INNOVATE Corp. (VATE) Earnings Call Transcript

Please stand by. Your meeting is about to begin. Good afternoon, everyone. Welcome to Innovate's third quarter 2026 earnings conference call. [Operator Instructions] Please note, today's call is being recorded. Now I'd like to turn the conference over to Ms. Jenna Kozlowski with Investor Relations. Please go ahead, ma'am.

Good afternoon. Thank you for being with us to review Innovate's third quarter 2026 earnings [ release ]. We are joined today by Paul Voigt, Innovate's interim CEO, and Mike Sena, Innovate's CFO. We've 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 in the slide presentation, and further details in our 10-Q, 10-K, and other filings with the SEC. In addition, the forward-looking statements, including the conference call, are only made 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. We 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. The reconciliation of these measures to the most comparable GAAP measures are included in our earnings release and presentation. At this point, it is my pleasure to turn things over to Paul Voigt.

Good afternoon. We are pleased to report our third quarter 2026 financial results and provide an update on our operating segments.

For the third quarter, Innovate delivered consolidated revenues of $495.5 million and adjusted EBITDA of $40.5 million. Civic delivered a strong third quarter, highlighted by exceptional performance at DBM Global and continued progress across our portfolio. DBMG delivered another significant quarter ahead of the completion of its sale in October. MediBeacon continued to advance commercial adoption and key reimbursement initiatives. At Spectrum, we completed the sale of a controlling interest in broadcasting while retaining meaningful participation in the business, and R2 continued to generate healthy underlying demand. Before we turn to operating highlights, I would like to provide an update on the significant progress we have made simplifying Innovate's portfolio and unlocking value for shareholders. Subsequent to quarter end, on October 5th, we completed the sale of DBM Global, marking a significant milestone for Innovate. Their transaction crystallized the value created at DBMG while providing Innovate with substantial liquidity and an ownership interest in IES Holdings. We are extremely proud of what the DBMG team accomplished and believe the business is well positioned for its next chapter. During the quarter, we also completed the sale of a controlling interest in broadcasting to CONX Corp, with Innovate retaining a 25% ownership interest and the ability to increase our ownership through an option to acquire up to an additional 15% to reach a potential 40% ownership stake and continue participation in the future potential of the business. Broadcasting remains focused on expanding the utility of its spectrum assets and pursuing opportunities beyond traditional linear broadcasting. As of today, broadcasting has 287 operating stations, and the company continues to pursue additional station acquisition opportunities and takes advantage of FCC windows to gain additional licenses. Additionally, broadcasting is the largest owner of Class A stations and is well positioned for a second broadcast auction should it come to pass. These transactions represent important steps in simplifying our portfolio and sharpening our focus on maximizing the value of Innovate's remaining assets and investments while addressing our capital structure. To start the review of the businesses at infrastructure, DBM Global delivered another strong quarter with revenue of $490.6 million and adjusted EBITDA of $43.6 million. During the quarter, DBMG has seen gross margin improvement year over year of approximately 170 basis points to 15.3% and adjusted EBITDA margin improvement year over year of approximately 200 basis points to 8.9%. DBMG generated approximately $500 million of revenue from its existing backlog, maintaining adjusted backlog at approximately $2.7 billion. We believe the ability to replenish backlog at this level while executing against the significant volume of existing work demonstrates the strength of DBMG's customer relationships, opportunity pipelines, and the underlying demand environment. Activity remained healthy across the platform, supported by contracted awards, negotiated work, and project scope expansion. Technology, healthcare, and New York City remain key areas of activity, with continued investment in infrastructure supporting computing, artificial intelligence, advanced manufacturing, semiconductor production, energy systems, and digital connectivity. Importantly, DBMG's third quarter performance closed out an exceptional period for the business under Innovate's ownership. As discussed earlier, subsequent to the quarter end, we completed the sale of DBMG to IES Holdings. We are extremely proud of what the DBMG management team and employees accomplished during our ownership and believe the strength of the business at the time of the transaction reflects the significant value created over that period. DBMG closes out the last chapter with a strong quarter and September 30th, 2026, LTM adjusted EBITDA of $143.3 million and enters its next chapter with strong operating momentum, substantial backlog, and a healthy pipeline of opportunities extending into 2027 and 2028. We are excited about the business's future as part of IES and, through our ownership interest in IES, retain the opportunity to participate in its continued success. Turning to life