Good afternoon and welcome to INNOVATE Corp's Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. After the prepared remarks and presentation, there will be a question-and-answer session. Please note this event is being recorded. I would now like to turn the conference call over to Anthony Rozmus with Investor Relations. Please go ahead.

Good afternoon. Thank you for being with us to review INNOVATE's Third Quarter 2023 Earnings Results. We are joined today by Avie Glazer, Chairman of Innovate, Paul Voigt, INNOVATE's Interim CEO; and Mike Sena, INNOVATE's CFO. 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 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. The 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 is my pleasure to turn things over to Avie Glazer.

Good afternoon. INNOVATE delivered revenue of $375.3 million in the third quarter and grew adjusted EBITDA by 34.8% to $22.1 million. Our results this quarter highlight our keen focus on profitability. It is essential to the strategy of all three of our operating segments. We have executed on this initiative, achieving year-over-year adjusted EBITDA improvement in multiple operating segments in the third quarter. Our infrastructure business continues to deliver strong results for INNOVATE, especially on the bottom line. Infrastructure experienced further growth in adjusted EBITDA margin expansion in the quarter. The backlog, while somewhat contracting this quarter still provides strong visibility for future revenue. Turning to Life Sciences, R2 and MediBeacon continue to make progress. R2 launched a new skin wellness device, Glacial fx, along with several new product enhancements for Glacial rx, while MediBeacon remains on plan down the path for FDA approval. At Spectrum, we have a strong foundation of assets in that business. We are exploring potential opportunities for a strategic partnership to add to revenue and unlock the value in these assets, which should lead to further growth.

Thanks, Avie. Our three operating segments continue to perform well in 2023. In the third quarter, DBM Global delivered another strong quarter with revenues of $369.3 million and adjusted EBITDA of $30.8 million versus $27.6 million in the prior year. DBM expanded gross margins by approximately 210 basis points and adjusted EBITDA margin by approximately 170 basis points to 15.2% and 8.3%, respectively. Rustin and our DBM team have done an outstanding job protecting margins. We continue to expect to deliver increased margins for the full-year 2023 compared to the prior year. We still see huge opportunity to bid on larger, more complex projects, especially out West, that should continue to aid further margin expansion. DBM stays nimble with their unique expertise to capitalize on a multitude of project opportunities across various markets. Our total adjusted backlog was $1.3 billion at the end of the quarter. We remain focused on converting the sizable complex projects into the backlog. On our Health Care platform, R2 technologies experienced an exciting quarter across the board. R2 not only launched a new device and several product enhancements. US unit sales outpaced all previous quarter results. In addition, R2 experienced a record number of patient treatments performed with results in eclipsing over 15,000 patient treatments worldwide, and a 167% growth over the same period in 2022. R2 also expanded its global reach with approval to begin selling in Canada. R2 commercially launched this new system, Glacial fx. Glacial fx is a skin wellness device and due to its classification has expanded R2's total addressable market to include aesthetic spas and other wellness channels. Additional product enhancements for Glacial rx include the launch of larger disposable treatment dip for the body and colder, FDA-cleared advanced clinical protocol called Glide Rx. These enhancements improve treatment utility for providers, enhanced patient experience and outcomes, making Glacial product portfolio the emerging standard of care. For MediBeacon, we explained last quarter, the FDA reviewed the full module submission package for completeness and is now conducting the substantive review for the kidney monitoring program, which was previously granted FDA breakthrough device designation in the United States. In addition, the FDA provided feedback on MediBeacon clinical plans for other applications of the fluorescent technology platform in gastroenterology, ophthalmology, and surgical visualization. MediBeacon received FDA authorization to begin the first in-human study to evaluate the use of MediBeacon's priority agent in ophthalmology. This study is expected to begin in Q1 of 2024 in the United States. We are pleased with the progress MediBeacon has made as they continue to work through the FDA approval process for the innovative kidney monitoring technology. The FDA approval process typically takes an average of 6 to 12 months from submission to approval. And lastly, at Spectrum, we are starting to see encouraging signs of growth in broadcast television, which was soft over the last 18 months across the industry. Our stations are picking up new network distribution as advertising prices stabilize, and our outlook for 2024 looks promising. Earlier this week, Free TV, a new start-up backed by Warner Studios and Lionsgate, announced a January 2024 launch of two new nationwide networks. Our broadcast platform, together with Gray TV, will provide national coverage for the two networks. Jonathan Katz, the TV executive who founded Free TV, is responsible for designing and launching some of the most profitable over-the-air broadcast networks over the last 15 years, and we will continue to work with him on developing new revenue opportunities. We are also working with a number of streaming and cable networks looking to broaden their distribution to over-the-air, particularly now that advertising revenues are picking up. Also in the coming year, we are implementing the conversion of several of our stations to take advantage of commercial opportunities in areas such as data casting and software applications, together with providing state-of-the-art network broadcasting. We are very excited about these and other revenue opportunities for Spectrum in the years ahead. Like I said on the last conference call, we have over 2.3 billion megahertz pop, a very valuable UHS Spectrum with our 251 TV stations. Lastly, over the past quarter, I've had the opportunity to work closely with each of the management teams across our operating segments. I've come away from these discussions even more encouraged about the prospects and strengths of our assets and look forward to continuing to work with each CEO on ways we can further unlock the value of each of these businesses. As I mentioned on the last call, we continue to explore strategic alternatives on our non-cash flowing assets. We are starting to see R2 build the right momentum in their market, and MediBeacon continues to go through the FDA approval process.

