INNOVATE Corp

Previous wording

In 2024, including subsequent to the first quarter end, as part of our strategic process, we engaged in several transactions that had or will have an effect on the results of operations and financial condition of our business and individual segments.

Current wording

In 2024, including subsequent to the second quarter end, as part of our strategic process, we engaged in several transactions that had or will have an effect on the results of operations and financial condition of our business and individual segments.

Previous wording

Per the concurrent investment agreement entered into with Lancer Capital (the "Investment Agreement"), the Rights Offering was backstopped by Lancer Capital, an investment fund led by Avram A. Glazer, the Chairman of the Board and the Company’s largest stockholder. Due to limitations on the common stock that can be issued to Lancer Capital under the rules of the New York Stock Exchange ("NYSE"), in lieu of exercising its subscription rights, pursuant to the Investment Agreement, Lancer Capital would purchase up to $19.0 million of the Company’s newly issued Series C Non-Voting Participating Convertible Preferred Stock (the “Series C Preferred Stock”), for an issue price of $1,000 per share. In connection with the backstop commitment, and as a result of limitations in the amount common equity that can be raised under the Company’s effective shelf registration statement on Form S-3, Lancer Capital also agreed to purchase an additional $16.0 million of Series C Preferred Stock in a private placement transaction ("Concurrent Private Placement") to close concurrently with the settlement of the Rights Offering. Lancer Capital did not receive any compensation or other consideration for entering into or consummating the Investment Agreement.

Current wording

Per the concurrent investment agreement entered into with Lancer Capital (the "Investment Agreement"), the Rights Offering was backstopped by Lancer Capital, an investment fund led by Avram A. Glazer, the Chairman of the Board and the Company’s largest stockholder. Due to limitations on the common stock that can be issued to Lancer Capital under the rules of the New York Stock Exchange ("NYSE"), in lieu of exercising its subscription rights, pursuant to the Investment Agreement, Lancer Capital would purchase up to $19.0 million of the Company’s newly issued Series C Non-Voting Participating Convertible Preferred Stock (the “Series C Preferred Stock”), for an issue price of $1,000 per share. In connection with the backstop commitment, and as a result of limitations in the amount common equity that can be raised under the Company’s effective shelf registration statement on Form S-3, Lancer Capital also agreed to purchase an additional $16.0 million of Series C Preferred Stock in a private placement transaction ("Concurrent Private Placement") which was to close concurrently with the settlement of the Rights Offering. Lancer Capital did not receive any compensation or other consideration for entering into or consummating the Investment Agreement.

Previous wording

As the Rights Offering had not yet settled by March 28, 2024, in accordance with the Investment Agreement, Lancer Capital purchased $25.0 million of Series C Preferred Stock, referred to as the "equity advance." Subsequent to quarter end, on April 24, 2024, the Company completed and closed on the Rights Offering and issued a total of 5,306,105 shares of common stock for approximately $3.7 million. Based on the number of shares of common stock actually sold upon exercise of the rights to third party investors, there were no excess shares of Series C Preferred Stock purchased by Lancer Capital under the equity advance that the Company was required to redeem, and Lancer Capital purchased an additional approximately 6,286 Series C Preferred Stock for $6.3 million under the backstop commitment. The total gross proceeds received subsequent to quarter end were $10.0 million.

Current wording

As the Rights Offering had not yet settled by March 28, 2024, in accordance with the Investment Agreement, Lancer Capital purchased $25.0 million of Series C Preferred Stock, referred to as the "equity advance." On April 24, 2024, the Company completed and closed on the Rights Offering and issued a total of 5,306,105 shares of common stock for $3.7 million. Based on the number of shares of common stock actually sold upon exercise of the rights to third party investors, there were no excess shares of Series C Preferred Stock purchased by Lancer Capital under the equity advance that the Company was required to redeem, and Lancer Capital purchased an additional approximately 6,286 Series C Preferred Stock for $6.3 million under the backstop commitment. In total, the Company received $35.0 million in aggregate gross proceeds related to the Rights Offering and Concurrent Private Placement and incurred $1.8 million in dealer manager fees and other related costs which have been capitalized into Additional paid in capital ("APIC"). INNOVATE expects to use the net proceeds from the Rights Offering for general corporate purposes, including debt service and for working capital. In addition, as a result of the closing of the Rights Offering and Concurrent Private Placement, a mandatory prepayment was required on the CGIC Unsecured Note, and consequently, on April 26, 2024, INNOVATE redeemed $4.1 million of the CGIC Unsecured Note.

Previous wording

Under the rules of the NYSE, because the shares purchased by Lancer Capital are greater than 20% of the Company's common stock outstanding before the issuance of the Series C Preferred Stock, those shares of Series C Preferred Stock may not be converted unless stockholder approval of such issuance is obtained. The Series C Preferred Stock are convertible into common stock at the price equivalent to the subscription price under the Rights Offering contingent on shareholder approval, which will be voted on at the next annual meeting. If the Series C Preferred Stock is not converted to common stock, it may be redeemed at the Company’s option or on the sixth anniversary of issuance plus accrued interest of 8% which is only due upon redemption and not conversion. See Note 15. Temporary Equity and Equity for additional information on the terms.

Current wording

Under the rules of the NYSE, because the shares purchased by Lancer Capital were greater than 20% of the Company's common stock outstanding before the issuance of the Series C Preferred Stock, those shares of Series C Preferred Stock were not allowed to be converted until stockholder approval of such issuance was obtained. On June 18, 2024, the Company held its annual shareholder meeting where Company's shareholder's approved the conversion of the Series C Preferred stock into common stock. As a result, approximately 31,286 Series C Preferred Stock, held by Lancer Capital, were converted into 44,693,895 of INNOVATE's common stock. See Note 15. Equity and Temporary Equity for additional information.

Previous wording

In connection with the termination of the 2023 Preservation Plan, the Company will be taking routine actions to deregister the related preferred stock purchase rights under the Securities Exchange Act of 1934, and to delist the preferred stock purchase rights from the NYSE These actions are administrative in nature and will have no effect on the Company’s common stock, which will continue to be listed on the NYSE.