sciences, MediBeacon continued to build momentum during the quarter as it advanced commercialization of the TGFR system and laid the groundwork for broader adoption into the United States and internationally. MediBeacon's TGFR system was nominated for the 2026 Prix Galien USA Best Medical Technology Award, recognizing its innovation and potential to transform kidney function assessment and patient care. Often referred to as the Nobel Peace Prize of the life science industry, the Prix Galien is among the most prestigious honors in healthcare innovation, recognizing breakthrough technologies that have the potential to significantly improve human health. The company continued to advance commercial adoption and key reimbursement initiatives for early utilization in kidney transplant donors, heart failure, and oncology. Commercial momentum is building with product shipments, research activities, and clinical utilization that is underway at leading medical centers. This is supported by expanding engagement with key opinion leaders and hospital value analysis committees. Importantly, MediBeacon continues to advance reimbursement initiatives, an important component for broader TGFR system adoption. During the third quarter, the company continued its engagement with Centers for Medicare and Medicaid Services and key private payers for additional reimbursement coding. The opportunity for MediBeacon's technology is expanding. The company continues to advance clinical development activities around its third generation wireless TGFR sensor targeting a broader addressable market for kidney function assessment. This new wireless system has an investigational device exemption approval from the FDA, authorizing the start of validation studies in the United States. At the same time, interest from pharmaceutical and biotechnology customers continues to grow. Transdermal GFR technology has been used in preclinical research for over a decade by Big Pharma. Initial transdermal GFR use by Big Pharma in clinical trials is now anticipated in 2027. Internationally, MediBeacon continues advanced commercialization initiatives, particularly in China, where orders for 600 TGFR monitors have been secured. Shipments are planned from the fourth quarter of 2026 through the second quarter of 2027. Looking ahead, MediBeacon remains focused on converting its growing commercial pipeline into broader utilization, advancing reimbursement and clinical development initiatives, and expanding the global opportunity for the TGFR system. Though conversion timing for new technology can take 6 to 12 months, commercial engagement around the platform is encouraging. MediBeacon is building an increasingly strong foundation for broader adoption. Turning to R2, the business continues to demonstrate strong underlying global demand during the third quarter. Worldwide demand reached 3.1 million, while revenues recognized during the quarter were $1.2 million. R2 exited the quarter with 116 systems carrying into the fourth quarter, representing roughly $1.9 million of future revenue, providing a meaningful pipeline as we close out the year. Importantly, R2 continued to make progress strengthening its manufacturing capabilities to better support this demand. Production of Glacial FX at Electronic Instrument and Technology, EIT, is now underway with 30 systems delivered and approximately 60 currently in production with delivery anticipated by November 30th. This represents an important step in expanding production capacity and supporting the company's commercial pipeline. Looking ahead, R2 remains focused on converting its strong underlying demand into revenue, scaling manufacturing, and expanding its international presence. With expanding production now underway and a substantial pipeline entering the fourth quarter, we believe R2 is increasingly well positioned to capitalize on the commercial demand for its technology. With the sale of DBMG now complete, we are entering an important next phase for Innovate. Our focus is on building upon momentum at MediBeacon and R2, maintaining a disciplined approach to capital allocation, and evaluating opportunities to unlock value across our remaining businesses. We are encouraged by the progress we are seeing across the portfolio, and we believe the strategic actions we have taken have positioned Innovate with greater flexibility as we continue to execute against our priorities and drive long-term value for shareholders. Before we move on, I want to remind shareholders that our life science portfolio includes value that isn't reflected in our segment results. Through [ PAN-CEN ], in which we hold a 75% economic interest, we remain eligible for potential milestone payments in connection with the 2018 sale of [ Benevere ] to Johnson & Johnson, of which [ PAN-CEN ] owns approximately 76% on a fully diluted basis at the time of sale. Those payments total up to $900 million in aggregate, of which $500 million would be due to Innovate, which is made up of three development milestones totaling $250 million and four commercial milestones totaling $650 million, each tied to specific regulatory approvals and net sales thresholds. [ PAN-CEN ] also owns 80% of [ Genoval ], a medical device company developing partial and total knee replacements for osteoarthritis based on patented technologies developed at NYU School of Medicine. We appreciate the continued support of our shareholders, employees, customers, and partners. With that, I will turn it over to Mike for a review of our financial and capital structure.