 | | Total assets | $1,044.1 | $1,151.7 | | Total current liabilities | $374.5 | $417.2 | | Total liabilities | $1,150.1 | $1,181.3 | | Total stockholders' deficit | $(118.1) | $(90.6) | - Cash and cash equivalents saw a substantial decrease from $80.4 million to $16.6 million[17] - Investments decreased significantly from $59.5 million to $7.7 million[17] Condensed Consolidated Statements of Stockholders' Deficit The company's total stockholders' deficit increased from $(90.6) million at December 31, 2022, to $(118.1) million at March 31, 2023, primarily due to net loss, distributions to noncontrolling interests, and other comprehensive losses, partially offset by share-based compensation Condensed Consolidated Statements of Stockholders' Deficit (in millions) | Metric (in millions) | December 31, 2022 | March 31, 2023 | | :------------------- | :---------------- | :------------- | | Total Stockholders' (Deficit) | $(90.6) | $(118.1) | | Net loss | — | $(9.0) | | Distributions to noncontrolling interests | — | $(10.7) | | Other comprehensive (loss) | — | $(9.6) | | Share-based compensation | $0.5 | $0.5 | - Net loss attributable to INNOVATE Corp. for the three months ended March 31, 2023, was $(9.0) million[19] - Distributions to noncontrolling interests amounted to $(10.7) million during the quarter[19] Condensed Consolidated Statements of Cash Flows For the three months ended March 31, 2023, cash used in operating activities increased to $77.0 million, cash provided by investing activities significantly improved to $51.2 million, and cash used in financing activities increased to $38.0 million Condensed Consolidated Statements of Cash Flows (in millions) | Metric (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------- | :-------------------------------- | :-------------------------------- | | Cash used in operating activities | $(77.0) | $(63.4) | | Cash provided by (used in) investing activities | $51.2 | $(7.4) | | Cash (used in) provided by financing activities | $(38.0) | $51.2 | | Net decrease in cash and cash equivalents, including restricted cash | $(64.2) | $(19.1) | | Cash, cash equivalents and restricted cash, end of period | $18.0 | $28.4 | - Proceeds from the sale of equity method investments contributed $54.2 million to investing activities in Q1 2023[22] - Financing activities were impacted by a $57.0 million payment on the line of credit and $15.9 million in payments to noncontrolling interests[22] Notes to Condensed Consolidated Financial Statements (Unaudited) This section provides detailed notes to the unaudited condensed consolidated financial statements, covering accounting policies, revenue, assets, liabilities, and equity 1. Organization and Business INNOVATE Corp. is a diversified holding company with three reportable segments: Infrastructure (DBM Global Inc.), Life Sciences (Pansend Life Sciences, LLC), and Spectrum (HC2 Broadcasting Holdings Inc.), plus an 'Other' segment, aiming to grow these businesses for long-term free cash flow and stakeholder value - INNOVATE Corp. operates as a diversified holding company with a portfolio of subsidiaries across various operating segments[24] - The company has three reportable segments: Infrastructure (DBM Global Inc.), Life Sciences (Pansend Life Sciences, LLC), and Spectrum (HC2 Broadcasting Holdings Inc.), in addition to an 'Other' segment[25] - The Infrastructure segment, primarily DBM Global Inc., provides industrial construction, structural steel, and facility maintenance services, with INNOVATE maintaining approximately a 91% controlling interest[26] 2. Summary of Significant Accounting Policies The financial statements are prepared in accordance with U.S. GAAP, with certain information condensed for interim reporting, and the company adopted ASU 2016-13 (Credit Loss Standard) on January 1, 2023, which had no material effect on the financial statements, and believes it can meet liquidity requirements for the next twelve months through available cash, credit lines, and subsidiary distributions - The company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), on January 1, 2023, which did not have any material effect on the Condensed Consolidated Financial Statements[36] - Management believes the company will meet its liquidity requirements for at