Innventure, Inc. Q4 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Innventure Fourth Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Lucas Harper, Chief Investment Officer. Please go ahead.

Thanks, operator, and thank you all for joining us for Innventure's Fourth Quarter 2025 Earnings Call. My name is Lucas Harper, Innventure's Chief Investment Officer. And joining me from the company are Roland Austrup, Chief Growth Officer; Bill Haskell, Chief Executive Officer; and Dave Yablunosky, Chief Financial Officer. Earlier today, we issued a press release announcing our financial results, which are available on our Investor Relations website, along with the supplemental slide presentation. As referenced on Slide 6, we will be discussing non-GAAP financial measures during this call. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and supplemental slide presentation on our website. In addition, certain statements being made today are forward-looking statements that are based on management's current assumptions, beliefs and expectations concerning future events impacting the company. These forward-looking statements involve a number of uncertainties and risks, including, but not limited to, those described in our earnings release, Form 10-K for the period ending December 31, 2025, and other filings with the SEC. The actual results of operations and financial condition of the company could differ materially from those expressed or implied in our forward-looking statements. And now I'd like to turn the call over to Roland Austrup.

Thank you, Lucas, and thank you to everyone joining us today. I am Roland Austrup, Chief Growth Officer. Before I begin, I want to note that this April, we will host an Innventure CEO Call featuring deep dive commentary from Accelsius CEO, Josh Claman; AeroFlexx CEO, Andy Meyer; and Refinity's CEO, Bill Grieco. There will be more details to follow, and I strongly encourage our shareholders to tune in. Now let me start by saying something plainly. This is the earnings call we have been building toward, not because of a single milestone, not because of a single announcement, but because for the first time in Innventure's history, every part of this platform is firing at the same time, and the results are undeniable. There is a difference between a company that tells you it is going to do something and a company that has done it. There's a difference between a thesis and a proof, and what we are presenting to you today is proof. This is not one milestone. It is not one announcement we're addressing for you. Let me give you the headline and then I'll give you the proof. The headline is this: Innventure has crossed the threshold from potential to performance. And the proof is in third-party validation, commercial bookings at scale, operational expansion, execution milestones delivered across our family of operating companies simultaneously. What you are seeing in the fourth quarter of 2025 and the opening months of 2026 is not incremental progress. It is decisive across-the-board inflection in the trajectory of this company. This is what an industrial growth platform looks like when it starts to run and it is what differentiates Innventure from single asset or venture style stories. Since inception, we have deployed approximately $160 million of balance sheet capital into our operating companies. That capital has generated roughly $860 million in net asset value, including approximately $460 million distributed directly to shareholders through PureCycle. That track record matters, but what matters more is what is happening now. The platform is beginning its transition from being capital funded to being commercially self-funding. And the evidence is clear. In the first quarter of 2026 alone, our operating companies generated more than $50 million in new bookings in a single quarter. That is a commercial inflection point by any measure and a powerful leading indicator of forward revenue and enterprise value creation. Across our operating companies, the momentum is unmistakable. Accelsius is scaling with the speed and urgency the AI infrastructure build-out demands backed by institutional validation from Johnson Controls and Legrand and a growing pipeline of commercial deployments. AeroFlexx has entered prestige beauty, one of the most demanding markets in the world and expanded global manufacturing capacity to meet accelerating demand. Refinity moved from formation to pilot scale validation in just over a year, demonstrating the speed, repeatability and discipline of the Innventure model. Three companies, three proof points all at once. This is not a coincidence. This is architecture, the architecture of a platform business delivering on its promise. This momentum underpins our expectation of reaching consolidated cash flow positivity in 2028, driven by Accelsius expecting to achieve cash flow positivity this year. Each operating company is now directly raising capital, we're reducing the need for Innventure's balance sheet and fundamentally changing the financial character of this business, exactly on schedule. Our model has always been well defined. I know there are investors on this call who have been patient. I know there are investors who have been waiting for us to stop talking about what we are going to do and start showing what we have done. We appreciate your patience. I want you to hear me clearly now. The waiting is over. The results are here. They are accelerating, and the best chapters of the Innventure story are the ones we are writing right now. With that, let me pass the call to Bill Haskell to walk through each operating company and provide the specifics behind this acceleration.

