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vate-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

Commission File No. 001-35210


INNOVATE CORP. (Exact name of registrant as specified in its charter)


Delaware						54-1708481
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
222 Lakeview Ave., Suite 1660, West Palm Beach, FL						33401
(Address of principal executive offices)						(Zip Code)

(212) 235-2691

(Registrant’s telephone number, including area code)

_____________________________________________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.001 per share	VATE	New York Stock Exchange
Preferred Stock Purchase Rights	N/A	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer", "accelerated filer", "smaller reporting company", and "emerging growth company" in Rule 12b-2 of the Exchange Act.:


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of August 7, 2023, 79,234,991 shares of common stock, par value $0.001, were outstanding.

INNOVATE CORP.

INDEX TO FORM 10-Q


Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Comprehensive Loss	3
	Condensed Consolidated Balance Sheets	4
	Condensed Consolidated Statements of Stockholders’ Deficit	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
	(1) Organization and Business	8
	(2) Summary of Significant Accounting Policies	8
	(3) Revenue and Contracts in Process	10
	(4) Accounts Receivable, Net	12
	(5) Inventory	13
	(6) Investments	13
	(7) Property, Plant and Equipment, Net	14
	(8) Goodwill and Intangibles, Net	15
	(9) Leases	16
	(10) Other Assets, Accrued Liabilities and Other Liabilities	17
	(11) Debt Obligations	18
	(12) Income Taxes	21
	(13) Commitments and Contingencies	22
	(14) Share-Based Compensation	24
	(15) Preferred Stock and Equity	25
	(16) Related Parties	28
	(17) Operating Segments and Related Information	29
	(18) Basic and Diluted Loss Per Common Share	31
	(19) Fair Value of Financial Instruments	32
	(20) Supplementary Financial Information	32
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Item 4.	Controls and Procedures	54

PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56
Item 6.	Exhibits	56
	Signatures

PART I: FINANCIAL INFORMATION

Item 1. Unaudited Financial Statements

INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited, in millions, except per share amounts)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue	$	368.8	$	392.2	$	686.7	$	805.0
Cost of revenue	316.2		341.9		590.5		704.9
Gross profit	52.6		50.3		96.2		100.1
Operating expenses:
Selling, general and administrative	41.1		42.1		82.8		84.7
Depreciation and amortization	5.6		6.9		11.9		13.8

Other operating loss (income)	0.1		1.7		(0.3)		1.3
Income (loss) from operations	5.8		(0.4)		1.8		0.3
Other (expense) income:
Interest expense	(16.3)		(12.5)		(31.9)		(25.1)



Loss from equity investees	(0.3)		(0.5)		(4.3)		(1.0)

Other income, net	0.3		1.5		16.8		1.4
Loss from operations before income taxes	(10.5)		(11.9)		(17.6)		(24.4)
Income tax expense	(1.2)		(2.0)		(2.1)		(3.6)


Net loss	(11.7)		(13.9)		(19.7)		(28.0)
Net loss attributable to non-controlling interests and redeemable non-controlling interests	1.8		1.5		0.8		3.2
Net loss attributable to INNOVATE Corp.	(9.9)		(12.4)		(18.9)		(24.8)
Less: Preferred dividends	0.6		1.2		1.8		2.4
Net loss attributable to common stockholders	$	(10.5)	$	(13.6)	$	(20.7)	$	(27.2)









Loss per share - basic and diluted	$	(0.13)	$	(0.18)	$	(0.27)	$	(0.35)



Weighted average common shares outstanding - basic and diluted	77.9		77.5		77.8		77.4

The accompanying notes are an integral part of these condensed consolidated financial statements.

INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(Unaudited, in millions)


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Net loss	$	(11.7)	$	(13.9)	$	(19.7)	$	(28.0)
Other comprehensive loss
Foreign currency translation adjustment, net of tax	(0.1)		(2.5)		(1.1)		(1.8)

Disposition of equity method investment, net of tax	—		—		(9.1)		—
Other comprehensive loss	$	(0.1)	$	(2.5)	$	(10.2)	$	(1.8)
Comprehensive loss	(11.8)		(16.4)		(29.9)		(29.8)
Comprehensive loss attributable to non-controlling interests and redeemable non-controlling interests	1.8		1.7		3.5		3.3
Comprehensive loss attributable to INNOVATE Corp.	$	(10.0)	$	(14.7)	$	(26.4)	$	(26.5)

The accompanying notes are an integral part of these condensed consolidated financial statements.

