INNOVATE (VATE) - 2021 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION This section presents INNOVATE Corp.'s unaudited condensed consolidated financial statements and management's discussion for the period Item 1. Financial Statements (Unaudited) This section presents INNOVATE Corp.'s unaudited condensed consolidated financial statements and detailed notes for the specified reporting periods Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net loss for the three and nine months ended September 30, 2021 and 2020 Three Months Ended September 30, 2021 vs. 2020 (in millions): | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Revenue | $394.8 | $170.5 | +$224.3 | | Gross profit | $55.1 | $31.7 | +$23.4 | | Income (loss) from operations | $1.1 | $(16.1) | +$17.2 | | Loss from continuing operations before income taxes | $(14.1) | $(28.4) | +$14.3 | | Net loss | $(214.5) | $(21.6) | $(192.9) | | Net loss attributable to INNOVATE Corp. | $(211.9) | $(17.3) | $(194.6) | | Loss per common share - Basic | $(2.75) | $(0.37) | $(2.38) | Nine Months Ended September 30, 2021 vs. 2020 (in millions): | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Revenue | $810.4 | $538.9 | +$271.5 | | Gross profit | $122.0 | $91.2 | +$30.8 | | Income (loss) from operations | $(17.5) | $(38.6) | +$21.1 | | Loss from continuing operations before income taxes | $(77.0) | $(35.0) | $(42.0) | | Net loss | $(230.7) | $(94.1) | $(136.6) | | Net loss attributable to INNOVATE Corp. | $(222.8) | $(87.3) | $(135.5) | | Loss per common share - Basic | $(2.92) | $(1.89) | $(1.03) | Condensed Consolidated Statements of Comprehensive Income (Loss) This statement presents the net loss and other comprehensive income (loss) components for the reporting periods Three Months Ended September 30, 2021 vs. 2020 (in millions): | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net loss | $(214.5) | $(21.6) | $(192.9) | | Other comprehensive (loss) income | $(335.2) | $64.5 | $(399.7) | | Comprehensive (loss) income | $(549.7) | $42.9 | $(592.6) | | Comprehensive (loss) income attributable to INNOVATE Corp. | $(552.3) | $38.3 | $(590.6) | Nine Months Ended September 30, 2021 vs. 2020 (in millions): | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Net loss | $(230.7) | $(94.1) | $(136.6) | | Other comprehensive (loss) income | $(394.1) | $98.4 | $(492.5) | | Comprehensive (loss) income | $(624.8) | $4.3 | $(629.1) | | Comprehensive (loss) income attributable to INNOVATE Corp. | $(632.8) | $7.0 | $(639.8) | Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and equity as of September 30, 2021, and December 31, 2020 As of September 30, 2021 vs. December 31, 2020 (in millions): | Metric | Sep 30, 2021 | Dec 31, 2020 | Change | | :--- | :--- | :--- | :--- | | Total current assets | $592.2 | $6,246.3 | $(5,654.1) | | Total assets | $1,221.5 | $6,742.8 | $(5,521.3) | | Total current liabilities | $533.4 | $5,952.2 | $(5,418.8) | | Total liabilities | $1,205.9 | $6,126.9 | $(4,921.0) | | Total stockholders' (deficit) equity | $(54.7) | $600.2 | $(654.9) | Condensed Consolidated Statements of Stockholders' (Deficit) Equity This statement tracks changes in stockholders' equity, including net loss and other comprehensive loss, for the reporting period - Total INNOVATE Corp. stockholders' (deficit) equity decreased from $559.8 million as of December 31, 2020, to $(82.2) million as of September 30, 2021, primarily due to a net loss of $(222.8) million and other comprehensive loss of $(393.7) million for the nine months ended September 30, 2021[16] - Accumulated deficit increased significantly from $(188.7) million at December 31, 2020, to $(411.5) million at September 30, 2021, reflecting the net losses incurred[16] - Accumulated other comprehensive income decreased from $396.9 million at December 31, 2020, to $3.2 million at September 30, 2021, largely due to other comprehensive losses[16] Condensed Consolidated Statements of Cash Flows This statement summarizes cash flows from operating, investing, and financing activities for the nine months ended September 30, 2021 and 2020 Nine Months Ended September 30, 2021 vs. 2020 (in millions): | Metric | 2021 | 2020 | Change | | :--- | :--- | :--- | :--- | | Cash (used in) provided by continuing operating activities | $(14.6) | $77.4 | $(92.0) | | Cash (used in) provided by continuing investing activities | $(214.9) | $70.4 | $(285.3) | | Cash provided by (used in) continuing financing activities | $54.6 | $(223.8) | +$278.4 | | Net change in cash, cash equivalents and restricted cash | $18.8 | $5.1 | +$13.7 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. Organization and Business This note describes INNOVATE Corp.'s structure as a diversified holding company and its operating segments - 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 for businesses not meeting separate reporting thresholds[22][23] - The company aims to acquire controlling equity interests in its operating subsidiaries to generate long-term sustainable free cash flow and attractive returns[22] 2. Summary of Significant Accounting Policies This note outlines the key accounting principles and policies applied in preparing the financial statements - The company consolidates all wholly-owned subsidiaries and others over which it exerts control, eliminating intercompany transactions[28] - Management believes it can meet liquidity requirements for the next twelve months through available cash and subsidiary distributions, though no assurance exists for additional equity or debt financing on favorable terms[32] - The COVID-19 pandemic's impact on financial position and operating results remains uncertain but could be adverse, with ongoing assessment of its evolving effects[33] - The company reclassified results of Beyond6, ICS, and CIG to discontinued operations and recast prior period EPS accordingly[36] - ASU 2020-06, simplifying accounting for convertible debt and preferred stock, was early adopted as of January 1, 2021, with no impact on the company[38] 3. Discontinued Operations This note details the financial results and impact of businesses reclassified as discontinued operations - The results of GMSL, ICS, Beyond6, and CIG were reported as discontinued operations[41] (Loss) income from discontinued operations (in millions): | Period | 2021 | 2020 | | :--- | :--- | :--- | | Three Months Ended Sep 30 | $(200.3) | $8.2 | | Nine Months Ended Sep 30 | $(149.9) | $(55.4) | - The sale of CIG closed on July 1, 2021, resulting in a $200.8 million loss on sale, driven by risks in the long-term care insurance industry and prior goodwill impairment[43][45] - The sale of Beyond6 closed on January 15, 2021, generating a $39.2 million gain in Q1 2021, with an additional $0.5 million gain in Q3 2021 from escrow releases[51] 4. Revenue This note breaks down total revenue by segment and explains the drivers of revenue changes Total Revenue by Segment (in millions): | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Infrastructure | $383.0 | $160.8 | $776.3 | $509.6 | | Spectrum | $10.2 | $9.7 | $31.3 | $29.3 | | Life Sciences | $1.6 | $— | $2.8 | $— | | Total Revenue | $394.8 | $170.5 | $810.4 | $538.9 | - Infrastructure segment revenue significantly increased, primarily due to the acquisition of Banker Steel and growth in commercial, industrial, and convention markets[57] - Life Sciences segment revenue increased from zero to $1.6 million (three months) and $2.8 million (nine months) due to the sale of Glacial Rx products by R2[59] - Spectrum segment revenue saw a modest increase, driven by higher station revenues from expanded coverage and more OTA stations in operation[60] 5. Acquisitions, Dispositions, and Deconsolidations This note provides details on significant business acquisitions, sales, and changes in control during the period - DBM Global Inc. (DBMG) acquired 100% of Banker Steel Holdco LLC for $145.0 million on May 27, 2021, financed by a revolving credit facility, sellers' notes, assumed debt, and cash from INNOVATE[61] - The Banker Steel acquisition added $12.1 million in goodwill and $61.4 million in intangibles, including customer relationships and trade names[65] - The company increased its controlling interest in DTV from approximately 60% to 76% during the nine months ended September 30, 2021[69] - Sales of GMSL, HMN (partial), ICS, Beyond6, and CIG were completed, with CIG's sale resulting in a $200.8 million loss and Beyond6's sale yielding a $39.7 million gain[73][76][77][78][81] 6. Accounts Receivable, net This note presents the composition of accounts receivable, including contracts in progress and trade receivables Accounts Receivable, net (in millions): | Category | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Contracts in progress | $306.0 | $118.6 | | Unbilled retentions | $99.8 | $50.3 | | Trade receivables | $9.3 | $7.5 | | Other receivables | $10.5 | $8.9 | | Allowance for doubtful accounts | $(0.6) | $(0.6) | | Total | $425.0 | $184.7 | 7. Property, Plant and Equipment, net This note details the company's property, plant, and equipment, along with depreciation expense Property, Plant and Equipment, net (in millions): | Category | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Equipment, furniture and fixtures, and software | $169.2 | $113.7 | | Building and leasehold improvements | $43.3 | $41.0 | | Land | $24.1 | $24.1 | | Construction in progress | $13.4 | $3.1 | | Plant and transportation equipment | $8.3 | $4.4 | | Less: Accumulated depreciation | $(90.1) | $(73.5) | | Total | $168.2 | $112.8 | - Depreciation expense for the three months ended September 30, 2021, was $7.8 million, up from $5.3 million in the prior year, with $3.4 million recognized in cost of revenue[85] - For the nine months ended September 30, 2021, depreciation expense was $17.7 million, up from $15.6 million in the prior year, with $8.4 million in cost of revenue[86] 8. Goodwill and Intangibles, net This note provides a breakdown of goodwill and intangible assets by segment and asset class Goodwill by Segment (in millions): | Segment | Dec 31, 2020 | Acquisitions | Translation | Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Infrastructure | $89.6 | $12.1 | $(0.3) | $101.4 | | Spectrum | $21.4 | $— | $— | $21.4 | | Total | $111.0 | $12.1 | $(0.3) | $122.8 | Indefinite-lived Intangible Assets (in millions): | Asset | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | FCC licenses | $106.5 | $113.0 | | Total | $106.5 | $113.0 | - FCC licenses decreased by $6.5 million for the nine months ended September 30, 2021, primarily due to the Spectrum segment selling non-core FCC licenses[88] Definite Lived Intangible Assets, Net (in millions): | Asset Class | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Trade names | $19.6 | $13.4 | | Customer relationships and contracts | $70.2 | $24.3 | | Channel sharing arrangements | $11.6 | $18.6 | | Other | $5.2 | $2.8 | | Total Net | $106.6 | $59.1 | - Amortization expense for definite-lived intangible assets was $4.5 million for Q3 2021 (vs. $1.5 million in Q3 2020) and $8.3 million for the nine months ended September 30, 2021 (vs. $4.6 million in 2020)[90][91] 9. Debt Obligations This note outlines the company's various debt instruments, refinancing activities, and associated terms Debt Obligations (in millions): | Segment/Type | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Infrastructure | $181.5 | $110.5 | | Spectrum | $54.4 | $52.8 | | Non-Operating Corporate | $390.0 | $410.4 | | Unamortized discount/costs | $(2.1) | $(15.1) | | Less: current portion | $(71.1) | $(433.6) | | Total Debt Obligations | $602.8 | $127.9 | - In May 2021, DBMG repaid existing debt and entered a new credit facility with UMB Bank, including a $110.0 million term loan (3.25% interest, due 2026) and a $110.0 million revolving credit agreement (Prime Rate minus 1.10%, due 2024)[94] - On February 1, 2021, INNOVATE repaid its 2021 Senior Secured Notes and issued $330.0 million of 8.5% senior secured notes due 2026. It also exchanged $51.8 million of 2022 Convertible Notes for new 7.5% convertible notes due 2026[98] - The company recorded a $12.5 million loss on early extinguishment or restructuring of debt for the nine months ended September 30, 2021, primarily due to these refinancing activities[10] 10. Supplementary Financial Information This note provides additional financial details, including contracts in progress, investments, and fair value disclosures Contracts in Progress (in millions): | Category | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Costs incurred on contracts in progress | $1,830.8 | $752.9 | | Estimated earnings | $287.8 | $139.0 | | Less: progress billings | $(2,207.5) | $(888.5) | | Net | $(88.9) | $3.4 | Investments (in millions): | Category | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Common stock | $2.4 | $2.5 | | Preferred stock | $10.0 | $15.4 | | Fixed maturities | $0.5 | $0.5 | | Put option | $11.3 | $11.3 | | Equity method securities | $25.7 | $25.7 | | Total | $49.9 | $55.4 | - The fair value of debt obligations not measured at fair value was $689.4 million at September 30, 2021, compared to a carrying value of $673.9 million, classified as Level 2[113][114] 11. Leases This note details the company's lease assets, liabilities, and associated lease costs and terms Lease Assets and Liabilities (in millions): | Category | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Operating