Thanks, Paul. Consolidated total revenue for the third quarter of 2023 was $375.3 million, a decrease of 11.3% compared to $423 million in the prior year period. The decrease was primarily driven by our Infrastructure segment and, to a lesser extent, our Spectrum segment. Net loss attributable to common stockholders for the third quarter of 2023 was $7.3 million or $0.09 per share compared to a net loss of $6.6 million or $0.09 per share in the prior year period. Total adjusted EBITDA was $22.1 million in the third quarter of 2023, an increase from $16.4 million in the prior year period. The increase was driven by the Life Sciences Infrastructure and non-operating corporate segments, which was partially offset by the elimination of equity method income from our investment in HMN, which was sold in March of 2023 and their Spectrum segment. At Infrastructure, revenue decreased 10.5% to $369.3 million from $412.7 million in the prior year quarter. As discussed earlier, this decrease was primarily driven by the timing and size of projects at DBM's commercial steel fabrication and erection business and lower revenue at the industrial maintenance and repair business, which was partially offset by an increase in revenue at Banker Steel and the construction modeling and detailing business due to timing and size of projects. Infrastructure adjusted EBITDA for the third quarter of 2023 increased to $30.8 million from $27.6 million in the prior year period. The increase was primarily driven by the timing of higher-margin projects at the steel fabrication and erection business, increased contributions from the construction modeling and detailing business, and a decrease in recurring SG&A expenses. This was partially offset by lower contributions from Banker Steel due to timing and size of projects. As of September 30th, 2023, reported backlog and adjusted backlog, which takes into consideration awarded, but not yet signed contracts, was $1.3 billion compared to $1.8 billion at the end of 2022. As Avie explained earlier, we continue to see meaningful opportunities in the market, and DBM remains focused on converting those opportunities into backlog. DBM ended the quarter with $232.8 million in principal outstanding debt, which is a decrease of $10.2 million from year-end 2022, driven by normal debt amortization payments, a partial note repayment, and a partial loan repayment resulting from an asset sale, offset in part by an increase in the credit facility. At Life Sciences, the decrease in adjusted EBITDA losses was primarily due to a decrease in SG&A expense at R2, driven by a decrease in compensation-related expenses, research and development, and marketing costs as a result of cost reduction initiatives, as well as lower equity method losses recognized from Pansend's investment in MediBeacon as a result of suspended losses due to the investments carrying amounts being reduced to zero. At Spectrum, revenue was $5.4 million, a decrease of $3.7 million compared to the third quarter of 2022, primarily driven by the elimination of advertising revenues at Azteca, which ceased operations at the end of 2022. This was partially offset by an increase in station revenues, which launched new markets and networks with its customers in the current period. Spectrum reported adjusted EBITDA losses of $0.3 million in the third quarter compared to adjusted EBITDA income of $0.3 million in the prior year quarter. The decrease was primarily due to an increase in SG&A expenses at Station Group, driven by an increase in severance and salary and benefit-related expenses. Non-operating corporate adjusted EBITDA losses were $4.1 million for the third quarter of 2023, an improvement from the third quarter of 2022 by $0.9 million. The improvement was primarily driven by a decrease in legal expenses and decreases in employee-related expenses from reduced headcount, as well as a net decrease in severance expense. At the end of the third quarter, the company had $55.7 million of cash and cash equivalents, excluding restricted cash, compared to $80.4 million as of December 31, 2022. On a stand-alone basis, as of September 30, 2023, our non-operating corporate segment cash and cash equivalents of $1.5 million compared to $9.1 million at the end of 2022. As mentioned in previous calls, the cash balance has changed as a result of working capital movements related to receivables collected prior to the end of the reporting period. As of September 30, 2023, INNOVATE had total principal outstanding indebtedness of $756.8 million, up $31.5 million from $725.3 million at the end of 2022, driven primarily by corporate new unsecured note with CGIC, Infrastructure's draw on their respective credit line, and R2's additional borrowing from Lancer Capital, which was partially offset by Infrastructure's principal payments. Lastly, HC2 Broadcasting entered into an amendment to its secured notes today, which extended the maturity date of its principal amount, $69.7 million from August 15, 2024, to August 15, 2025. With that, operator, we'd now like to open up the call for questions.

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. Your first question comes from the line of Brian Charles from R.W. Pressprich. Your line is open.

Hi. Thanks for taking my question. It's good to see the continued progress in the Infrastructure business and the growth in EBITDA this year after a bit of a downturn earlier. However, looking at the presentation, I notice the backlog has been consistently declining. This seems to align with your comments about being more selective regarding the projects you undertake. Would you say that the current backlog likely indicates higher margins that will remain in the business and continue to improve in 2024?

Yes. Thanks. What I'd say is that we have seen continued margin improvement as you've seen throughout the year. We've started to see margins somewhat stabilize. So we expect to see come in exactly where we had discussed earlier, which was improved margins for 2023 over 2022. And I think we'll continue to see the margins where they're at over what we have in backlog.

Okay. Fair enough. And just one follow-up there. Some of the commentary in the earnings release you talked about tightening in the credit markets that is continuing to impact the commercial space. Is that more of an impact on your customer base and making them selective about which projects to go forward with? Or is that influencing your evaluation of certain projects?

No, I think what we've seen with the management team at DBM is that they are able to pivot into the markets that have the right work. The commercial sector has tightened mainly due to the credit markets, but we still see significant opportunities in the market, and DBM has been working on converting them.

Okay. If I had asked, do you think the backlog would be growing into 2024, stabilizing or continuing to decline if you can still be selective about higher margin projects?

I would say it's going to be flat year-over-year. But that being said, there are some big projects out West, especially in Vegas that there's four or five big projects that if we get our hands on one or two, we could be up big.

Okay. Good. Thanks. I'll get back in the queue.

Thank you very much for your questions.

There are no further questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect.