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Item 7. Management’s Discussion and Analysis

2023-03-14 compared with 2022-03-09 · 362 added, 409 removed, 373 unchanged (67% of the section changed)

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GAAP" means accounting principles accepted in the United States of America.

Our Business and Our Operations

We are a diversified holding company with principal operations conducted through three operating platforms or reportable segments:

Infrastructure ("DBMG"), Life Sciences ("Pansend"), and Spectrum, plus our Other segment, which includes businesses that do not meet the separately reportable segment thresholds.

Certain previous year amounts have been reclassified to conform with current year presentations, including:

• The recast of Beyond6, ICS, and CIG's results to discontinued operations.

Further, the reclassification of prior period assets and liabilities have been classified as held for sale.

Discontinued Operations for further information;

• As a result of the sale of ICS, and in accordance with ASC 280, the Company no longer considers the results of operations and Balance Sheets of ICS as a separate segment.

Formerly the Telecommunications segment, this entity has been reclassified to the Other segment.

Operating Segment and Related Information for further information;

• As a result of the sale of Beyond6, and in accordance with ASC 280, the Company no longer considers the results of operations and Balance Sheets of Beyond6 as a separate segment.

Formerly the Clean Energy segment, this entity has been reclassified to the Other segment.

Operating Segment and Related Information for further information;

• As a result of the sale of CIG, and in accordance with ASC 280, the Company no longer considers the results of operations and Balance Sheets of CIG as a separate segment.

Formerly the Insurance segment, this entity has been reclassified to the Other segment.

Operating Segment and Related Information for further information;

• The recast of prior year earnings per share as a result of the discontinued operations noted above.

This includes presenting EPS for Net (loss) income from continuing operations, Net (loss) income from discontinuing operations, and Net (loss) income.

Basic and Diluted Income (Loss) Per Common Share for further details.

Our Operations

Refer to Note 1.

Organization and Business to our Consolidated Financial Statements for additional information.

For additional information on our business refer to Note 1.

Organization and Business to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

Cyclical Patterns

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Examples of other items that may cause our results or demand for our services to fluctuate materially from quarter to quarter include:

weather or project site conditions, financial condition of our customers and their access to capital;

weather or project site conditions;

financial condition of our customers and their access to capital;

margins of projects performed during any particular period;

economic, and political and market conditions on a regional, national or global scale.

rising interest rates and inflation;

and economic, political and market conditions on a regional, national or global scale.

Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period.

Recent Developments

COVID-19 Impact on our Business

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus ("COVID-19") as a pandemic, and on March 13, 2020, the United States declared the pandemic to be a national emergency.

As COVID-19 spread throughout the country, the situation has continued to evolve, including, more recently, the increasing adoption of the COVID-19 vaccine and the reopening of state economies, although increasing rates of infection with recently identified variants of COVID-19, including the "Delta" and "Omicron" variants, have prompted some authorities to reintroduce mask mandates and other restrictions.

The Company’s top priority has been to protect its employees and their families, and those of the Company’s customers.

The Company continues to take precautionary measures as directed by health authorities and local governments, including changing operational procedures as necessary, providing additional protective gear and cleaning to protect personnel and customers, which has resulted and may continue to result in disruptions to and increased costs of the Company’s operations.

We may take further action as may be required by government authorities or that we determine are in the best interests of our employees, customers, partners, vendors, and suppliers.

Work-from-home and other measures introduce additional operational risks, including cybersecurity risks, and have affected the way we conduct our operations.

As the vaccine rollout has commenced, certain employees have begun to return to the office, either full-time or part-time.

There is no certainty that such measures will be sufficient to mitigate the risks posed by the virus, including any new strains of the virus, and illness and workforce disruptions could lead to unavailability of key personnel and harm our ability to perform critical functions.

The extent of the impact of COVID-19 on our operational and financial performance will depend on future developments, including, but not limited to, the duration and spread of the outbreak, the effectiveness of the vaccine program, the outbreak of any new strains of the coronavirus, and related travel advisories and restrictions, and its impact to the U.S.

and global financial markets, all of which are highly uncertain and cannot be predicted.

Preventing the effects from and responding to this market disruption if any other public health threat, related or otherwise, may further increase costs of our business and may have a material adverse effect on our business, financial condition, and results of operations.

COVID-19 has caused supply chain challenges related to labor shortages and supply chain disruptions, which may create significant delays in our ability to complete projects or deliver products.

The receipt of material from impacted areas has been slowed or disrupted and our suppliers are expected to face similar challenges in fulfilling orders.

In addition, reductions in the number of ocean carrier voyages, ocean freight capacity issues, congestion at major international gateways and other economic factors continue to persist worldwide due to COVID-19 and worldwide supply impacts as there is much greater demand for shipping and reduced capacity and equipment, which has resulted in recent price increases per shipping container.

In addition, in the United States, trucking costs have risen dramatically due to driver shortages and increased labor costs, as well as new federal and state safety, environmental and labor regulations.

These changes, as well as COVID-19 related state and local restrictions on domestic trucking and the operation of distribution centers, may disrupt our supply chain, which may result in a delay in the completion of our projects and cause us to incur significant additional costs.

Although we may attempt to pass on certain of these increased costs to our customers, we may not be able to pass all of these cost increases on to our customers.

As a result, our margins may be adversely impacted by such cost increases.

These supply chain disruptions and transportation challenges could have a material adverse effect on our results of operations or financial condition.

We continue to monitor the evolving situation and guidance from authorities, including federal, state and local public health departments, and may take additional actions based on their recommendations.

In these circumstances, there may be developments outside our control requiring us to adjust our plans.

As such, given the dynamic nature of this situation, we cannot reasonably estimate the impact of COVID-19 on our results of operations, financial condition, or cash flows in the future, but it could have a material adverse impact on our future revenue growth as well as our overall profitability and may lead to revised payment terms with certain of our customers.

During the year ended December 31, 2021, the effects of COVID-19 and the related actions undertaken in the U.S.

to attempt to control its spread, specifically impacted certain of our segments as follows:

Infrastructure

DBMG is dependent on its workforce to carry out its services.

Developments resulting from governmental responses to COVID-19 such as social distancing and shelter-in-place directives have impacted, and could continue to impact, DBMG’s ability to deploy its workforce in its facilities and project sites efficiently.

