Innovate (VATE) Q1 2026 Earnings Transcript

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DATE

Thursday, May 14, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• Interim Chief Executive Officer — Paul Voigt
• Chief Financial Officer — Michael Sena
• SVP, Investor Relations — Anthony Rozmus

TAKEAWAYS

• Consolidated Revenue -- $364.8 million, up 33% driven primarily by Infrastructure performance, partially offset by Life Sciences and Spectrum declines.
• Adjusted EBITDA -- $19.7 million, increasing from $7.2 million due to contributions from Infrastructure and Life Sciences, partially offset by Spectrum.
• Net Loss -- $17.2 million, or $1.29 per fully diluted share, improving from a loss of $24.8 million or $1.89 per share.
• Infrastructure Segment Revenue -- $357.9 million, rising 35.1%, primarily reflecting higher commercial structural steel activity, offset by lower industrial maintenance revenue.
• Infrastructure Adjusted EBITDA -- $23 million, up from $16.7 million, with margin of 6.4%, supported by increased gross profit from project timing and size, partially offset by higher SG&A.
• Infrastructure Gross Margin -- 14.2%, down approximately 140 basis points, with the decline attributed to year-over-year compression.
• Reported Backlog -- $1.6 billion as of March 31, 2026, compared to $1.7 billion at year-end; adjusted backlog steady at $1.8 billion.
• Infrastructure Debt -- $76.6 million principal, a reduction of $11.1 million since year-end, largely attributed to decreased credit line usage.
• Life Sciences Revenue -- $1.6 million, decreasing 48.4%, with R2 segment revenue mainly impacted by declines in Glacial FX and Glacial Rx North American sales; partially offset by Glacial Spa growth internationally.
• Life Sciences Adjusted EBITDA Loss -- Loss reduced versus prior year due to fewer MediBeacon equity losses and lower R2 and Pansend SG&A, offset by fall in R2 gross profit.
• R2 Backlog -- Approximately 160 systems, near $2 million revenue, supported by increased international gross system sales of 58.6% and new distributor agreement in South Korea.
• Spectrum Revenue -- $5.3 million, declining by $900,000, with adjusted EBITDA at $700,000, both negatively affected by advertising demand softness and network terminations.
• FCC Regulatory Developments -- Spectrum filed over 60 new licenses and relocated more than 25 Class A licenses, aiming for expanded coverage and improved protection for potential future auctions.
• Cash and Cash Equivalents -- $134.6 million as of March 31, 2026, up from $112.1 million as of December 31, 2025, excluding restricted cash.
• Total Indebtedness -- $699 million in principal, an $11.8 million increase, mainly due to PIK interest in nonoperating and Life Sciences segments.
• Corporate Nonoperating Adjusted EBITDA Loss -- $2 million, slightly improved from $2.2 million previously.
• International Life Sciences Momentum -- MediBeacon achieved CE mark for TGFR monitor and sensor, received IDE approvals for several U.S. clinical studies, and began collaborations for Asia Pacific market entry.
• Spectrum Strategic Initiatives -- Project trials with a wireless carrier progressed, and a petition for 5G broadcast conversion continued gaining industry support, though no FCC action yet.
• Capital Structure Focus -- Management stated, "we continue to work with our lenders on strategic alternatives as we focus on fixing our capital structure."

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RISKS

• Spectrum business "continued to experience softness in advertising demand and network cancellations," materially impacting financial results.
• Total principal outstanding indebtedness rose to $699 million due to PIK interest accrual, increasing leverage.
• Life Sciences faced a sharp 48.4% revenue decline, attributed to reduced North American unit sales of Glacial FX and Glacial Rx.
• Management noted near-term Spectrum performance "remains challenged," with improvement conditional on stabilization of fundamentals and external market normalization.