least the next twelve months through available cash, its Revolving Credit Line, and distributions from subsidiaries[34] - The company has instruments referencing LIBOR, including DBMGi's $41.8 million Series A Preferred Stock and INNOVATE's $5.0 million line of credit, but ASU 2020-04 and ASU 2022-06 are not expected to have a material effect due to customary LIBOR replacement language[38] 3. Revenue and Contracts in Process Total revenue for the three months ended March 31, 2023, was $317.9 million, a decrease from $412.8 million in the prior year, with the Infrastructure segment accounting for the majority of revenue but experiencing a significant decline, and remaining unsatisfied performance obligations totaling $1,581.6 million as of March 31, 2023 Revenue by Segment (in millions) | Segment | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :------------- | :-------------------------------------------- | :-------------------------------------------- | | Infrastructure | $311.7 | $402.2 | | Life Sciences | $0.5 | $0.8 | | Spectrum | $5.7 | $9.8 | | Total revenue | $317.9 | $412.8 | Infrastructure Segment Revenue by Market (in millions) | Market (Infrastructure Segment) | Three Months Ended March 31, 2023 (in millions) | Three Months Ended March 31, 2022 (in millions) | | :------------------------------ | :-------------------------------------------- | :-------------------------------------------- | | Commercial | $112.5 | $238.2 | | Industrial | $91.3 | $89.2 | | Transportation | $41.5 | $10.0 | Remaining Unsatisfied Performance Obligations (in millions) | Remaining Unsatisfied Performance Obligations (in millions) | Within One Year | Within Five Years | Total | | :-------------------------------------------------------- | :-------------- | :---------------- | :---- | | Total | $1,200.2 | $381.4 | $1,581.6 | 4. Accounts Receivable, Net Accounts receivable, net, totaled $253.7 million as of March 31, 2023, a slight decrease from $254.9 million at December 31, 2022, with the allowance for expected credit losses remaining stable at $(0.4) million Accounts Receivable, Net (in millions) | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | Contracts in progress | $245.6 | $244.8 | | Trade receivables | $4.0 | $5.9 | | Allowance for expected credit losses | $(0.4) | $(0.5) | | Total | $253.7 | $254.9 | - The company recognized a $0.1 million reversal of provisions for expected credit losses for the three months ended March 31, 2023, compared to $0.2 million in provisions for doubtful accounts in the prior year[52] 5. Inventory Total inventory increased to $21.3 million as of March 31, 2023, from $18.9 million at December 31, 2022, primarily driven by an increase in raw materials and consumables Inventory (in millions) | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | Raw materials and consumables | $18.5 | $15.7 | | Work in process | $0.8 | $1.2 | | Finished goods | $2.0 | $2.0 | | Total inventory | $21.3 | $18.9 | 6. Investments Total investments decreased significantly to $7.7 million as of March 31, 2023, from $59.5 million at December 31, 2022, primarily due to the sale of the 19% interest in HMN, and the company recognized a $12.3 million gain on the sale of HMN and a $3.8 million gain from an equity transaction in MediBeacon Investments by Type (in millions) | Investment Type (in millions) | March 31, 2023 | December 31, 2022 | | :---------------------------- | :------------- | :---------------- | | Common stock | $3.1 | $3.0 | | Preferred stock and fixed maturities | $4.6 | $4.6 | | Put option | — | $11.3 | | Investment in securities | — | $40.6 | | Total | $7.7 | $59.5 | - On March 6, 2023, the company sold its remaining 19% interest in HMN for gross proceeds of $54.2 million, recognizing a gain on sale of $12.3 million[60] - Pansend recognized a $3.8 million gain in Other income (expense), net, due to MediBeacon issuing preferred stock to Huadong, which increased Pansend's basis in MediBeacon[59] 7. Property, Plant and Equipment, Net Property, plant and equipment, net, remained relatively stable at $164.0 million as of March 31, 2023, compared to $165.0 million at December 31, 2022, with depreciation expense for the quarter at $6.3 million Property, Plant and Equipment, Net (in