Current wording

On May 6, 2024, the Company terminated its Tax Benefits Preservation Plan entered into on April 1, 2023 (the “2023 Preservation Plan”) because the Company’s Board of Directors determined that the 2023 Preservation Plan was no longer necessary or desirable for the preservation of the Company’s ability to use its tax net operating losses and other certain tax assets. In connection with the termination of the 2023 Preservation Plan, the Company took routine actions to deregister the related preferred stock purchase rights under the Securities Exchange Act of 1934, and to delist the preferred stock purchase rights from the NYSE. These actions are administrative in nature and will have no effect on the Company’s common stock, which will continue to be listed on the NYSE.

Previous wording

DBMG and Banker Steel, jointly and severally, have a subordinated 4.0% note payable to Banker Steel's former owner, in which Donald Banker's family trust has a 25% interest, and jointly and severally also had a subordinated 8.0% note payable to Donald Banker's family trust, the latter of which was fully paid off in December 2023. During the three months ended March 31, 2024, DBMG made $2.5 million in scheduled payments on the 4.0% note. The 4.0% note matured on March 31, 2024 and was fully redeemed on April 2, 2024.

Current wording

DBMG and Banker Steel, jointly and severally, had a subordinated 4.0% note payable to Banker Steel's former owner, in which Donald Banker's family trust has a 25% interest, and jointly and severally also had a subordinated 8.0% note payable to Donald Banker's family trust, the latter of which was fully paid off in December 2023. During the six months ended June 30, 2024, DBMG made $5.0 million in scheduled payments on the 4.0% note. The 4.0% note matured on March 31, 2024 and was fully redeemed on April 2, 2024.

Previous wording

On January 31, 2024, R2 Technologies and Lancer Capital issued a new 20% note with an aggregate original principal amount of $20.0 million, which is comprised of the prior outstanding principal amounts and unpaid accrued interest of $2.6 million, which was capitalized into the new principal balance, with future interest payable monthly in arrears, in cash or, if not paid in cash, accrued and unpaid interest will be capitalized monthly into the principal balance. The new note also includes an exit fee payable upon the earliest of the maturity date, the acceleration date of the principal amount of the note, for any reason as defined in the agreement, or the date upon which any prepayment is made. The exit fee shall be equal to 10.5% of the principal if payment is made anytime from April 1, 2024 through April 30, 2024. As a result of the addition of the exit fee, the modification was determined to be an extinguishment under ASC 470-50 and the new exit fee payable to the existing lender is included in Other (expense) income, net on the Condensed Consolidated Statement of Operations. The maturity date of the new note is April 30, 2024 or within five business days of the date on which R2 Technologies receives an aggregate $20.0 million from the consummation of a debt or equity financing or has a change in control, as defined in the agreement, with an optional prepayment of the entire then-outstanding and unpaid principal and accrued interest upon five-days written notice to Lancer Capital. Subsequent to quarter end, effective April 30, 2024, the note was extended to May 17, 2024, and the exit fee payable was updated to 10.71% of the principal amount for repayments made after May 1, 2024.

Current wording

The original maturity date of the new $20.0 million note was April 30, 2024, or within five business days of the date on which R2 Technologies receives an aggregate $20.0 million from the consummation of a debt or equity financing or has a change in control, as defined in the agreement, with an optional prepayment of the entire then-outstanding and unpaid principal and accrued interest upon five-days written notice to Lancer Capital. The note has subsequently been further extended to December 31, 2024. The exit fee as of June 30, 2024, as amended, is equal to 10.88% of the principal amount being repaid and increases by 0.17% each month thereafter until maturity. Beginning July 31, 2024, if all outstanding amounts pursuant to the note are not prepaid in full, an additional exit fee of $1.0 million will be payable, increasing by $1.0 million each month until maturity. The Company shall pay the additional exit fee on the earliest of the maturity date, the date of the acceleration of the principal amount of the note for any reason or, if any portion of the note is prepaid at any time, the date of such prepayment of the note. Refer to Note 11. Debt Obligations of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, which is incorporated herein by reference for additional information on R2 Technologies' debt obligations.

Previous wording

Subsequent to quarter end, on May 6, 2024, the Company and MSD extended the maturity date of its Revolving Line of Credit from March 16, 2025 to May 16, 2025.

Current wording

On May 6, 2024, the Company and MSD extended the maturity date of its Revolving Line of Credit from March 16, 2025 to May 16, 2025.

Previous wording

During the first quarter of 2024, MediBeacon issued to Pansend an aggregate $1.2 million of 12% convertible notes payable, increasing Pansend's total outstanding principal receivable to $10.9 million.

Current wording

During the first quarter of 2024, MediBeacon issued to Pansend an aggregate $1.2 million of 12% convertible notes payable, increasing Pansend's total outstanding principal receivable to $10.9 million. During the second quarter of 2024, MediBeacon issued an aggregate $1.1 million of 12% convertible notes to Pansend, increasing the total outstanding principal due to Pansend to $12.0 million.

Previous wording

As a result of these note issuances by MediBeacon during the three months ended March 31, 2024, Pansend recognized $1.2 million of equity method losses which were previously unrecognized because Pansend's carrying amount of its investment in MediBeacon had been previously reduced to zero.

Current wording

As a result of these note issuances by MediBeacon during the three and six months ended June 30, 2024, Pansend recognized $1.1 million and $2.3 million, respectively, of equity method losses which were previously unrecognized because Pansend's carrying amount of its investment in MediBeacon had been previously reduced to zero.

Previous wording

As of March 31, 2024, Pansend's carrying amount of its investment in MediBeacon remains at zero, inclusive of the $10.9 million in convertible notes which have been offset against recognized losses, and has cumulative unrecognized equity method losses relating to MediBeacon of $8.7 million.

Current wording

As of June 30, 2024, Pansend's carrying amount of its investment in MediBeacon remains at zero, inclusive of the $12.0 million in convertible notes which have been offset against recognized losses, and has cumulative unrecognized equity method losses relating to MediBeacon of $9.4 million.