lease ROU assets | $68.1 | $39.8 | | Finance lease ROU assets | $0.1 | $0.9 | | Current operating lease liability | $15.6 | $11.2 | | Non-current operating lease liability | $56.7 | $31.6 | | Finance lease liability | $0.1 | $0.8 | | Total Lease Liabilities | $72.4 | $43.6 | - Total lease cost for the three months ended September 30, 2021, was $8.2 million (vs. $7.1 million in 2020), and $16.8 million for the nine months ended September 30, 2021 (vs. $15.2 million in 2020)[119] - The weighted-average remaining lease term for operating leases was 7.5 years (vs. 4.0 years in 2020), and for finance leases was 1.3 years (vs. 1.1 years in 2020)[120] 12. Income Taxes This note explains the company's income tax expense, deferred taxes, and net operating loss carryforwards - Income tax expense was $0.1 million for Q3 2021 (vs. $1.4 million in Q3 2020) and $3.8 million for the nine months ended September 30, 2021 (vs. $3.7 million in 2020), primarily related to tax-paying entities[122][123] - Tax benefits from U.S. consolidated income tax return losses are reduced by a full valuation allowance due to uncertainty of utilization[122][123] - At December 31, 2020, the company had $170.3 million in gross U.S. net operating loss carryforwards, with an estimated $101.5 million available for 2021[124] - The company deferred approximately $11.0 million of employer payroll tax obligations under the CARES Act, with 50% due by December 31, 2021, and the remainder by December 31, 2022[129] 13. Commitments and Contingencies This note describes the company's legal proceedings, claims, and other contingent liabilities - The company is involved in various claims and legal proceedings in the ordinary course of business, but management does not believe they will have a material adverse effect on its financial statements[130][131] - Ongoing litigation includes a stockholder class action and derivative complaint (FVI Action) against INNOVATE and DBMG officers/directors, and a DTV derivative litigation, both of which the company intends to vigorously defend[134][135] - The company reached a settlement proposal with former CEO Philip A. Falcone regarding his separation and arbitration demand[136] 14. Share-based Compensation This note details the company's share-based compensation plans, expense, and equity activity - Total share-based compensation expense was $1.7 million for the nine months ended September 30, 2021, down from $2.5 million in 2020[139] Restricted Stock Activity: | Metric | Unvested - Dec 31, 2020 | Granted (9M 2021) | Vested (9M 2021) | Forfeited (9M 2021) | Unvested - Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | | Shares | 628,433 | 593,458 | (445,911) | (151,469) | 624,511 | | Weighted Average Grant Date Fair Value | $3.93 | $3.81 | $3.70 | $4.13 | $3.94 | - Unrecognized stock-based compensation expense for restricted stock was $1.5 million at September 30, 2021, expected to be recognized over 2.0 years[141] Stock Option Activity: | Metric | Outstanding - Dec 31, 2020 | Granted (9M 2021) | Expired (9M 2021) | Outstanding - Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Shares | 4,739,858 | — | (23,999) | 4,715,859 | | Weighted Average Exercise Price | $5.13 | $— | $5.31 | $5.13 | - Unrecognized stock-based compensation expense for stock options was $0.1 million at September 30, 2021, expected to be recognized over 0.5 years[143] 15. Equity This note provides information on the company's preferred stock, common stock, and equity-related transactions Preferred Shares Outstanding: | Series | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Series A | — | 6,375 | | Series A-2 | — | 4,000 | | Series A-3 | 6,125 | — | | Series A-4 | 10,000 | — | - On May 29, 2021, Series A and A-2 Preferred Stock were redeemed for $10.4 million cash or converted into 50,410 common shares[150] - On July 1, 2021, the remaining Series A and A-2 shares held by CGIC were exchanged for new Series A-3 and A-4 Convertible Participating Preferred Stock, maturing July 1, 2026, with substantially similar terms[151] - The Series A-3 and A-4 Preferred Stock accrue a cumulative quarterly cash dividend at an annualized rate of 7.50% and accrete at 4.00% (reducible to 2.00% or 0.0% based on net asset value growth)[153] - On August 30, 2021, the company adopted a Tax Benefits Preservation Plan to deter ownership changes (4.9% or more beneficial ownership) and protect its net operating losses and other tax assets[170][171] 16. Related Parties This