INNOVATE CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited, in millions, except share amounts)


	June 30, 2023		December 31, 2022

Assets
Current assets
Cash and cash equivalents	$	28.8	$	80.4
Accounts receivable, net	293.6		254.9
Contract assets	175.3		165.1
Inventory	19.9		18.9
Restricted cash	—		0.3

Other current assets	13.6		16.8
Total current assets	531.2		536.4
Investments	7.4		59.5






Deferred tax asset	1.7		1.7
Property, plant and equipment, net	161.5		165.0
Goodwill	127.0		127.1
Intangibles, net	182.6		190.1
Other assets	68.1		71.9
Total assets	$	1,079.5	$	1,151.7

Liabilities, temporary equity and stockholders’ deficit
Current liabilities
Accounts payable	$	188.7	$	202.5
Accrued liabilities	73.3		65.4
Current portion of debt obligations	222.4		30.6
Contract liabilities	117.3		98.6


Other current liabilities	17.2		20.1
Total current liabilities	618.9		417.2



Deferred tax liability	3.8		9.1
Debt obligations	519.6		683.8
Other liabilities	55.2		71.2
Total liabilities	1,197.5		1,181.3
Commitments and contingencies
Temporary equity
Preferred stock Series A-3 and Series A-4, $0.001 par value	17.0		17.6
Shares authorized: 20,000,000 as of both June 30, 2023 and December 31, 2022
Shares issued and outstanding: 6,125 of Series A-3 and 10,000 of Series A-4 as of both June 30, 2023 and December 31, 2022
Redeemable non-controlling interest	(6.9)		43.4
Total temporary equity	10.1		61.0
Stockholders’ deficit
Common stock, $0.001 par value	0.1		0.1
Shares authorized: 160,000,000 as of both June 30, 2023 and December 31, 2022
Shares issued: 80,722,983 and 80,216,028 as of June 30, 2023 and December 31, 2022, respectively
Shares outstanding: 79,234,991 and 78,787,768 as of June 30, 2023 and December 31, 2022, respectively
Additional paid-in capital	327.0		330.1
Treasury stock, at cost: 1,487,992 and 1,428,260 shares as of June 30, 2023 and December 31, 2022, respectively	(5.4)		(5.3)
Accumulated deficit	(471.0)		(452.1)
Accumulated other comprehensive (loss) income	(1.6)		5.9
Total INNOVATE Corp. stockholders’ deficit	(150.9)		(121.3)
Non-controlling interest	22.8		30.7
Total stockholders’ deficit	(128.1)		(90.6)
Total liabilities, temporary equity and stockholders’ deficit	$	1,079.5	$	1,151.7

The accompanying notes are an integral part of these condensed consolidated financial statements.

INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited, in millions)


	Common Stock			Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss) (a)		Total INNOVATE Stockholders'(Deficit) Equity		Non- controlling Interest		Total Stockholders’ (Deficit) Equity		Temporary Equity

	Shares	Amount
Balance as of March 31, 2023	79.0	$	0.1	$	326.8	$	(5.4)	$	(461.1)	$	(1.5)	$	(141.1)	$	23.0	$	(118.1)	$	12.1

Share-based compensation	—	—		0.7		—		—		—		0.7		—		0.7		—




Preferred stock dividends	—	—		(0.4)		—		—		—		(0.4)		—		(0.4)		(0.3)

Issuance of common stock	0.2	—		—		—		—		—		—		—		—		—






Transactions with non-controlling interests	—	—		(0.1)		—		—		—		(0.1)		0.1		—		(0.2)



Net loss	—	—		—		—		(9.9)		—		(9.9)		(0.1)		(10.0)		(1.7)





Other comprehensive (loss) income	—	—		—		—		—		(0.1)		(0.1)		(0.2)		(0.3)		0.2
Balance as of June 30, 2023	79.2	$	0.1	$	327.0	$	(5.4)	$	(471.0)	$	(1.6)	$	(150.9)	$	22.8	$	(128.1)	$	10.1


	Common Stock			Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Accumulated Comprehensive Income (Loss) (a)		Total INNOVATE Stockholders' (Deficit) Equity		Non-controlling Interest		Total Stockholders' (Deficit) Equity		Temporary Equity
	Shares	Amount
Balance as of December 31, 2022	78.8	$	0.1	$	330.1	$	(5.3)	$	(452.1)	$	5.9	$	(121.3)	$	30.7	$	(90.6)	$	61.0