Previous wording

In the below section within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we compare, pursuant to U.S. GAAP and SEC disclosure rules, the Company’s results of operations for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023.

Current wording

In the below section within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we compare, pursuant to U.S. GAAP and SEC disclosure rules, the Company’s results of operations for the three and six months ended June 30, 2024 as compared to the three and six months ended June 30, 2023.

Previous wording

Revenue: Revenue for the three months ended March 31, 2024 decreased $2.7 million to $315.2 million from $317.9 million for the three months ended March 31, 2023. The decrease was driven by a decrease at our Infrastructure segment, which was partially offset by increases at our Spectrum and Life Sciences segments. The decrease at our Infrastructure segment was primarily driven by the timing and size of projects at DBMG's commercial structural steel fabrication and erection business and Banker Steel, which was partially offset by an increase at the industrial maintenance and repair business due to the timing and size of projects. The increase at our Spectrum segment was primarily driven by network launches and expanded coverage with existing customers. The increase at our Life Sciences segment was attributable to R2 Technologies, primarily due to the launch of the Glacial fx system in the second half of 2023 and an increase in Glacial Rx units sold.

Current wording

Revenue: Revenue for the three months ended June 30, 2024 decreased $55.7 million to $313.1 million from $368.8 million for the three months ended June 30, 2023. Revenue for the six months ended June 30, 2024 decreased $58.4 million to $628.3 million from $686.7 million for the six months ended June 30, 2023. The decreases were driven by our Infrastructure segment, which was partially offset by increases at our Life Sciences and Spectrum segments. The decrease at our Infrastructure segment was primarily driven by the timing and size of projects at Banker Steel and DBMG's commercial structural steel fabrication and erection business, both of which had increased activity in the comparable period on certain large commercial construction projects that are now at or near completion in the current period. This was partially offset by an increase at the industrial maintenance and repair business as a result of an increase in project work. The increase at our Life Sciences segment was primarily due to incremental unit sales from the launch of the Glacial fx system in the second half of 2023 and an increase in Glacial Rx units sold compared to the prior year period. The increase at our Spectrum segment was primarily driven by network launches and expanded coverage with existing customers.

Previous wording

Income (loss) from operations: Income (loss) from operations for the three months ended March 31, 2024, increased $6.8 million to income of $2.8 million from a loss of $4.0 million for the three months ended March 31, 2023. The increase was due to a net increase in gross profit of $5.0 million, a decrease in selling, general and administrative expenses ("SG&A") of $2.2 million and a decrease in depreciation and amortization of $1.9 million, which was partially offset by an increase in other operating expense of $2.3 million. The increase in gross profit was primarily driven by our Infrastructure segment due to timing of projects and, to a lesser extent, our Spectrum and Life Sciences segments. The overall decrease in SG&A was driven by unrepeated transaction expenses related to the sale of New Saxon's 19% investment in HMN in the comparable period, a decrease in compensation-related expenses at R2 Technologies, and our Non-Operating Corporate and our Spectrum segments, a decrease in marketing expenses and other costs as a result of cost reduction initiatives at R2 Technologies and decreases in consulting fees, disposition and acquisition expenses, and insurance expense at our Non-Operating Corporate segment, which was partially offset by an increase in compensation-related expenses at our Infrastructure segment. The overall decrease in depreciation and amortization was primarily driven by our Infrastructure segment, as certain customer contract intangibles became fully amortized in the second quarter of 2023. The increase in income from operations was partially offset by a loss on a disposal related to a plant closure in the first quarter of 2024 at our Infrastructure segment.

Current wording

Income from operations for the six months ended June 30, 2024 increased $29.8 million to $31.6 million from $1.8 million for the six months ended June 30, 2023. The increase was due to a net increase in gross profit of $18.0 million, an increase in other operating income of $8.3 million, a decrease in depreciation and amortization of $3.1 million and a decrease in SG&A expenses of $0.4 million. The increase in gross profit was primarily driven by our Infrastructure segment due to timing and size of projects that are now at or near completion in the current period, including the effect of changes in estimated costs to complete those projects recognized in the ordinary course of business, and, to a lesser extent, our Spectrum and Life Sciences segments. The overall increase in other operating income was driven by our Infrastructure segment primarily as a result of a gain on lease modification and a gain on the sale of various properties in the current period, which was partially offset by a loss on disposal related to a plant closure in the first quarter of 2024. The overall decrease in depreciation and amortization was primarily driven by our Infrastructure segment, as certain customer contract intangibles became fully amortized in the second quarter of 2023. The overall decrease in SG&A was driven by unrepeated transaction expenses related to the sale of New Saxon's 19% investment in HMN in the comparable period, a decrease in compensation-related expenses at our Non-Operating Corporate and Spectrum segments, a decrease in consulting fees at our Non-Operating Corporate segment, a decrease in legal fees and facility-related expenses at our Infrastructure segment, and cost reduction initiatives at R2 Technologies, which was partially offset by an increase in compensation-related expenses at our Infrastructure segment.

Previous wording

Interest expense: Interest expense for the three months ended March 31, 2024, increased $1.6 million to $17.2 million from $15.6 million for the three months ended March 31, 2023. The increase was primarily attributable to higher outstanding principal balances at our Non-Operating Corporate and Life Sciences segments as a result of new debt issued subsequent to the comparable period. This was partially offset by our Infrastructure segment due to a decrease in outstanding principal balances.

Current wording

Interest expense: Interest expense for the three months ended June 30, 2024 increased $0.2 million to $16.5 million from $16.3 million for the three months ended June 30, 2023. Interest expense for the six months ended June 30, 2024, increased $1.8 million to $33.7 million from $31.9 million for the six months ended June 30, 2023. The increases were primarily attributable to higher outstanding principal balances at our Non-Operating Corporate and Life Sciences segments as a result of new debt issued subsequent to the comparable period. This was partially offset by our Infrastructure segment due to a net decrease in outstanding principal balances.

