INNOVATE (VATE) Q3 2025 Earnings Call Transcript

Image source: The Motley Fool.

DATE

Wednesday, November 12, 2025 at 4:30 p.m. ET

CALL PARTICIPANTS

• Interim Chief Executive Officer — Paul Voigt
• Chief Financial Officer — Michael Sena

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Spectrum segment revenue and adjusted EBITDA declined by $800,000 and $700,000, respectively, due to "the termination of certain customers in the current period and the downturn in the direct response advertising market."
• Management noted that while there are "positive signs" in North East commercial markets, Life Sciences segment exits are progressing "longer than expected."
• Delays in regulatory progress for the 5G broadcast petition were explicitly attributed to "the ongoing government shutdown," temporarily impacting Spectrum segment advancement.
• Corporate cash and cash equivalents dropped to $1.9 million from $13.8 million at year-end.

TAKEAWAYS

• Consolidated Revenue -- $347.1 million, representing a 43.3% increase, with Infrastructure as the primary growth driver.
• Adjusted EBITDA -- $19.8 million, up from $16.8 million, with the increase primarily driven by Infrastructure, nonoperating corporate, and Life Sciences segments, but partially offset by Spectrum.
• Infrastructure Revenue -- $338.4 million, reflecting a 45.4% rise due to project timing and size in DBM Global's structural steel business, with additional activity at Banker Steel.
• Infrastructure adjusted EBITDA in the third quarter of 2025 -- $23.5 million, up $2.6 million from the prior year period, reflecting project execution at DBMG and Banker Steel, and lower recurring SG&A costs.
• DBM Gross Margin -- Compressed approximately 510 basis points to 13.6%, with adjusted EBITDA margin down approximately 200 basis points to 6.9% year-over-year.
• Backlog Metrics -- Reported backlog $1.5 billion; adjusted backlog up approximately $500 million since year-end to just over $1.6 billion, with $431 million added since the end of the third quarter for two new DBM Global projects.
• DBM Year‑to‑Date Revenue -- $836.4 million, highlighting strong execution despite prior market challenges.
• DBM Debt -- $104.1 million principal amount, down $40.6 million from year-end, due to refinancing and credit line reduction.
• Life Sciences Revenue -- $3.1 million, up 3.3% with R2's unit and consumable sales growth outside North America, partly offset by declines in North America.
• R2 International Growth -- Revenues outside North America up 206% year-over-year for the nine months of 2025, with system sales up 392% for the same period, and a backlog of roughly 70 units.
• Glacial Skin Utilization -- In the third quarter of 2025, patient treatments grew 102% and average monthly utilization per provider increased 24% compared to the same period last year.
• Spectrum Revenue -- For the third quarter of 2025, Spectrum revenue was $5.6 million, down $800,000 year-over-year due to customer terminations and ad market weakness; adjusted EBITDA was $1 million, down $700,000.
• New Spectrum Channel Launches -- MovieSphere Gold launched August 1, Sports First in October, and upcoming Black Vision, signaling focus on audience expansion and content diversification.
• Corporate Segment Cash -- $1.9 million on hand as of September 30, 2025, down from $13.8 million at the end of 2024.
• Total Outstanding Indebtedness -- $700.4 million as of September 30, 2025, up $32.1 million from $668.3 million at the end of 2024, stemming from refinancing at nonoperating and Life Sciences, partly offset by Infrastructure deleveraging.
• Strategic Alternatives -- Sale process for DBM Global initiated and strategic alternatives for HC2 Broadcasting being considered, both in accordance with existing debt covenants.
• Regulatory Milestone -- MediBeacon received full approval from China's National Medical Products Administration for its Lumitrace injection, enabling commercial launch of its kidney diagnostic in China.

SUMMARY

Management advanced its portfolio reshaping by formally launching a sale process for DBM Global and weighing options for HC2 Broadcasting, meeting senior note and debt agreement requirements. Improvement in consolidated revenue was led by project execution in the Infrastructure segment, which also drove increases in adjusted EBITDA despite margin compression. Life Sciences reported regulatory progress in China for MediBeacon and momentum for R2 internationally, while the Spectrum business focused on channel launches but faced ad market headwinds and regulatory-driven delays.

• Voigt said, "are still highly focused on our strategy of exiting our Life Science businesses," while acknowledging timing is falling behind initial plans.
• DBM Global's adjusted backlog grew by approximately $500 million to over $1.6 billion, with incremental $431 million added for new projects after the quarter's close.
• Michael Sena stated, "The increase was primarily driven by our Infrastructure, nonoperating corporate and Life Sciences segments, which was partially offset by our Spectrum segment."
• Spectrum's 5G broadcast petition experienced "temporarily delayed" regulatory progress caused by the government shutdown.