The nature of DBMG’s business does not permit alternative workforce arrangements in its facilities and project sites such as remote work schemes to be implemented effectively, and as a result of potential workforce disruptions, DBMG may continue to experience delays or suspensions of projects.

DBMG has incurred significant costs related to additional procedures to maintain COVID-19 related safety measures.

During the year ended December 31, 2021 and 2020, $8.6 million and $19.4 million of COVID-19 related expenses were incurred, respectively.

The majority of these expenses related to payroll costs for safety and cleaning procedures in DBMG's shops and in the field, and personal protective equipment for employees.

DBMG may also experience disruptions in the supply chain depending on the spread of COVID-19 and related governmental orders.

These delays, suspensions, and impacts to supply chain, may negatively impact DBMG’s results of operations, cash flows or financial condition.

This could cause the timing of revenue to be delayed and possibly impact earnings and backlog.

Persistent delays, suspensions or cancellations of projects under contract may occur while governments implement policies designed to respond to the COVID-19 pandemic.

Any such continued loss or suspension of projects under contract may negatively impact DBMG’s results of operations, cash flows or financial condition.

As a result of COVID-19, our Spectrum segment previously experienced adverse effects on its advertising business because of weakness in the advertising market as advertisers sought to reduce their own costs in response to the pandemic’s impact on their businesses.

While we are not able to predict when or whether advertising budgets and the advertising market generally will return or be comparable to historical levels, our Spectrum segment's advertising business appears to have begun to stabilize as the vaccination program within the U.S.

progresses and additional businesses begin to reopen.

In addition, COVID-19 could impact our Spectrum segment’s business, financial condition and results of operations in a number of other ways, including, but not limited to:

• negative impact on our broadcast station revenue, as many of our customers also rely on advertising revenues and might be negatively affected by COVID-19;

• negative impact on our network distribution revenues, as consumers may seek to reduce discretionary spending by cutting back or foregoing subscriptions to cable television or other multichannel video programming distributors;

• negative impact on our financial condition or our ability to fund operations or future investment opportunities due to an increase in the cost or difficulty in obtaining debt or equity financing, or refinancing our debt in the future, or our ability to comply with our covenants;

• impairments of our programming inventory, goodwill and other indefinite-lived intangible assets, and other long-lived assets;

• increased cyber and payment fraud risk, as cybercriminals attempt to profit from the disruption, given increased online activity.

The magnitude of the impact on our Spectrum segment will depend on numerous evolving factors that we may not be able to accurately predict, including the duration and extent of the pandemic, the impact of federal, state, local and foreign governmental actions, consumer behavior in response to the pandemic and such governmental actions, and the economic and operating conditions that we may face in the aftermath of COVID-19.

Even after COVID-19 has subsided, we may experience materially adverse impacts to our business as a result of its global economic impact, including any recession that has occurred or may occur in the future.

For further discussion regarding the potential future impacts of COVID-19 and related economic conditions on the Company's liquidity and capital resources, see "Part I-Item 1A-Risk Factors."

In 2021 and 2022, as part of our strategic process we engaged in several transactions that had an effect on the results of operations and financial condition of our business and individual segments.

Acquisitions and Dispositions

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Banker Steel Acquisition

On March 15, 2021, the Company announced that DBMG entered into an agreement to acquire 100% of Banker Steel Holdco LLC ("Banker Steel") for $145.0 million, which closed on May 27, 2021.

On May 27, 2021, DBMG closed on the acquisition of 100% of Banker Steel Holdco LLC ("Banker Steel") for $145.0 million.

The acquisition was financed with $64.1 million from a partial draw on the new $110.0 million revolving credit facility, $49.6 million of sellers' notes, $6.3 million of assumed debt of Banker Steel, and $25.0 million in cash received from INNOVATE in the settlement of certain intercompany balances.

Banker Steel provides full-service fabricated structural steel and erection services primarily for the East Coast and Southeast commercial and industrial construction market, in addition to full design-assist services.

Banker Steel consists of six operating companies:

Banker Steel Co., LLC;

NYC Constructors, LLC;

Derr & Isbell Construction LLC;

Innovative detailing and Engineering Solutions;

and Lynchburg Freight and Specialty LLC.

The sale of CIG closed on July 1, 2021 to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of December 31, 2021, a beneficial owner of approximately 6.6% of the Company's outstanding common stock who has also served as executive chairman of Continental since October 2020.

The Insurance segment, which primarily consisted of a closed block of long-term care insurance, had a book value, inclusive of intercompany eliminations, at the time of the sale of $544.0 million, inclusive of $344.0 million of Accumulated other comprehensive income ("AOCI").

The sale of CIG closed on July 1, 2021 to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a former director of the Company who has also served as executive chairman of Continental since October 2020.

Our previous Insurance segment, which primarily consisted of a closed block of long-term care insurance, had a book value, inclusive of intercompany eliminations, at the time of the sale of $544.0 million, inclusive of $344.0 million of Accumulated other comprehensive income ("AOCI").

The carrying value of the Insurance segment at the time of sale excluded cash of $62.5 million and investments of $26.7 million which were distributed to the Company through an extraordinary dividend immediately prior to the sale.

The extraordinary dividend was approved by our domestic regulator in connection with the approval of the sale.

The amount included in AOCI was reversed from equity at the time of the sale and offset the loss recognized.

While several factors impacted the fair value of the Insurance segment at the end of 2019, following discussions with our domestic regulator, changes in the asset management fee arrangement and expectations of future dividends primarily and ultimately resulted in the full impairment of the goodwill associated with the Insurance segment during the year ended December 31, 2019.

While these factors did not have a major impact on the operations of the stand-alone business, they did have a significant impact on the economic benefit that could be realized by the Company.

As a result of the factors described above, combined with the risks associated with the long-term care insurance industry, the Company exited the segment and sold the business resulting in a $200.8 million loss on the sale of CIG.

Following the full impairment of goodwill associated with our Insurance segment in 2019, combined with the risks associated with the long-term care insurance industry, the Company exited the Insurance segment and sold the business resulting in a $200.8 million loss on the sale of CIG.

Mutual Release and Termination Agreement with Azteca International Corporation and TV Azteca S.A.B.

On December 31, 2022, Broadcasting entered into that certain Mutual Release and Termination Agreement with Azteca International Corporation and TV Azteca, S.A.B.