Previous wording

Loss from equity investees: Loss from equity investees for the three months ended March 31, 2024 decreased $2.8 million to $1.2 million from $4.0 million for the three months ended March 31, 2023. The decrease in loss was primarily due to a reduction in losses from MediBeacon, primarily due to an unrepeated equity transaction with Huadong in the comparable period, which resulted in a $3.8 million increase in Pansend's basis in MediBeacon and a corresponding $3.8 million of additional equity method losses that were previously unrecognized, whereas, during the first quarter 2024, as a result of additional convertible note investments in MediBeacon by Pansend, Pansend's basis in MediBeacon increased by $1.2 million and Pansend recognized $1.2 million of equity method losses which were previously unrecognized. As of both March 31, 2024 and 2023, Pansend's net carrying amount of its investment in MediBeacon was zero and Pansend had unrecognized losses from this investment. Additionally contributing to the decrease in equity loss was our previous investment in HMN, which was sold on March 6, 2023 and had losses for the approximately two months of ownership in 2023. Refer to Note 6. Investments of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information on our equity investments.

Current wording

Loss from equity investees for the six months ended June 30, 2024 decreased $2.0 million to $2.3 million from $4.3 million for the six months ended June 30, 2023. The decrease in loss was primarily due to a reduction in losses from MediBeacon, primarily due to an unrepeated equity transaction with Huadong in the comparable period, which resulted in a $3.8 million increase in Pansend's basis in MediBeacon and a corresponding $3.8 million of additional equity method losses that were previously unrecognized. However, during the six months ended June 30, 2024, as a result of additional convertible note investments in MediBeacon by Pansend, Pansend's basis in MediBeacon increased by $2.3 million and Pansend recognized $2.3 million of equity method losses which were previously unrecognized. As of both June 30, 2024 and 2023, Pansend's net carrying amount of its investment in MediBeacon was zero, and Pansend had unrecognized losses from this investment. Additionally contributing to the decrease in equity loss was our previous investment in HMN, which was sold on March 6, 2023 and had losses for the approximately two months of ownership in 2023. Also contributing to the decrease in loss from equity investees was the partial sale of Triple Ring subsequent to the comparable period, which resulted in our investment in Triple Ring no longer being accounted for under the equity method of accounting. Thus, no equity method losses were recognized in the current period. Refer to Note 6. Investments of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for additional information on our equity investments.

Previous wording

Other (expense) income, net: Other (expense) income, net for the three months ended March 31, 2024 decreased $17.7 million to an expense $1.2 million from income of $16.5 million for the three months ended March 31, 2023. The decrease was primarily driven by the unrepeated gain on the sale of the equity investment in HMN of $12.3 million in the comparable period, an unrepeated $3.8 million step-up gain from the increase in Pansend's basis as a result of MediBeacon issuing $7.5 million of its preferred stock to Huadong in the comparable period and a $2.2 million loss on debt extinguishment at R2 Technologies in the current period. The decrease in other income was partially offset by an increase in foreign currency translation gains at our Infrastructure segment.

Current wording

Other income (expense), net: Other (expense) income, net for the six months ended June 30, 2024 decreased $17.8 million to an expense of $1.0 million from income of $16.8 million for the six months ended June 30, 2023. The decrease was primarily driven by the unrepeated gain on the sale of the equity investment in HMN of $12.2 million in the comparable period, an unrepeated $3.8 million equity investment step-up gain from an increase in Pansend's basis as a result of MediBeacon issuing $7.5 million of its preferred stock to Huadong in the comparable period as well as a $2.2 million loss on debt extinguishment at R2 Technologies in the current period. The decrease was partially offset by additional interest income earned at our Life Sciences segment as a result of additional investments in MediBeacon subsequent to the comparable period.

Previous wording

Income tax expense: Income tax expense for the three months ended March 31, 2024 increased $2.4 million to $3.3 million from $0.9 million for the three months ended March 31, 2023. The increase was primarily driven by the tax expense of INNOVATE Corp's U.S. consolidated group as a result of utilizing its remaining unlimited NOLs in 2024 and due to the Tax Cut and Jobs Act's 80 percent limitation on net operating losses incurred after 2018. Additionally, the annual effective tax rate calculated for three months ended March 31, 2023 interim tax provision included an unrepeated a $1.1 million tax benefit, consisting of a current tax expense of $4.4 million related to a foreign tax payment and a deferred tax benefit of $5.5 million related to the reversal of the deferred tax liability associated with the $11.3 million put option, both of which were related to the sale of New Saxon's 19% investment in HMN on March 6, 2023.

Current wording

Income tax benefit (expense): Income tax expense for the three months ended June 30, 2024 decreased $3.7 million to a benefit of $2.5 million from an expense of $1.2 million for the three months ended June 30, 2023. Income tax expense for the six months ended June 30, 2024 decreased $1.3 million to $0.8 million from an expense of $2.1 million for the six months ended June 30, 2023. The decreases were primarily driven by the tax expense of INNOVATE Corp's U.S. consolidated group utilizing its remaining unlimited NOLs in 2024 and due to the Tax Cut and Jobs Act's 80 percent limitation on net operating losses incurred after 2017, resulting in the annual effective tax rate for the current period being applied to the U.S. consolidated group's 2024 year-to-date income as calculated under ASC 740. The annual effective tax rate calculated for the comparable period interim tax provision included an unrepeated $1.1 million tax benefit, consisting of a current tax expense of $4.4 million related to a foreign tax payment and a deferred tax benefit of $5.5 million related to the reversal of the deferred tax liability associated with the $11.3 million put option, both of which were related to the sale of New Saxon's 19% investment in HMN on March 6, 2023.

Previous wording

In the Company's Condensed Consolidated Financial Statements, other operating (income) loss includes: (i) (gain) loss on sale or disposal of assets; (ii) lease termination costs; (iii) asset impairment expense; (iv) accretion of asset retirement obligations; and (v) FCC reimbursements. Each table summarizes the results of operations of our operating segments (in millions).