INDUSTRY GLOSSARY

• Adjusted EBITDA: Non-GAAP measure of operating profit that excludes interest, taxes, depreciation, amortization, and certain non-recurring items.
• Backlog: Confirmed project work under contract but not yet completed or recognized as revenue.
• Adjusted Backlog: Total backlog including signed contracts and contracts awarded but not yet officially signed, reflecting management's view of executable work pipeline.
• DBM Global (DBMG): INNOVATE’s Infrastructure segment specializing in structural steel fabrication, erection, and related construction services.
• R2: INNOVATE's Life Sciences subsidiary marketing Glacial Skin devices and aesthetic systems internationally.
• MediBeacon: INNOVATE's Life Sciences company specializing in kidney diagnostics and noninvasive monitoring solutions.
• SG&A: Selling, General, and Administrative expenses tied to running day-to-day business operations.
• LPTV: Low Power Television stations, often referenced in context of broadcast technology transformation.

Full Conference Call Transcript

Paul Voigt, INNOVATE's Interim CEO; and Mike Sena, INNOVATE's CFO. We have posted our earnings release and our slide presentation on our website at innovatecorp.com. We will begin our call with prepared remarks to be followed by a Q&A session. This call is also being simulcast and will be archived on our website. During this call, management may make certain statements and assumptions, which are not historical facts, will be forward-looking and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Any such forward-looking statements involve risks, assumptions and uncertainties and are subject to certain assumptions and risk factors that could cause INNOVATE's actual results to differ materially from these forward-looking statements. The risk factors that could cause these differences are more fully discussed in the cautionary statement that is included in our earnings release and the slide presentation and further detailed in our 10-K and other filings with the SEC. In addition, the forward-looking statements included in this conference call are only made as of this date of this call and are stated in our SEC reports. INNOVATE disclaims any intent or obligation to update or revise these forward-looking statements, except as expressly required by law.

Management will also refer to certain non-GAAP financial measures such as adjusted EBITDA. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance. At this point, it is my pleasure to turn things over to Paul Voigt.

Paul Voigt: Good afternoon. We are pleased to report our third quarter 2025 financial results and we'll provide you with an update on our 3 operating segments. INNOVATE delivered consolidated revenues of $347.1 million and adjusted EBITDA of $19.8 million in the third quarter of 2025. INNOVATE's path to long-term value creation continued in the third quarter. Advancements toward our targets across all segments are ongoing as demonstrated by our third quarter results. We made progress across each operational area and our commitment to performance remains strong. I am proud of the positive energy and momentum our teams have generated. Before we review our segments, we would like to provide an update on our strategic alternatives and recent refinancing transactions.

The company has engaged Jefferies & Company and initiated a sales process for DBM in accordance with our senior note requirements and HC2 Broadcasting Holdings has engaged a banker and is exploring strategic alternatives in accordance with the spectrum debt requirements. We believe the market is ripe for an asset like DBMG given their positioning to take advantage of the positive macro environment in the U.S. with continued commitments from companies to reinvest in the U.S. market, along with strong growth expected around data centers. We also see significant activity in the spectrum market that we believe has a positive impact on options for our Spectrum business.

We, of course, are still highly focused on our strategy of exiting our Life Science businesses. While this strategy has taken longer than expected, we remain steadfast in our ability to ultimately realize the value of these businesses. With that, let's turn to our quarterly review of our segments. To start the review of the subs and Infrastructure, DBM Global achieved revenues of $338.4 million and adjusted EBITDA of $23.5 million. During the quarter, DBM has seen gross margin compression year-over-year of approximately 510 basis points to 13.6% and adjusted EBITDA margin compression of approximately 200 basis points to 6.9% year-over-year.

Despite the year-over-year decrease in margins, we remain impressed by the performance of DBMG, evidenced in growth of our adjusted backlog, which has increased by approximately $500 million to just over $1.6 billion since the end of 2024. In fact, we have already added $431 million to the adjusted backlog for 2 newly awarded projects since the end of the third quarter. We remain highly impressed with DBM's global revenue performance through the first 9 months of 2025. Despite a challenging macro environment for project sales in 2024, along with project timing shifts, DBM has delivered strong year-to-date results, supported by disciplined execution and a robust backlog.

Revenue for the year-to-date stands at $836.4 million, reflecting DBM's ability to secure and execute complex projects across its diversified portfolio. As we talked about earlier, DBM's backlog remains extremely strong. We are optimistic about several key project awards expected in the fourth quarter, which would not only boost our adjusted backlog but also enhance visibility into the coming quarters. These sales, along with the anticipated awards represent significant opportunities in both commercial and industrial sectors, reinforcing DBM's leadership position and growth trajectory. Our world-class management team remains focused on margin discipline and operational excellence as we prepare to execute these projects.