Thanks, Roland. I want to start with Accelsius, and I want to start with something I think people in this market still underappreciate. The world has decided that launching artificial intelligence is not eventual — it's now. Every major technology company, every sovereign wealth fund, every hyperscaler on the planet is in a race to build compute infrastructure at a scale that has no historical precedent. And here is the part that most people have not yet fully internalized: you cannot run that infrastructure without solving the thermal problem. You cannot. The chips that power AI generate heat at densities that make traditional air cooling physically insufficient. This is not an engineering preference. It is thermodynamics. That is the market Accelsius is scaling into. And Accelsius is not scaling into it theoretically; it is scaling into it with over $50 million in contracted backlog secured in the first quarter of 2026 alone, all tied to greenfield next-generation data center development, anchored by an initial order for the first deployment by DarkNX, a vertically integrated and funded AI data center developer with a healthy tenant pipeline and the ability to build liquid-cooling-ready capacity on an accelerated timeline. Now I want to be honest with you about something because I think honesty on earnings calls is more valuable than cheerleading. Data center construction is experiencing real global supply chain constraints. Our distribution equipment, switchgear, memory, and mechanical systems can be affected. These constraints can affect the timing of delivery and revenue recognition even when customer demand and purchase orders are firmly in hand. So while we expect to recognize the majority of the contracted backlog as revenue this year, the exact cadence is difficult to forecast with precision. Our expectation today is that revenue will be heavily back-end weighted in 2026. But I want to be very clear about what that means and what it does not mean. It does not mean demand is uncertain, it does not mean our technology is uncertain. It means the physical world has supply chains and supply chain constraints. The important signal is not the quarter-to-quarter timing. It is the bookings. It is the customer commitments. It is the scale of demand we are now seeing. Those are the leading indicators of long-term value creation and those indicators are unambiguous. Based on our current trajectory, Accelsius is on a path to exit 2026 cash flow breakeven defined by cash from operations. This implies a December 2026 annual revenue run rate of approximately $100 million. And importantly, we believe Accelsius' cash on hand is sufficient for the company to reach this cash flow positive threshold. Think about what that means: a company that just a short time ago was still in early field deployment is now approaching self-funded commercial scale. Let me contextualize this further because the market is telling you something important that you should be paying attention to. The recent acquisitions of CoolIT and Boyd had roughly 8- to 9x revenue multiples and nearly 30x forward EBITDA and make it unmistakable that the industry is moving decisively toward direct-to-chip liquid cooling. And here is the critical distinction: both CoolIT and Boyd remain single-phase today. Accelsius is already commercially deployed in the two-phase architecture that the market is converting toward. Two-phase cooling is not an incremental improvement on single phase. It is a fundamental architectural advantage. Because of the phase change that occurs, it removes far more heat with far less energy, enabling rack densities and thermal performance that single-phase water systems simply cannot reach. Industry analysis consistently shows that direct-to-chip cooling is one of the fastest-growing segments of the data center thermal market, with forecasts ranging from low double digits to the mid-30% compound annual growth rates over the next decade. The earliest adopters are exactly where we are seeing our strongest traction today: greenfield, high-performance computing and AI-focused data centers, where air cooling cannot keep up with the heat output of modern GPUs and accelerators. But here is what I want investors to understand about the size of the opportunity. The first wave is already here: new builds, HPC, AI infrastructure. But the second wave, and this is potentially even larger, is legacy data centers. Even in facilities where air cooling is technically adequate today, operators are recognizing that two-phase solutions unlock higher lease rates, greater compute per square foot, and significant energy savings that allow them to densify and expand compute without new construction to reduce the energy overhead of air-based cooling. We believe that the necessity of two-phase cooling for HPC and AI workloads, combined with the compelling economics for non-HPC environments, will cause direct-to-chip two-phase cooling to become the dominant architecture for both new and retrofit data centers over the next three to five years. Accelsius is now widely recognized as a leader in direct-to-chip two-phase cooling, a position reinforced by our strategic investors, Johnson Controls and Legrand. Their involvement is not passive. It is a strong validation of both our technology and our commercial readiness; these are two of the most respected names in global building systems and data center infrastructure. In December 2025, Accelsius closed the second tranche of a $65 million Series B investment, led by Johnson Controls and Legrand, valuing the company at approximately $665 million post-money. I want to emphasize