Current wording

In the Company's Condensed Consolidated Financial Statements, other operating (income) loss includes: (i) (gain) loss on sale or disposal of assets; (ii) lease termination costs and (gains) losses on lease modifications; (iii) asset impairment expense; (iv) accretion of asset retirement obligations; and (v) FCC reimbursements. Each table summarizes the results of operations of our operating segments (in millions).

Previous wording

Cost of revenue: Cost of revenue for the three months ended March 31, 2024 decreased $7.8 million to $263.1 million from $270.9 million for the three months ended March 31, 2023. The decrease was primarily driven by the decrease in revenues from the timing and size of projects at DBMG's commercial structural steel fabrication and erection business and Banker Steel, which was partially offset by an increase at the industrial maintenance and repair business due to the increase in revenues from the timing and size of projects.

Current wording

Cost of revenue: Cost of revenue for the three months ended June 30, 2024 decreased $69.3 million to $243.5 million from $312.8 million for the three months ended June 30, 2023. Cost of revenue for the six months ended June 30, 2024 decreased $77.1 million to $506.6 million from $583.7 million for the six months ended June 30, 2023. The decreases were primarily driven by the decrease in revenues from the timing of project activity on certain large commercial construction projects and decreases in costs as they wind down and near completion in the current period at Banker Steel and DBMG's commercial structural steel fabrication and erection business, which was partially offset by an increase in costs associated with the industrial maintenance and repair business as a result of an increase in project work.

Previous wording

Selling, general and administrative: Selling, general and administrative expense for the three months ended March 31, 2024 increased $1.2 million to $30.9 million from $29.7 million for the three months ended March 31, 2023. The increase was primarily driven by an increase in compensation-related expenses, which was partially offset primarily by a decrease in facility-related expenses and unrepeated accounting expenses.

Current wording

Selling, general and administrative: Selling, general and administrative expense for the three months ended June 30, 2024 increased $3.1 million to $33.8 million from $30.7 million for the three months ended June 30, 2023. The increase was primarily driven by an increase in compensation-related expenses and accounting-related costs, which was partially offset primarily by a decrease in legal and consulting fees, and facility-related expenses.

Previous wording

Depreciation and amortization: Depreciation and amortization for the three months ended March 31, 2024 decreased $1.9 million to $3.0 million from $4.9 million for the three months ended March 31, 2023. The decrease was primarily driven by Banker Steel, as certain customer contract intangibles became fully amortized in the second quarter of 2023.

Current wording

Depreciation and amortization: Depreciation and amortization for the three months ended June 30, 2024 decreased $1.2 million to $2.9 million from $4.1 million for the three months ended June 30, 2023. Depreciation and amortization for the six months ended June 30, 2024 decreased $3.1 million to $5.9 million from $9.0 million for the six months ended June 30, 2023. The decreases were primarily driven by Banker Steel, as certain customer contract intangibles became fully amortized in the second quarter of 2023.

Previous wording

Revenue: Revenue for the three months ended March 31, 2024 increased $0.5 million to $1.0 million from $0.5 million for the three months ended March 31, 2023. The increase in revenue was attributable to R2 Technologies, primarily due to increased unit sales from the launch of the Glacial fx system in the second half of 2023 and an increase in Glacial Rx units sold compared to the prior year period.

Current wording

Revenue: Revenue for the three months ended June 30, 2024 increased $1.0 million to $1.7 million from $0.7 million for the three months ended June 30, 2023. Revenue for the six months ended June 30, 2024 increased $1.5 million to $2.7 million from $1.2 million for the six months ended June 30, 2023. The increases in revenue were attributable to R2 Technologies, primarily due to incremental unit sales from the launch of the Glacial fx system in the second half of 2023 and an increase in Glacial Rx units sold compared to the prior year period.

Previous wording

Revenue: Revenue for the three months ended March 31, 2024 increased $0.6 million to $6.3 million from $5.7 million for the three months ended March 31, 2023. The increase was primarily driven by network launches, and expanded coverage with existing customers. The increase was partially offset by the termination of a number of smaller networks and individual markets subsequent to the comparable period.

Current wording

Revenue: Revenue for the three months ended June 30, 2024 increased $0.5 million to $6.2 million from $5.7 million for the three months ended June 30, 2023. Revenue for the six months ended June 30, 2024 increased $1.1 million to $12.5 million from $11.4 million for the six months ended June 30, 2023. The increases were primarily driven by network launches and expanded coverage with existing customers, which was partially offset by the termination of a number of smaller networks and individual markets subsequent to the comparable period.

Previous wording

Selling, general and administrative: Selling, general and administrative expense for the three months ended March 31, 2024 decreased $0.4 million to $1.9 million from $2.3 million for the three months ended March 31, 2023. The decrease was primarily driven by a decrease in salaries and benefits expense.

Current wording

Selling, general and administrative: Selling, general and administrative expense for the three months ended June 30, 2024 decreased $0.2 million to $1.8 million from $2.0 million for the three months ended June 30, 2023. Selling, general and administrative expense for the six months ended June 30, 2024 decreased $0.6 million to $3.7 million from $4.3 million for the six months ended June 30, 2023. The decreases were primarily driven by a decrease in salaries and benefits expense as a result of a reduction in headcount.

Previous wording

Other operating income: Other operating income for the three months ended March 31, 2024 decreased $0.3 million to zero from $0.3 million for the three months ended March 31, 2023. Other income for the three months ended March 31, 2023 was comprised of FCC reimbursements.

Current wording

Other operating loss (income): Other operating loss (income) for the six months ended June 30, 2024 decreased $0.4 million to a loss of $0.1 million from income of $0.3 million for the six months ended June 30, 2023. Other income for the six months ended June 30, 2023 was comprised of reimbursements from the Federal Communications Commission (the "FCC") for certain station modification costs.

Previous wording

Selling, general and administrative: Selling, general and administrative expenses for the three months ended March 31, 2024 decreased $0.8 million to $3.2 million from $4.0 million for the three months ended March 31, 2023, primarily driven by decreases in compensation-related expenses, consulting fees, disposition and acquisition expenses, and insurance expense, which was partially offset by an increase in legal fees.