SUMMARY

INNOVATE Corp. (NYSE:VATE) delivered significant top-line growth led by Infrastructure, although margin compression and continued net losses highlight ongoing operational challenges. Spectrum's regulatory license expansion and trials with a wireless carrier may open further revenue avenues, but advertising demand weakness offsets these positives. Life Sciences advanced clinical and regulatory milestones in multiple geographies while experiencing notable sales declines in North America. The company's cash position improved, but leverage increased as higher PIK interest offset debt repayment in certain segments. Management continues to pursue strategic alternatives targeting long-term capital structure stability and operational focus across all divisions.

• MediBeacon completed a week-long notified body audit with "no reservations," allowing for a streamlined global regulatory process.
• R2 Life Sciences reported total demand of $2.2 million in Q1, with international sales acting as a primary growth lever.
• DBM Global's pipeline of technology-related construction projects, including data centers and AI infrastructure, supported elevated backlog visibility into 2027.
• Spectrum leveraged recent FCC rulings to expand its U.S. footprint at marginal cost, signaling strategic positioning in anticipation of potential future spectrum auctions.
• Spectrum's 5G broadcast conversion petition, filed with the FCC, has attracted broad industry support without formal regulatory action to date.

INDUSTRY GLOSSARY

• PIK Interest: Payment-in-kind interest, where interest is paid by increasing the loan principal rather than cash payments.
• CE Mark: A certification mark indicating conformity with European health, safety, and environmental protection standards for products sold within the European Economic Area.
• IDE Approval: FDA Investigational Device Exemption allowing experimental use of medical devices in clinical studies in the United States.
• Adjusted Backlog: The value of awarded projects pending contract signature, in addition to signed backlog, reflecting additional visibility into future revenues.

Full Conference Call Transcript

Anthony Rozmus: Good afternoon. Thank you for being with us to review INNOVATE's first quarter 2026 earnings results. We are joined today by 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 the 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 disclosed 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 the call, and as 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 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 first quarter 2026 financial results and we'll provide you with an update on our 3 operating segments. For the first quarter, INNOVATE delivered consolidated revenues of $364.8 million and adjusted EBITDA of $19.7 million. INNOVATE delivered a strong start to the year with solid execution across the portfolio and improving visibility into 2026. Infrastructure exited the quarter with strong momentum and a healthy backlog, while life science, advanced key regulatory and commercial milestones -- at Spectrum, we continue to make progress on strategic initiatives that position the business for improved performance ahead.

To start the review of the subs at infrastructure, DBM Global achieved the first quarter revenue of $357.9 million and adjusted EBITDA of $23 million. During the quarter, DBM has seen gross margin compression year-over-year of approximately 140 basis points to 14.2% while adjusted EBITDA margin of 6.4% was largely consistent with the prior year quarter. Despite the year-over-year decrease in gross margin, we remain impressed by the world-class management team at DBMG, evidenced through maintaining our adjusted backlog of $1.8 billion from the end of the year of 2025 while increasing revenue as compared to the prior year quarter. DBMG started the year delivering a very strong first quarter, reflecting consistent execution and continued strength.

Sales activity remained healthy with disciplined pursuit selection and strong conversion rates translating into meaningful backlog generation. DBM exited the quarter with clear momentum, underpinned by a robust improving pipeline and early success in building backlog for 2027. This progress reinforces our confidence in the durability of the revenue base and highlights the potential for incremental upside as project timing and scope continue to firm up. And importantly, as visibility extends further out, the focus of organization is evolving from near-term execution to a disciplined, capacity aligned growth ensuring we deploy resources thoughtfully while maintaining margins, operational flexibility and long-term value creation.

Technology, health care and opportunities in New York City are driving our backlog to near record levels, and we have seen great results and positive outcomes as we ramp up these projects. We see a lot of capital is moving into physical infrastructure for computing in the United States. We are specifically seeing opportunities in technology-related construction markets and are concentrated around AI infrastructure, energy systems, advanced manufacturing and digital connectivity. Technology companies are expected to continue spending at historic levels on computing infrastructure, and we continue to see robust sales opportunities in the markets and DBM sees significant opportunities in the technology markets, specifically data centers, chipmakers and other specialty technology projects. Turning to Life Sciences.