note discloses transactions and balances with related parties, including leases and debt - Banker Steel, a DBMG subsidiary, leases two office spaces and two planes from related parties owned by Donald Banker, CEO of Banker Steel, incurring lease expenses of $23 thousand and $0.4 million, respectively, for Q3 2021[177][178] - Banker Steel also has a $6.3 million subordinated note payable to Donald Banker, with an 11% interest rate and maturity date of June 30, 2024[179] 17. Operating Segment and Related Information This note presents financial performance and asset information segmented by the company's operating businesses - The company operates in three reportable segments: Infrastructure, Life Sciences, and Spectrum, plus an 'Other' segment and a 'Non-operating Corporate' segment[180] Income (Loss) from Operations by Segment (in millions): | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Infrastructure | $12.6 | $6.0 | $17.0 | $13.1 | | Life Sciences | $(4.9) | $(4.7) | $(14.2) | $(11.4) | | Spectrum | $(1.2) | $(11.7) | $(1.0) | $(15.8) | | Other | $(1.0) | $(0.4) | $(1.6) | $(2.1) | | Non-operating Corporate | $(4.4) | $(5.3) | $(17.7) | $(22.4) | | Total | $1.1 | $(16.1) | $(17.5) | $(38.6) | Total Assets by Segment (in millions): | Segment | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Infrastructure | $917.7 | $494.8 | | Life Sciences | $29.3 | $21.4 | | Spectrum | $199.8 | $213.6 | | Other | $38.9 | $6,021.3 | | Non-operating Corporate | $35.8 | $30.1 | | Eliminations | $— | $(38.4) | | Total | $1,221.5 | $6,742.8 | 18. Basic and Diluted Income (Loss) Per Common Share This note details the calculation of basic and diluted earnings per share, considering participating securities - EPS is calculated using the two-class method, considering unvested share-based payment awards as participating securities[184] - No dilutive common share equivalents existed for the nine months ended September 30, 2021 and 2020, due to losses from continuing operations[185] Loss Per Common Share (in millions, except per share amounts): | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Loss per common share - continuing operations (Basic/Diluted) | $(0.16) | $(0.57) | $(0.98) | $(1.06) | | (Loss) income per share - discontinued operations (Basic/Diluted) | $(2.59) | $0.20 | $(1.94) | $(0.83) | | Loss per share - Net loss attributable to common stock and participating preferred stockholders (Basic/Diluted) | $(2.75) | $(0.37) | $(2.92) | $(1.89) | 19. Subsequent Events This note discloses significant events that occurred after the balance sheet date but before the financial statements were issued - On October 21, 2021, HC2 Broadcasting extended $52.2 million of its Senior Secured Notes through November 30, 2022, and repurchased all outstanding DTV notes[189] - On November 1, 2021, the company entered a 10-year lease for 20,950 square feet of special purpose space, with annual payments of $2.1 million, commencing November 2023 or later[190] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses INNOVATE Corp.'s financial condition, results of operations, segment performance, liquidity, and non-GAAP measures Our Business This section describes INNOVATE's diversified holding company structure and its primary operating segments - INNOVATE is a diversified holding company with three primary operating segments: Infrastructure (DBMG), Life Sciences (Pansend), and Spectrum, along with an 'Other' segment[194] - Certain prior year amounts have been reclassified to conform with current year presentations, including the recast of Beyond6, ICS, and CIG's results to discontinued operations[199] Cyclical Patterns This section discusses the cyclical nature of the company's business segments and factors influencing operating results - The company's segments, particularly Infrastructure, are highly cyclical, with business volume affected by project delays, geographic variations, and timing of permits for large projects[196][197] - Operating results can fluctuate due to weather, customer financial conditions, project margins, and economic/political factors, making any single period's results not indicative of future performance[198] Recent Developments This section highlights significant events and transactions impacting the company's financial position and operations - COVID-19 has caused supply chain challenges, labor shortages, and increased transportation costs, potentially delaying projects and impacting margins, though the Infrastructure