(collectively, “TVA”), pursuant to which the parties agreed to terminate that certain Program Licensing Agreement entered into as of November 29, 2017 (the “PLA”), and the Binding Term Sheet:

La Academia, dated as of November 10, 2019, and exchange mutual releases of any and all claims based on, arising out of or related to the PLA and certain other agreements to which HC2 Networks and TVA were previously parties.

Sale of Beyond6

On December 31, 2020, the Company announced a plan to sell Beyond6 to an affiliate of Mercuria Investments US, Inc., pursuant to an Agreement and Plan of Merger (the "Merger Agreement") among Beyond6, Greenfill, Inc., a Delaware Corporation ("Parent"), Greenfill Merger Inc., a newly-formed Delaware corporation and wholly-owned subsidiary of Parent, and an affiliate of INNOVATE as the Stockholder Representative for the Beyond6 stockholders.

The sale closed on January 15, 2021.

On January 15, 2021, the Company closed on the sale of Beyond6 to an affiliate of Mercuria Investments US, Inc.

Net proceeds received by INNOVATE at closing was cash consideration of approximately $70.0 million.

During the first quarter of 2021, the Company recognized a $39.2 million gain on the sale.

During the third quarter of 2021, as a result of releases of related escrows and hold backs, the Company recognized an additional $0.5 million gain on the sale.

Debt Obligations

Sale of Remaining 19% Interest in HMN

Subsequent to year end, on March 6, 2023, the Company closed on the sale of its remaining 19% interest in HMN to subsidiaries and an affiliate of Hengtong Optic-Electric Co Ltd.

The sale was consummated pursuant to the terms of a supplemental agreement entered into by the parties in June 2022.

After taxes and transaction fees, INNOVATE received approximately $32 million in cash.

Debt Obligations and Financing

In 2021 and 2022, we refinanced several of our loans and credit facilities and obtained new capital financing at the corporate and subsidiary level.

This financing helped us make the acquisitions described above, gave us better terms and provided needed capital for the operations of our subsidiaries.

Non-Operating Corporate

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In addition, the Company entered into exchange agreements with certain holders of approximately $51.8 million aggregate principal amount of its existing $55.0 million 7.50% convertible senior notes due 2022 (the "2022 Convertible Notes"), pursuant to which the Company exchanged such holders' 2022 Convertible Notes for newly issued convertible notes due 2026 (the "2026 Convertible Notes").

The 2026 Senior Secured Notes were issued in a private placement to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended.

On June 1, 2022, the 2022 Convertible Notes of $3.2 million matured, and the Company repaid the principal and accrued interest upon maturity.

On February 23, 2021, the Company entered into a third amendment for the line of credit with MSD PCOF Partners IX, LLC ("Revolving Credit Agreement"), increasing the aggregate principal amount to $20.0 million and extending the maturity to February 23, 2024.

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The Company used the proceeds to fund the redemption of the Company's Series A and A-2 Preferred Stock.

In July 2022, the Company drew an additional $15.0 million under the Revolving Credit Agreement.

On July 1, 2021, CGI exchanged their Series A and Series A-2 Preferred Stock for new classes of Series A-3 and A-4 Preferred Stock with an extended maturity of July 1, 2026, with other terms substantially unchanged.

On August 30, 2021, HC2 Broadcasting Holdings Inc.

(“Broadcasting”) repurchased $1.0 million of DTV America Corporation's ("DTV") outstanding notes payable to certain institutional investors, of which the debt is now eliminated in consolidation.

Infrastructure

In May 2021, DBMG repaid its LIBOR plus 1.50% revolving line of credit with Wells Fargo Bank and its term loan due 2023 under a financing agreement with TCW Asset Management Company LLC.

DBMG entered into a new credit facility with UMB Bank for a $110.0 million term loan ("UMB Term Loan") and $110.0 million revolving credit agreement ("UMB Revolving Line").

The proceeds received in 2021 were used to fully repay DBMG's existing debt obligations, fund a portion of the Banker Steel acquisition, and provide additional working capital capacity to DBMG.

The 2021 extinguishment of the Wells Fargo revolving line and the TCW loan yielded a loss on extinguishment of debt in 2021 of $1.6 million included in Loss on extinguishment of debt in the Consolidated Statement of Operations.

Life Sciences

In February 2021, R2 received $10.0 million in funding from Huadong Medicine Company Limited (“Huadong”), a leading publicly traded Chinese pharmaceutical company.

As part of its equity investment in R2, Huadong received exclusive distribution rights for R2’s products in the China and selected Asia-Pacific markets.

In July 2021, the Company provided an additional $15.0 million in Series C funding to R2.

The investment was made through the Company’s Life Sciences subsidiary, Pansend Life Sciences, LLC.

In the summer of 2022, R2 Technologies entered into various note purchase agreements with Lancer Capital, LLC ("Lancer"), an entity controlled by Avram A.

Glazer, the Chairman of INNOVATE's Board of Directors, for an aggregate $10.0 million loan at a 12.0% per annum interest rate.

In December 2022, R2 Technologies closed on an additional $0.8 million 18.0% note with Lancer and also increased the borrowing rate on the $10.0 million note to 18.0%.

In addition, the maturity date on the existing $10.0 million note was amended to the earlier of March 31, 2023 or within five business days after the date on which R2 Technologies receives an aggregate $20.0 million from the consummation of a debt or equity financing.

All other terms were substantially unchanged.

Subsequent to year end, on February 15, 2023 and February 28, 2023, R2 Technologies closed on an additional 18% $0.5 million and an additional 18% $0.4 million note with Lancer, respectively.

In November 2022, MediBeacon amended its existing agreements with Huadong, which will provide approximately $10 million in funding by June 30, 2023, including $7.5 million or 50% of the remaining $15 million milestone investment due upon FDA approval of MediBeacon's TGFR at a pre-money valuation of approximately $400 million.

On August 30, 2021, Broadcasting repurchased $1.0 million of DTV America Corporation's ("DTV") outstanding notes payable to certain institutional investors, of which the debt is now eliminated in consolidation.

Also on August 30, 2021, DTV extended its remaining outstanding notes by 60 days.