this: that valuation was set by two global industrial companies deploying their own capital, not private venture valuations and not internal Accelsius financial models, but by external institutional investors with deep domain expertise writing real checks. That is the kind of validation that is very difficult to dismiss. Let me turn to AeroFlexx, which operates in a completely different market but demonstrates the Innventure model just as clearly. There is a problem in packaging that everyone acknowledges but almost no one has solved. The world produces an enormous amount of single-use rigid plastic packaging. Everyone agrees that is wasteful. Everyone agrees the supply chain is inefficient. And yet, the alternatives have historically forced a trade-off. You could have sustainability or you could have performance and consumer appeal, but you could not have both. AeroFlexx changes that equation. Founded in 2018 around liquid packaging technology sourced from Procter & Gamble, AeroFlexx is an integrated packaging and filling platform that improves the consumer experience, simplifies supply chains, reduces virgin plastic usage and enhances e-commerce economics. Its differentiation comes from delivering all of this value simultaneously. The current package is recyclable. It uses up to 85% less virgin plastic than rigid bottles, a flat-back format that enables up to 10x greater shipping efficiency, lower total cost of ownership by consolidating the supply chain, and consumer testing that consistently shows a clear preference versus traditional packaging. This is not a trade-off. This is a better product. As of the fourth quarter, AeroFlexx has delivered six consecutive quarters of revenue across pet care, baby care, personal care, household products and industrial applications. And what is notable today is that AeroFlexx is transitioning from early market validation to large-scale adoption and volume production units. During the first quarter of 2026, AeroFlexx announced a global partnership with Aveda, part of The Estée Lauder Companies. Aveda is the first global prestige brand to adopt AeroFlexx's refill packaging format with select products expected to ship in early 2027. Let me tell you why that matters beyond the headline. Prestige beauty is one of the most demanding markets in the world. The brand standards, the performance requirements, and the aesthetic expectations are extraordinarily high. When Aveda, backed by Estée Lauder, chooses our platform, that is a statement about the maturity and credibility of our technology. Aveda is one of four anchor customer relationships that now underpin AeroFlexx's commercial momentum across distinct end markets. The other anchors include a multinational consumer packaged goods company with a signed multi-brand multimillion-unit agreement; a major producer of industrial fluids and packaging services where commercialization is advancing through both equipment and bulk sales with the first purchase order already received and production beginning next month; and a large beverage and food service partnership that represents an early entry into filling beverage packaging, the largest portion of its addressable market. Taken together, these four anchor customers validate the platform across premium beauty, household and personal care, industrial applications and food and beverage. Each has the potential to support line extensions, geographic expansion and follow-on programs as AeroFlexx becomes more deeply integrated into long-term packaging strategies. AeroFlexx's near-term commercial pipeline stands at just over $30 million including approximately one-third in final negotiations. We have not provided any guidance on the timing of revenue conversion, but the realization of these opportunities is incorporated into our assumptions for AeroFlexx to reach cash flow positivity in 2028. The company's opportunity set is broader and more diversified than at any point in its history. AeroFlexx is also in the process of launching a direct capital raise at the operating company level, targeting strategic investors that also serve as commercial partners. As our operating companies mature, they are increasingly able to raise capital independently, reducing the need for parent-level funding. That is the model working exactly as designed. Let me turn to Refinity, and I'll tell you candidly, this may be the most compelling industrial opportunity we have ever launched. Here is the problem: the world produces hundreds of millions of tons of plastic waste every year. A meaningful portion of that waste has no viable recycling pathway today. It goes to landfills, it goes to incinerators, it goes into the environment. At the same time, petrochemical companies are spending enormous sums buying fossil feedstocks, ethane and naphtha, to produce ethylene and propylene — C2 hydrocarbons that represent a $350 billion global market and are essential to producing polyethylene, polypropylene and a wide range of specialty materials. Refinity connects those two problems. It takes the portion of the plastic waste stream that today has no viable recycling pathway and converts it into high-value chemical building blocks, ethylene and propylene, that petrochemical companies are already buying. This substitution creates compelling economic incentives and the ability to hedge against fossil feedstock price swings while meeting circularity commitments. Across the value chain, circular materials command a 30% to 50% price premium with the highest premiums closest to the consumer. This is not a sustainability story that requires you to forego economics. This is a