Good afternoon, and welcome to INNOVATE Corp.'s Third Quarter 2022 Earnings Conference Call. I would now like to turn the conference call over to Anthony Rozmus from Investor Relations. Please proceed.

Good afternoon. Thank you for being with us to review INNOVATE's third quarter 2022 earnings results. We're joined today by Avi Glazer, Chairman of INNOVATE; Wayne Barr, Jr., CEO of INNOVATE; and Mike Sena, INNOVATE's Chief Financial Officer. We have posted our earnings release and our slide presentation on our website at innovatecorp.com. We will begin our call with prepared remarks to be followed by a Q&A session. This call is also being simulcast and will be archived on our website. During this call, management may make certain statements and assumptions, which are not historical facts, will be forward-looking and are being made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements involve risks, assumptions and uncertainties and are subject to certain assumptions and risk factors that could cause INNOVATE's actual results to differ materially from these forward-looking statements. Risk factors that could cause these differences are more fully disclosed in the cautionary statement that is included in our earnings release and the slide presentation and further detailed in our 10-K and other filings with the SEC. In addition, the forward-looking statements included in this conference call are only made as of the date of this call and as stated in our SEC reports. INNOVATE disclaims any intent or obligation to update or revise these forward-looking statements except as expressly required by law. Management will also refer to certain non-GAAP financial measures such as adjusted EBITDA. We believe that these measures provide useful supplemental data that, while not a substitute for GAAP measures, allow for greater transparency in the review of our financial and operational performance. At this point, it's my pleasure to turn things over to Avi Glazer.

Good afternoon. INNOVATE achieved another quarter of strong financial results. We grew both our top and bottom line once again, which we have done every quarter this year. Consolidated revenue for the third quarter grew 7.1% and adjusted EBITDA increased 14.7% over the prior year period. It's encouraging to see the sustained growth in the first 9 months of 2022 in the midst of a weaker macro backdrop. Infrastructure headline results indicate that this business continues to benefit from a strong construction market and delivered revenue and adjusted growth while also expanding margins. The backlog also grew in the quarter, which continues to provide visibility and a pathway to future revenue and cash flows. In Life Sciences, revenue has grown sequentially each consecutive quarter in 2022. That said, we are navigating challenges in China related to lockdowns, which negatively impacted our results in the quarter. Despite the slowdown, MediBeacon and R2 continue to make incremental progress. In the third quarter, R2 had 20% revenue growth as compared to the second quarter and has now shipped 215 units globally. MediBeacon patient enrollment is 85% complete with its U.S. pivotal study and is expected to finish the study by year-end. MediBeacon targets its final FDA submission in the first half of 2023. In Broadcasting, we continue our focus on leveraging the scale of the Spectrum station group distribution platform and take advantage of the opportunities by optimizing operations. I'd like to again highlight the resiliency of each of our businesses. We have delivered growth on the top and bottom lines throughout 2022 despite the challenging operating environment, and I'm confident our teams in each of the businesses will continue to execute our strategy and drive long-term growth and unlock future value. With that, I'm pleased to turn the call over to Wayne Barr.