While we anticipate EBITDA to come in slightly below 2024 levels, we are encouraged by the momentum building for 2026, driven by the growing adjusted backlog and improving market conditions. The majority of the work across the platform is primarily associated infrastructure, data centers and advanced manufacturing. We expect this trend to continue. Conversely, when looking at the Northeast region of the United States, we are seeing the commercial market showing some positive signs with a few sizable projects starting to move forward. Turning to Life Sciences. MediBeacon continues to hit key milestones as we previously expected.

On October 21, 2025, MediBeacon received full regulatory approval from China's National Medical Products Administration for its Lumitrace injection, a non-radioactive, non-iodenated fluorescent agent. This approval completes the regulatory package required for the commercial launch of MediBeacon Transdermal GFR system in China, which combines the Lumitrace injection with the TGFR monitor and TGFR sensor. This approval unlocks access to a critical health care market as chronic kidney disease is estimated to affect 11% of China's 1.4 billion people, representing approximately 154 million potential patients who may benefit from improved diagnostic tools.

MediBeacon's commercial and clinical development partnership with Huadong Medicine established in July 2019 will support the introduction of the TGFR system into clinics across China, where it's expected to become an important tool for physicians managing kidney health. In addition, MediBeacon's transdermal GFR system was highlighted in the August cover of the Journal of the American Society of Nephrology. JASN is one of the most respected peer-reviewed kidney journals in the world. The peer-reviewed article in the journal included data that demonstrated the transdermal GFR system point-of-care methodology for the assessment of kidney functions in patients with normal to impaired kidney function and for a full range of skin color types.

R2 delivered another solid quarter with top line revenue of $3.1 million in the third quarter of 2025 compared to $3 million in the third quarter of 2024. R2 also has year-to-date revenues of $9.4 million, representing an approximate increase of 65% over the same period from last year. This momentum was fueled by the increased demand outside of North America, which surged 206% in the top line revenue for the 9 months of 2025 compared to 2024, with an associated 392% increase in system sales for the same comparable period. R2 now carries a backlog of approximately 70 units globally.

With this sizable backlog, growing consumable revenue associated with a continually increasing installed base and opening new markets in Bolivia, the Netherlands and Belgium, we expect R2 to end the year strongly. We are happy with their progress and growth despite industry-level challenges in this market. Our 2 providers love Glacial Skin for their device unique ability to deliver control cooling for inflammation reduction, skin brightening and pigment correction, all without any downtime. Along with providing stunning results for patients, Glacial Skin devices deliver impressive business outcomes for providers. In the third quarter of 2025, patient treatments grew 102%, while average monthly utilization per provider increased 24% compared to the same period last year.

Glacial Skin's rising brand awareness is proving to be a powerful sales driver with social media engagement growth outperforming industry competitors by 3,687% -- supporting the surge for the 9 months of 2025, R2 saw year-over-year increases of 88% in patient provider searches and 127% in website users. Our confidence in R2's significant market opportunity remains strong, and we are highly content with the company's accomplishments. Over the last year, we have been particularly impressed by the advancements R2 has achieved. Moving to Spectrum. Third quarter revenues was $5.6 million and adjusted EBITDA was $1 million. Spectrum strengthened its content portfolio this quarter with several exciting new network launches.

The August 1 debut of Lionsgate' MovieSphere Gold Channel was a success with HC2 Broadcasting serving as one of the principal distributors. In October, we introduced Sports First, a dynamic sports news channel now reaching 45 U.S. markets. Looking ahead, Black Vision, a new entertainment network, will be distributed exclusively by HC2 Broadcasting, both over-the-air and via streaming platforms. These additions underscore our commitment to delivering diverse, high-quality content and expanding our reach in key audience segments. Spectrum continues to face a challenging advertising environment with softness in ad sales persisting through the third quarter. However, new network launches are underway and fourth quarter ad sales are showing signs of strength.

We continue to make meaningful progress in next-generation broadcast technology through its collaboration with a large mobile carrier. Over the past 3 months, the team has worked closely to optimize the software and service performance. We will conduct extensive trials for major enterprise customers that will showcase the technology's unique capabilities during live sporting events. We are also actively exploring broader applications with hospitals, government first responders, utilities and automotive manufacturers. Our petition to the FCC seeking voluntary conversion of LPTV stations to 5G broadcast continues to receive strong support from industry stakeholders during the common period. However, progress on the next steps has been temporarily delayed due to the ongoing government shutdown.