On October 21, 2021, Broadcasting entered into the Fifth Omnibus Amendment to Secured Notes, Consent and Second Amendment to Asset Sale Under Secured Notes and Intercreditor Agreement (the “Amendment”), which, among other things, extended $52.2 million of its Senior Secured Notes, due October 21, 2021, through November 30, 2022.

On October 21, 2021, Broadcasting entered into the Fifth Omnibus Amendment to Secured Notes, Consent and Second Amendment to Asset Sale Under Secured Notes and Intercreditor Agreement with its lenders, which, among other things, extended $52.2 million of its Senior Secured Notes, due October 21, 2021, through November 30, 2022.

In addition, Broadcasting completed the last of a series of repurchases of all the outstanding secured and convertible promissory notes, inclusive of accrued interest, of DTV using a combination of cash on hand and proceeds from the sales on non-core assets.

On February 3, 2021, the Company announced that R2 received $10.0 million in funding from Huadong Medicine Company Limited (“Huadong”), a leading publicly traded Chinese pharmaceutical company.

Huadong’s investment will be used to fund the launch of R2 Technologies’ first-to-market innovations, Glacial Rx and Glacial Spa.

As part of its equity investment in R2, Huadong receives exclusive distribution rights for R2’s products in the China and selected Asia-Pacific markets.

On July 21, 2021, the Company provided an additional $15.0 million in Series C funding to R2 at a post-money valuation of $150.0 million.

The investment was made through the Company’s Life Sciences subsidiary, Pansend Life Sciences, LLC.

In 2022, Broadcasting entered into two amendments to its Senior Secured Notes, which, among other things, extended the maturity date to May 31, 2024.

The $52.2 million of Senior Secured Notes consisted of $19.3 million of 8.5% Senior Secured Notes and $32.9 million of 10.5% Senior Secured Notes.

The other terms of the $19.3 million 8.5% Senior Notes remained the same.

At the time of the extension, HC2 Broadcasting had accrued interest and other fees $6.9 million.

The interest rate on the $32.9 million 10.5% Senior Notes was increased to 11.45% and accrued interest and fees of $17.5 million were capitalized into the principal balance with the transaction accounted for as a debt modification event.

The new effective interest rates on the notes range from 12.8% to 19.6%.

All other terms were essentially the same.

Total outstanding principal after the refinancing was $69.7 million and $6.9 million of accrued interest and fees remain accrued, with total exit fees of $7.6 million which were recorded as original issue discount with a corresponding liability reflected in Other Liabilities.

Interest is accrued and payable upon maturity of the principal.

Concurrently therewith and as part of the consideration for extending the 10.5% Senior Notes, HC2 Broadcasting amended warrants to purchase 145,825 shares of common stock of HC2 Broadcasting Holdings, Inc., or approximately 12% of diluted equity, held by the lenders of the 10.5% Senior Notes by extending the time to exercise such to the second half of 2026 and reducing the exercise price per share (i) from $140.00 to $0.01 in the case of the certain of the warrants and (ii) from $130.00 to $0.01 in the case of the remaining warrants.

The change in the fair value of the warrants was recorded as original issue discount with a corresponding impact reflected in Noncontrolling interest of $3.1 million.

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

Stockholders' Rights Agreement

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

Equity for further information.

Refer to Note 18.

Temporary Equity and Equity for further information.

COVID-19 Impact on our Business

The COVID-19 pandemic has continued to adversely affect the Company’s business.

Labor shortages and supply chain disruptions have created significant delays in our ability to complete projects and deliver products, including in our Infrastructure and Life Sciences segments.

Our receipt of materials from areas impacted by the pandemic was slowed or disrupted in 2022 and we expect our suppliers to continue to face similar challenges in fulfilling orders.

Transportation costs continued to increase in 2022 as a result of COVID-19 and these costs may continue to rise.

We have not been able to pass all of these cost increases on to our customers and, as a result, our margins have been adversely impacted.

In addition, our Life Sciences segment was adversely affected in 2022 by continuing requirements to implement COVID-19 operational measures at clinical trial sites, which resulted in some clinical trials being delayed.

Financial Presentation Background

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Results of Operations

The following table summarizes our results of operations and a comparison of the change between the periods (in millions):

The following table summarizes our results of operations and a comparison of the change between the periods as indicated (in millions):

Years Ended December 31,

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Non-operating Corporate (19.6) (23.1) 3.5

Total loss from operations (10.6) (28.3) 17.7

Total income (loss) from operations $ 13.4 $ (10.6) $ 24.0

Interest expense (52.0) (59.1) 7.1

Loss on early extinguishment or restructuring of debt (12.5) (9.4) (3.1)

Loss on extinguishment of debt — (12.5) 12.5

Loss from equity investees (1.3) (2.8) 1.5

Other income 4.3 69.2 (64.9)

Loss from continuing operations (80.7) (46.7) (34.0)

Other (expense) income, net (1.2) 4.3 (5.5)

Loss from continuing operations before income taxes $ (41.1) $ (80.7) $ 39.6

Income tax expense (0.9) (5.6) 4.7

Loss from continuing operations $ (42.0) $ (86.3) $ 44.3

Loss from discontinued operations (including loss on sale of $159.9 million and $44.1 million for the years ended December 31, 2021 and 2020, respectively) (149.9) (48.4) (101.5)

Loss from discontinued operations (including net loss on disposal of $159.9 million for the year ended December 31, 2021) — (149.9) 149.9

Net loss $ (42.0) $ (236.2) $ 194.2

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$ (35.9) $ (227.5) $ 191.6

Preferred dividends, deemed dividends, and repurchase gains 2.2 3.6 (1.4)

Net loss attributable to common stock and participating preferred stockholders $ (229.7) $ (95.6) $ (134.1)

Preferred dividends and deemed dividends from conversions 4.9 2.2 2.7

Net loss attributable to common stockholders $ (40.8) $ (229.7) $ 188.9

Revenue for the year ended December 31, 2022 increased $432.1 million to $1,637.3 million from $1,205.2 million for the year ended December 31, 2021.

The increase in revenue was primarily due to the Infrastructure segment, which acquired Banker Steel in the second quarter of 2021, and increases in Infrastructure market demand along with larger projects entering the market.

The increase in revenue was primarily due to the Infrastructure segment, led by the contribution from Banker Steel, which was acquired on May 27, 2021, and the execution of larger projects resulting from strong market demand at DBMG's commercial structural steel fabrication and erection business, partially offset by decreases at DBMG's industrial maintenance and repair, and construction modeling and detailing businesses due to the completion of unrepeated large projects in 2021, and a net decrease in revenues at Spectrum driven by a decrease at Azteca partially offset by an increase in station revenue.

Income (loss) from operations :

Loss from operations for the year ended December 31, 2021 decreased $17.7 million to $10.6 million from a loss of $28.3 million for the year ended December 31, 2020.

The decrease in loss from operations was attributable to the Infrastructure segment as a result of the contribution from Banker Steel, which was acquired in the second quarter of 2021 and Non-operating Corporate, driven by non-recurring costs related to the 2020 proxy contest along with additional cost saving measures, and from the Spectrum segment, driven by lower impairments, cost savings and revenue increases.

The decrease was partially offset by our Life Sciences segment driven by R2, which increased spending during 2021 to support commercialization efforts, further develop its product platform and build out its sales team.

Income from operations for the year ended December 31, 2022 increased $24.0 million to income of $13.4 million from a loss of $10.6 million for the year ended December 31, 2021.

The increase was primarily attributable to the increase in income from operations of $22.3 million from our Infrastructure segment as a result of the contribution from Banker Steel and increases at DBMG's commercial structural steel fabrication and erection business.

The increase in income from operations was also attributable to an improvement of $3.5 million from our Non-operating Corporate segment, which had decreases in SG&A, and an improvement of $1.4 million from our Other segment, primarily due to a decrease in professional fees.

Partially offsetting these improvements were increases in loss from operations from our Spectrum and Life Sciences segments of $3.0 million and $0.2 million, respectively.

Our Spectrum segment experienced decreased revenue, increased support fees and license royalty at the Azteca network, which was partially offset by an increase at station group driven by an increase in revenue, decrease in SG&A, offset by an increase in cost of revenues from a higher station count and a decrease in income from FCC reimbursements.

Interest expense :

Interest expense for the year ended December 31, 2022 decreased $7.1 million to $52.0 million from $59.1 million for the year ended December 31, 2021.

The decrease was primarily attributable to Non-Corporate's refinancing of the 2021 Senior Secured Notes in the first quarter of 2021 and Spectrum's reduction in debt during the fourth quarter of 2020, which decreased interest expense in 2021.

Loss on early extinguishment or restructuring of debt :

Loss on early extinguishment or restructuring of debt for the year ended December 31, 2021 increased $3.1 million to $12.5 million from $9.4 million for the year ended December 31, 2020.

This was driven by the write-off of deferred financing costs and original issuance discount related to the refinancing of the 2021 Senior Secured Notes and the 2022 Convertible Notes in the first quarter of 2021 along with the refinancing of Infrastructure debt in conjunction with the Banker Steel acquisition in the second quarter of 2021, and was partially offset by the partial pay down of the 2021 Senior Secured Notes in 2020.

The decrease was primarily attributable to a decrease in interest expense at our Non-Operating Corporate segment of $7.8 million as a result of the refinancing of the 2021 Senior Secured Notes in the first quarter of 2021, which decreased the average cost of capital and the total principal outstanding, offset slightly by a higher balance on the line of credit.

In addition, a decrease in interest expense at our Spectrum segment, which was offset by increases in interest expense at our Infrastructure and Life Science segments, driven by increased outstanding principal balances and new debt, respectively.

Loss on extinguishment of debt :

Loss extinguishment of debt was zero and $12.5 million for the years ended December 31, 2022 and 2021, respectively.

The expense for the year ended December 31, 2021 was driven by the write-off of deferred financing costs and original issuance discount in connection with the refinancing of the 2021 Senior Secured Notes and the 2022 Convertible Notes in the first quarter of 2021, as well as the refinancing of Infrastructure debt in conjunction with the Banker Steel acquisition in the second quarter of 2021.

There were no debt extinguishments for the year ended December 31, 2022.

Loss from equity investees:

Loss from equity investees for the year ended December 31, 2022 decreased $1.5 million to $1.3 million from $2.8 million for the year ended December 31, 2021.

The decrease in loss was driven by increase in the equity income in HMN Technologies Co., Ltd.

("HMN"), which produced higher profits in 2021 as compared to 2020, which was generally attributable to the timing of turnkey project work.

This was partially offset by increases in losses recorded from our investment in MediBeacon due to the timing of clinical trials and due to the reduction in ownership in the HMN investment from 49% to 19% in the second quarter of 2020.

Other income:

Other income for the year ended December 31, 2021 decreased $64.9 million to $4.3 million from $69.2 million for the year ended December 31, 2020.

The decrease was predominantly driven by the gain on the sale of a portion of HMN in the comparable period, which closed during the second quarter of 2020.

The decrease in the loss from equity investees was driven by higher equity method income recorded from our investment in Triple Ring and lower equity method losses recorded from our equity investment in MediBeacon.

Pansend's net carrying amount of its investment in MediBeacon, inclusive of a $5.0 million loan, was reduced to zero in the current year, as losses incurred exceeded Pansend's net basis in MediBeacon, resulting in fewer losses recognized than in the prior year.

This was partially offset by the equity investment in HMN, as it produced lower income than in the prior year, which is generally attributable to the timing of project work.

Other (expense) income, net:

Other (expense) income, net for the year ended December 31, 2022 decreased $5.5 million to an expense of $1.2 million from income of $4.3 million for the year ended December 31, 2021.

Other expense, net for the year ended December 31, 2022 was primarily comprised of a deemed distribution loss related to a former subsidiary, CGIC, from a tax sharing arrangement and consolidation on the 2021 tax return, and a fair value adjustment to an investment in our Life Sciences segment.

Refer to Note 10.

Discontinued Operations and Exit Activities in the Consolidated Financial Statements for additional information on CGIC.

Other income, net, for the year ended December 31, 2021 was primarily driven by the income recognized on a litigation settlement and a gain on embedded derivatives recorded at our Corporate segment in the prior year.

Income tax expense :

Income tax expense was an expense of $5.6 million and $7.0 million for the years ended December 31, 2021 and 2020, respectively.

The income tax expense recorded for the year ended December 31, 2021 primarily relates to the tax expense as calculated under ASC 740 for taxpaying entities.