Thanks, Avi, and thank you all for joining us today. Across our 3 businesses, I'm proud of the results we delivered for the third quarter. By continuing our company-wide focus on operations, we achieved year-over-year growth on a consolidated basis. I will now share some third quarter highlights for each of our operating segments. At DBM Global, Banker Steel has been a part of DBM for more than a year now, and it's clear that the expected benefits from that acquisition continue to unfold. The expanded scale and footprint has allowed DBM to capture a larger share of the revenue opportunities associated with increased demand for large construction projects. Revenue and adjusted EBITDA grew 7.8% and 13.1%, respectively. As we have mentioned on previous calls, we are now starting to see the improved margins as the pandemic-related jobs have started to roll off and jobs sold in the second half of 2021 are ramping up. Adjusted EBITDA margin expanded 30 basis points year-over-year and 120 basis points sequentially. DBM continues to generate robust revenue while also growing its backlog. Sales in the backlog were $843.8 million for the quarter, outpacing revenue recognized during that quarter once again. As you can see, Rustin and the team have not seen a slowdown in the market at this point and continue to take advantage of the current environment. The heightened backlog continues to give the business great visibility into 2023 and beyond. Turning now to Life Sciences. R2 has now shipped 215 Glacial devices and the monthly number of patients treated has continued to grow. Additionally, R2 implemented a new subscription sales program designed to fuel growth as it continues to explore various clinical initiatives for the Glacial products, including psoriasis and other inflammatory conditions. While these are still early days, there appears to be a much greater end market and application for this novel technology. At MediBeacon, the U.S. pivotal study has continued to progress well and now has enrolled 85% of its subjects. Both MediBeacon and R2 have been active on the trade show circuit, appearing at various events as speakers. MediBeacon presented at the American Society of Nephrology Kidney Week in Orlando, and R2 will be presenting at 2 upcoming investor conferences: Cantor Fitzgerald's Medical & Aesthetic Dermatology, Ophthalmology & MedTech Conference; and Jefferies Virtual Private MedTech Summit. Finally, at Spectrum, the continued challenges in the operating environment had an adverse impact on our results. During the quarter, we made the strategic decision to exit Azteca America. Azteca America experienced sustained declining viewership and high costs for content and postproduction services, making it a very challenging environment for success. By exiting Azteca, we will remove a significant portion of variable costs from the Spectrum business. This is part of our strategy to optimize operations, decrease costs and improve overall results of Spectrum over the long run. With the pending availability of prime channels on the Azteca stations, we have been approached by dozens of programmers looking for carriage. In fact, we have already executed or will be shortly executing contracts to fill over one-third of the channels previously occupied by Azteca. While overall revenue will decrease as a result of the closure, we will be replacing unprofitable revenues with profitable revenues, which will have a positive impact on broadcast cash flow and EBITDA. We are starting to see a reversal of the trend in the overall softness in the television advertising market this year, particularly direct response, which has slowed the growth of multicast networks. Revenue prospects for new network launches on our platform look promising as we move into 2023. In September, we successfully completed the upgrade to ATSC 3.0 of 2 of our Fort Wayne, Indiana stations. This upgrade is in conjunction with the FCC Experimental Special Temporary Authority granted to conduct a mobile wireless trial with our LPTV spectrum. The trial will likely commence in early December. While there is still much work to do, we are excited to be at the forefront of exploring the opportunities and expanded capabilities of ATSC 3.0 in conjunction with our current OTA linear broadcasting use. During the quarter, we completed the build-out of a new station for license WKOB-LD in New York City, which was relocated as a result of displacement from the incentive auction. The new site for the station is One World Trade Center, providing a far-ranging robust signal to the New York City market. Outside of our operating segments, certain regulatory administrative items have delayed the closing of the HMN sale. We are still working through the mechanics of selling the 19% ownership in HMN and have encountered administrative regulatory hurdles that we expect to be short-term in nature. Lastly, we recognize the level the stock is trading at currently and are aware of the New York Stock Exchange listing regulations. We have been working with the stock exchange and have been very cooperative and are diligently working on the plan to get the stock back over $1 over the next 6 months. Overall, we are pleased with the continued resiliency demonstrated by our 3 businesses this past quarter and year-to-date despite challenging operating environments. Looking ahead, we remain focused on executing our strategy across Infrastructure, Life Sciences, and Spectrum, and believe we are poised for growth in each of our operating segments. With that, I'll turn it over to Mike for a review of our financials and capital structure.