Current wording

Selling, general and administrative: Selling, general and administrative expenses for the three months ended June 30, 2024 decreased $1.0 million to $2.8 million from $3.8 million for the three months ended June 30, 2023, primarily driven by decreases in compensation-related expenses, including reductions in bonus and stock-based compensation expense due to headcount changes, and a decrease in legal fees.

Previous wording

Other operating loss: Other operating loss for the three months ended March 31, 2024 increased to $0.3 million from zero for the three months ended March 31, 2023. Other operating loss in 2024 related to lease termination costs related to two leases the Company exited in the current period.

Current wording

Other operating (income) loss: Other operating (income) loss for the six months ended June 30, 2024 increased to a loss of $0.2 million from zero for the six months ended June 30, 2023, primarily driven by lease termination costs for two leases the Company exited in the current period.

Previous wording

Life Sciences: Loss from equity investees within our Life Sciences segment for the three months ended March 31, 2024 decreased $2.5 million to $1.2 million from $3.7 million for the three months ended March 31, 2023. The decrease in loss from equity investees was due to a reduction in losses from MediBeacon, primarily due to an unrepeated equity transaction with Huadong in the comparable period, which resulted in a $3.8 million increase in Pansend's basis in MediBeacon and a corresponding $3.8 million of additional equity method losses that were previously unrecognized, whereas, during the first quarter 2024, as a result of additional convertible note investments in MediBeacon by Pansend, Pansend's basis in MediBeacon increased by $1.2 million and Pansend recognized $1.2 million of equity method losses which were previously unrecognized. As of both March 31, 2024 and 2023, Pansend's net carrying amount of its investment in MediBeacon was zero and Pansend had unrecognized losses from this investment.

Current wording

Loss from equity investees within our Life Sciences segment for the six months ended June 30, 2024 decreased $1.7 million to $2.3 million from $4.0 million for the six months ended June 30, 2023. The decrease in loss from equity investees was primarily due to a reduction in losses from MediBeacon, primarily due to an unrepeated equity transaction with Huadong in the comparable period, which resulted in a $3.8 million increase in Pansend's basis in MediBeacon and a corresponding $3.8 million of additional equity method losses that were previously unrecognized, whereas, during the six months ended June 30, 2024, as a result of additional convertible note investments in MediBeacon by Pansend, Pansend's basis in MediBeacon increased by $2.3 million and Pansend recognized $2.3 million of equity method losses which were previously unrecognized. As of both June 30, 2024 and 2023, Pansend's net carrying amount of its investment in MediBeacon was zero and Pansend had unrecognized losses from this investment. Also contributing to the decrease in loss from equity investees was the partial sale of Triple Ring subsequent to the comparable period, which resulted in our investment in Triple Ring no longer being accounted for under the equity method of accounting and therefore no equity method losses for Triple Ring were recognized in the current period.

Previous wording

Other: Loss from equity investees within our Other segment for the three months ended March 31, 2024 decreased $0.3 million to zero from a loss of $0.3 million for the three months ended March 31, 2023. Loss from equity investees for the three months ended March 31, 2023 was driven by our previous investment in HMN, which was sold on March 6, 2023 and had losses for the approximately two months of ownership in 2023.

Current wording

Other: Loss from equity investees within our Other segment for the six months ended June 30, 2024 decreased $0.3 million to zero from a loss of $0.3 million for the six months ended June 30, 2023. Loss from equity investees for the six months ended June 30, 2023 was driven by our previous investment in HMN, which was sold on March 6, 2023 and had losses for the approximately two months of ownership in 2023.

Previous wording

The calculation of Adjusted EBITDA, as defined by us, consists of Net income (loss) attributable to INNOVATE Corp., excluding: discontinued operations, if applicable; depreciation and amortization; other operating (income) loss, which is inclusive of (gain) loss on sale or disposal of assets, lease termination costs, asset impairment expense and FCC reimbursements; interest expense; other (income) expense, net; income tax expense (benefit); non-controlling interest; share-based compensation expense; restructuring and exit costs; and acquisition and disposition costs.

Current wording

The calculation of Adjusted EBITDA, as defined by us, consists of Net income (loss) attributable to INNOVATE Corp., excluding: discontinued operations, if applicable; depreciation and amortization; other operating (income) loss, which is inclusive of (gain) loss on sale or disposal of assets, lease termination costs, (gains) losses on lease modifications, asset impairment expense and FCC reimbursements; interest expense; other (income) expense, net; income tax expense (benefit); non-controlling interest; share-based compensation expense; restructuring and exit costs; and acquisition and disposition costs.

Previous wording

Infrastructure: Net income from our Infrastructure segment for the three months ended March 31, 2024 increased $2.4 million to $4.4 million from $2.0 million for the three months ended March 31, 2023. Adjusted EBITDA from our Infrastructure segment for the three months ended March 31, 2024 increased $2.0 million to $18.3 million from $16.3 million for the three months ended March 31, 2023. The increase in Adjusted EBITDA was primarily driven by higher margins at DBMG's commercial structural steel fabrication and erection and the industrial maintenance and repair businesses, which was partially offset by an increase in recurring SG&A, primarily as a result of compensation-related expenses and a decrease in margin at the construction modeling and detailing business.

Current wording

Infrastructure: Net income from our Infrastructure segment for the six months ended June 30, 2024 increased $16.4 million to $25.4 million from $9.0 million for the six months ended June 30, 2023. Adjusted EBITDA from our Infrastructure segment for the six months ended June 30, 2024 increased $11.0 million to $50.8 million from $39.8 million for the six months ended June 30, 2023. The increase in Adjusted EBITDA was primarily driven by higher margins on certain large commercial construction projects that are now at or near completion in the current period at DBMG's commercial structural steel fabrication and erection and the industrial maintenance and repair businesses, which was partially offset by a decrease in margins at Banker Steel due to timing of completion of a large commercial construction project and an increase in recurring SG&A, primarily as a result of compensation-related expenses.

