INNOVATE Corp. (VATE) Earnings Call Transcript & Summary

Good afternoon, and thanks for joining us to go over INNOVATE's third quarter 2026 earnings results. With us today are Paul Voigt, INNOVATE's Interim CEO, and Mike Sena, INNOVATE's CFO. Our earnings release and slide presentation have been posted on our website at innovatecorp.com. We'll start the call with prepared remarks, and a Q&A session will follow. This call is being simulcast as well and will be archived on our website. On this call, management may make certain statements and assumptions that are not historical facts, will be forward-looking, and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. 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 discussed more fully in the cautionary statement included in our earnings release and the slide presentation, and are further detailed in our 10-Q, 10-K, and other filings with the SEC. Also, the forward-looking statements, including on this conference call, are made only as of the date of this 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 certain non-GAAP financial measures, such as adjusted EBITDA. We believe these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency when reviewing our financial and operational performance. Reconciliations of these measures to the most comparable GAAP measures are included in our earnings release and presentation. At this point, I'm pleased to turn things over to Paul Voigt.

Good afternoon. We're glad to share our financial results for the third quarter of 2026 and to give you an update on the segments we operate; during that quarter, INNOVATE posted consolidated revenues of $495.5 million along with adjusted EBITDA of $40.5 million. INNOVATE put up a strong third quarter, with standout results at DBM Global and ongoing progress throughout our portfolio. DBMG turned in yet another substantial quarter just before its sale closed in October, and MediBeacon kept moving forward on commercial adoption as well as important reimbursement efforts. At Spectrum, we finished selling a controlling stake in broadcasting while keeping a meaningful interest in the business, and R2 went on producing healthy underlying demand. Prior to covering the operating highlights, I want to bring you up to speed on the significant strides we've taken toward streamlining INNOVATE's portfolio and creating value for shareholders. Following the close of the quarter, on October 5th, we completed the divestiture of DBM Global — a landmark achievement for INNOVATE. Through that deal, the value that had been built at DBMG was fully realized, delivering sizable liquidity to INNOVATE along with an equity stake in IES Holdings. Words cannot express how proud we are of everything the DBMG team accomplished, and we feel confident that the business is positioned favorably as it enters its next phase. In the quarter, we completed selling a controlling stake in broadcasting to CONX Corp. INNOVATE retains a 25% ownership interest, plus an option allowing us to acquire up to another 15%, which could lift our stake to 40% and let us continue sharing in the business's future potential. Broadcasting is still centered on broadening the usefulness of its spectrum assets and chasing opportunities outside conventional linear broadcasting. Today, broadcasting operates 287 stations, and the company continues to look for further station acquisitions while using FCC windows to secure more licenses. Beyond that, broadcasting holds the biggest position in Class A stations, putting it in a strong spot for another broadcast auction if one happens. These deals mark key strides toward making our portfolio simpler and honing our attention on getting the most value from INNOVATE's other assets and investments, all while tackling our capital structure. Starting the business review with infrastructure, DBM Global turned in another solid quarter, posting revenue of $490.6 million and adjusted EBITDA of $43.6 million. In the quarter, DBMG's gross margin rose about 170 basis points year-over-year to 15.3%, while adjusted EBITDA margin gained roughly 200 basis points year-over-year to 8.9%. DBMG brought in roughly $500 million in revenue from work already in its backlog, and adjusted backlog held at about $2.7 billion. In our view, being able to refill the backlog to that level while carrying out such a large amount of existing work demonstrates how strong DBMG's customer relationships are, along with its pipeline of opportunities and the demand environment beneath it. Sales activity remained healthy throughout the platform, helped by contracted awards, negotiated work, and expansion of project scope. Technology, healthcare, and New York City continue to be the main areas where we see activity, and we keep putting investment into infrastructure that supports computing, artificial intelligence, advanced manufacturing, semiconductor production, energy systems, and digital connectivity. What matters here is that DBMG's third quarter wrapped up a remarkable stretch for the business while INNOVATE owned it. As we mentioned before, after the quarter closed, we finished selling DBMG to IES Holdings. We couldn't be prouder of what DBMG's management team and employees achieved while we owned the company, and we think the business's strength at the time of the transaction shows just how much value was built over that stretch. DBMG wraps up its final chapter with a solid quarter and LTM adjusted EBITDA of $143.3 million as of September 30th, 2026, and it starts the next chapter carrying strong operating momentum, a substantial backlog, and a healthy pipeline of opportunities reaching into 2027 and 2028. We're eager