Thanks, Wayne. Consolidated total revenue for the third quarter of 2022 was $423 million, an increase of 7.1% compared to $394.8 million in the prior year period. The increase is driven by our Infrastructure segment, led by the contribution from Banker Steel and increases in infrastructure market demand. Net loss attributable to common and participating preferred stockholders for the third quarter of 2022 was $6.6 million or $0.09 per share compared to a net loss of $213 million or $2.75 per share in the prior year period. As a reminder, we recognized a $200.3 million loss on the sale of the Insurance segment in the third quarter of the prior year. Total adjusted EBITDA, which excludes discontinued operations, was $16.4 million in the third quarter of 2022, an increase from an adjusted EBITDA of $14.3 million in the prior year period. The increase was primarily driven by the Infrastructure segment and our investment in HMN, which was partially offset by a decrease at our Spectrum, nonoperating corporate, and Life Sciences segments. At Infrastructure, revenue increased 7.8% to $412.7 million from $383 million in the prior year quarter. As discussed earlier, this increase is driven by Banker Steel as they are in full swing into the work at 270 Park. They also saw an increase in DBM's commercial structural steel fabrication and erection business as they work through some of the larger wins from 2021, including IBEC Clippers' arena. The increase was offset in part by the industrial maintenance and repair and construction modeling and detail businesses due to the completion of large projects in 2021 and early 2022. Infrastructure adjusted EBITDA for the third quarter of 2022 increased to $27.6 million from $24.4 million in the prior year period. The increase was largely driven by revenue increases previously described, combined with an improvement in margin as projects sold in the first half of 2021 and earlier are working their way through the system. And projects subsequently sold in the second half of 2021 are now beginning to ramp up. The improvements in profit and margin were partially offset by increased selling, general and administrative costs to support growth in the business as well as lower contributions from the industrial, maintenance and repair, and construction modeling and detail businesses. As we have previously discussed, projects typically take 12 to 18 months to work off through backlog, and we are happy to see the jobs sold in the peak of the pandemic roll off and newer jobs begin to ramp up. As of September 2022, reported backlog was $1.9 billion, up from $1.6 billion as of December 31, 2021. Adjusted backlog, which takes into consideration awarded but not yet signed contracts, was $2.2 billion compared to $1.9 billion at the end of December 2021. As Wayne mentioned, we are happy to continue to see a robust market as evidenced by over $840 million of jobs sold into backlog this quarter. We expect to work through over $1.5 billion of this backlog in the next 12 months, giving great visibility into the next couple of years. DBMG ended the quarter with $247.5 million of debt, which is an increase of $58.9 million from year-end driven by working capital movements, which were at a low at year-end combined with top line business growth. At Life Sciences, the slight increase in adjusted EBITDA losses were driven primarily by a decrease in gross margin at R2, which was primarily due to a change in product mix and an increase in equity method losses recorded from our investment in MediBeacon as they work through their final pivotal trial. We discussed last quarter the $10 million bridge commitment made by Lancer Capital to R2, which will be repaid by year-end or a successful equity raise. The $10 million commitment was fully funded during the third quarter. At Spectrum, revenue decreased $1.1 million or 10.8% to $9.1 million as a result of lower advertising revenue at the Azteca business due to a decreased footprint and the decline in paid programming. Spectrum delivered adjusted EBITDA of $0.3 million in the third quarter compared to adjusted EBITDA of $1.8 million in the prior year quarter. The decrease was the result of a decline in network or Azteca revenues, combined with increased content and service costs related to the network business along with, to a lesser extent, higher station costs as a result of the new build stations. This was partially offset by a decrease in salaries and benefits and legal expenses. As you know, our Spectrum debt comes due at the end of the month, and consistent with prior years, we plan to extend the debt maturity and are far along in our discussions with our existing lenders. Nonoperating corporate adjusted EBITDA losses were $5 million for the third quarter of 2022, up from the third quarter of 2021 by $1.2 million, driven mostly by accrued severance related to the former chief legal officer as well as increased legal expenses. At the end of the third quarter, the company had $25.8 million of cash and cash equivalents compared to $45.5 million as of December 31, 2021. On a stand-alone basis, as of September 30, 2022, the corporate segment had cash and cash equivalents of $5.1 million compared to $22 million at the end of 2021. As of September 30, 2022, INNOVATE had total principal outstanding indebtedness of $711.5 million, up from $630.8 million at the end of 2021 driven primarily by Infrastructure's increase in its line of credit due to working capital movements, corporate's utilization of the remaining credit line, as discussed in the previous quarter, and R2's borrowing from Lancer Capital. Our DBMG cash continues to be partially tied up in working capital. We expect to meet our upcoming obligations mainly through the DBM tax share agreement along with cash on hand while we work through longer-term solutions to support the working capital needs and dividend distributions during this time of tremendous growth we are experiencing with DBMG. We navigated the first 9 months of 2022 well and look to close out the year strong. For each of our operating segments, our focus is on what is within our control. We recognize that each business faces unique challenges, but we are proud of all of our employees and the results of their hard work to date. With that, operator, we'd now like to open up the call for questions.