The income tax expense for the year ended December 31, 2020 primarily relates to tax expense incurred in China from the partial sale of HMN and the tax expense as calculated under ASC 740 for taxpaying entities which was mostly offset by a tax benefit from the carryback of net operating losses at the Insurance segment as a result of the enactment of the Coronavirus Aid, Relief, and Economic Security Act.

Income tax expense for the year ended December 31, 2022 decreased $4.7 million to $0.9 million from $5.6 million for the years ended December 31, 2021.

The income tax expense recorded for the year ended December 31, 2022 primarily relates to the tax expense as calculated under ASC 740 for taxpaying entities, which was partially offset by the net tax savings of $3.1 million from the CGIC consolidation in the 2021 tax return, resulting in a partial release of the valuation allowance.

Refer to Note 10.

Discontinued Operations and Exit Activities in the Consolidated Financial Statements for additional information.

The income tax expense recorded for the year ended December 31, 2021 primarily related to the tax expense as calculated under ASC 740 for taxpaying entities.

The tax benefits associated with losses generated by the INNOVATE Corp.

consolidated income tax return and certain other businesses have been reduced by a full valuation allowance as we do not believe it is more-likely-than-not that the losses will be utilized.

Segment Results of Operations

In the Company's Consolidated Financial Statements, other operating (income) expense includes (i) (gain) loss on sale or disposal of assets, (ii) lease termination costs, (iii) asset impairment expense, (iv) accretion of asset retirement obligations, and (v) FCC reimbursements.

In the Company's Consolidated Financial Statements, other operating (income) loss includes:

(i) (gain) loss on sale or disposal of assets;

(ii) lease termination costs;

(iii) asset impairment expense;

(iv) accretion of asset retirement obligations;

and (v) FCC reimbursements.

Each table summarizes the results of operations of our operating segments and compares the amount of the change between the periods presented (in millions).

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Depreciation and amortization 21.0 19.1 1.9

Other operating expense 0.3 0.1 0.2

Other operating (income) loss (0.6) 0.3 (0.9)

Income from operations $ 57.5 $ 35.2 $ 22.3

Revenue from our Infrastructure segment for the year ended December 31, 2021 increased $483.1 million to $1,159.7 million from $676.6 million for the year ended December 31, 2020.

The increase was primarily driven by DBMG’s acquisition of Banker Steel, which was acquired in the second quarter of 2021 and contributed an incremental $265.9 million of revenue as well as an increase from all legacy businesses, in each case driven by timing of project work under execution and changes in backlog mix.

Revenue for the year ended December 31, 2022 increased $434.6 million to $1,594.3 million from $1,159.7 million for the year ended December 31, 2021.

The increase was primarily driven by the contribution from Banker Steel, which was acquired on May 27, 2021 and contributed $298.3 million of the increase in revenues, and the execution of large projects resulting from strong market demand at DBMG's commercial structural steel fabrication and erection business.

The increases were partially offset by the industrial maintenance and repair, and construction modeling and detailing businesses due to the completion of unrepeated large projects in 2021.

Cost of revenue:

Cost of revenue from our Infrastructure segment for the year ended December 31, 2021 increased $435.4 million to $1,001.6 million from $566.2 million for the year ended December 31, 2020.

The increase was primarily driven by DBMG’s acquisition of Banker Steel, which was acquired in the second quarter of 2021 and contributed an incremental cost of revenue of $220.8 million for the year ended December 31, 2021, as well as increases in market demand, larger projects entering the market which was offset in part by market pressure on point-of-sale project margins across all business lines, and most significantly in our industrials business.

Cost of revenue for the year ended December 31, 2022 increased $390.9 million to $1,392.5 million from $1,001.6 million for the year ended December 31, 2021.

Higher levels of revenue contributed to the increase in cost of revenue;

primarily driven by DBMG's commercial structural steel fabrication and erection business from the execution of large projects and Banker Steel, which contributed $272.1 million of the increase in cost of revenue.

The increases were partially offset by the industrial maintenance and repair, and construction modeling and detailing businesses due to the completion of unrepeated large projects in 2021.

Selling, general and administrative:

Selling, general and administrative expense from our Infrastructure segment for the year ended December 31, 2021 increased $24.4 million to $103.5 million from $79.1 million for the year ended December 31, 2020.

The increases were primarily driven by the acquisition of Banker Steel, which was acquired in the second quarter of 2021 and contributed an incremental $20.2 million of selling, general and administrative expenses, as well as increases in professional fees, consulting fees, travel, and meals and entertainment.

Selling, general and administrative expense ("SG&A") for the year ended December 31, 2022 increased $20.4 million to $123.9 million from $103.5 million for the year ended December 31, 2021.

The increase in SG&A was largely driven by Banker Steel, which contributed approximately $5.9 million of the increase in SG&A.

The increase was also attributable to costs from a one-time internal operational restructuring project and other streamlining activities in the current year, increases in salaries and wages, bonus expense and travel costs.

Refer to Footnote 10.

Discontinued Operations and Exit Activities in the Consolidated Financial Statements for additional information related to the one-time restructuring costs.

Depreciation and amortization:

Depreciation and amortization from our Infrastructure segment for the year ended December 31, 2021 increased $8.4 million to $19.1 million from $10.7 million for the year ended December 31, 2020.

The increase was largely due to the additional amortization and depreciation of assets obtained in the acquisition of Banker Steel in the second quarter of 2021, which contributed an additional $9.1 million of depreciation and amortization expense in 2021.

The increase was partially offset by reductions in depreciation and amortization as a result of fully depreciating certain assets in 2020.

Depreciation and amortization for the year ended December 31, 2022 increased $1.9 million to $21.0 million from $19.1 million for the year ended December 31, 2021.

The increase was primarily due to the additional amortization and depreciation of assets obtained in the acquisition of Banker Steel in May 2021, which contributed $2.4 million of the increase.

The increase was partially offset by runoff of depreciation expense related to fully depreciated assets.

Other operating (income) loss :

Other operating income from our Infrastructure segment for the year ended December 31, 2022 increased $0.9 million to income of $0.6 million from a loss of $0.3 million for the year ended December 31, 2021.

The improvement was primarily driven by a gain on disposal of an asset in the current year.