Share-based compensation	—	—		1.2		—		—		—		1.2		—		1.2		—



Taxes paid in lieu of shares issued for share-based compensation	(0.1)	—		—		(0.1)		—		—		(0.1)		—		(0.1)		—
Preferred stock dividends	—	—		(1.3)		—		—		—		(1.3)		—		(1.3)		(0.6)

Issuance of common stock	0.5	—		—		—		—		—		—		—		—		—

Distributions to non-controlling interests	—	—		—		—		—		—		—		(10.7)		(10.7)		(5.2)




Transactions with non-controlling interests	—	—		(3.0)		—		—		—		(3.0)		3.1		0.1		(0.1)


DBMGi preferred stock repurchase	—	—		—		—		—		—		—		—		—		(41.8)
Net (loss) income	—	—		—		—		(18.9)		—		(18.9)		2.1		(16.8)		(2.9)





Other comprehensive loss	—	—		—		—		—		(7.5)		(7.5)		(2.4)		(9.9)		(0.3)
Balance as of June 30, 2023	79.2	$	0.1	$	327.0	$	(5.4)	$	(471.0)	$	(1.6)	$	(150.9)	$	22.8	$	(128.1)	$	10.1

(a) Inclusive of other comprehensive (loss) income, foreign currency cumulative translation adjustments totaled a loss of $2.9 million as of June 30, 2023.

INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

(Unaudited, in millions)


	Common Stock			Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (a)		Total INNOVATE Stockholders' (Deficit) Equity		Non- controlling Interest		Total Stockholders’ (Deficit) Equity		Temporary Equity

	Shares	Amount
Balance as of March 31, 2022	78.4	$	0.1	$	330.8	$	(5.2)	$	(428.6)	$	7.0	$	(95.9)	$	26.6	$	(69.3)	$	66.2

Share based compensation expense	—	—		0.5		—		—		—		0.5		—		0.5		—

Fair value adjustment to redeemable non-controlling interest	—	—		0.1		—		—		—		0.1		—		0.1		(0.1)


Preferred stock dividends	—	—		—		—		—		—		—		—		—		(0.3)




Issuance of preferred stock	—	—		(0.9)		—		—		—		(0.9)		—		(0.9)		0.9





Other	—	—		0.2		—		—		—		0.2		—		0.2		—

Net (loss) income	—	—		—		—		(12.4)		—		(12.4)		0.2		(12.2)		(1.7)





Other comprehensive loss	—	—		—		—		—		(2.3)		(2.3)		(0.2)		(2.5)		—
Balance as of June 30, 2022	78.4	$	0.1	$	330.7	$	(5.2)	$	(441.0)	$	4.7	$	(110.7)	$	26.6	$	(84.1)	$	65.0


	Common Stock			Additional Paid-In Capital		Treasury Stock		Accumulated Deficit		Accumulated Other Comprehensive Income (a)		Total INNOVATE Stockholders' (Deficit) Equity		Non- controlling Interest		Total Stockholders’ (Deficit) Equity		Temporary Equity

	Shares	Amount
Balance as of December 31, 2021	77.8	$	0.1	$	330.6	$	(5.2)	$	(416.2)	$	6.4	$	(84.3)	$	28.1	$	(56.2)	$	68.1

Share-based compensation	—	—		1.3		—		—		—		1.3		—		1.3		—

Fair value adjustment to redeemable non-controlling interest	—	—		0.1		—		—		—		0.1		—		0.1		(0.1)


Preferred stock dividend	—	—		(0.8)		—		—		—		(0.8)		(1.3)		(2.1)		(0.6)

Issuance of common stock	0.6	—		—		—		—		—		—		—		—		—

Issuance of preferred stock	—	—		(0.9)		—		—		—		(0.9)		—		(0.9)		0.9



Transactions with non-controlling interests	—	—		0.1		—		—		—		0.1		(0.2)		(0.1)		0.1

Other	—	—		0.3		—		—		—		0.3		—		0.3		—

Net (loss) income	—	—		—		—		(24.8)		—		(24.8)		0.2		(24.6)		(3.4)





Other comprehensive loss	—	—		—		—		—		(1.7)		(1.7)		(0.2)		(1.9)		—
Balance as of June 30, 2022	78.4	$	0.1	$	330.7	$	(5.2)	$	(441.0)	$	4.7	$	(110.7)	$	26.6	$	(84.1)	$	65.0

(a) Inclusive of other comprehensive (loss) income, foreign currency cumulative translation adjustments totaled income of $3.4 million as of June 30, 2022.