Previous wording

Life Sciences: Net loss from our Life Sciences segment for the three months ended March 31, 2024 increased $1.7 million to $4.5 million from $2.8 million for the three months ended March 31, 2023. Adjusted EBITDA loss from our Life Sciences segment for the three months ended March 31, 2024 decreased $3.6 million to $4.2 million from $7.8 million for the three months ended March 31, 2023. The decrease in Adjusted EBITDA loss was primarily due to lower equity method losses recognized from our investment in MediBeacon primarily due to an unrepeated equity transaction with Huadong in the comparable period, which resulted in a $3.8 million increase in Pansend's basis in MediBeacon and a corresponding $3.8 million of additional equity method losses that were previously unrecognized, whereas, during the first quarter 2024, as a result of additional convertible note investments in MediBeacon by Pansend, Pansend's basis in MediBeacon increased by $1.2 million and Pansend recognized $1.2 million of equity method losses which were previously unrecognized. As of both March 31, 2024 and 2023, Pansend's net carrying amount of its investment in MediBeacon was zero and Pansend had unrecognized losses from this investment. Refer to Note 6. Investments of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, for additional information on our equity investments. Additionally contributing to the decrease in Adjusted EBITDA loss was R2 Technologies, driven by a decrease in SG&A expenses primarily from decreases in compensation-related expenses, marketing costs, and other general and administrative expenses as a result of cost reduction initiatives, as well as an increase in revenue primarily due to an increase in Glacial fx unit sales, which launched in the second half of 2023, and an increase in Glacial Rx unit sales.

Current wording

Life Sciences: Net loss from our Life Sciences segment for the six months ended June 30, 2024 increased $2.6 million to $8.3 million from $5.7 million for the six months ended June 30, 2023. Adjusted EBITDA loss from our Life Sciences segment for the six months ended June 30, 2024 decreased $2.7 million to $9.0 million from $11.7 million for the six months ended June 30, 2023. The decrease in Adjusted EBITDA loss was primarily due to lower equity method losses recognized from our investment in MediBeacon primarily due to an unrepeated equity transaction with Huadong in the comparable period, which resulted in a $3.8 million increase in Pansend's basis in MediBeacon and a corresponding $3.8 million of additional equity method losses that were previously unrecognized, whereas, during the six months ended June 30, 2024, as a result of additional convertible note investments in MediBeacon by Pansend, Pansend's basis in MediBeacon increased by $2.3 million and Pansend recognized $2.3 million of equity method losses which were previously unrecognized. As of both June 30, 2024 and 2023, Pansend's net carrying amount of its investment in MediBeacon was zero and Pansend had unrecognized losses from this investment. Refer to Note 6. Investments of the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, for additional information on our equity investments. Additionally contributing to the decrease in Adjusted EBITDA loss was R2 Technologies, driven by an increase in revenue primarily due to an increase in Glacial fx unit sales, which launched in the second half of 2023, an increase in Glacial Rx unit sales and a decrease in SG&A expenses as a result of cost reduction initiatives.

Previous wording

Spectrum: Net loss from our Spectrum segment for the three months ended March 31, 2024 decreased $0.2 million to $4.8 million from $5.0 million for the three months ended March 31, 2023. Adjusted EBITDA from our Spectrum segment for the three months ended March 31, 2024 increased $1.2 million to $1.6 million from $0.4 million for the three months ended March 31, 2023. The increase in Adjusted EBITDA was primarily due to an increase in revenue primarily driven by network launches and expanded coverage with existing customers, as well as a decrease in salaries and benefits expense. This was partially offset by the termination of a number of smaller networks and individual markets subsequent to the comparable period.

Current wording

Spectrum: Net loss from our Spectrum segment for the six months ended June 30, 2024 decreased $0.5 million to $9.8 million from $10.3 million for the six months ended June 30, 2023. Adjusted EBITDA from our Spectrum segment for the six months ended June 30, 2024 increased $1.9 million to $3.1 million from $1.2 million for the six months ended June 30, 2023. The increase in Adjusted EBITDA was primarily due to an increase in revenue primarily driven by network launches and expanded coverage with existing customers, as well as a decrease in salaries and benefits expense. This was partially offset by the termination of a number of smaller networks and individual markets subsequent to the comparable period.

Previous wording

Non-Operating Corporate: Net loss from our Non-Operating Corporate segment for the three months ended March 31, 2024 increased $0.6 million to $12.5 million from $11.9 million for the three months ended March 31, 2023. Adjusted EBITDA loss from our Non-Operating Corporate segment for the three months ended March 31, 2024 decreased $0.6 million to $2.9 million from $3.5 million for the three months ended March 31, 2023. The decrease in Adjusted EBITDA loss was primarily driven by decreases in compensation-related expenses, consulting fees, and insurance expense, which was partially offset by an increase in legal fees.

Current wording

Non-Operating Corporate: Net loss from our Non-Operating Corporate segment for the six months ended June 30, 2024 decreased $9.7 million to $10.4 million from $20.1 million for the six months ended June 30, 2023. Adjusted EBITDA loss from our Non-Operating Corporate segment for the six months ended June 30, 2024 decreased $1.5 million to $5.4 million from $6.9 million for the six months ended June 30, 2023. The decrease in Adjusted EBITDA loss was primarily driven by decreases in compensation-related expenses, due to headcount changes, and a decrease in consulting fees.

Previous wording

Other and Eliminations: Net income from our Other segment and Eliminations for the three months ended March 31, 2024 decreased $8.7 million to zero from $8.7 million for the three months ended March 31, 2023. Adjusted EBITDA losses from our Other segment for the three months ended March 31, 2024 decreased $0.5 million to zero from an Adjusted EBITDA loss of $0.5 million for the three months ended March 31, 2023. The decrease in Adjusted EBITDA loss was driven primarily by our previous investment in HMN, which was sold on March 6, 2023 and had losses for the approximately two months of ownership in 2023.