about what lies ahead for the business within IES, and our ownership stake in IES preserves our opportunity to participate in its future achievements. Turning to life sciences, MediBeacon sustained its forward drive during the quarter, advancing commercialization of the TGFR System and laying groundwork for broader uptake both across the United States and abroad. The TGFR System from MediBeacon earned a nomination for the 2026 Prix Galien USA Best Medical Technology Award — an acknowledgment of its inventiveness and its capacity to transform kidney function evaluation and patient care. Often described as the life sciences sector's equivalent of a Nobel Peace Prize, the Prix Galien stands among healthcare innovation's most coveted awards, calling attention to breakthrough technologies that could significantly better human health. The company continued to push commercial uptake and essential reimbursement work for early application in kidney transplant donors, heart failure, and oncology. Commercial momentum keeps building, with product shipments, research work, and clinical use now taking place at top medical centers. That is supported by expanding involvement with key opinion leaders and hospital value analysis committees. Crucially, MediBeacon continues to advance reimbursement efforts, which is a vital element for wider adoption of the TGFR System. In Q3, we kept working with the Centers for Medicare & Medicaid Services as well as major commercial insurers on further reimbursement codes. MediBeacon's technology has a growing opportunity set. We're continuing to push clinical development of our third-generation wireless TGFR Sensor, which targets a larger addressable market for kidney function assessment. That new wireless system holds an investigational device exemption approval from the FDA, which opens the door to launching validation studies here in the United States. Meanwhile, pharma and biotech customers are showing rising interest. Large pharmaceutical companies have relied on Transdermal GFR technology in preclinical research for over ten years. The first clinical-trial use of Transdermal GFR by a major pharmaceutical company is now anticipated in 2027. On the international front, MediBeacon continues to advance commercialization efforts, particularly in China, where orders covering 600 TGFR Monitors have been locked in. Those shipments are set to go out between the fourth quarter of 2026 and the second quarter of 2027. Looking ahead, MediBeacon remains intent on converting its growing commercial pipeline into broader utilization, driving reimbursement and clinical development work forward, and expanding the global opportunity for the TGFR System. Although adopting new technology can require anywhere from six to 12 months, commercial interest in the platform is encouraging. MediBeacon is building an increasingly solid foundation for wider adoption. Turning to R2, that segment continued to demonstrate strong underlying global demand during Q3. Worldwide demand totaled 3.1 million, and revenue recognized for the quarter stood at $1.2 million. R2 ended the quarter with 116 systems that carry over into Q4, representing about $1.9 million in future revenue — a meaningful pipeline as we close out the year. Equally important, R2 continued gaining ground in bolstering its manufacturing capabilities so it can better meet this demand. Production of Glacial fx is now underway at EIT LLC (Electronic Instrumentation & Technology, EIT), with 30 systems delivered and roughly 60 in production at present, and delivery anticipated by November 30th. This is a significant move toward expanding how much we can produce and toward backing the company's commercial pipeline. From here on, R2 remains concentrated on turning its strong underlying demand into revenue, on scaling up manufacturing, and on extending its international footprint; now that production expansion is underway and a sizable pipeline is coming into the fourth quarter, we think R2 is ever more favorably situated to take advantage of commercial interest in its technology; with the DBMG sale now finished, INNOVATE is entering a key next stage. We are centered on carrying forward the momentum at MediBeacon and R2, maintaining discipline in how we allocate capital, and evaluating chances to unlock value throughout our remaining businesses. We feel good about the momentum building throughout our portfolio, and we think the strategic steps we've taken have given INNOVATE more room to maneuver as we continue delivering on our priorities and creating lasting value for shareholders. Before we go further, I'd like to remind shareholders that our life science portfolio holds value that our segment results don't capture. Pansend, where our economic stake is 75%, could still receive milestone payments from the 2018 sale of BeneVir Biopharm to Johnson & Johnson. At the time of that sale, Pansend held roughly 76% on a fully diluted basis. Altogether those payments could reach $900 million, and $500 million of that would go to INNOVATE. That $500 million breaks down as three development milestones worth $250 million plus four commercial milestones worth $650 million, with each one contingent on particular regulatory approvals and net sales thresholds. In addition, Pansend holds 80% of Genovel Orthopedics, a medical device firm that is working on partial and total knee replacements for osteoarthritis, built on patented technologies created at NYU School of Medicine. We’re grateful for the ongoing backing of our shareholders, employees, customers, and partners. With that, I’ll hand things over to Mike, who will walk through our financial and capital structure.

