INNOVATE Corp.

Current report

On March 8, 2024, the Company commenced a $19.0 million rights offering ("Rights Offering") for its common stock. Pursuant to the Rights Offering, the Company distributed to each holder of the Company’s common stock, Series A-3 Convertible Participating Preferred Stock, Series A-4 Convertible Participating Preferred Stock and the 2026 Convertible Notes as of March 6, 2024 (the “rights offering record date”), transferable subscription rights to purchase 2.86 shares (0.2858 shares on a pre Reverse Stock Split basis) of the Company’s common stock at a price of $7.00 per whole share ($0.70 per whole share on a pre Reverse Stock Split basis).

Current report

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.

Current report

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 530,611 shares of common stock (5,306,105 shares of common stock on a pre Reverse Stock Split basis) 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 has been utilizing and expects to continue to use the net proceeds from the Rights Offering and Concurrent Private Placement for general corporate purposes, including debt service and 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.

Current report

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 shares of Series C Preferred Stock, which were held by Lancer Capital, were converted into 4,469,390 shares of common stock (44,693,895 shares of common stock on a pre Reverse Stock Split basis).

Current report

The Company waived its Tax Benefits Preservation Plan to permit persons exercising rights to acquire 4.9% or more of the outstanding common stock upon the exercise thereof without becoming an Acquiring Person (as defined in the Tax Benefits Preservation Plan).

Current report

INNOVATE has utilized the net proceeds from the Rights Offering and Concurrent Private Placement for general corporate purposes, including debt service and for working capital. 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. On April 26, 2024, INNOVATE redeemed $4.1 million of the CGIC Unsecured Note.

Current report

Reverse Stock Split

Current report

On August 8, 2024, the Company effected a 1-for-10 reverse stock split of its issued and outstanding common stock (the “Reverse Stock Split”) following stockholder approval. The Reverse Stock Split became effective at 5:00 p.m. Eastern Standard Time. The Reverse Stock Split was implemented for the primary purpose of regaining compliance with the minimum bid price requirement for continued listing of the Company’s common stock on the NYSE. As a result of the Reverse Stock Split, every ten shares of the Company’s common stock issued and outstanding were automatically reclassified and changed into one new share of the Company’s common stock, with whole shares issued for fractional shares. Proportionate adjustments were made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, as well as to the number of shares issuable under the Company’s equity incentive plans and conversion of the Company’s outstanding convertible securities. The common stock issued pursuant to the Reverse Stock Split will remain fully paid and non-assessable. The Reverse Stock Split did not change the $0.001 par value per share of the common stock or the authorized number of shares of common stock or preferred stock. As a result of the Reverse Stock Split, the number of outstanding common shares was reduced from 130,529,931 to 13,166,057, inclusive of an additional 113,064 incremental whole shares issued for fractional shares. Unless noted, all common shares and per share amounts of common stock, options and restricted stock and any associated debt or preferred stock conversion rates contained in the historical periods presented within this Management’s Discussion and Analysis of Financial Condition and Results of Operations and within the Consolidated Financial Statements have been retroactively adjusted to reflect the one-for-ten Reverse Stock Split.

Current report

Stockholders’ Rights Agreement - Tax Benefits Preservation Plan

Current report

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 has taken 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 were administrative in nature and had no effect on the Company’s common stock, which will continue to be listed on the NYSE.

Current report

Amendment to Second and Restated 2014 Omnibus Equity Award Plan and Interim CEO Equity Awards

Current report

On September 30, 2024, the Board adopted, subject to stockholder approval, an amendment to the Company's Second Amended and Restated 2014 Omnibus Equity Award Plan ("Second A&R 2014 Plan") to increase the number of shares of the Company's common stock, par value $0.001 per share, available for issuance thereunder to 1,300,000 (the “Plan Amendment”). The Plan Amendment was approved by holders of a majority in voting power on October 4, 2024, by written consent in lieu of a special meeting, and was effective as of October 29, 2024.

Current report

On October 29, 2024, when the Plan Amendment became effective, the following awards which were previously awarded to the Company's Interim CEO subject to stockholder approval of the Plan Amendment to increase the number of shares of common stock available thereunder to satisfy the settlement of the grant became effective: (i) 95,322 of restricted stock unit awards ("RSU's"), which were awarded on October 11, 2023; (ii) 100,000 option awards with a strike price of $25.00 (as retroactively adjusted for the Reverse Stock Split in 2024) and an expiration date of September 15, 2033, which were awarded on September 15, 2023; (iii) 142,857 of RSUs, which were awarded on August 19, 2024; and (iv) 100,000 option awards with a strike price of $4.22 and an expiration date of September 15, 2034, which were awarded on September 15, 2024.

Current report

On June 28, 2024, DBM and UMB entered into the Third Amendment to the UMB Credit Agreement, which added an incremental separate term loan of $25.0 million to the existing credit facility, with the same interest rate as the Revolving Line with UMB and the same maturity date as the initial UMB term loan which had an outstanding balance of $74.6 million as of December 31, 2024.

Current report

R2 Technologies had various short-term notes with Lancer Capital, which expired on January 31, 2024, and, effective January 31, 2024, a new 20% note with an aggregate original principal amount of $20.0 million was issued, which was comprised of all prior outstanding principal amounts and unpaid accrued interest of $2.6 million which was capitalized into the new principal balance. Interest on the note accrues at 20% per annum and is payable monthly in arrears, in cash or, if not paid in cash, accrued and unpaid interest is capitalized monthly into the principal balance. As of December 31, 2024, the total principal outstanding, including capitalized interest was $24.0 million.