Our first question will come from Brian Charles with R.W. Pressprich.

Congratulations on a successful quarter. The Infrastructure segment has shown continued improvement, as you previously indicated. However, I have a quick question regarding the Broadcast business. With the exit from Azteca America, it seems that your revenue may decrease, yet you mentioned that the net impact on EBITDA should be relatively positive. Can you provide more details on that? What kind of scale are we looking at in terms of the positive effect on EBITDA?

Yes. We really haven't guided and don't give any projections. But if you take a look historically at how the station group operates, you have a fixed-cost operation there, and it really is a matter of putting additional revenue on those stations. As we exit the Azteca business, that frees up some of the stations we had previously been using to broadcast Azteca. We are in the process of monetizing those new stations, and it should be at a higher margin than what we've been experiencing from the Azteca network. We would expect that trend to continue as we utilize the channels that were previously dedicated to Azteca and eliminate all the variable costs associated with operating Azteca.

It's reasonable to expect that the revenue currently lost from Azteca will be replaced as you bring in other stations.

A bit of a modification.

Yes. I would expect overall revenue to come down in the Broadcasting segment. However, I would expect that we will replace what would be intercompany revenue between the network for Azteca business and the Broadcasting business. So essentially, we will add revenue to the remaining business but eliminate all the costs associated with the network business.

Okay. Are there exit costs or restructuring costs associated with exiting Azteca?

Not anything material. As you know, there weren't many fixed assets there. We're working through a couple of obligations that we will be terminating, but there are no significant exit costs or wind-down costs associated with exiting this business.

Okay. Fair enough. One other thing, I don't know if you can talk about the third quarter, but if you ended the quarter with about $5.1 million of cash at the corporate level, can I ask how you pay the coupon on the 8.5% notes in August?

Well, we borrowed on the revolver at the corporate level, and that's how we made the payment, which we had talked about previously.

There was a drawdown during the third quarter. Yes, that's correct.

The interest payment is due August 1 and February 1. So the semiannual interest payment was due in August. We drew on the line towards the end of July. I mentioned that last quarter, and that's how we made the coupon payment.

Okay. And then finally, and I'll get back in queue. The residual marine services put with HMN, I know you all have been talking about that and you made a comment about just some regulatory headwinds right now. Do you still expect those to be resolved now, in the fourth quarter?

In the fourth quarter? Yes. We think that the headwinds we are facing, primarily arising out of regulatory issues experienced in China by the purchaser as well as the continued Chinese lockdowns have delayed consummating the sale of that. We are constantly iterating with the counterparties there and trying to get this done as quickly as possible. We're hopeful that it will be concluded by the end of the year.

Our next question will come from Bryant Riley with B. Riley Financial.