With that, I'll turn it over to Mike for a review of our financial and capital structure.

Michael Sena: Thanks, Paul. Consolidated total revenue for the third quarter of 2025 was $347.1 million, an increase of 43.3% compared to $242.2 million in the prior year period. The increase was primarily driven by our Infrastructure segment, which was partially offset by a decrease in our Spectrum segment. Net loss attributable to common stockholders and participating preferred stockholders for the third quarter of 2025 decreased to $9.4 million or $0.71 per fully diluted share compared to $15.3 million or $1.18 per fully diluted share in the prior year period. Total adjusted EBITDA was $19.8 million in the third quarter of 2025, an increase from $16.8 million in the prior year period.

The increase was primarily driven by our Infrastructure, nonoperating corporate and Life Sciences segments, which was partially offset by our Spectrum segment. At Infrastructure, revenue increased 45.4% to $338.4 million from $232.8 million in the prior year quarter. This increase was primarily driven by the timing and size of projects at DBMG's commercial structural steel fabrication and erection business and a slight increase at Banker Steel, which had increased activity subsequent to the comparable period on certain large commercial construction projects as several projects progressed into more advanced phases of fabrication and erection during the current year period.

These increases were partially offset by the industrial maintenance and repair business due to increased activity in the comparable period on certain large commercial construction and industrial maintenance projects that have since been completed. Infrastructure adjusted EBITDA for the third quarter of 2025 increased to $23.5 million from $20.9 million in the prior year period. The increase was primarily driven by the increase in revenue and gross profit at DBMG's commercial structural steel fabrication and erection business, which had increased activity subsequent to the comparable period on certain large commercial construction projects and an improvement in gross profit at Banker Steel and a decrease in recurring SG&A expenses, primarily due to a decrease in compensation-related expenses and consulting fees.

These increases were partially offset by the decrease in revenue and gross profit at the industrial maintenance and repair business due to increased activity in the comparable period on certain large commercial construction and industrial maintenance projects that have since been completed. As of September 30, 2025, reported backlog was $1.5 billion and adjusted backlog, which takes into consideration awarded but not yet signed contracts, was $1.6 billion compared to reported backlog of $1 billion and adjusted backlog of $1.1 billion at the end of 2024.

DBMG ended the quarter with $104.1 million in principal amount of debt, which is a decrease of $40.6 million from the end of 2024, primarily driven by its refinancing and a decrease in their credit line. As a reminder, the credit line balance tends to fluctuate based on the timing of DBMG collections. At the end of the third quarter, the balance dipped due to collection timing. However, we anticipate it to increase by the end of the year to support net working capital needs as the backlog expands. At Life Sciences, revenue increased 3.3% to $3.1 million from $3 million in the prior year quarter.

The increase in revenue was attributable to R2, primarily driven by increases in Glacial Spa unit sales and Glacial FX unit sales outside of North America as well as an increase in consumable sales in North America. The increase was mostly offset by a decrease in Glacial FX unit sales in North America and a decrease in consumable sales outside of North America. Life Sciences adjusted EBITDA losses decreased for the quarter, which was primarily driven by a reduction in compensation-related expenses at Pansend. At Spectrum, year-over-year revenue decreased $800,000 to $5.6 million and adjusted EBITDA decreased $700,000 to $1 million.

The decreases were primarily driven by the termination of certain customers in the current period and the downturn in the direct response advertising market. Nonoperating corporate adjusted EBITDA losses were $2.1 million for the third quarter of 2025, a $700,000 improvement from the third quarter of 2024. The decrease in losses was primarily driven by a decrease in nonrefinancing-related legal fees due to legal matters settled subsequent to the comparable period as well as slight decreases in other professional expenses, insurance expense and employee-related expenses. At the end of the third quarter, the company had $35.5 million of cash and cash equivalents, excluding restricted cash compared to $48.8 million as of December 31, 2024.

On a stand-alone basis, as of September 30, 2025, our nonoperating corporate segment had cash and cash equivalents of $1.9 million compared to cash and cash equivalents of $13.8 million at the end of 2024. As of September 30, 2025, INNOVATE had total principal outstanding indebtedness of $700.4 million, up $32.1 million from $668.3 million at the end of 2024, driven by the indebtedness refinancing transactions at our nonoperating and Life Sciences segments, which was partially offset by the decrease in Infrastructure's outstanding debt. With that, operator, we'd now like to open up the call for questions.

Operator: There are currently no questions. I would like to turn the floor back over to Mike Sena for closing comments.

Michael Sena: Yes, sorry. We appreciate everyone's time this afternoon and look forward to providing you updates on our initiatives in the future. Thank you.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.