sustainability story where the economics are the reason it works. Refinity's primary commercialization strategy is built around integration, co-locating plants directly at petrochemical sites such as a steam cracker. This eliminates feedstock transportation costs, feeds directly into existing infrastructure, reduces CapEx for both Refinity and the customers, and accelerates adoption by fitting seamlessly into the way these companies already run their assets. Beyond its core ethylene and propylene focus, Refinity sees significant opportunities in producing customized circular hydrocarbon products, including specialty high-value lubricants and sustainable aviation fuel, or SAF. One of our independent directors is a C-suite executive in the aviation industry, and we have come to appreciate that SAF has become one of the most critical pathways for aviation to meet its Net Zero commitments with demand going far faster than supply and U.S. production expected to scale dramatically over the next decade. Refinity recently licensed technology from a U.S. national lab for catalytic conversion of its mixed ethylene and propylene product to SAF and other liquid fuels and intends to demonstrate this conversion process later this year. The SAF market alone is growing at 38% to 50% annually and is anticipated to reach $40 billion by 2034. The ability to disrupt a $350 billion commodity market while also accessing high-growth specialty sectors like lubricants and SAF underscores just how significant the total addressable market is for Refinity. Now here is the process to get your attention. Refinity was formed in December 2024. Less than one year later, the team produced its first metric ton of circular product from real-world mixed plastic waste yields typically above 60% to 70% with minimal char. That compares to about 25% conversion for competing technologies. For a technology of this complexity at speed, this is exceptional. Since then, Refinity has filed multiple patents on a DuoZone reactor design, expanded its IP portfolio with licenses from a U.S. university and a national lab and advanced engineering toward a 10-kiloton-per-year demonstration plant targeted for completion in 2028. A commercial-scale plant of around 150 kilotons per year is planned for the early next decade aligned with the chemical industry's expected return to growth. Refinity is hitting KPIs ahead of schedule. It is solving a real cost problem for petrochemical customers and is positioning itself to scale just as the industry returns to a growth phase. This is the Innventure model: rapid formation, accelerated validation and a disciplined progression towards commercialization in a massive market with structural economic drivers. Before Dave gets into the financials, I want to leave investors with three clear takeaways. First, the invention is validated: PureCycle proved it and Accelsius is validating it again at a faster pace. This is not theoretical; it has been demonstrated. Second, we are not dependent on a single operating company. We now have three businesses executing simultaneously, each with independent third-party validation — diversification with conviction, not diversification as a hedge. And third, and I think this is the one that the market has been slow to absorb: the platform is transitioning structurally from capital consuming to increasingly self-funded. Operating companies are raising their own capital. They're converting commercial traction into revenue. The architecture of this business is changing and it's changing exactly the way we expected it would. I want to say something about valuation because I think it needs to be said plainly. We believe our current share price does not fully reflect the value of our assets. The $665 million third-party valuation of Accelsius was set by institutional investors deploying their own capital, adding two strategic investors to the cap table and securing more than $50 million in contracted backlog. We believe the value of Accelsius alone has materially increased, and that does not include the value of AeroFlexx or Refinity. We're not going to complain about the market, but we are going to stay focused on execution. In fact, we suspect there is a significant gap in where our shares trade and what this platform is worth. Our focus remains on execution. We believe that if we continue to execute, value will ultimately be recognized and we intend to continue executing. When we look across our family of operating companies today, our confidence in Innventure's path to consolidated cash flow positivity in 2028 is grounded in execution, not aspiration. Accelsius is scaling into production deployments in a market where liquid cooling is becoming mandatory with third-party institutional validation and a clear line of sight towards self-funded growth. AeroFlexx has moved beyond pilot programs into repeat revenue, anchor customers and global manufacturing scale while transitioning to direct capital formation at the operating company level, and Refinity is rapidly validating its core technology, established a clear commercialization roadmap and is in the process of funding its next phase independently. Taken together, these developments reflect a platform that is structurally maturing with the operating companies increasingly funding their own growth, corporate capital requirements declining and commercial activity translating into revenue. This is exactly how the Innventure model is designed to work, and it underpins our confidence in the enterprise's long-term financial trajectory. With that, I'll turn the call over to Dave to walk through the financials.