Current report

The 20% $20.0 million note also includes various exit fees, as amended. As of December 31, 2024, the exit fee, as amended, was equal to 11.90% of the principal amount being repaid, and effective July 31, 2024, an additional exit fee of $1.0 million was incurred each month until the end of November 2024. As of December 31, 2024, total exit fees payable were $7.9 million. The exit fees are payable 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.

Current report

Subsequent to year end, with an effective date of December 31, 2024, the maturity date of the note was extended to August 1, 2025. In addition, the exit fee continues to increase by 0.17% each month until maturity and an additional exit fee of $1.0 million was incurred under the amendment, which also continues to increase by $1.0 million each month until maturity. A new $5.0 million default fee will be payable on August 1, 2025, in the event all obligations under the note, including principal, any accrued and unpaid interest, and exit fees, are not repaid in full prior to the August 1, 2025, maturity date.

Current report

Refer to Note 11. Debt Obligations included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference, for additional information on the note and the various amendments during the years ended December 31, 2024 and 2023.

Current report

On June 20, 2024, Pansend closed on a new Series D Preferred Stock ("Series D") investment in R2. As part of the transaction, R2 Technologies converted its intercompany notes and accrued interest with Pansend, together with an additional cash investment from Pansend, into new Series D convertible participating preferred stock, for a total new additional investment of $21.3 million, which is also eliminated on consolidation and increased Pansend's ownership in R2 Technologies to 81.4% as compared to 56.8% prior to the transaction. Pansend's ownership in R2 Technologies was 81.4% and 56.6%, as of December 31, 2024 and 2023, respectively. Subsequent to year end, on February 20, 2025, Pansend closed on a new $3.5 million convertible 13.0% note instrument with R2 Technologies, which is convertible, together with any accrued interest at the time of conversion, into a new Series E Preferred Stock ("Series E") in R2 Technologies upon written notice to R2 Technologies and has a maturity date of the earlier of July 31, 2025, or a change in control, as defined in the agreement. The transaction is eliminated on consolidation. Refer to Note 16. Equity and Temporary Equity included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference, for additional information on R2 Technologies' convertible preferred stock and convertible notes.

Current report

On May 6, 2024, we extended the maturity date of our Revolving Line of Credit with MSD from March 16, 2025, to May 16, 2025. Subsequent to year end, on March 6, 2025, the maturity date of the Revolving Line of Credit was extended to August 1, 2025, with all other terms substantially unchanged.

Current report

During the year ended December 31, 2024, we repurchased $2.9 million principal amount of our 2026 Convertible Notes at a market discount for $1.1 million, which is inclusive of accrued interest of $0.1 million, and recognized a $1.9 million gain on debt repurchase within Other income, net in the Consolidated Statement of Operations included in this Annual Report on Form 10-K, which is incorporated herein by reference.

Current report

Subsequent to year end, in January 2025, MediBeacon received approval from the U.S. Food and Drug Administration ("FDA") for its Transdermal GFR Measurement System ("TGFR"). Pursuant to the terms of MediBeacon's convertible notes, upon the FDA approval, Pansend's convertible notes and the related accrued interest together totaling $12.9 million were converted into Series 3 Preferred Stock. In addition, pursuant to its amended commercial partnership with Huadong and, as a result of FDA approval, a $7.5 million milestone investment in its preferred stock by Huadong was in process. This will decrease Pansend's ownership in MediBeacon from approximately 45.9% prior to the transaction to approximately 44.7% subsequent to the transaction. On a fully diluted basis, Pansend's ownership in MediBeacon will decrease from 40.1% to 39.7%.

Current report

Revenue: Revenue for the year ended December 31, 2024, decreased $315.9 million to $1,107.1 million from $1,423.0 million for the year ended December 31, 2023. The decrease was 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, including the effect of changes in estimated costs to complete those projects recognized in the ordinary course of business, at Banker Steel and DBMG's commercial structural steel fabrication and erection business, both of which had increased activity in the prior year on certain large commercial construction projects that have since been completed in the current year. 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 attributable to R2 Technologies, primarily driven by an increase in sales in North America and worldwide of all R2 Technologies' products, including Glacial systems and consumables. The increase at our Spectrum segment was primarily driven by network launches and expanded coverage with existing customers.

Current report

Income from operations: Income from operations for the year ended December 31, 2024, increased $13.5 million to $40.0 million from $26.5 million for the year ended December 31, 2023. The improvement was due to an increase in other operating income of $10.3 million, a decrease in selling, general and administrative ("SG&A") expenses of $7.8 million, a decrease in depreciation and amortization of $2.6 million, which were partially offset by a net decrease in gross profit of $7.2 million. The net increase in other operating income was driven by our Infrastructure segment, primarily as a result of a gain on a lease modification and net gains on disposals of fixed assets. The overall decrease in SG&A was primarily driven by unrepeated severance and reductions in compensation-related expenses at both our Non-Operating Corporate and Spectrum segments, unrepeated transaction expenses at our Other segment related to the sale of New Saxon's 19.0% investment in HMN International Co., Ltd., formerly known as Huawei Marine Networks Co. (“HMN”) in the prior year, as well as by our Infrastructure segment as a result of an unrepeated accounts receivable write-off in 2023, a decrease in expenses related to a foreign office closure in the prior year, and a decrease in legal fees and facility-related expenses. The decrease in SG&A was partially offset by an increase in compensation-related expenses and expenses related to a domestic plant closure and other initiatives announced and executed during the current year to evaluate and realign internal operations and back-office functions at our Infrastructure segment and by R2 Technologies as a result of increases in share-based compensation expense, selling costs, and sales commissions due to an increase in system sales. 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 decrease in gross profit was primarily driven by our Infrastructure segment due to timing and size of projects that have since been completed in the current year, including the effect of changes in estimated costs to complete those projects recognized in the ordinary course of business. This was partially offset by increases in gross profit at our Spectrum and Life Sciences segments. The increase in gross profit at Spectrum was primarily driven by network launches and expanded coverage with existing customers. The increase in gross profit at our Life Sciences segment was driven by R2 Technologies as a result of incremental Glacial system sales over the comparable year.

Current report

Interest expense: Interest expense for the year ended December 31, 2024, increased $6.3 million to $74.5 million from $68.2 million for the year ended December 31, 2023. The increase was primarily attributable to increases in exit fees and a higher outstanding principal balance at our Life Sciences segment as a result of the capitalization of unpaid interest into the principal balance subsequent to the prior year, an increase in interest expense on our Non-Operating Corporate segment's CGIC Unsecured Note which was issued in May 2023 and had five months of interest in the prior year compared to a full year of interest in the current year, an increase in interest expense on our Corporate Revolving Line of Credit as a result of a higher outstanding balance drawn during the current year, and, to a lesser extent, an increase in interest at our Spectrum segment due to increased amortization from additional exit fees from refinancings during the second half of the prior year. This was partially offset by our Infrastructure segment due to a net decrease in outstanding principal balances and a slight decrease in interest rates.

Current report

Loss from equity investees: Loss from equity investees for the year ended December 31, 2024, decreased $7.1 million to $2.3 million from $9.4 million for the year ended December 31, 2023. The decrease in loss was due to a decrease in losses recognized from MediBeacon, Triple Ring and HMN. During the year ended December 31, 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 that were previously unrecognized, whereas during the year ended December 31, 2023, as a result of $4.7 million convertible note investments in MediBeacon by Pansend and a $3.8 million equity transaction with Huadong, Pansend's basis in MediBeacon had increased by $8.5 million and Pansend had recognized $8.5 million of equity method losses that were previously unrecognized. As of both December 31, 2024 and 2023, Pansend's net carrying amount of its investment in MediBeacon was zero, and Pansend had unrecognized losses from this investment. The partial sale of Triple Ring was completed during the fourth quarter of 2023, which resulted in Pansend's investment in Triple Ring no longer being accounted for under the equity method of accounting. Our previous investment in HMN was sold on March 6, 2023 and had losses for the approximately two months of ownership in 2023. Thus, no equity method losses from either Triple Ring or HMN were recognized in the current year. Refer to Note 6. Investments included in the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information on our equity investments.

Current report

The Organization for Economic Cooperation and Development ("OECD") has announced an Inclusive Framework on Base Erosion and Profit Shifting including a Pillar Two Model to provide for a 15% global minimum tax on the earnings of multinational corporations with consolidated revenue over €750 million. Many jurisdictions have enacted Pillar Two legislation that starts to become effective in 2024. The OECD, and its member countries, continue to release new guidance and legislation on Pillar Two. Based on current enacted laws, Pillar Two is not expected to materially impact our effective tax rate or cash flows in the next year. We will continue to evaluate the impact on our financial position as new legislation or guidance is introduced which could change our current assessment.

Current report

Revenue: Revenue for the year ended December 31, 2024, decreased $325.6 million to $1,071.6 million from $1,397.2 million for the year ended December 31, 2023. The decrease was primarily driven by the timing and size of projects, including the effect of changes in estimated costs to complete those projects recognized in the ordinary course of business, at Banker Steel and DBMG's commercial structural steel fabrication and erection business, both of which had increased activity in the prior year on certain large commercial construction projects that that have since been completed. This was partially offset by an increase at the industrial maintenance and repair business as a result of an increase in project work.

Current report

Selling, general and administrative expense for the year ended December 31, 2024, decreased $2.9 million to $123.1 million from $126.0 million for the year ended December 31, 2023. The decrease was primarily driven by an unrepeated accounts receivable write-off of $2.2 million related to a customer bankruptcy in the prior year, a decrease in expenses related to a foreign office closure in the comparable year, a decrease in legal fees and facility-related expenses, which was partially offset by an increase in compensation-related expenses, expenses related to a domestic plant closure and other initiatives announced and executed during the current year to evaluate and realign DBMG's internal operations and back-office functions.

Current report

Other operating income: Other operating income for the year ended December 31, 2024, increased $9.4 million to $9.6 million from $0.2 million for the year ended December 31, 2023. Other operating income for the year ended December 31, 2024, related to a gain on a lease modification and net gains on the sales of various properties in the current year, which were partially offset by a loss related to a plant closure in the first quarter of 2024.

Current report

Revenue: Revenue for the year ended December 31, 2024, increased $6.5 million to $9.8 million from $3.3 million for the year ended December 31, 2023. The increase in revenue was attributable to R2 Technologies, primarily due to incremental unit sales of Glacial fx systems in North America and worldwide, which launched during the second half of 2023 in North America and in 2024 outside North America, as well as from an increase in consumable sales in both North America and worldwide. In addition, the increase in revenue as compared to the prior year was partially driven by an increase in Glacial Rx units sold in North America and an increase in Glacial Spa units sold outside North America.

Current report

Cost of revenue: Cost of revenue for the year ended December 31, 2024, increased $3.8 million to $6.4 million from $2.6 million for the year ended December 31, 2023. The increase in cost of revenue was attributable to R2 Technologies, primarily driven by the increase in revenue from the additional system and consumables sales noted above, and, to a lesser extent, increases in royalty expenses, warranty expenses and freight costs driven by the additional systems sold. The increase in cost of revenue was partially offset by changes in product mix sold as the Glacial fx and Glacial Spa systems have a lower production cost per system compared to the Glacial Rx.

Current report

Selling, general and administrative: Selling, general and administrative expense for the year ended December 31, 2024, increased $1.9 million to $17.1 million from $15.2 million for the year ended December 31, 2023. The increase was primarily driven by R2 Technologies as a result of an increase in share-based compensation expense and increases in selling costs and sales commissions resulting from an increase in system sales.

Current report

Revenue: Revenue for the year ended December 31, 2024, increased $3.2 million to $25.7 million from $22.5 million for the year ended December 31, 2023. The increase was primarily driven by network launches and expanded coverage with existing customers, which was partially offset by the termination of a number of smaller networks in the prior year.

Current report

Cost of revenue: Cost of revenue for the year ended December 31, 2024, decreased $0.3 million to $11.5 million from $11.8 million for the year ended December 31, 2023. The decrease was primarily driven by decreased costs as a result of the renegotiation of broadcast tower- related contracts during the current year.

Current report

Selling, general and administrative: Selling, general and administrative expense for the year ended December 31, 2024, decreased $1.7 million to $7.3 million from $9.0 million for the year ended December 31, 2023. The decrease was primarily driven by unrepeated severance expense in the prior year and a decrease in salaries and benefits expense as a result of a reduction in headcount.

Current report

Other operating loss (income): Other operating loss (income) for the year ended December 31, 2024, decreased $0.5 million to a loss of $0.4 million from income of $0.1 million for the year ended December 31, 2023. The decrease in other operating income was primarily driven by a decrease in reimbursements received from the FCC for certain station modification costs and an increase in lease termination costs, which was partially offset by a decrease in asset impairment charges which in the prior year had primarily related to the write-off of certain redundant equipment and associated capitalized costs.

Current report

Loss from Equity Investees

Current report

Life Sciences: Loss from equity investees within our Life Sciences segment for the year ended December 31, 2024, decreased $6.8 million to $2.3 million from $9.1 million for the year ended December 31, 2023. The decrease in loss was due to a decrease in losses recognized from MediBeacon and Triple Ring. During the year ended December 31, 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 that were previously unrecognized, whereas during the year ended December 31, 2023, as a result of $4.7 million convertible note investments in MediBeacon by Pansend and a $3.8 million equity transaction with Huadong, Pansend's basis in MediBeacon had increased by $8.5 million and Pansend had recognized $8.5 million of equity method losses that were previously unrecognized. As of both December 31, 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 which was completed during the fourth quarter of 2023 and resulted in Pansend's investment in Triple Ring no longer being accounted for under the equity method of accounting. Thus, no equity method losses were recognized from Triple Ring in the current year.

Current report

The tables below provide reconciliations of net income (loss) attributable to INNOVATE Corp to Adjusted EBITDA for the years ended December 31, 2024 and 2023:

Previous report

On July 23, 2023, we announced the unexpected passing of Wayne Barr, our President, Chief Executive Officer and Director. Mr. Barr had served as a director of INNOVATE since January 2014 and as CEO since November 2020. He previously served as Lead Director during March 2020 and as Interim CEO from June 2020 until November 2020 when he was appointed as the Company's permanent President and CEO. During his tenure as a director of INNOVATE, he has also served as Chair and/or as a member of several of the Board committees and as a director and/or officer of certain INNOVATE subsidiaries. Following Mr. Barr’s death, on July 25, 2023, Paul K. Voigt was named Interim Chief Executive Officer of the Company. Mr. Voigt has served as Senior Managing Director of Investments at Lancer Capital since 2019. From 2014 to 2018, Mr. Voigt served as Senior Managing Director of Investments of the Company and was involved with sourcing deals and capital raising for the Company.

Previous report

On September 21, 2023, INNOVATE entered into a separation and release agreement with Suzi Herbst, our Chief Operating Officer. Pursuant to the agreement, Ms. Herbst's employment with the Company ceased on October 20, 2023 and the Company is paying Ms. Herbst severance payments and benefits.

Previous report

Rights Offering and Private Placement

Previous report

On February 23, 2024, the Company's Board of Directors approved a plan to proceed with a $19.0 million rights offering for its common stock and fixed March 6, 2024 as the record date for holders of common stock entitled to participate in the rights offering. On March 5, 2024, the Company set the subscription price at which the rights would be exercisable at $0.70 per share and entered into an investment agreement (the "Investment Agreement") with Lancer Capital ("Lancer Capital"), an entity controlled by Avram A. Glazer, the Chairman of the Board and a beneficial owner of 29.1% of our common stock, pursuant to which the rights offering will be backstopped by Lancer Capital. Because the rules of the New York Stock Exchange (“NYSE”) prohibit the issuance to Lancer Capital of more than 1% of our common stock outstanding before the issuance unless stockholder approval of such issuance is obtained, in lieu of purchasing common stock under the back-stop arrangement, Lancer Capital will purchase up to $19.0 million of Series C Non-Voting Participating Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”) to be newly authorized by the Company. The Series C Preferred Stock is intended to be the economic equivalent of common stock, participating on an as-converted basis in all dividends, distributions, merger consideration and all other consideration receivable by holders of common stock, and a means through which the back-stop arrangement can be effected prior to the completion of the stockholder vote and the satisfaction of any other regulatory requirements. Pursuant to the Investment Agreement, and as a result of limitations on the amount that can be raised under the Company’s effective shelf registration statement on Form S-3, Lancer Capital will also purchase an additional $16.0 million of Series C Preferred Stock in a private placement transaction to close concurrently with the settlement of the rights offering. Under the rules of the NYSE, because the shares Lancer Capital will purchase in the concurrent private placement are greater than 20% of our common stock outstanding before the issuance of the Series C Preferred, those shares of Series C Preferred Stock may not be converted unless stockholder approval of such issuance is obtained. The Investment Agreement provides that, in the event that for any reason the rights offering is not settled by March 28, 2024, then Lancer Capital will purchase $25 million of Series C Preferred Stock. We refer to this arrangement as the "equity advance." Upon the closing of the rights offering, to the extent that Lancer Capital would have, based on the number of shares of common stock actually sold upon exercise of the rights, purchased less than $25 million of Series C Preferred Stock under the backstop commitment and the concurrent private placement, the Company will redeem those excess shares of Series C Preferred Stock purchased by Lancer Capital under the equity advance at the re…

Excerpt shortened here; the source contains the full paragraph.

Previous report

The Series C Preferred Stock terms are set forth in a form of certificate of designations attached as Exhibit A to the Investment Agreement and include a liquidation preference junior to the Company’s existing preferred stock and equal to the Company’s common stock (other than a preference of $0.001 per share of Series C Preferred Stock that will be paid to the holders of thereof before any payment or distribution is made to the holders of the common stock). The certificate of designations for the Series C Preferred Stock will be filed with the Secretary of State of the State of Delaware on the earlier of the closing of the equity advance or the settlement of the rights offering.

Previous report

In connection with the Investment Agreement, on March 5, 2024, the Company and Lancer Capital entered into a registration rights agreement (the "Registration Rights Agreement") pursuant to which the Company granted Lancer Capital certain customary shelf demand and piggyback registration rights with respect to the common stock issuable upon conversion of the Series C Preferred Stock purchased under the Investment Agreement.

Previous report

The foregoing summaries of the Investment Agreement and the Registration Rights Agreement are not complete and is subject to, qualified in their entirety by, and should be read in conjunction with, the full text of the Investment Agreement and the Registration Rights Agreement, which are filed as Exhibits 10.70 and 10.71 to this Annual Report on Form 10-K and incorporated herein by reference.

Previous report

Assuming that the Company proceeds with the rights offering and that shares of Series C Preferred Stock are issued to Lancer Capital pursuant to the Investment Agreement, the Company intends to seek stockholder approval for the conversion of the Series C Preferred Stock into shares of our common stock at the Company’s 2024 annual stockholders meeting.

Previous report

The rights offering will be made pursuant to the Company’s effective shelf registration statement on Form S-3, filed with the SEC on September 29, 2023 and declared effective on October 6, 2023, and a prospectus supplement containing the detailed terms of the rights offering to be filed with the SEC prior to the commencement of the rights offering. The foregoing information regarding the rights offering is not complete and is subject to change. The foregoing information regarding the rights offering shall not constitute an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any offer, solicitation or sale of the securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful under the securities laws of such state or jurisdiction. The rights offering will be made only by means of a prospectus and a related prospectus supplement. Copies of the prospectus and related prospectus supplement, when they become available, will be distributed to all eligible stockholders as of the rights offering record date and may also be obtained free of charge at the website maintained by the SEC at www.sec.gov or by contacting the information agent for the rights offering.

Previous report

The Series C Preferred Stock to be issued to Lancer Capital pursuant to the Investment Agreement will not be registered under the Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Previous report

Dispositions and Acquisition of Investments

Previous report

Triple Ring Partial Disposition and Scaled Cell Acquisition

Previous report

On November 30, 2023, the Company sold 546,709 shares of its common stock of Triple Ring and 804,375 shares of its preferred stock of Triple Ring and exchanged 255,333 of Triple Ring common stock for 240,613 shares of Scaled Cell (valued at $0.9 million). As a part of this transaction, the Company received $5.0 million in cash proceeds and recognized a loss of $0.2 million on the sale of the investment, which is reflected in Other income (expense), net, in the Consolidated Statement of Operations for the year ended December 31, 2023. As of December 31, 2023, the Company holds 240,613 shares of Scaled Cell, representing a 20.1% interest.

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Subsequent to the sale, the Company still holds 229,488 shares of common stock of Triple Ring, reflecting a 7.2% interest (1.9% on a fully diluted basis), and accounts for Triple Ring under the measurement alternative method as of December 31, 2023. As of December 31, 2022 and prior to the sale in November 2023, the Company held a 25.8% interest in Triple Ring.

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Other

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Sale of Remaining 19% Interest in HMN

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On March 6, 2023, the Company, through New Saxon 2019 Limited (“New Saxon”), an indirect subsidiary of GMH, closed on the sale of its remaining 19% interest in HMN to subsidiaries and an affiliate of Hengtong Optic-Electric Co Ltd. The sale was consummated pursuant to the terms of a supplemental agreement entered into by the parties in June 2022. New Saxon received gross proceeds of $54.2 million, and interest income of $0.5 million, of which $4.4 million was withheld for a foreign tax payment. During the year ended December 31, 2023, $15.9 million was paid to GMH's non-controlling interest holders and redeemable non-controlling interest holders pursuant to the partnership agreement. New Saxon recognized a gain on sale of $12.2 million, which is reflected in Other income (expense), net in the Consolidated Statements of Operations for the year ended December 31, 2023.

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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. During the year ended December 31, 2023, DBMG made $12.1 million in scheduled repayments of the principal on these notes and made accelerated repayments of $16.6 million in full settlement of the 8.0% subordinated note. Banker Steel also previously had a subordinated 11.0% note payable to Donald Banker of $6.3 million, which was redeemed in full by DBMG on April 4, 2022. As of December 31, 2023, the 4.0% note payable had a remaining balance of $5.0 million.

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During the year ended December 31, 2022, R2 Technologies entered into various note purchase agreements with Lancer Capital, an entity controlled by Avram A. Glazer, the Chairman of INNOVATE's Board of Directors, for an aggregate $10.8 million in notes at a 18% per annum interest rate as of December 31, 2022. During 2023, R2 closed on an additional $6.6 million of notes, including $1.3 million of unpaid accrued interest which was capitalized into the new principal balance, increasing the aggregate outstanding principal to $17.4 million as of December 31, 2023. The per annum interest rate on the outstanding principal balance also increased to 20%. In addition, after various amendments throughout 2023, R2 entered into an amendment with Lancer Capital on November 15, 2023 to extend the maturity date of all outstanding prior existing notes to the earlier of January 31, 2024 or within five business days of the date on which R2 receives an aggregate $20.0 million from the consummation of a debt or equity financing.

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On December 30, 2022, Broadcasting entered into a Seventh Omnibus Amendment to Secured Notes which, among other things, extended the maturity date of $52.2 million of its Senior Secured Notes, due December 30, 2022 to May 31, 2024. Interest is capitalized and payable upon maturity of the principal. The $52.2 million of Senior Secured Notes consisted of $19.3 million of 8.5% Senior Secured Notes and $32.9 million of 10.5% Senior Secured Notes. The other terms of the $19.3 million 8.5% Senior Notes remained the same. At the time of the extension, Broadcasting had accrued interest and other fees of $6.9 million. The interest rate on the $32.9 million 10.5% Senior Notes was increased to 11.45% and cumulative accrued interest and exit fees of $17.5 million were capitalized into the principal balance with both note extensions accounted for as debt modification events. All other terms were essentially the same. Total outstanding principal after the refinancing was $69.7 million, and $6.9 million of accrued interest and fees remain accrued, with total exit fees of $7.6 million which were recorded as original issue discount with a corresponding liability reflected in Other Liabilities in the Consolidated Balance Sheet. Interest is capitalized and payable upon maturity of the principal.

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Concurrently therewith and as part of the consideration for extending the 10.5% Senior Notes in December 2022, Broadcasting amended warrants to purchase 145,825 shares of common stock of HC2 Broadcasting Holdings, Inc. common stock held by the lenders of the 10.5% Senior Notes by extending the time to exercise such to the second half of 2026 and reducing the exercise price per share (i) from $140.00 to $0.01 in the case of the certain of the warrants and (ii) from $130.00 to $0.01 in the case of the remaining warrants. The warrants are exercisable at any time. The change in the fair value of the warrants was recorded as original issue discount with a corresponding impact reflected in Non-controlling interest of $3.1 million.

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On August 8, 2023, Broadcasting entered into an Eighth Amendment to Secured Notes with its lenders which extended the maturity date of its Senior Secured Notes aggregate principal amount of $69.7 million, from May 31, 2024 to August 15, 2024. In exchange, Broadcasting incurred an additional exit fee of $1.1 million which was recorded as original issue discount with a corresponding liability reflected in Other Liabilities in the Consolidated Balance Sheet.

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On November 9, 2023, Broadcasting entered into a Ninth Amendment to its Secured Notes with its lenders which extended the maturity date of its Senior Secured Notes aggregate principal amount of $69.7 million, from August 15, 2024 to August 15, 2025. In exchange, Broadcasting will pay additional exit fees of $7.2 million which are payable on the earlier of maturity or repayment of the principal. Interest is also capitalized and payable upon maturity of the principal. In addition, the time to exercise the related warrants was extended to August 2027. As of December 31, 2023, the effective interest rates on the notes, as amended, ranged from 20.6% to 24.0% per annum.

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The Company accounted for the transactions related to the Eighth Amendment, Ninth Amendment and the side letter as debt modification events under US GAAP as the present value of cash flows under the amended terms of Broadcasting's Senior Secured Notes was less than 10% different from the present value of cash flows under the original terms of the notes. As a result of the modifications, and as of December 31, 2023, the Company has total capitalized estimated exit fees of $15.9 million, which are reflected in Other Liabilities in the Consolidated Balance Sheet.

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On April 25, 2023, INNOVATE extended the maturity date of its Revolving Credit Agreement with MSD PCOF Partners IX, LLC (the "Revolving Line of Credit") from February 23, 2024 to March 16, 2025, changed the interest benchmark rates from LIBOR-based to SOFR-based rates, and lowered the amount of net cash proceeds from certain asset sales in excess of which a prepayment is required from $50.0 million to $10.0 million. In March 2023, the Company paid down $15.0 million outstanding under the Revolving Line of Credit. On May 8, 2023, INNOVATE drew an additional $8.0 million under the Revolving Line of Credit, and on July 31, 2023, INNOVATE drew an additional $7.0 million under the Revolving Line of Credit, bringing the total outstanding balance to $20.0 million. Refer to 11. Debt Obligations for additional information.

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On May 9, 2023, INNOVATE issued a subordinated unsecured promissory note to CGIC in the principal amount of $35.1 million, in connection with the DBMGi Preferred Stock repurchase from CGIC. Refer to Footnote 16. Temporary Equity and Equity for additional information. The CGIC Unsecured Note is due February 28, 2026, and bears interest at 9% per annum through May 8, 2024, 16% per annum from May 9, 2024 to May 8, 2025, and 32% per annum thereafter. The CGIC Unsecured Note also requires a mandatory prepayment from the proceeds from certain asset sales and the greater of $3 million or 12.5% of the proceeds from certain equity sales. Refer to 11. Debt Obligations for additional information.

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In November 2022, MediBeacon amended its existing agreements with Huadong Medicine Co. Ltd ("Huadong"), to provide approximately $10 million in the first half of 2023, including $7.5 million or 50% of the remaining $15 million milestone investment due upon FDA approval of MediBeacon's TGFR at a pre-money valuation of approximately $400 million.

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On February 23, 2023, pursuant to its amended commercial partnership with Huadong, MediBeacon issued $7.5 million of its preferred stock to Huadong, which decreased Pansend's ownership in MediBeacon from approximately 47.2% as of December 31, 2022 to approximately 46.2% subsequent to the transaction. As a result of this equity transaction, Pansend recognized a gain of $3.8 million in Other income (expense), net in the Consolidated Statements of Operations, which increased Pansend's basis in MediBeacon. Concurrently, Pansend recognized equity method losses of $3.8 million which were previously unrecognized because Pansend's carrying amount of its investment in MediBeacon had been previously reduced to zero.

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Other

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On December 30, 2022, the Company entered into a letter agreement with CGIC pursuant to which CGIC and its affiliates agreed to vote certain shares of the Company’s Series A-3 Convertible Participating Preferred Stock, par value $0.001 per share, and the Company’s Series A-4 Convertible Participating Preferred Stock, par value $0.001 per share, to the extent such shares result in CGIC beneficially owning more than 9.9% of the aggregate voting power of the Company, in the same manner as the majority of the holders holding less than 10% of the Company’s common stock, par value $0.001 per share, vote their shares with respect to any matter pursuant to which such shares are entitled to vote.

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Stockholders' Rights Agreement

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On April 1, 2023, the Company entered into a Tax Benefits Preservation Plan (the "2023 Preservation Plan") with ComputerShare Trust Company, N.A., as rights agent (the "Rights Agent"). The 2023 Preservation Plan is intended to help protect the Company's ability to use its tax net operating losses and other certain tax assets ("Tax Benefits") by deterring an "ownership change," as defined under Section 382 of the Internal Revenue Code of 1986, as amended, and the Treasury Regulations thereunder (the "Code"), by a person or group of affiliated or associated persons from acquiring beneficial ownership of 4.9% or more of the outstanding common shares.

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In connection with entering into the Plan, on April 1, 2023 the Board of Directors of the Company declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $0.001 per share, of the Company (the “Common Stock”) to stockholders of record at the close of business on April 10, 2023 (the “Record Date”). Each Right is governed by the terms of the Plan and entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share (a “Unit”) of Series B Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), at a purchase price of $15.00 per Unit, subject to adjustment (the “Purchase Price”). The Company had entered into a previous Tax Benefits Preservation Plan on August 30, 2021 (the “2021 Preservation Plan”), in order to help protect the Company’s ability to use its Tax Benefits by deterring an ownership change. The 2021 Preservation Plan expired on March 31, 2023.

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On June 15, 2023, holders of the Company’s common stock and preferred stock, voting as a single class and with the preferred stock voting on an as-converted basis, voted to ratify the amendment of the 2023 Preservation Plan to extend its final expiration date from October 1, 2023 to June 30, 2024, or such later date and time as may be subsequently approved.

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Refer to Note 16. Temporary Equity and Equity for additional information.

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Revenue: Revenue for the year ended December 31, 2023 decreased $214.3 million to $1,423.0 million from $1,637.3 million for the year ended December 31, 2022. The decrease was primarily driven by our Infrastructure segment, and, to a lesser extent, our Spectrum segment. The decrease at our Infrastructure segment was primarily driven by timing and size of projects at DBMG's commercial structural steel fabrication and erection business and lower revenue at the industrial maintenance and repair business. This was partially offset by an increase at Banker Steel and the construction modeling and detailing business due to the timing and size of projects. Revenues at our Spectrum segment decreased primarily as a result of the termination of Network and its associated Azteca content on December 31, 2022, partially offset by an increase in station revenues, which launched new markets and networks with its customers in 2023.