segment has seen increased backlog as vaccination progresses[203][205] - The Spectrum segment experienced adverse effects on its advertising business due to COVID-19 but has begun to stabilize, though future impacts remain uncertain[206][207] - DBMG acquired Banker Steel for $145.0 million on May 27, 2021, expanding its structural steel and erection services[208] - The sale of CIG closed on July 1, 2021, resulting in a $200.8 million loss, and Beyond6 was sold on January 15, 2021, for a $39.7 million gain[212][213] - INNOVATE refinanced its 2021 Senior Secured Notes with $330.0 million of 8.5% notes due 2026 and exchanged 2022 Convertible Notes for 2026 Convertible Notes[214] - R2 Technologies received $10.0 million in funding from Huadong Medicine Company Limited and an additional $15.0 million in Series C funding from INNOVATE, supporting commercialization efforts[219][220] - A Tax Benefits Preservation Plan was adopted on August 30, 2021, to protect the company's net operating losses by deterring ownership changes[221] Financial Presentation Background This section provides context for the financial statements, including the basis of presentation and comparative periods - The discussion compares results for the three and nine months ended September 30, 2021, against the same periods in 2020, prepared under U.S. GAAP[222] Results of Operations This section analyzes the consolidated financial performance, including revenue, operating income, and net loss Consolidated Results of Operations (in millions): | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total revenue | $394.8 | $170.5 | +$224.3 | $810.4 | $538.9 | +$271.5 | | Total income (loss) from operations | $1.1 | $(16.1) | +$17.2 | $(17.5) | $(38.6) | +$21.1 | | Interest expense | $(12.8) | $(17.9) | +$5.1 | $(46.6) | $(56.2) | +$9.6 | | Loss from continuing operations | $(14.2) | $(29.8) | +$15.6 | $(80.8) | $(38.7) | $(42.1) | | (Loss) income from discontinued operations | $(200.3) | $8.2 | $(208.5) | $(149.9) | $(55.4) | $(94.5) | | Net loss | $(214.5) | $(21.6) | $(192.9) | $(230.7) | $(94.1) | $(136.6) | | Net loss attributable to INNOVATE Corp. | $(211.9) | $(17.3) | $(194.6) | $(222.8) | $(87.3) | $(135.5) | - Revenue increased significantly due to the Infrastructure segment's acquisition of Banker Steel and overall project growth[224] - Income from operations improved due to reduced asset impairments in Spectrum, operational improvements, and the contribution from Banker Steel, partially offset by increased spending in Life Sciences[225][226] - Interest expense decreased due to the refinancing of 2021 Senior Secured Notes[227] - Loss on early extinguishment of debt increased due to refinancing activities for Senior Secured Notes, Convertible Notes, and Infrastructure debt[228] - Other income decreased significantly, primarily due to the gain on the partial sale of HMN in the prior year period[231][232] Segment Results of Operations This section provides a detailed analysis of the financial performance for each of the company's operating segments - Infrastructure segment revenue increased by $222.2 million (Q3) and $266.7 million (9M) primarily due to the Banker Steel acquisition ($114.3 million in Q3, $153.8 million in 9M) and increased project work[236][237] - Life Sciences segment revenue increased by $1.6 million (Q3) and $2.8 million (9M) as R2 began selling its Glacial Rx products[241] - Spectrum segment revenue increased by $0.5 million (Q3) and $2.0 million (9M) due to higher station revenues from expanded coverage and more OTA stations, and increased advertising at Azteca network[245][246] - Non-operating Corporate selling, general and administrative expenses decreased by $0.9 million (Q3) and $4.7 million (9M) due to reduced non-recurring proxy contest costs and other cost-saving measures[252] - Loss from equity investees in Life Sciences increased due to higher equity method losses from MediBeacon, driven by clinical trial timing[253] Non-GAAP Financial Measures and Other Information This section presents non-GAAP financial measures, such as Adjusted EBITDA, and their reconciliation to GAAP measures - Adjusted EBITDA is a non-GAAP measure used by management to provide insight into operating trends and facilitate peer comparisons, excluding items like interest, taxes, depreciation, amortization, and non-recurring costs[257][258] Adjusted EBITDA by Segment (in millions): | Segment | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Infrastructure | $24.4 | $17.7 | +$6.7 | $49.6 | $45.8 | +$3.8 | | Life Sciences | $(7.1) | $(5.9) | $(1.2) | $(19.4) | $(14.6) | $(4.8) | | Spectrum | $1.8 | $(0.2) | +$2.0 | $5.3 | $(2.4) | +$7.7 | | Non-Operating Corporate | $(3.8) | $(3.7) | $(0.1) | $(13.5) | $(12.3) | $(1.2) | | Other and Eliminations | $(1.0) | $(0.1) | $(0.9) | $(0.2) | $(1.0) | +$0.8 | | Total Adjusted EBITDA | $14.3 | $7.8 | +$6.5 | $21.8 | $15.5 | +$6.3 | - Infrastructure Adjusted EBITDA increased due to the Banker Steel acquisition, partially offset by project timing and market pressure on margins[259][265] - Life Sciences Adjusted EBITDA loss increased due to R2's ramp-up for Glacial Rx launch and higher equity method losses from MediBeacon[260][266] - Spectrum Adjusted EBITDA improved to a positive figure due to Azteca cost reductions, increased gross profit, and higher station revenues[261][267] Backlog This section details the company's project backlog, including contracted amounts and letters of intent - At September 30, 2021, DBMG's backlog was $1,605.9 million, with $1,326.7 million under contracts/purchase orders and $279.2 million under letters of intent/notices to proceed[272] - Approximately 62.5% of DBMG's backlog ($1,004.4 million) was attributable to five contracts, indicating concentration risk[272] Liquidity and Capital Resources This section discusses the company's cash position, debt, and ability to meet its short-term and long-term financial obligations - Consolidated cash and cash equivalents increased to $55.5 million at September 30, 2021, from $43.8 million at December 31, 2020[274] - Consolidated indebtedness increased to $676.0 million at September 30, 2021, from $576.6 million at December 31, 2020[276] - INNOVATE's stand-alone debt includes $330.0 million of 2026 Senior Secured Notes, $3.2 million of 2022 Convertible Notes, and $51.8 million of 2026 Convertible Notes[277] - The company believes it can meet liquidity requirements for the next twelve months through available cash and subsidiary distributions, but future financing may be needed[283] - Capital expenditures for the nine months ended September 30, 2021, were $15.0 million, up from $14.6 million in 2020, with Infrastructure accounting for $11.6 million[285] - The 2026 Senior Secured Notes mature on February 1, 2026, accrue interest at 8.50% annually, and are secured by substantially all company assets[286][288] - The 2026 Convertible Notes mature on August 1, 2026, accrue interest at 7.5% annually, and are convertible into common stock at an initial rate of 234.2971 shares per $1,000 principal amount[297][301] - The company is in compliance with its debt covenants, including liquidity and collateral coverage ratios, as of September 30, 2021[308][309] Summary of Consolidated Cash Flows (in millions): | Activity | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change | | :--- | :--- | :--- | :--- | | Operating activities from Continuing Operations | $(48.1) | $(6.8) | $(41.3) | | Investing activities from Continuing Operations | $6.4 | $221.4 | $(215.0) | | Financing activities from Continuing Operations | $62.2 | $(205.7) | +$267.9 | | Cash flows from discontinued operations | $(195.4) | $(84.9) | $(110.5) | | Net change in cash, cash equivalents and restricted cash | $18.8 | $5.1 | +$13.7 | - Cash used in operating activities increased due to working capital uses in Infrastructure, R2 product launch, and increases in accounts receivable[313] - Cash provided by investing activities decreased significantly due to the Banker Steel acquisition and reduced proceeds from subsidiary sales (Beyond6, Insurance segment) compared to prior year sales (GMSL, HMN)[314] - Cash provided by financing activities increased due to debt refinancing proceeds in Infrastructure and Non-Operating Corporate, and reduced dividend payments[315] Discontinued Operations (MD&A) This section provides management's discussion and analysis of the financial impact of discontinued operations - GMSL, ICS, Beyond6, and CIG have been reclassified as discontinued operations, with their revenues, costs, and expenses excluded from continuing operations[321] - Cash flows from discontinued operations are reported separately and are not expected to impact the company's liquidity[322][323] Off-Balance Sheet Arrangements This section describes the company's off-balance sheet commitments, such as letters of credit and performance bonds - DBMG's off-balance sheet arrangements at September 30, 