The accompanying notes are an integral part of these condensed consolidated financial statements.

INNOVATE CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited, in millions)


	Six Months Ended June 30,
	2023		2022
Cash flows from operating activities
Net loss	$	(19.7)	$	(28.0)
Adjustments to reconcile net loss to cash used in operating activities
Share-based compensation expense	1.2		1.3
Depreciation and amortization (including amounts in cost of revenue)	19.9		21.1
Amortization of deferred financing costs and debt discount	3.3		2.2




Loss from equity investees	4.3		1.0
Realized and unrealized gains on equity method investments	(16.0)		—
Asset impairment expense	0.1		1.9

Deferred income taxes	(5.4)		0.8

Other operating activities, net	(0.7)		(1.3)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable	(38.3)		(21.3)
Contract assets	(10.2)		(34.1)
Other current assets	1.9		0.1
Inventory	(1.8)		(3.1)
Other assets	5.6		9.0
Accounts payable	(22.4)		1.7
Accrued liabilities	3.4		0.3
Contract liabilities	18.7		14.2
Other current liabilities	(3.2)		(5.7)
Other liabilities	(1.5)		(2.8)
Cash used in operating activities	(60.8)		(42.7)
Cash flows from investing activities
Purchase of property, plant and equipment	(8.2)		(8.8)
Proceeds from disposal of property, plant and equipment	0.3		1.8
Loan to equity method investee	—		(4.5)



Proceeds from the sale of equity method investment	54.2		—


Other investing activities	0.4		—
Cash provided by (used in) investing activities	46.7		(11.5)
Cash flows from financing activities
Proceeds from line of credit	75.0		142.3
Payments on line of credit	(77.0)		(85.1)
Proceeds from other debt obligations, net of deferred financing costs	3.6		0.4
Principal payments on other debt obligations	(14.2)		(19.2)







Purchase of preferred stock	(7.0)		—

Payments to non-controlling interests and redeemable non-controlling interests related to sale of equity method investment	(15.9)		—
Dividend payments	(1.6)		(2.7)
Other financing activities	(0.2)		(0.9)
Cash (used in) provided by financing activities	(37.3)		34.8
Effects of exchange rate changes on cash, cash equivalents and restricted cash	(0.6)		(1.4)
Net decrease in cash and cash equivalents, including restricted cash	(52.0)		(20.8)
Cash, cash equivalents and restricted cash, beginning of period	82.2		47.5
Cash, cash equivalents and restricted cash, end of period	$	30.2	$	26.7

The accompanying notes are an integral part of these condensed consolidated financial statements.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Organization and Business

INNOVATE Corp. ("INNOVATE" and, together with its consolidated subsidiaries, the "Company", "we" and "our") is a diversified holding company that has a portfolio of subsidiaries in a variety of operating segments. We seek to grow these businesses so that they can generate long-term sustainable free cash flow and attractive returns in order to maximize value for all stakeholders. While the Company generally intends to acquire controlling equity interests in its operating subsidiaries, the Company may invest to a limited extent in a variety of non-controlling equity interest positions or debt instruments. The Company’s shares of common stock trade on the NYSE under the symbol "VATE".

The Company currently has three reportable segments, plus our Other segment, based on management’s organization of the enterprise: Infrastructure, Life Sciences, Spectrum, and Other which includes businesses that do not meet the separately reportable segment thresholds.

1.Our Infrastructure segment is comprised of DBM Global Inc. ("DBMG") and its wholly-owned subsidiaries. DBMG is a fully integrated industrial construction, structural steel and facility maintenance provider that provides fabrication and erection of structural steel and heavy steel plate services and also fabricates trusses and girders and specializes in the fabrication and erection of large-diameter water pipe and water storage tanks, as well as 3-D Building Information Modeling (“BIM”) and detailing. DBMG provides these services on commercial, industrial, and infrastructure construction projects such as high- and low-rise buildings and office complexes, hotels and casinos, convention centers, sports arenas and stadiums, shopping malls, hospitals, dams, bridges, mines, metal processing, refineries, pulp and paper mills and power plants. Through GrayWolf Industrial Inc. ("GrayWolf"), DBMG provides integrated solutions for digital engineering, modeling and detailing, construction, heavy equipment installation and facility services including maintenance, repair, and installation to a diverse range of end markets. Through Aitken Manufacturing, Inc., DBMG manufactures pollution control scrubbers, tunnel liners, pressure vessels, strainers, filters, separators and a variety of customized products. Through Banker Steel Holdco, LLC ("Banker Steel"), DBMG provides full-service fabricated structural steel and erection services primarily for the East Coast and Southeast commercial and industrial construction market, in addition to full design-assist services. The Company maintains an approximately 91% controlling interest in DBMG.