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Income from operations: Income from operations for the year ended December 31, 2023, increased $13.1 million to $26.5 million from $13.4 million for the year ended December 31, 2022. The increase was due to a decrease in selling, general and administrative expenses ("SG&A") of $12.1 million and a decrease in depreciation and amortization of $7.0 million, partially offset by a net decrease in gross profit of $5.4 million and an increase in other operating expense of $0.6 million. The decrease in consolidated SG&A was primarily driven by a decrease in SG&A at our Spectrum segment from the termination of Azteca in December 2022, a decrease in restructuring charges at our Infrastructure segment, decreases in SG&A at our Life Sciences segment as a result of cost reduction initiatives, decreases at our Non-Operating Corporate segment in compensation related expenses, legal, acquisition and disposition related expenses, which were partially offset by an accounts receivable write-off of $2.2 million in 2023 at our Infrastructure segment related to a legacy customer bankruptcy, and increases in salaries and wages and consulting expenses at our Infrastructure segment and the Station Group at Spectrum, as well as an increase in expenses at our Other segment as a result of the sale of New Saxon's 19% investment in HMN in 2023. The decrease in consolidated depreciation and amortization was driven primarily by Banker Steel at our Infrastructure segment, as certain intangibles became fully amortized. The $5.4 million decrease in consolidated gross profit was primarily driven by our Spectrum segment's termination of Network, which was partially offset by an increase at Spectrum's Station Group which launched new markets and networks with its customers in 2023 and an increase at our Infrastructure segment driven by timing of higher margin projects. The increase in consolidated other operating expense was primarily driven by our Other segment due to a write-off of prepaid rent in 2023 related to the execution of a sublease, and an impairment of leasehold improvements in 2023 for unutilized space at our Non-Operating Corporate segment, partially offset by decreased impairment expense at our Spectrum segment, which had impaired the Network PLA intangible in 2022.

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Interest expense: Interest expense for the year ended December 31, 2023, increased $16.2 million to $68.2 million from $52.0 million for the year ended December 31, 2022. The increase was primarily attributable to higher interest rates, increased amortization of debt issuance costs on the debt from extension fees, and higher outstanding principal balances at all segments for a majority of the current year, as a result of additional debt issued in 2023. Refer to Note 11. Debt Obligations of the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference, for further details on outstanding principal balances.

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Loss from equity investees: Loss from equity investees for the year ended December 31, 2023 increased $8.1 million to $9.4 million from $1.3 million for the year ended December 31, 2022. The increase in loss was primarily driven by the sale of our investment in HMN on March 6, 2023, which had income in 2022, as well as equity method losses recorded from our investment in Triple Ring which had income in 2022, and higher equity method losses from our investment in MediBeacon, as a result of recognizing previously suspended losses due to the additional investments made in the current year, which then resulted in the investment's carrying amount again being reduced to zero.

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Revenue: Revenue for the year ended December 31, 2023 decreased $197.1 million to $1,397.2 million from $1,594.3 million for the year ended December 31, 2022. The decrease was primarily driven by the timing and size of projects at DBMG's commercial structural steel fabrication and erection business and lower revenue at the industrial maintenance and repair business. This was partially offset by an increase at Banker Steel and the construction modeling and detailing business due to the timing and size of projects.

Current report — wording carried from elsewhere

The maturity date of the 20% $20.0 million note, as subsequently amended, was December 31, 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.

Current report — wording carried from elsewhere

For additional information on the terms and conditions of the 2026 Senior Secured Notes, including guarantees, ranking and collateral, refer to Note 11. Debt Obligations included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference.

Current report — wording carried from elsewhere

For additional information on the terms and conditions of the 2026 Convertible Notes, including optional redemption, conversion rights guarantees, ranking and collateral, refer to Note 11. Debt Obligations included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference.

Previous report — wording carried elsewhere

In addition, INNOVATE Corp. entered into a related side letter with the institutional investors, whereby INNOVATE agreed to utilize proceeds from the sale of certain of its existing operations, as allowable under the Company's current agreements and indentures and after all other required payments have been made, for repayment of a portion of Broadcasting's Senior Secured Notes. Assuming there are sufficient proceeds remaining after such repayment, an additional $1.0 million exit fee is payable if repayment occurs by November 9, 2024, or $2.0 million if repayment occurs after that date. In exchange for the additional exit fee, the institutional investors will return their equity interests in HC2 Broadcasting Holdings, Inc. and equity interests in DTV America.

Previous report — wording carried elsewhere

As of December 31, 2023, Pansend's carrying amount of its investment in MediBeacon remains at zero, inclusive of the $9.7 million in convertible notes which have been offset against recognized losses, and has cumulative unrecognized equity method losses relating to MediBeacon of $8.0 million.

Previous report — wording carried elsewhere

Refer to Note 11. Debt Obligations to the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional details regarding the indebtedness of our Infrastructure, Life Sciences and Spectrum segments.

Previous report — wording carried elsewhere

•our dependence on certain key personnel;