So Avi, we've been involved in this for about three years longer than you and have witnessed the rights offering and the overall process, having a great deal of respect for your previous work. This has undeniably been a tough investment for all of us. I wanted to take a moment to grasp the larger picture and the overarching thesis as we view it, ensuring we are not misunderstanding it and also to gather any insights you might have since you are an insider. Looking at the balance sheet, net debt stands at $709 million. I understand that this figure will fluctuate based on working capital needs. You have a subsidiary generating around $100 million in EBITDA. I believe this could yield significant free cash flow when not hindered by supply chain issues, which I assume is currently the case. I’d appreciate any thoughts you have on that, but it could trade at a reasonable multiple. I’m not implying you are selling it, but if it were valued at a 7x EBITDA multiple, it would cover all your debt simply. This leaves you with Spectrum and Life Sciences. I’m unsure of Spectrum's value; I have never been able to fully evaluate that side of the business. Yet, Life Sciences has seen some substantial numbers mentioned, not from your team but in general discussions about its potential. This seems to me to be an attractive option if one believes that the Infrastructure business is valued at 7x, at which point you would have no debt and own these assets. Additionally, Wayne, could you remind me what you have at Global Marine? I believe it is around $30 million or so. That's been the situation, considering there are about 80 million shares outstanding. If those Life Science businesses have a value of $500 million plus the potential value, that could be significant. This has been a rather simplistic way of looking at things, though it has not played out as we had hoped. Furthermore, I had not truly considered the possibility of the corporation lacking sufficient funds to cover the interest, leading to borrowing from the revolver. So, I'd really like to know if what I've outlined makes sense to you and I’d appreciate your thoughts on this.

Sure, Bryant. Unfortunately, Avi was not able to stay on the phone for the balance of the call. He had a prior obligation. But obviously, we're in touch every day. And so at the risk of not speaking for him, but trying to answer some of your questions from management's perspective. Your interpretation and your summary of the business is fairly accurate. And as you said, you've been in the game for a while. I think that the recent things we've been doing since the new Board was seated over the last 2 years was trying to sharpen the focus of the company. And we've done that by maintaining and continuing to operate the 3 operating segments that, quite honestly, this Board, led by Avi, believes represent very good value. DBM, obviously, a much more mature company than both Broadcasting and the 2 entities at Spectrum. As a consequence, the holding company leans on the more mature company from a cash flow perspective, and we'll continue to do that. They've had a tremendous run at DBM, that team is exceptional at operating their business and selling new business, and we would expect that to continue. I think we've seen a little bit of liquidity constraint, driven by the level at which the company is able to sell new business, and we're working through a variety of ways to help solve that liquidity issue. But if you look at the backlog in particular, it gives you visibility into the next 18 to 24 months of operations from DBM. From that perspective, I think you have a fairly good idea as to what this business is worth. The Board at INNOVATE truly appreciates the value that DBM represents, not only currently but going forward in the next 24 months. To the other 2 companies, as we've indicated, the other 2 operating segments need longer runways to realize the value. All 3 businesses divided between those 2 operating segments are working effectively to realize that value, and we're supporting them in whatever manner we can. I think the focus on the station group at Broadcasting is going to help tell the story and create value there. Both Pansend and R2 are performing in a manner that we're very happy with at the holding company, and we expect them to continue moving forward. The MediBeacon pivotal is going very well. We hope that as they move towards applying for FDA approval, the successes that MediBeacon has experienced will continue. I think those are the approaches the Board took when it decided to divest Beyond6 and Continental. I think the focus on these 3 operating segments right now and the results speak for themselves this quarter as a way to move this company forward in light of some constraints, including the debt service you pointed out. We've been diligent in our planning and have put in place a path forward to satisfy the liquidity needs at the parent, including the debt service on the bonds. I think we've demonstrated with the last interest payment and additional steps we’re taking that we are going to execute on that path and that we will be able to satisfy our liquidity needs going forward. The company's performance is good at each of the companies. We do have liquidity constraints that we are working through. But again, we have a path forward to solving them, and I'm very confident we will be able to do that.

So having invested in companies like the Infrastructure business, I know those can be high utilization of cash, especially in the growth mode. Can you tell me what you think on a normalized basis what the free cash flow conversion is on a $100 million EBITDA run rate? What would you expect free cash flow to be, forgetting the working capital swings and one project might be pushed out, but in general, how do you think of free cash flow conversion?

Yes. I think about it in context to one. They're running, call it, $15 million to $20 million of CapEx with the banker business on an annual basis. The debt load is, call it, $7 million, $8 million. And then outside of that, the rest is kind of free cash flow outside of the working capital needs.