Thanks, Bill, and good afternoon, everyone. I'll walk through our fourth quarter and full year results, but let me begin with the most important thing I can tell you. The financial profile of this company is changing — not gradually, but structurally — and the numbers I'm about to give you are evidence of that change. 2025 was an important proof-point year for Accelsius. Revenue increased from $0.3 million in 2024 to $1.6 million in 2025, driven by successful proof-of-concept deployments with early customers. At the consolidated level, 2025 revenue was $2.1 million, up from $1.2 million in 2024. Fees from our management of the Innventure ESG fund, along with intercompany eliminations, were $0.5 million compared to $0.9 million in 2024. But the real step change happened in the first quarter of 2026. Accelsius generated more than $50 million in contracted backlog. These are production volume orders, not pilots, not trials. This provides strong visibility into meaningful revenue scaling in 2026. And as Bill mentioned, we expect Accelsius to exit December 2026 with positive operating cash flow, implying an annual revenue run rate of approximately $100 million. We also expect revenue to be heavily weighted to the back end of this year. General and administrative expense: before I get into the specifics, I want to explain something about how our cost structure has evolved because it gives important context. We have included a slide in our earnings presentation that illustrates this in granular detail. Historically, prior to the operating companies reaching commercialization, Innventure funded essentially all G&A costs from the topco level: personnel expense, special services, operating expenses, all centralized, all flowing through Innventure's consolidated P&L. That's now changing. While costs at Accelsius and Refinity will continue to flow through the consolidated financials, a growing portion of the total operating expenses will be funded directly within those businesses rather than at the venture topco. At the topco level, our focus is increasingly on a lean corporate cost structure, funding only what's required to operate Innventure topco. Now let me give you the numbers because they're significant. G&A has decreased sequentially every quarter since Innventure went public. Consolidated G&A declined from $29.7 million in the fourth quarter of 2024 to $11.5 million in the fourth quarter of 2025, a 61% reduction. That reflects disciplined cost management across Innventure, Accelsius and Refinity, as well as the tapering of noncash expenses associated with our public listing. Professional service fees show the same trajectory: $3.5 million in the fourth quarter of 2025, down 42% from their peak of $6.1 million in the first quarter of 2025 as we brought key functions in-house at lower cost. At the parent company level, Innventure's fourth quarter 2025 cash G&A expenses were $5.7 million, down over 55% from $12.9 million in the fourth quarter of last year. That's not noise. That's a structural change in how this business operates. Looking ahead to 2026, we expect the topco G&A to follow a trend similar to the last three quarters of 2025. A few income statement highlights: excluding the $347 million noncash goodwill adjustments and other minor noncash items, adjusted EBITDA for 2025 was a loss of $78.8 million. As we look forward, the combination of a significant contracted backlog, our expectation that Accelsius will reach a revenue run rate of approximately $100 million and exit 2026 cash flow positive gives us confidence that there will be a substantial improvement in the reported adjusted EBITDA in 2026. Moving to cash and liquidity: on a consolidated basis, we ended 2025 with $65.4 million of cash, restricted cash and cash equivalents, up from $11.1 million at the end of 2024. Additionally, in January 2026, we strengthened our balance sheet with a $40 million registered direct offering as Innventure became shelf eligible. Shelf eligibility is an important milestone. It gives us efficient access to public market capital on substantially better terms than what was available previously. Just as importantly, we repaid the entire remaining $5.6 million balance on our convertible notes, which simplifies our capital structure. Let me walk through why we believe our cost of capital will improve significantly going forward. One, we believe Accelsius is now effectively fully funded and entering rapid commercial scaling with the over $50 million in contracted backlog. Two, fourth quarter 2025 G&A is down 61% from fourth quarter 2024, with further efficiencies expected as we take advantage of productivity improvements. Third, shelf eligibility, which reduces reliance on higher-cost financing alternatives. As our operating companies, particularly Accelsius, begin generating cash, we expect this to further extend our cash runway and move Innventure towards a self-funding model. While it is too early to discuss the details of the ongoing capital needs for Refinity and AeroFlexx, the disciplined cost actions I discussed earlier give us visibility into Innventure's needs. At the Innventure level, we estimate 2026 capital needs to be materially less as our operating companies become self-funded. This reflects a near parent-company structure as expenses continue to shift to the operating companies. On the balance sheet, by way of explanation, our $28.7 million in investments represents our $19.5 million equity method investment in AeroFlexx and $9.2 million in AeroFlexx debt securities. And following the goodwill write-downs earlier this year, $23 million of goodwill still remains on our balance sheet. On the cash flow statement, you can see many of the noncash items that appear in our income statement. The cash used in investing activities primarily reflects funding to AeroFlexx and capital expenditures at Accelsius. Let me close with this. There are companies that talk about inflection points. And then there are companies that cross them. Innventure is crossing an inflection point right now: rapid commercialization, a dramatically improved cost structure, efficient access to capital, operating companies that are beginning to fund their own growth. These are not just aspirations we are sharing with you. They are facts supported by every number I just walked you through. We believe this combination positions us to scale with far greater capital efficiency and to create meaningful long-term value for our shareholders. And every investor on this call understands we are not slowing down. We are accelerating. With that, we'll open the call for questions.