Appreciate that, Paul. For the third quarter of 2026, consolidated total revenue came in at $495.5 million, which is up 42.8% from $347.1 million in the same period last year. That gain was mainly thanks to our infrastructure segment, though it was partly offset by declines in our Spectrum and life sciences segments. Net income attributable to common stockholders and participating preferred stockholders for the third quarter of 2026 was $15.8 million, or $1.10 per fully diluted share, versus a net loss of $9.4 million, or $0.71 per fully diluted share, in the prior year period. Total adjusted EBITDA for the third quarter of 2026 reached $40.5 million, up from $19.8 million in the prior year period. That improvement came primarily from our infrastructure segment, life sciences, and non-operating corporate segments, partly offset by our Spectrum segment. Over at infrastructure, revenue rose 45% to $490.6 million, up from $338.4 million in the prior year quarter. The growth was driven mainly by DBMG's commercial structural steel fabrication and erection business, which had more activity on several large construction projects than last year. Results also got a boost from favorable changes in estimated cost to complete on those projects, which reflect efficiencies the team achieved in execution. We also saw growth in our industrial maintenance and repair business, driven by the timing and size of projects, and to a lesser extent in our construction modeling and detailing business. Infrastructure adjusted EBITDA for the third quarter of 2026 rose to $43.6 million from $23.5 million in the prior year period. That increase was primarily driven by higher activity and project efficiencies at DBMG's commercial structural steel business, partly offset by higher SG&A and lower margins at our industrial maintenance and repair business due to fluctuations in material costs. As of September 30, 2026, reported backlog stood at $2.6 billion, and adjusted backlog, which takes into consideration awarded but not yet signed contracts, was $2.7 billion, compared to reported backlog of $1.7 billion and adjusted backlog of $1.8 billion at the end of 2025. DBMG ended the quarter with $68.7 million in principal amount of debt, a decrease of $19 million from the end of 2025, primarily driven by paying down its credit line in full and scheduled debt amortization payments. After the quarter end, DBMG's debt was repaid in full in connection with the closing of the sale on October 5th. At Life Sciences, revenue decreased 61.3% to $1.2 million from $3.1 million in the prior year quarter. The revenue decrease was attributable to R2, which realized lower unit sales across all product lines and regions. Life Sciences adjusted EBITDA loss improved year-over-year, driven primarily by lower compensation-related expenses at R2, partly offset by lower gross profit at R2 due to the revenue decline and higher equity method losses from MediBeacon. At Spectrum, third quarter revenue was $3.7 million compared to $5.6 million in the prior year quarter, and adjusted EBITDA was $300,000 compared to $1 million. Like Paul mentioned, those declines come from selling off our controlling stake in Spectrum, which means this quarter contains just two months of consolidated results versus a full three months a year ago. Our remaining 25% interest is now carried under the equity method. The non-operating corporate adjusted EBITDA loss came in slightly better, by $400,000 year-over-year for the quarter, mostly because professional fees went down. At September 30, 2026, the company held $4.9 million in cash and cash equivalents, leaving out held-for-sale assets and restricted cash, versus $5.1 million at December 31, 2025. Looking at it standalone, our non-operating corporate segment posted cash and cash equivalents of $4.2 million, in line with the end of 2025. At September 30, 2026, INNOVATE carried total principal outstanding and indebtedness of $583.3 million, excluding held-for-sale liabilities, which is up $53.5 million from $529.8 million at the close of 2025. That rise came mainly from PIK interest in our non-operating corporate and life sciences segments. As Paul noted, after the quarter ended we collected roughly $413 million in cash when the DBMG sale closed and applied net proceeds toward paying down our corporate credit line and redeeming $325 million of our senior secured notes. With those debt repayments made in connection with the DBMG sale closing, total principal indebtedness now stands at $238.3 million, and we expect to bring it down further as we monetize assets; with that, operator, we'd like to open the call for questions.

Yes. Thanks. During the third quarter, INNOVATE achieved meaningful strategic progress, marked by finishing the DBMG sale as well as ongoing momentum at MediBeacon and R2. With a more focused portfolio, we continue to feel encouraged about the opportunities in front of us, and we are concentrating on backing the ongoing growth of our business, keeping financial discipline, and generating long-term value for our shareholders. Thanks to all of you for joining the call, and thank you once more for all your support.

Thanks, Mr. Voigt. Once again, everyone, that brings INNOVATE's third quarter 2026 earnings conference call to a close; we truly appreciate all of you being with us today and hope the rest of your day goes wonderfully. Goodbye.