2.Our Life Sciences segment is comprised of Pansend Life Sciences, LLC ("Pansend"), its subsidiaries and equity method investments. Pansend maintains controlling interests of approximately 80% in Genovel Orthopedics, Inc. ("Genovel"), which seeks to develop products to treat early osteoarthritis of the knee and approximately 57% in R2 Technologies, Inc. ("R2"), which develops aesthetic and medical technologies for the skin. Pansend also invests in other early stage or developmental stage healthcare companies including an approximately 46% interest in MediBeacon Inc. ("MediBeacon"), a medical technology company specializing in the advances of fluorescent tracer agents and transdermal measurement, potentially enabling real-time, direct monitoring of kidney function, and an approximately 26% interest in Triple Ring Technologies, Inc. ("Triple Ring"), a science and technology co-development company.

3.Our Spectrum segment is comprised of HC2 Broadcasting Holdings Inc. ("Broadcasting") and its subsidiaries. Broadcasting strategically acquired and operates over-the-air broadcasting stations across the United States. The Company maintains a 98% controlling interest in Broadcasting and maintains a controlling interest of approximately 77%, inclusive of approximately 10% proxy and voting rights from minority holders of DTV America Corporation ("DTV"). On a fully diluted basis, the Company would have an approximately 86% controlling interest in Broadcasting.

4.Our Other segment represents all other businesses or investments that do not meet the definition of a segment individually or in the aggregate. Included in the Other segment is TIC Holdco, Inc. ("TIC"), which is developing a multi-purpose cultural and performing arts space in Palm Beach, Florida, the former Marine Services segment, which includes its holding company, Global Marine Holdings, LLC ("GMH"), in which the Company maintains approximately 73% controlling interest. GMH's results include its subsidiary's prior 19% equity method investment in HMN International Co., Ltd., formerly known as Huawei Marine Networks Co. (“HMN”), until it was sold on March 6, 2023. Refer to Note 6. Investments for additional information.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries and all other subsidiaries over which the Company exerts control. All intercompany profits, transactions and balances have been eliminated in consolidation. The remaining interests not owned by the Company are presented as a non-controlling interest component of total equity.

Basis of Presentation and Liquidity

The accompanying unaudited Condensed Consolidated Financial Statements of the Company included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information. All such adjustments are of a normal recurring nature. Certain information and note disclosures, including a description of significant accounting policies normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"), have been condensed or omitted in these interim unaudited financial statements pursuant to such rules and regulations. Certain prior amounts have been reclassified or combined to conform to the current year presentation.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

These interim financial statements should be read in conjunction with the Company’s annual audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 14, 2023. The results of operations for the six months ended June 30, 2023 are not necessarily indicative of the results for any subsequent periods or the entire fiscal year ending December 31, 2023.

On August 8, 2023, Lancer Capital, LLC (“Lancer”), a related party and an entity controlled by Avram A. Glazer, the Chairman of INNOVATE's Board of Directors and a beneficial owner of the Company, provided a letter of support for up to $35.0 million to the Company expressing Lancer’s continued support for the Company and Lancer’s intent to facilitate the provision of additional funding as reasonably requested by the Board through August 11, 2024. Management believes that with the available cash on hand, available borrowings under the senior credit facility, distributions from the Company’s subsidiaries and the letter of support from Lancer, the Company will be able to meet its obligations for at least the next twelve months from the issuance of these Condensed Consolidated Financial Statements.