And our first question comes from the line of Chip Moore of ROTH Capital Partners.

So maybe if I could start on Accelsius, the $50 million plus in contracted orders here in Q1. It sounds like DarkNX is a significant chunk of that, but maybe you can talk about the types of customers in there, other customers and what you're seeing there and then pipeline as well?

Yes, sure. So I would say this, Chip, we have literally hundreds of people in the pipeline of customers that are all kind of moving forward through. I mean the beginning of that is starting to drop through, as you can see. So it's fairly chunky right now. But I think what you'll see going forward is we'll have a larger framework of customers. I mean we have delivered to dozens of customers to date. So I think what you're going to see is many more groups of purchase orders fall with increasing numbers as they go forward. It's a tricky marketplace, as I think we all know, just because of, again, some of the supply chain issues that have been talked about on this call and people are seeing in the marketplace. So that affects some of the timing of both purchase orders and the prospective deliveries of those. And while I'm not predicting that we'll have any material delays in delivery, it's not something within our control. Ultimately, these are things that will be determined by the pace of the build-out of the various data centers and our customers' supply chain constraints. So that's kind of where we stand at the moment. But we'll have a broader and more diversified pipeline of contracts as we go forward is my belief.

Yes. That's helpful, Bill, and it makes a lot of sense. Obviously, a lot of things out of your control like many. And I guess for the deliveries to dozens of potential customers, would you describe that more as sort of a piloting phase? And how long do you think people want to have a look at the technology before they get fully comfortable?

Well, so last year, virtually all of our deliveries were kind of one-off pilots where people were just evaluating the technology. I think we've moved past that for most of the customers that are in the pipeline at this stage. So the way I would frame it is this: if we were sitting here a year ago, our average proposal outstanding was probably worth a couple of hundred thousand dollars and now we're not — not everyone, but most of the purchase orders are either eight or even nine figures in terms of scale. I would say most are probably in the eight-figure range. So that just shows you a significant transition from evaluation units to real commercial production orders.

Yes. Definitely. That's helpful. And maybe just one more on Accelsius. For me, to your point, on cadence being tougher to predict near term and some of the things that you don't control getting held up, it sounds like you have reasonable visibility into maybe $25 million-ish of revenue in Q4 if something you don't control doesn't get held up. Is that the right way to think about it based on what I said?

Yes, like you said, that's the kind of run rate we indicated that would make the company cash generative. And I think Josh came out a couple of months ago and said that was our expectation that we would reach cash flow positivity by year-end, and that is still our belief.

Yes. Okay. And just one more before I hop back in queue. AeroFlexx, a lot of momentum, data, obviously, announcement recently, but now you're talking about a $30 million pipeline and some of that getting close. Just a little more detail there. And I think I heard you say that you might be looking to do raises with some strategics there. Just any more color you can provide.

I would say this: now that we've gotten to the point where we've proven out the technology and proven out the recyclability of the AeroFlexx package, and it's gone through its own evaluation unit phase just as we did in Accelsius, now we're starting to see commercial-sized proposals that have been asked for. Aveda is really a framework deal that we think can be quite significant. I don't have a number of scale yet of what that can grow to but they're a very large luxury brand within Estée Lauder, as you may know. And what we believe, based on conversations we've had with lots and lots of customers, is that they'll start with one product SKU that they'll go out and run and, assuming that's successful, they will broaden the reach of that packaging solution to other brands within the same platform. So again, Aveda is one, but they're a big one. And as we mentioned, it's a very challenging customer in the sense that the bar is very high across the board because aesthetics is very important, and they want unique shape, some different kinds of packaging and labeling that is more difficult than, say, industrial where you look at putting lubricants and baring chain oil, which is an opportunity for us and other things of that category.

Yes. No, that's great. One last one for me before I hop back in queue, I think probably more for Dave, but the transparency around G&A and some of the expenses — I really appreciate that and the slide in there. I guess the question would be, is there much more low-hanging fruit there? Do you think G&A continues to come down? And how much more optimization do you think you could see there?

Chip, thanks for the question. Certainly, we're always focused on G&A. We're always looking at ways to be more efficient, more effective, get more done with less. So while I don't want to give forward guidance on where I think that might be, I can assure you it's on our radar and we're always looking at ways to operate more efficiently. But we're pretty proud of the five consecutive quarters since we went public. So that's how I'd respond to that.

Yes. I would just amplify that a little bit. When we went public, we needed to be public-company ready and we relied very heavily upon outside vendors to help. And now we've brought a lot of that functionality in-house. So we've weaned ourselves off some of those outside services that were quite expensive, but that wasn't all realized by the end of December. There was still some carryover. So that continues to reduce which is where I think you'll see some improvements in our cost structure going forward.

Our next question comes from the line of Nehal Chokshi of Northland Capital Markets.

I think it was a well-said narrative on the transition of Innventure and proof points that the unique VC model is working. So well done there. There are some questions, though, that I think need to be asked. I got a bunch, and let me just go through them real quickly. The COGS to revenue ratio continues to inch up. I understand that we're still in basically pilot base. But at what point in time — why is it continuing to inch up? And at what point in time do you expect that to start to normalize?

So I would say we're building some things to inventory based on projected orders, Nehal, so the cost of goods is ahead of delivery, right? So I think that's the primary issue, where we have customers that know what they're going to want in terms of product mix. And so we've developed some inventory which, of course, all that cost goes in, but the revenue is yet to be realized in certain areas.

I'll jump in, and that's accurate. Really, cost elements to COGS are worth keeping in mind. It's not all variable.

Certainly, later this year, that should even out as we start delivering at scale, you'll see all of that really flush out.

Okay. When I look at the COGS relative to revenue, it's roughly scaling but it's increasing a little bit. It almost looks like the variable cost structure is close to 100% if I were looking purely at COGS to revenue ratio. So can you help me understand what percent of these COGS is actually fixed versus variable?

I do. It gets into margins and the cost structure of Accelsius and probably we don't want to go into too many details there. But we're amortizing intangible assets, right? So for the R&D development and other things that are attributable to cost of goods sold, that amortization is going through. It's fixed. It doesn't vary with each unit produced. And the second thing is there's been a shift in Accelsius to higher-capacity cooling units, different MR250s and demand by the customer. So that generated a little bit more cost than just doing straight math on units and per-unit cost. So those will be the two things I'd point you to.

But it's a very nice margin business. I'm not going to give you the projected margins at this stage. As revenues get to scale, I think we'll be able to share more in terms of that. The margins are attractive in this business, in my view, on a comparative basis to other vendors out there.

Okay. So the fixed-cost element within these COGS has been going up each quarter then. Is that correct?

Again, the fixed portion is fixed. I just think there's a lot of different things happening as we're scaling, as we're getting customer orders and costs are getting booked to COGS. As we scale, you'll see it normalize where you could say, 'hey, this is the cost per unit.' When your numbers are at this level, you have to be careful drawing those conclusions.

And we are a brand-new manufacturing facility, too. We've opened another roughly 25,000-square-foot facility in Austin in addition to where we were before. So we materially increased our manufacturing footprint. There are obviously some costs associated with that.

Okay. Inventory was down about $5 million quarter-over-quarter on less than $2 million of revenue recognition in the quarter. Can you help me understand that there?

Yes, I can answer that. Again, as we transition to different products, there were some inventory write-downs. And that's flowing through COGS as well. So there was a little bit of obsolescence, a little bit of manufacturing costs, some more overhead allocated to cost of goods sold. It's all kind of related, but that's why you saw that inventory move.

I can add to that. This market has evolved very rapidly. Our initial belief was that a sort of 70-kilowatt rack was a reasonable average rack size, but the market really leapfrogged over that. So we have about 150-kilowatt or 250-kilowatt products as well, and those are more of a sweet spot of what the market seems to warrant. So that's where the obsolescence really came in: writing off a lot of that 70-kilowatt inventory.

Got it. That makes a lot of sense. Okay. A couple of other questions. You said that DarkNX is funded. Can you give us a sense as to where these funding sources are coming from for DarkNX?

Sure, Nehal. I mean, coincidentally, I'm in Toronto, which is where they are. I've met with them, a handful of times and got to know them. I didn't go through the formal qualification that was done by Accelsius themselves, and I believe Johnson Controls did that as well because they're part of the chillers for that facility. All I can tell you is they are funded and they represented to me directly that they're funded, and it was formally confirmed when they were qualified by both Accelsius and Johnson Controls. A key part of that qualification was determining that they did have funding. I don't know the specific source, to tell you the truth.

Okay. All right. And then my last question for now: companies are raising company capital independently, which then means that Innventure will get diluted relative to these operating companies. Does that represent a change in philosophy on whether to fund the operating companies or not, rather than just evidence of operating company maturation? I do agree there is evidence of maturation, but is this also a change in funding philosophy?

Let me field that for you, Nehal. In the early days of Innventure, most of the companies were funded off the balance sheet of Innventure and through a fund that co-invested within Innventure. We had some outside investors that funded a lot of those companies, so we ended up with relatively small stakes in some assets like PureCycle and AeroFlexx. When we evolved the conglomerate model, our goal was to own more. But the trade-off was that until Innventure is cash generative at the opco level, which we project for 2028, we'd have to take permanent dilution at the Innventure level, which would affect not only the companies we currently have but future companies going forward. The thought was that if these companies are mature enough to raise capital independently, let's raise the capital for each of AeroFlexx and Refinity directly in the marketplace. Yes, we'll take some dilution there, but we avoid permanent dilution at the Innventure topco level for our shareholders. When we're cash generative at the topco level, we'd prefer to fund as much as possible from our own balance sheet to retain ownership. So it's a trade-off between limiting dilution at the topco level today and taking some dilution at the opco level versus potentially suffering permanent dilution for future companies. As we mentioned, Accelsius already has the requisite capital it needs to get to a cash-generative position, so we're not funding anything more there, and they're not raising further capital. So the focus is on AeroFlexx and Refinity. AeroFlexx is not a consolidated asset; we own a minority stake, so we're a little less sensitive to dilution there. We believe that given the Aveda deal and other traction, raising the modest amount of capital AeroFlexx needs going forward is imminently doable.

Our next question comes from the line of Aashi Shah of Sidoti.