Current wording

Other and Eliminations: Net income from our Other segment and Eliminations for the six months ended June 30, 2024 decreased $8.1 million to $0.1 million from $8.2 million for the six months ended June 30, 2023. Adjusted EBITDA losses from our Other segment for the six months ended June 30, 2024 decreased $1.0 million to zero from an Adjusted EBITDA loss of $1.0 million for the six months ended June 30, 2023. The decrease in Adjusted EBITDA loss was driven primarily by unrepeated severance related expenses at TIC Holdco, Inc. in the previous period and our previous investment in HMN, which was sold on March 6, 2023 and had equity method losses for the approximately two months of ownership in 2023.

Previous wording

As of March 31, 2024, DBMG's backlog was $939.1 million, consisting of $835.2 million under contracts or purchase orders and $103.9 million under letters of intent or notices to proceed. Approximately $402.7 million, representing 42.9% of DBMG’s backlog as of March 31, 2024, was attributable to five contracts, letters of intent, notices to proceed or purchase orders. If one or more of these projects terminate or reduce their scope, DBMG’s backlog could decrease substantially. DBMG includes an additional $13.9 million in its backlog that is not included in the remaining unsatisfied performance obligations disclosed in Note 3. Revenue and Contracts in Process. This additional backlog includes commitments under master service agreements that are estimated amounts of work to be performed based on customer communications, historic performance and knowledge of our customers' intentions.

Current wording

As of June 30, 2024, DBMG's backlog was $822.7 million, consisting of $673.8 million under contracts or purchase orders and $148.9 million under letters of intent or notices to proceed. Approximately $364.1 million, representing 44.3% of DBMG’s backlog as of June 30, 2024, was attributable to five contracts, letters of intent, notices to proceed or purchase orders. If one or more of these projects terminate or reduce their scope, DBMG’s backlog could decrease substantially. DBMG includes an additional $7.1 million in its backlog that is not included in the remaining unsatisfied performance obligations disclosed in Note 3. Revenue and Contracts in Process. This additional backlog includes commitments under master service agreements that are estimated amounts of work to be performed based on customer communications, historic performance and knowledge of our customers' intentions.

Previous wording

On a consolidated basis, as of March 31, 2024, we had $38.4 million of cash and cash equivalents, excluding restricted cash, compared to $80.8 million as of December 31, 2023. On a stand-alone basis, as of March 31, 2024, our Non-Operating Corporate segment had cash and cash equivalents, excluding restricted cash, of $9.2 million compared to $2.5 million as of December 31, 2023.

Current wording

On a consolidated basis, as of June 30, 2024, we had $80.2 million of cash and cash equivalents, excluding restricted cash, compared to $80.8 million as of December 31, 2023. On a stand-alone basis, as of June 30, 2024, our Non-Operating Corporate segment had cash and cash equivalents, excluding restricted cash, of $43.6 million compared to $2.5 million as of December 31, 2023.

Previous wording

As of March 31, 2024, we had $687.0 million of principal indebtedness on a consolidated basis compared to $722.8 million as of December 31, 2023, a net decrease of $35.8 million, which was primarily due to a $39.1 million net decrease in debt at our Infrastructure segment, mostly offset by the issuance of additional debt at R2 Technologies in principal amount of $3.3 million.

Current wording

As of June 30, 2024, we had $698.0 million of principal indebtedness on a consolidated basis compared to $722.8 million as of December 31, 2023, a net decrease of $24.8 million, which was primarily due to a $25.0 million net decrease in debt at our Infrastructure segment and a $4.1 million decrease in debt at our Non-Operating Corporate segment, partially offset by the issuance of additional debt at R2 Technologies in principal amount of $4.3 million.

Previous wording

On a stand-alone basis, our Non-operating Corporate segment indebtedness remained at $436.9 million as of both March 31, 2024 and December 31, 2023 and consists of the $330.0 million aggregate principal amount of 2026 Senior Secured Notes, $51.8 million aggregate principal amount of 2026 Convertible Notes, $35.1 million principal amount CGIC Unsecured Note and $20.0 million aggregate principal amount drawn on our Revolving Line of Credit. Our Non-Operating Corporate segment is required to make semi-annual interest payments on the 2026 Senior Secured Notes and 2026 Convertible Notes on February 1st and August 1st of each year, quarterly interest payments on the Revolving Line of Credit, and monthly interest payments on the CGIC Unsecured Note. As described below, the interest rate on the CGIC Unsecured Note will increase from 9.0% per annum to 16.0% per annum on May 9, 2024 and from 16.0% per annum to 32.0% per annum on May 9, 2025. As a result of the closing of the Rights Offering and Concurrent Private Placement, a mandatory prepayment was required on the CGIC Unsecured Note, in the amount of the greater of $3.0 million or 12.5% of the net proceeds. Subsequent to quarter end, on April 26, 2024, INNOVATE redeemed $4.1 million of the CGIC Unsecured Note.

Current wording

On a stand-alone basis, our Non-Operating Corporate segment indebtedness was $432.8 million and $436.9 million as of June 30, 2024 and December 31, 2023, respectively, a decrease of $4.1 million driven by a partial redemption payment of $4.1 million of the CGIC Unsecured Note on April 26, 2024. The June 30, 2024 indebtedness balance consists of the $330.0 million aggregate principal amount of 2026 Senior Secured Notes, $51.8 million aggregate principal amount of 2026 Convertible Notes, $31.0 million remaining principal amount of the CGIC Unsecured Note and $20.0 million aggregate principal amount drawn on our Revolving Line of Credit. Our Non-Operating Corporate segment is required to make semi-annual interest payments on the 2026 Senior Secured Notes and 2026 Convertible Notes on February 1st and August 1st of each year, quarterly interest payments on the Revolving Line of Credit, and monthly interest payments on the CGIC Unsecured Note. As described below, the interest rate on the CGIC Unsecured Note increased from 9.0% per annum to 16.0% per annum on May 9, 2024 and will increase from 16.0% per annum to 32.0% per annum on May 9, 2025.