Right. Okay. And then in terms of your NOL, I know that there's been a pill put in place to prevent impairing that. Can you just give us the status of that?

Sure. The pill is set to expire at the end of February or the beginning of March. It was renewed for a shorter duration than the usual annual renewal approved by shareholders last time. This quarter, we were able to increase the Net Operating Loss (NOL) by approximately $63 million through the consolidation of the first half of 2021 results with Continental's tax return. We believe the NOL is a valuable asset, and we think the steps we are taking are appropriate. The change of control calculation is quite complex because of IRS regulations. The Board conducted an analysis that gave us confidence there would be purchases rolling off around the February-March timeframe, which would allow us to eliminate the pill without risking limitations under Section 382 due to the change of control.

I would just say that, if you think about the history of the changes in ownership, the 382 change of control is on a 3-year rolling period. Most of our changes happened in 2020 or at least the big piece of the shift was created when we had Percy Rockdale come in, in January. We capitalized in May. And then, of course, in November, we had the rights offering. Those are the biggest causes of the shift. In 2023, those will begin to roll off at those time frames, basically.

Got it. So 3 follow-ups, and I'll go, sorry. I have one comment. First of all, I think a company like this, the perfect way if you have a shortage to deal with this is through a rights offering to the extent that you have equity holders that believe in the valuation. I know you've done that before. I think the worst way to deal with it would be an outright equity offering where you kind of picked and chose to participate in. So I just want to point out that B. Riley Financial, if there was a need, because of a gap due to working capital infrastructure, would be a big proponent of not diluting shareholders who wanted to re-up. When you have this, and I'm not saying you're going to need it, but I just wanted to point that out.

I forget the Global Marine outstanding potential payable and where that goes. Can you clarify? I thought it was around $35 million or something. Do you know what I'm talking about?

Yes. Yes. So we still hold a 19% interest in that equity investment. That is what we are working on trying to close and transact. It's at the same valuation that we had when we sold the original 30%, so that's a $285 million equity value. 19% is $54 million. There is a local tax, roughly 10%. We have some transaction-related fees attached to that deal. And then we don't own 100% of the entity that owns that interest. So we expect to get about $32 million.

Got it. And that's what you were talking about, you were hoping to get by the end of the year?

Correct.

Okay, I understand. One concern for outside shareholders might be that during difficult times, lending to other subsidiaries could become burdensome. However, I don’t think that's an issue in this case. To ease any potential worries, could you please explain the Lancer debt related to the Life Sciences business and how that looks?

A senior secured piece of paper with no equity component.

Our next question will come from Nitin Sacheti with Papyrus Capital.

Looking at the breakdown of the backlog in the quarter, government contributions appear to be relatively low at $13 million. I’m curious about the timing related to the infrastructure bill, the CHIPS Act, and the IRA. When do you anticipate those funds will become available, or are they categorized differently in the backlog? Additionally, how do you view the distribution of funds to the states and when that will impact the DBM business?

The infrastructure act? Yes, we really haven't seen, as far as I know, any contribution to the sales that these guys have been making out of DBM that could be attributed to any kind of governmental funds being made available for infrastructure. If it has happened, it hasn't been flagged to us.

Okay. Any sense of the timing as to when that might get backlog then?

So I think right now, there is significant growth in DBM's backlog. They have sold $843 million in the backlog. The market appears to be strong, and we haven't noticed it slowing down. We haven't observed any impact from the infrastructure bill on the market, as Wayne mentioned, and that aligns with my understanding as well. If there are projects that will enter the backlog, that will happen later on. Currently, the DBM team is leveraging what's available in the market, which is reflected in the backlog and has provided us with excellent visibility for the next two years.

This will conclude our question-and-answer session. I'd like to turn the call back over to Wayne Barr for any closing remarks.

Thanks, Joe. We appreciate everyone's participation on this earnings call today, and I hope everybody has a nice evening. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.