Life Sciences Segment

5 unchanged sentences

Depreciation and amortization 0.3 0.2 0.1

Other operating expense — 0.1 (0.1)

Loss from operations $ (20.1) $ (19.9) $ (0.2)

Revenue from our Life Sciences segment for the year ended December 31, 2021 increased $3.5 million to $3.5 million from zero for the year ended December 31, 2020.

The increase in revenue was attributable to R2, which began the sale of its Glacial Rx products in 2021.

Revenue for the year ended December 31, 2022 increased $0.8 million to $4.3 million from $3.5 million for the year ended December 31, 2021.

The increase in revenue was attributable to R2, which was driven by additional revenues from the launch of Glacial Spa systems and consumables outside the U.S.

at the end of 2021, an increase in Glacial Rx system sales outside the U.S., and an increase in consumable sales in the U.S.

This was partially offset by a decrease in Glacial Rx system sales within the U.S., as the comparable period benefited from a backlog of pre-orders due to the second quarter 2021 launch, which resulted in additional revenue recognition when those systems were shipped in 2021.

Cost of revenue :

Cost of revenue from our Life Sciences segment for the year ended December 31, 2021 increased $2.5 million to $2.5 million from zero for the year ended December 31, 2020.

The increase in cost of revenue was attributable to R2, which began the sale of its Glacial Rx products in 2021.

Selling, general and administrative :

Selling, general and administrative expenses from our Life Sciences segment for the year ended December 31, 2021 increased $4.0 million to $20.7 million from $16.7 million for the year ended December 31, 2020.

The increase was driven by higher expenses at R2, which increased spending from the comparable period as a result of increased headcount across the organization, mainly to build out its sales team.

Cost of revenue for the year ended December 31, 2022 increased $1.0 million to $3.5 million from $2.5 million for the year ended December 31, 2021.

The increase in cost of revenue was attributable to the increase in revenues as well as changes in the product mix and geographical market.

Spectrum Segment

5 unchanged sentences

Depreciation and amortization 5.8 6.0 (0.2)

Other operating expense (income) 0.3 (6.7) 7.0

Other operating loss 1.3 0.3 1.0

Loss from operations $ (3.8) $ (0.8) $ (3.0)

Revenue from our Spectrum segment for the year ended December 31, 2021 increased $1.7 million to $42.0 million from $40.3 million for the year ended December 31, 2020.

The increase was primarily driven by higher station revenues, which can be attributed to the net expansion in our market coverage with new and existing customers and the greater number of OTA stations in operation.

This was partially offset by a decrease in revenue from the sale of non-core stations and a decrease in retransmission revenues.

Revenue from our Spectrum segment for the year ended December 31, 2022 decreased $3.3 million to $38.7 million from $42.0 million for the year ended December 31, 2021.

The decrease was primarily driven by a decrease in advertising revenues at the Azteca network, which decreased from $23.4 million to $19.1 million, due to a decreased footprint and declines in paid programming.

This was partially offset by an increase in station revenues, which increased from $18.6 million to $19.6 million, due to the launch of new customers and an increase in the number of operating stations.

Cost of revenue:

Cost of revenue from our Spectrum segment for the year ended December 31, 2021 decreased $4.9 million to $17.4 million from $22.3 million for the year ended December 31, 2020.

The overall decrease was primarily driven by targeted cost reductions at Network as a result of a decrease in audience measurement and programming costs as well as a reduction in operating expenses for certain non-core stations that were sold in the second half of 2020 and 2021.

Cost of revenue for the year ended December 31, 2022 increased $2.5 million to $19.9 million from $17.4 million for the year ended December 31, 2021.

The overall increase was primarily due to increases in rent, facility and infrastructure costs related to a higher station count, and an increase in expenses at the Azteca network, which increased from $7.1 million to $7.8 million, primarily as a result of license royalty expense incurred under the PLA, which started in the first quarter of 2022.

Selling, general and administrative:

Selling, general and administrative expense from our Spectrum segment for the year ended December 31, 2021 decreased $1.0 million to $19.1 million from $20.1 million for the year ended December 31, 2020.

The overall decrease was primarily driven by decreased salary and benefits, office expenses, consulting fees and no terminated deal costs in the current year.

This was partially offset by severance expense incurred during the year and bonus expense in 2020 related to prior year.

Depreciation and amortization:

Depreciation and amortization from our Spectrum segment for the year ended December 31, 2021 decreased $0.8 million to $6.0 million from $6.8 million for the year ended December 31, 2020.

The decrease in depreciation and amortization was primarily related to recent sales of non-core station assets.

Other operating expense (income) :

Other operating expense (income) from our Spectrum segment for the year ended December 31, 2021 decreased $7.0 million to expense of $0.3 million from income of $6.7 million for the year ended December 31, 2020.

The decrease in other operating expense (income) was primarily related to gains recognized on the sale of stations in 2020 and a reduction in FCC reimbursements during 2021.

This was partially offset by fewer asset impairments during 2021.

Selling, general and administrative expense for the year ended December 31, 2022 decreased $3.6 million to $15.5 million from $19.1 million for the year ended December 31, 2021.

The decrease was primarily driven by decreases in:

legal expenses, severance expense, stock compensation, salaries and wages, and professional fees.

The decreases in SG&A were partially offset by an increase in SG&A expenses at the Azteca network, which increased from $8.1 million to $8.4 million, primarily driven by shutdown termination costs and higher marketing costs, partially offset by decrease in commissions and salaries and benefits.

Other operating loss :

Other operating loss for the year ended December 31, 2022 increased $1.0 million to $1.3 million from $0.3 million for the year ended December 31, 2021.

The increase in loss was primarily related to a decrease in FCC reimbursements, impairment charges in the current year related to the HC2 Network PLA due to a decline in performance.

This was partially offset by fewer right-of-use asset impairments in the current year.

Non-operating Corporate

5 unchanged sentences

Selling, general and administrative :

Selling, general and administrative expenses from our Non-operating Corporate segment for the year ended December 31, 2021 decreased $3.9 million to $23.0 million from $26.9 million for the year ended December 31, 2020.

The decrease was driven by non-recurring costs related to the proxy contest in 2020 as well as decreases in stock compensation expense, rent expense and various consulting expenses in 2021, partially offset by additional expenses incurred in relation to the settlement with the Company's former CEO, increased discretionary bonus, and legal expenses.