MediBeacon continues to make meaningful progress across regulatory, clinical and commercial fronts. In the United States, there is growing momentum with focus on specific use cases in cardiology, oncology and in kidney transplant donor assessment. From a regulatory standpoint, we've successfully completed a week long notified body quality systems audit with no reservations consistent with the medical device single audit program. MediBeacon now has access to a streamlined approach for existing and eventual approvals in the United States, Europe, Japan, Australia, Canada and Brazil. Under the European medical device regulation, MediBeacon received the CE mark for the TGFR monitor and TGFR reusable sensor.

Looking ahead, MediBeacon is in collaboration with its partner and targeting approval in additional Asia Pacific markets this year. Clinically, progress continues across multiple programs in the surgical visualization clinical study, several patients have been enrolled. There is ongoing optimization of agent dose and administration timing ahead of additional patient enrollment. In the ocular angiography clinical study, MediBeacon received FDA Investigational Device Exemption IDE approval, along with hospital board approval. Patient recruitment is now underway. MediBeacon also received IDE approval for the TGFR wireless sensor. The wearable prototype is ready to be used in the clinical study with planned enrollment this year. Finally, IDE approval has also been secured for a study focused on evaluation of renal functional reserve.

Renal functional reserve has potential clinical value in cardiac risk assessment and kidney donor evaluation. R2 continued to demonstrate strong global demand and commercial execution in the first quarter of 2026. For Q1 2026, R2 reported worldwide revenue of $1.6 million, while total demand reached $2.2 million. Combined with additional orders received early in Q2, R2 currently maintains a backlog of approximately 160 systems globally representing nearly $2 million in revenue and reinforcing continued momentum into the second quarter. International demand remained a key driver of growth during the quarter, with gross system sales outside North America increasing 58.6% compared to Q1 2025.

R2 continued expanding its global footprint through appointment of a new distributor in South Korea, representing an estimated $2 million opportunity. With sustained demand increasing backlog and continued global expansion, R2 begins the second quarter with strong underlying momentum. While R2 continues to execute its strategy, the business is looking to raise external capital to continue its progress through the year. Moving to Spectrum. First quarter revenues was $5.3 million and adjusted EBITDA was $700,000. During the quarter, Spectrum continued to experience softness in advertising demand and network cancellations. Despite these near-term headwinds, we are encouraged by the progress on several strategic fronts.

The recent NAB conference in Las Vegas generated a meaningful number of strategic and commercial opportunities and we are actively following up on these discussions in the coming months. In addition, favorable FCC rulings over the past year related to low-powered television and Class A stations has created opportunities to expand and optimize our U.S. Spectrum footprint at marginal costs over the next 6 to 12 months. During the LPT license window that opened in March 19, we filed applications for more than 60 new licenses to expand our national footprint and increased population coverage. These construction permits are expected to be granted over the coming months with up to 3 years to complete the station build-outs.

In addition, that same filing window enabled us to upgrade stations in larger markets by relocating more than 25 Class A licenses from smaller markets providing greater spectrum protection and improving strategic positioning for any future spectrum auctions. Our collaborative project with a mobile wireless carrier continues to advance with successful trials completed and discussions are underway regarding new market launches in the second half of 2026. Finally, the petition we filed with the SEC in March proposing 5G broadcast conversions to low-power television continues to gain support across the industry. Although no formal action has been taken to date by the FCC.

Overall, while near-term performance remains challenged, we believe the combination of stabilizing fundamentals, regulatory tailwinds and disciplined strategic investment positions spectrum for improved performance as conditions normalize. To conclude, we continue to work with our lenders on strategic alternatives as we focus on fixing our capital structure, and we'll provide additional information as we work to execute our strategy. With that, I'll turn it over to Mike for a review of our financials and capital structure.

Michael Sena: Thanks, Paul. Consolidated total revenue for the first quarter of 2026 was $364.8 million, an increase of 33% compared to $274.2 million in the prior year period. The increase is primarily driven by our Infrastructure segment, which was partially offset by decreases at our Life Sciences and Spectrum segments. Net loss attributable to common stockholders and participating preferred stockholders for the first quarter of 2026 decreased to $17.2 million or $1.29 per fully diluted share compared to $24.8 million or $1.89 per fully diluted share in the prior year period. Total adjusted EBITDA was $19.7 million in the first quarter of 2026, an increase from $7.2 million in the prior year period.

The increase was primarily driven by our Life Sciences and Infrastructure segments, which was partially offset by our Spectrum segment. At Infrastructure, revenue increased 35.1% to $357.9 million from $264.9 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, which had increased activity subsequent to the comparable period on certain large construction projects. This was partially offset by a decrease at the industrial maintenance and repair business due to the timing and size of projects, which had increased activity in the comparable period on certain large construction projects that have since been completed.

Infrastructure adjusted EBITDA for the first quarter of 2026 increased to $23 million from $16.7 million in the prior year period. The increase was primarily driven by an increase in gross profit at DBMG's commercial structural steel fabrication and erection business, which had increased activity subsequent to the comparable period on certain large construction projects. The increase was partially offset by a decrease in revenue and gross profit at our industrial maintenance and repair business due to timing of certain large construction projects in the comparable period that have since been completed and an increase in recurring SG&A expenses, primarily driven by an increase in compensation-related expenses due to timing.

As of March 31, 2026, reported backlog was $1.6 billion and adjusted backlog, which takes into consideration awarded but not yet signed contracts, was $1.8 billion compared to reported backlog of $1.7 billion and adjusted backlog of $1.8 billion at the end of 2025. DBMG ended the year with $76.6 million in principal amount of debt, which is a decrease of $11.1 million from the year-end of 2025, primarily driven by a decrease in their credit line. At Life Sciences, revenue decreased 48.4% to $1.6 million from $3.1 million in the prior year quarter.

The decrease in revenue was attributable to R2, primarily driven by decreases in Glacial FX and Glacial Rx unit sales in North America, which were partially offset by an increase in Glacial Spa unit sales outside of North America. Life Sciences adjusted EBITDA losses decreased for the quarter, primarily driven by fewer equity method losses recognized from MediBeacon and a decrease in recurring SG&A due to a reduction in compensation-related expenses at R2 and Pansend, which was partially offset by a decrease in gross profit at R2 due to the decrease in revenue. At Spectrum, year-over-year revenue for the first quarter decreased $900,000 to $5.3 million and adjusted EBITDA decreased $700,000 to $0.7 million.

The decreases were primarily driven by the termination of a few networks and individual markets subsequent to the comparable period. Nonoperating corporate adjusted EBITDA losses were $2 million in the first quarter of 2026, slightly down from $2.2 million in the first quarter of 2025. As of March 31, 2026, the company had $134.6 million of cash and cash equivalents, excluding restricted cash compared to $112.1 million as of December 31, 2025. On a stand-alone basis, as of March 31, 2026, our nonoperating corporate segment had cash and cash equivalents of $2.5 million compared to cash and cash equivalents of $4.2 million at the end of 2025.

As of March 31, 2026, INNOVATE had total principal outstanding indebtedness of $699 million, up $11.8 million from $687.2 million at the end of 2025. The increase was primarily driven by the PIK interest 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. With that, operator, we'd now like to open up the call for questions.

Operator: [Operator Instructions] We have reached the end of the question-and-answer session. I would now like to turn the call back over to Paul Voigt for closing comments.

Paul Voigt: Yes. Thank you. I want to thank everybody for their time and patience and support. Hopefully, we'll come back to you very soon with some positive news. We look forward to keeping in touch. Thank you. Bye-bye.

Operator: This concludes today's conference. You may disconnect your lines at this time, and thank you for your participation.

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