The ability of INNOVATE’s subsidiaries to make distributions to INNOVATE is subject to numerous factors, including restrictions contained in each subsidiary’s financing agreements, availability of sufficient funds at each subsidiary and the approval of such payment by each subsidiary’s board of directors, which must consider various factors, including general economic and business conditions, tax considerations, strategic plans, financial results and condition, expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends, and such other factors each subsidiary’s board of directors considers relevant. Although the Company believes, to the extent needed, that it will be able to raise additional debt or equity capital, refinance indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that we are not able to satisfy with the funds on hand or expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company, if at all. Such financing options, if pursued, may also ultimately have the effect of negatively impacting our liquidity profile and prospects over the long-term and dilute holders of common stock. Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments. In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners.

Use of Estimates and Assumptions

The preparation of the Company’s Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions used.

Recent Accounting Pronouncements

Accounting Pronouncements Adopted in the Current Year

Credit Loss Standard

In June 2016, the FASB issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. This new standard and its related amendments change the impairment model for most financial assets that are measured at amortized cost and certain other instruments, including trade receivables and contract assets, from an incurred loss model to an expected loss model and adds certain new required disclosures. Under the new expected loss model, which is based on historical experience, current conditions and reasonable and supportable forecasts, entities recognize estimated credit losses over the entire contractual term of the instrument rather than delaying recognition of credit losses until it is probable the loss has been incurred.

The adoption of ASU 2016-13 and its related amendments on January 1, 2023, did not have any effect on the Company’s Condensed Consolidated Financial statements and did not record any effects through retained earnings. For the amounts calculated for the Current Expected Credit Loss (“CECL”) model subsequent to initial transition, the Company recognizes the expense in the Condensed Consolidated Statements of Operations, and the amount is presented within general and administration costs rather than a separate line. Refer to Note 4. Accounts Receivable, Net.

The Company reviewed its entire portfolio of assets recognized on the balance sheet as of January 1, 2023, and identified Accounts Receivable and Contract Assets as the material impacted assets in-scope of Topic 326. The risk of credit losses from the remaining portfolio of assets was concluded to be immaterial. Accounts Receivable and Contract Assets are presented net of allowances for credit losses. Refer to Note 4. Accounts Receivable, Net. At each balance sheet date, all potentially uncollectible accounts are assessed individually for the purpose of determining the appropriate provision for doubtful accounts. Management has elected to use a risk-based, pool-level segmentation framework to calculate the expected loss rate. Management evaluates its experience with historical losses and then applies this historical loss ratio to financial assets with similar characteristics. The Company’s historical loss ratio or its determination of risk pools may be adjusted for changes in customer, economic, market or other circumstances. The Company may also establish an allowance for credit losses for specific receivables when it is probable that the receivable will not be collected and the loss can be reasonably estimated. Amounts are written off against the allowance when they are considered to be uncollectible, and reversals of previously reserved amounts are recognized if a specifically reserved item is settled for an amount exceeding the previous estimate.

INNOVATE CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED

(Unaudited)

Subsequent Events

ASC 855, Subsequent Events requires the Company to evaluate events that occur after the balance sheet date as of which the financial statements are issued, and to determine whether adjustments to or additional disclosures in the financial statements are necessary. Refer to Note 11. Debt Obligations for subsequent events.

3. Revenue and Contracts in Process

Revenue from contracts with customers consists of the following (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue
Infrastructure	$	362.4	$	382.1	$	674.1	$	784.3
Life Sciences	0.7		1.0		1.2		1.8
Spectrum	5.7		9.1		11.4		18.9

Total revenue	$	368.8	$	392.2	$	686.7	$	805.0

Accounts receivables, net, from contracts with customers consist of the following (in millions):


	June 30, 2023		December 31, 2022

Accounts receivables with customers
Infrastructure	$	286.5	$	244.5
Life Sciences	0.8		0.8
Spectrum	2.0		5.1
Total accounts receivables with customers	$	289.3	$	250.4

Infrastructure Segment

The following table disaggregates DBMG's revenue by market (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Commercial	$	98.3	$	218.4	$	210.8	$	456.6
Industrial	115.5		85.0		206.8		174.2
Transportation	59.7		7.9		101.2		17.9
Healthcare	44.7		31.2		76.1		57.3
Convention	36.1		22.1		61.5		41.7
Leisure	1.4		5.6		4.6		9.8
Government	2.9		9.1		6.6		16.5
Other	3.3		2.8		6.0		10.0
Total revenue from contracts with customers	361.9		382.1		673.6		784.0
Other revenue	0.5		—		0.5		0.3
Total Infrastructure segment revenue	$	362.4	$	382.1