millions) | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | Equipment, furniture and fixtures, and software | $202.7 | $196.0 | | Building and leasehold improvements | $45.5 | $44.8 | | Land | $26.1 | $26.1 | | Construction in progress | $6.0 | $8.4 | | Total | $288.3 | $283.5 | | Less: Accumulated depreciation | $124.3 | $118.5 | | Total PP&E, net | $164.0 | $165.0 | - Depreciation expense for the three months ended March 31, 2023, was $6.3 million, including $3.9 million recognized within cost of revenue[62] 8. Goodwill and Intangibles, Net Goodwill remained stable at $127.0 million as of March 31, 2023, with the Infrastructure segment holding the majority, indefinite-lived intangible assets, primarily FCC licenses, were $106.3 million, and definite-lived intangible assets, net, decreased to $79.8 million, with amortization expense of $3.9 million for the quarter Goodwill by Segment (in millions) | Segment (in millions) | December 31, 2022 | March 31, 2023 | | :-------------------- | :---------------- | :------------- | | Infrastructure | $105.7 | $105.6 | | Spectrum | $21.4 | $21.4 | | Total Goodwill | $127.1 | $127.0 | Indefinite-lived Intangible Assets (in millions) | Indefinite-lived Intangible Assets (in millions) | March 31, 2023 | December 31, 2022 | | :----------------------------------------------- | :------------- | :---------------- | | FCC licenses | $106.3 | $106.3 | | Total | $106.3 | $106.3 | Definite-lived Intangible Assets (in millions) | Definite Lived Intangible Assets (in millions) | March 31, 2023 Net | December 31, 2022 Net | | :--------------------------------------------- | :----------------- | :-------------------- | | Trade names | $17.0 | $17.4 | | Customer relationships and contracts | $48.8 | $52.2 | | Total | $79.8 | $83.8 | 9. Leases Total right-of-use assets were $67.2 million and total lease liabilities were $71.9 million as of March 31, 2023, with total lease cost for the quarter at $5.9 million, primarily from operating leases, and the company has significant future minimum lease commitments, including new office leases in Florida expected to commence in 2024 Right-of-Use Assets and Lease Liabilities (in millions) | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | Operating lease ROU assets | $64.5 | $65.8 | | Finance lease ROU assets | $2.7 | $2.1 | | Total ROU assets | $67.2 | $67.9 | | Operating lease liability (current) | $15.6 | $17.1 | | Operating lease liability (non-current) | $53.6 | $53.8 | | Finance lease liability | $2.7 | $2.1 | | Total lease liabilities | $71.9 | $73.0 | Lease Cost (in millions) | Lease Cost (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $5.9 | $5.9 | | Total lease cost | $5.9 | $5.8 | - Future minimum operating lease commitments (undiscounted) total $84.7 million, with $14.5 million due in 2023[72] 10. Other Assets, Accrued Liabilities and Other Liabilities Other non-current assets totaled $71.1 million, primarily consisting of right-of-use assets, accrued liabilities decreased to $45.0 million, mainly due to reductions in accrued payroll and interest, other current liabilities increased to $24.7 million, while other non-current liabilities increased to $107.6 million, largely due to redeemable preferred stock Series A Other Assets and Liabilities (in millions) | Metric (in millions) | March 31, 2023 | December 31, 2022 | | :------------------- | :------------- | :---------------- | | Other assets (non-current) | $71.1 | $71.9 | | Accrued liabilities | $45.0 | $65.4 | | Other current liabilities | $24.7 | $20.1 | | Other liabilities (non-current) | $107.6 | $71.2 | - Accrued payroll and employee benefits decreased from $30.8 million to $21.7 million, and accrued interest decreased from $15.3 million to $6.7 million[74] - Redeemable preferred stock Series A was reclassified, contributing $7.0 million to other current liabilities and $34.8 million to other non-current liabilities as of March 31, 2023[74] 11. Debt Obligations Total outstanding principal debt decreased to $706.5 million as of March 31, 2023, from $725.3 million at December 31, 2022, primarily due to a $15.0 million repayment on the Non-Operating Corporate Revolving Credit Line, and the company has various debt instruments across its segments with different interest rates and maturities, and subsequent to quarter-end, the Revolving Credit Agreement was extended and an additional $8.0 million was drawn Outstanding Principal Debt by Segment/Type (in millions) | Segment/Type (in millions) | March 31, 2023 | December 31, 2022 | | :------------------------- | :------------- | :---------------- | | Infrastructure | $237.0 | $243.0 | | Spectrum | $69.7 | $69.7 | | Life Sciences | $13.0 | $10.8 | | Non-Operating Corporate | $386.8 | $401.8 | | Total outstanding principal | $706.5 | $725.3 | - Aggregate finance lease and debt payments, including interest, total $833.4 million, with $62.7 million due in 2023 and $253.5 million in 2024[75] - Subsequent to quarter-end, the Revolving Credit Agreement was extended to March 16, 2025, and an additional $8.0 million was drawn, increasing the outstanding balance to $13.0 million[87][89] 12. Income Taxes Income tax expense for the three months ended March 31, 2023, was $0.9 million, a decrease from $1.6 million in the prior year, and the company utilized the Annual Effective Tax Rate approach and recognized a $1.1 million tax benefit related to the sale of HMN, consisting of a foreign tax payment and a deferred tax liability reversal, and the company has significant U.S. net operating loss carryforwards Income Tax Expense (in millions) | Metric (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------- | :-------------------------------- | :-------------------------------- | | Income tax expense | $0.9 | $1.6 | - The 2023 first quarter interim tax provision included a $1.1 million tax benefit related to the sale of HMN, comprising a $4.4 million current tax expense for foreign tax payment and a $5.5 million deferred tax benefit from the reversal of a deferred tax liability[91] - At December 31, 2022, the company had gross U.S. net operating loss carryforwards of $226.3 million, with approximately $162.9 million expected to be available in 2023[92] 13. Commitments and Contingencies The company is involved in various legal proceedings, including the Fair Value Investments Litigation and DTV Derivative Litigation, which it intends to vigorously defend, and DBMG also has significant outstanding performance bonds totaling $871.2 million as of March 31, 2023 - The company is subject to claims and legal proceedings in the ordinary course of business, including the FVI Action and DTV Derivative Litigation, which it believes are without merit and intends to vigorously defend[98][102][106] - DBMG had outstanding performance bonds of $871.2 million as of March 31, 2023, which partially secure its obligations under contracts[108] - The Marin Hospital Replacement Litigation involves claims against DBMG's subsidiary, Schuff Steel Company, for alleged failures in fabrication, erection, welding, and quality control[107] 14. Share-Based Compensation Total share-based compensation expense was $0.5 million for the three months ended March 31, 2023, a decrease from $0.8 million in the prior year, and as of March 31, 2023, unrecognized stock-based compensation expense related to unvested restricted stock awards was $2.5 million, expected to be recognized over 2.1 years Share-Based Compensation Expense (in millions) | Metric (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------- | :-------------------------------- | :-------------------------------- | | Share-based compensation expense | $0.5 | $0.8 | Restricted Stock Activity | Restricted Stock Activity | Shares (in thousands) | Weighted Average Grant Date Fair Value | | :------------------------ | :-------------------- | :------------------------------------- | | Unvested - December 31, 2022 | 1,141.8 | $2.56 | | Granted | 321.4 | $2.93 | | Vested | (260.3) | $3.64 | | Unvested - March 31, 2023 | 1,202.9 | $2.42 | - As of March 31, 2023, there were no unvested stock options and no unrecognized stock-based compensation expense related to unvested stock options[112] 15. Preferred Stock and Equity The company has Series A-3 and A-4 Preferred Stock classified as temporary equity, with a combined fair value of $17.3 million as of March 31, 2023, accruing cumulative quarterly cash dividends at 7.50%, and DBMGi's Series A Preferred Stock was subject to a redemption notice and subsequently purchased by the company for $7.1 million cash and a $35.1 million subordinated unsecured promissory note, and the company also adopted a new Tax Benefits Preservation Plan on April 1, 2023 Preferred Shares Outstanding | Preferred Shares | March 31, 2023 | December 31, 2022 | | :--------------- | :------------- | :---------------- | | Series A-3 shares issued and outstanding | 6,125 | 6,125 | | Series A-4 shares issued and outstanding | 10,000 | 10,000 | - The Series A-3 and Series A-4 Preferred Stock accrue a cumulative quarterly cash dividend at an annualized rate of 7.50% and are convertible into common stock at specified conversion prices[116][118] - On May 9, 2023, the company purchased all outstanding DBMGi Preferred Stock for $7.1 million cash and issued a $35.1 million subordinated unsecured promissory note to CGIC[133] - A new Tax Benefits Preservation Plan was adopted on April 1, 2023, to protect the company's ability to use its tax net operating losses by deterring an 'ownership change'[138] 16. Related Parties The company has various related party transactions, including lease agreements for office space and planes with entities owned by Donald Banker (CEO of Banker Steel), and R2 Technologies entered into additional notes totaling $0.9 million with Lancer Capital, LLC, a related party controlled by INNOVATE's Chairman, increasing the total outstanding principal to $13.0 million with a 20% interest rate - Banker Steel, a DBMG subsidiary, leases office spaces and a plane from entities owned by Donald Banker, its CEO, incurring lease expenses of $25 thousand and $0.3 million, respectively, for Q1 2023[144][145] - R2 Technologies closed on additional 18% notes totaling $0.9 million with Lancer Capital, LLC, a related party, in February 2023[147] - On March 31, 2023, R2 Technologies exchanged all prior outstanding notes with Lancer for a new $13.0 million note at a 20% interest rate, maturing by June 30, 2023, or upon $20.0 million debt/equity financing[147] 17. Operating Segments and Related Information The company's revenue decreased across all segments in Q1 2023 compared to Q1 2022, with Infrastructure seeing the largest decline, overall loss from operations increased, while capital expenditures decreased, and total assets also decreased across all segments Operating Segment Results (in millions) | Segment (in millions) | Revenue (Q1 2023) | Revenue (Q1 2022) | (Loss) income from operations (Q1 2023) | (Loss) income from operations (Q1 2022) | | :-------------------- | :---------------- | :---------------- | :-------------------------------------- | :-------------------------------------- | | Infrastructure | $311.7 | $402.2 | $6.3 | $11.9 | | Life Sciences | $0.5 | $0.8 | $(4.4) | $(5.0) | | Spectrum | $5.7 | $9.8 | $(0.5) | $(0.4) | | Other | — | — | $(1.4) | $(0.1) | | Non-operating Corporate | — | — | $(4.0) | $(5.7) | | Total | $317.9 | $412.8 | $(4.0) | $0.7 | Operating Segment Depreciation, Amortization, and Capital Expenditures (in millions) | Segment (in millions) | Depreciation and Amortization (Q1 2023) | Depreciation and Amortization (Q1 2022) | Capital Expenditures (Q1 2023) | Capital Expenditures (Q1 2022) | | :-------------------- | :-------------------------------------- | :-------------------------------------- | :----------------------------- | :----------------------------- | | Infrastructure | $8.8 | $9.0 | $3.0 | $2.9 | | Life Sciences | $0.1 | $0.1 | $0.1 | $0.1 | | Spectrum | $1.3 | $1.5 | $0.3 | $1.6 | | Non-operating Corporate | — | — | $0.3 | — | | Total | $10.2 | $10.6 | $3.7 | $4.6 | Operating Segment Total Assets (in millions) | Segment (in millions) | Total Assets (March 31, 2023) | Total Assets (December 31, 2022) | | :-------------------- | :---------------------------- | :------------------------------- | | Infrastructure | $832.7 | $879.3 | | Life Sciences | $15.0 | $15.4 | | Spectrum | $182.7 | $188.2 | | Other | $1.0 | $53.6 | | Non-operating Corporate | $12.7 | $15.2 | | Total | $1,044.1 | $1,151.7 | 18. Basic and Diluted Loss Per Common Share For the three months ended March 31, 2023, basic and diluted loss per common share was $(0.13), an improvement from $(0.18) in the prior year, with no dilutive common share equivalents included due to the net loss Basic and Diluted Loss Per Common Share (in millions, except per share) | Metric (in millions, except per share) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to common stockholders | $(10.2) | $(13.6) | | Weighted average common shares outstanding | 77.7 | 77.3 | | Loss per share - basic and diluted | $(0.13) | $(0.18) | - 1,145,796 common stock equivalents from unvested restricted stocks were excluded from diluted EPS calculation as their inclusion would have been anti-dilutive[158] 19. Fair Value of Financial Instruments The fair value of the company's debt obligations not measured at fair value on a recurring basis was estimated at $643.1 million as of March 31, 2023, compared to a carrying value of $694.5 million, and these fair values are classified as Level 2 Fair Value of Debt Obligations (in millions) | Metric (in millions) | Carrying Value (March 31, 2023) | Estimated Fair Value (March 31, 2023) | | :------------------- | :------------------------------ | :------------------------------------ | | Debt obligations | $694.5 | $643.1 | - The fair value of long-term debt obligations is determined using reporting from Citadel Securities, combining direct market observations with quantitative pricing models, and is classified as Level 2[160] 20. Supplementary Financial Information Other income (expense), net, significantly increased to $16.5 million in Q1 2023 from an expense of $0.1 million in Q1 2022, driven by a $12.3 million gain on the sale of an equity method investment and a $3.8 million step-up gain, and cash paid for interest was $19.5 million, and cash paid for taxes was $5.0 million for the quarter Other Income (Expense), Net (in millions) | Metric (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------- | :-------------------------------- | :-------------------------------- | | Gain on sale of equity method investment | $12.3 | — | | Gain on step-up of equity method investment | $3.8 | — | | Other income (expense), net | $16.5 | $(0.1) | Supplemental Cash Flow Information (in millions) | Supplemental Cash Flow (in millions) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Cash paid for interest | $19.5 | $18.6 | | Cash paid for taxes, net of refunds | $5.0 | $0.4 | 21. Subsequent Events Subsequent to quarter-end, the company extended its Revolving Credit Agreement to March 16, 2025, changed interest rates to SOFR-based, and lowered prepayment thresholds, and it also purchased DBMGi Preferred Stock for $7.1 million cash and a $35.1 million promissory note, and drew an additional $8.0 million on the Revolving Credit Agreement - On April 25, 2023, the Revolving Credit Agreement maturity date was extended to March 16, 2025, benchmark rates changed to SOFR-based, and the asset sale prepayment threshold was lowered from $50.0 million to $10.0 million[163] - On May 9, 2023, the company purchased DBMGi Preferred Stock for $7.1 million cash and issued a $35.1 million subordinated unsecured promissory note to CGIC, due February 28, 2026, with escalating interest rates[164] - On May 8, 2023, an additional $8.0 million was drawn under the Revolving Credit Agreement, increasing the outstanding balance to $13.0 million[164] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and liquidity for the reporting period Our Business and Our Operations INNOVATE Corp. operates as a diversified holding company with three primary operating segments: Infrastructure (DBMG), Life Sciences (Pansend), and Spectrum, along with an 'Other' segment for businesses not meeting separate reporting thresholds - INNOVATE is a diversified holding company with principal operations through Infrastructure (DBMG), Life Sciences (Pansend), and Spectrum segments, plus an 'Other' segment[168] Cyclical Patterns The company's segments, particularly Infrastructure, are subject to highly cyclical patterns influenced by project delays, weather, customer financial conditions, interest rates, inflation, and broader economic conditions, leading to potential fluctuations in quarterly operating results - The company's segments, especially Infrastructure, are highly cyclical, with business volume affected by project delays, weather, customer financial conditions, rising interest rates, and inflation[170][172] - Large, complex projects can cause fluctuations due to delayed permits and approvals, requiring the company to maintain underutilized workforce and equipment[17