2021, included $13.4 million in letters of credit and $860.4 million in performance bonds[325] New Accounting Pronouncements This section outlines the impact of recently adopted or pending accounting standards on the company's financial statements - Refer to Note 2 for details on new accounting pronouncements, including the early adoption of ASU 2020-06 and the delayed adoption of ASU 2016-13 (Credit Loss Standard) until January 1, 2023[326] Critical Accounting Policies This section discusses the accounting policies that require significant judgment and estimation by management - There were no material changes in the company's critical accounting policies during the quarter ended September 30, 2021[327] Related Party Transactions (MD&A) This section provides management's discussion of transactions with related parties - Refer to Note 16 for details on related party transactions, including leases and debt with Donald Banker, CEO of Banker Steel[328] Corporate Information This section provides basic corporate details about INNOVATE Corp., including its incorporation and executive offices - INNOVATE Corp. is a Delaware corporation, incorporated in 1994, with executive offices in New York, NY[329] Special Note Regarding Forward-Looking Statements This section cautions readers about forward-looking statements and the inherent risks and uncertainties - The report contains forward-looking statements subject to risks and uncertainties, including the impact of COVID-19, supply chain disruptions, ability to generate cash flows, substantial indebtedness, and regulatory changes[331][332][335] - Specific risk factors are outlined for INNOVATE Corp. and its subsidiaries (Infrastructure, Life Sciences, Spectrum, and Other segments), emphasizing their unique operational and market challenges[335][336][337][338] Item 4. Controls and Procedures Management evaluated disclosure controls and procedures as effective, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2021[339] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2021[340] PART II. OTHER INFORMATION This section covers legal proceedings, risk factors, and other required disclosures for the reporting period Item 1. Legal Proceedings The company is involved in ordinary course legal proceedings, with no anticipated material adverse effect on financial statements, and liabilities recorded when probable and estimable - The company is involved in ordinary course legal proceedings, but management does not anticipate a material adverse effect on financial statements[343] - Liabilities for legal matters are recorded when a loss is probable and the amount can be reasonably estimated[343] Item 1A. Risk Factors This section updates risk factors, including COVID-19 transportation challenges impacting DBMG and potential limitations on tax loss utilization due to ownership changes - Transportation challenges from COVID-19, including labor shortages, supply chain disruptions, and increased freight/trucking costs, could significantly delay DBMG's projects and adversely impact its results and financial condition[345] - The company's ability to use its $170.3 million federal net operating loss carryforwards may be substantially limited by an 'ownership change' under Code Sections 382 and 383[346] - The Tax Benefits Preservation Plan, adopted on August 30, 2021, aims to deter ownership changes but does not guarantee prevention of all transfers that could limit NOL utilization[347] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item reports on any unregistered sales of equity securities and the application of their proceeds Item 3. Defaults Upon Senior Securities This item discloses any defaults on senior securities during the reporting period Item 4. Mine Safety Disclosures This item provides disclosures related to mine safety, if applicable to the company's operations Item 5. Other Information This item includes any other material information not otherwise disclosed in the report Item 6. Exhibits This item lists all documents filed as exhibits to the quarterly report - Exhibits include corporate governance documents (Certificate of Amendment, By-Laws), preferred stock designations (Series B, A-3, A-4), and the Tax Benefits Preservation Plan[354] - Certifications from the Chief Executive Officer and Chief Financial Officer (Rule 13a-14(a)/15d-14(a) and Section 1350) are filed herewith[354][356] SIGNATURES This section contains the required certifications and signatures for the quarterly report