My question is related to Accelsius and the $50 million bookings in the first quarter. They are all tied to greenfield data center builds. When do you expect meaningful traction from brownfield deployments? That could accelerate adoption much quicker than greenfield in my assumption because brownfield growth could be faster. Any thoughts on when you start seeing traction from brownfield deployments?

It's a tricky question to answer, but I'll do my best. We do have customers that have existing data centers and some that would like to retrofit parts of their data centers with different cooling technology. At the moment, liquid-cooled data centers are still a relatively small portion of the market — perhaps around 5% today — but it's growing very rapidly as evidenced by a lot of M&A activity in the sector. We are talking to customers that have many data centers, some new builds and some existing. The nice thing about the technology is that it drops in nicely into an existing data center because each rack is self-contained: you have a cooling solution and a CDU all contained together with one or multiple racks. So you can replace a rack, a row, a whole facility or any combination thereof in a relatively straightforward way. I expect some blend of greenfield and brownfield even later this year as things move forward, particularly with customers that have the most acute need — those who are focused on HPC and AI workloads where they are acquiring the latest and greatest. As generative AI adoption grows, you're going to see changes in compute patterns and clustering that will also drive retrofits. The market has evolved faster than anticipated in the last couple of years, so I think we'll continue to see brownfield adoption grow as the industry matures.

I can add to that a little bit. When you have the CEO call, I think it's a good time to ask Josh that exact question. But right now, there's a need for greenfields to adopt the technology because urgency drives adoption there. In legacy centers, operators want to see a mature industry develop with plenty of supply. I think the adoption inflection point will come when there is a robust industry supplying the greenfield developments — then brownfields will become more comfortable making switchovers.

It makes sense. Understood. And another question I had was on the Aveda partnership. Can you just give us a ballpark on what the expected annual volume is going to be for that launch in 2027? Is this going to be a pilot program or a full commercial rollout?

We've been working with Aveda for quite some time, but I don't have the direct answer to your question. I'm not avoiding it, I just don't know the precise number. Aveda has big brands — if you look online, you'll see estimates that Aveda is in the tens of millions of packages a year, so the potential could be significant. However, with any brand rollout you don't expect to get the whole thing immediately. They will likely start with one or a few SKUs, validate them, and then expand. It's not a pilot; it's a global commercial launch targeted for 2027, but the initial volumes and ramp schedule will be disclosed as the program details are finalized.

You can look at the potential too. There's not a lot of published data on Aveda, but public estimates put them in the tens of millions of packages a year. So it could be significant. Again, you don't expect the whole brand at once, but it's definitely not a pilot launch. It is a commercial global launch targeted for 2027.

And our final question comes from the line of Nehal Chokshi of Northland Capital Markets.

Yes. Another part of the narrative here is improving corporate governance. You guys did announce that you'll be nominating some independent board directors and some existing insiders are going to be stepping down. Could you just say what percent is independent now and what percent do you expect to be independent once these changes are made?

Sure. Today, we have five independent directors and four executive directors. What we're targeting is to go to seven independents and two executive directors. We have our AGM in June. I would anticipate in that window of time we will have migrated to seven independents. That's the target.

Great. Also, can you give an update on the Accelsius pipeline? I believe a quarter ago you said it was a little bit over $1 billion.

I don't have an updated pipeline number in front of me. I will tell you that the pipeline has a lot of different levels: high conviction, probable, possible, and new opportunities coming in all the time. I don't have a current competitive number here, but we can figure that out and certainly when we do the CEO call, that's a fair question to ask Josh. I just don't have the number in front of me right now.

Understood. And then how much of the greater-than-$50 million of Accelsius bookings in 1Q 2026 correspond to megawatts of capacity? For instance, DarkNX had prior announcements of 300 megawatts and initial phases of 65 megawatts each. How much of your bookings correspond to that total?

We're being careful about ascribing dollars per megawatt, which I think is probably where you're headed. I will say that a fraction of that relates to a portion of the DarkNX prospective build-out. Previously, DarkNX announced 300 megawatts and then indicated funding for the first two phases of 65 megawatts each. Our bookings represent a smaller fraction of that. When we do the CEO call, we may provide more granularity on how many megawatts we've been contracted to roll out. It's going to grow materially between now and the next couple of quarters as a lot of things in the pipeline close.

Nehal, that's the whole point of doing a separate CEO call: we want the CEOs to be able to go into greater granularity. On the earnings call, we're trying to give a macro overview of where it's going and that we're having acceleration across all companies and a dramatic decrease in G&A. You can get into the technicals on the CEO call.

Okay. All right. I'll save my additional questions for them.

This concludes the question-and-answer session. Thank you for participating in today's conference. This concludes the program. You may now disconnect.