Selling, general and administrative expenses for the year ended December 31, 2022 decreased $3.5 million to $19.5 million from $23.0 million for the year ended December 31, 2021.

The decrease was driven by a decrease in disposition and acquisition expenses, bonus expense, legal expense, unrepeated proxy related expenses and a settlement expense for the Company's former CEO accrued in the prior year.

This was partially offset by an increase in severance for the current year related to the Company's former Chief Legal Officer, increases in professional fees, and other compensation related items.

(Loss) Income from Equity Investees

5 unchanged sentences

Life Sciences:

Loss from equity investees within our Life Sciences segment for the year ended December 31, 2021 increased $2.1 million to $8.1 million from $6.0 million for the year ended December 31, 2020.

The increase in loss was largely due to higher equity method losses recorded from our investment in MediBeacon as they prepare for their pivotal study.

Income from equity investees within our Other segment for the year ended December 31, 2021 increased $2.7 million to $5.3 million from $2.6 million for the year ended December 31, 2020.

The increase was driven by the equity investment in HMN, which produced higher income 2021 as compared to 2020, which is generally attributable to the timing of project work, partially offset by a reduction in ownership from 49% to 19% as a result of the partial sale of INNOVATE's investment in the second quarter of 2020.

Loss from equity investees within our Life Sciences segment for the year ended December 31, 2022 decreased $1.9 million to $6.2 million from $8.1 million for the year ended December 31, 2021.

The decrease in loss was primarily due to net higher equity method income recorded from our investment in Triple Ring and lower equity method losses recorded from our equity investment in MediBeacon.

MediBeacon experienced increased expenses as it performed its US Pivotal Study of the TGFR in 2022 to study the viability of real-time, direct monitoring of kidney function.

Income from equity investees within our Other segment for the year ended December 31, 2022 decreased $0.4 million to $4.9 million from $5.3 million for the year ended December 31, 2021.

The decrease was driven by the equity investment in HMN, as it produced lower income than in the prior year, which is generally attributable to the timing of project work.

Non-GAAP Financial Measures and Other Information

11 unchanged sentences

GAAP financial measures as a measure of our operating performance.

Adjusted EBITDA excludes the results of operations and any consolidating eliminations of our Insurance segment.

The calculation of Adjusted EBITDA, as defined by us, consists of Net income (loss) as adjusted for discontinued operations;

Adjusted EBITDA excludes the results of operations and any consolidating eliminations of our previous Insurance segment.

The calculation of Adjusted EBITDA, as defined by us, consists of Net income (loss) attributable to INNOVATE Corp., excluding discontinued operations;

depreciation and amortization;

Other operating (income) expense, which is inclusive of (gain) loss on sale or disposal of assets, lease termination costs, asset impairment expense and FCC reimbursements;

other operating (income) loss, which is inclusive of (gain) loss on sale or disposal of assets, lease termination costs, asset impairment expense and FCC reimbursements;

interest expense;

other (income) expense, net;

loss on early extinguishment or restructuring of debt;

income tax (benefit) expense;

loss on extinguishment of debt;

income tax expense (benefit);

noncontrolling interest;

bonus to be settled in equity;

share-based compensation expense;

restructuring and exit costs;

non-recurring items;

4 unchanged sentences

Life Sciences Spectrum Non-operating Corporate Other and Eliminations INNOVATE

Net (loss) attributable to INNOVATE Corp.

Discontinued operations (149.9)

Net income (loss) attributable to INNOVATE Corp., excluding discontinued operations $ 29.2 $ (19.2) $ (13.3) $ (35.3) $ 2.7 $ (35.9)

2 unchanged sentences

Depreciation and amortization (included in cost of revenue) 15.0 — — — — 15.0

Other operating expenses 0.4 — 0.2 — — 0.6

Other operating (income) loss (0.6) — 1.3 — — 0.7

Interest expense 10.1 0.8 7.4 33.7 — 52.0

Other (income) expense, net (1.0) 0.4 3.9 (1.9) (0.2) 1.2

Loss on early extinguishment or restructuring of debt 1.5 — 1.0 10.0 — 12.5

Income tax expense (benefit) 16.5 — (0.1) (16.2) 0.7 0.9

1 unchanged sentence

Share-based compensation expense — 0.5 — 1.9 — 2.4

Nonrecurring items 0.5 — — 0.5 — 1.0

COVID-19 costs 8.6 — — — — 8.6

Restructuring and exit costs 6.5 — 0.7 — — 7.2

Acquisition and disposition costs 2.2 — 0.7 1.0 (0.4) 3.5

9 unchanged sentences

Depreciation and amortization (included in cost of revenue) 12.2 — — — — 12.2

Other operating (income) expenses 0.1 0.1 (6.6) — — (6.4)

Other operating loss 0.4 — 0.2 — — 0.6

Interest expense 8.5 — 9.2 41.4 — 59.1

Loss on early extinguishment or restructuring of debt — — — 9.4 — 9.4

Other (income) expense, net (4.0) — 3.9 (4.2) — (4.3)

Loss on extinguishment of debt 1.5 — 1.0 10.0 — 12.5

Income tax expense (benefit) 10.5 — 0.3 (6.1) 0.9 5.6

Noncontrolling interest 1.8 (8.2) (2.3) — — (8.7)

Bonus to be settled in equity — — — (0.5) — (0.5)

Share-based compensation expense — 0.2 0.6 1.6 — 2.4

6 unchanged sentences

Adjusted EBITDA from our Infrastructure segment for the year ended December 31, 2022 increased $23.3 million to $101.7 million from $78.4 million for the year ended December 31, 2021.

The increase in Adjusted EBITDA can be attributed to the contribution from Banker Steel, which was acquired in the second quarter of 2021.

The increase was partially offset by market pressure on point-of-sale project margins, primarily in the industrials business.

The increase in Adjusted EBITDA was primarily driven by the revenue increases combined with improvement in contribution from Banker Steel and our fabrication and erection business as a result of larger jobs with increased profits in the current year, and the completion of lower margin projects sold in the first half of 2021.

The increase in Adjusted EBITDA was partially offset by an increase in SG&A, driven by Banker Steel, which was acquired in May of 2021, and to support the growth of the business, as well as reduced contributions from the construction modeling and detailing, and industrial maintenance and repair businesses due to the completion of unrepeated large projects in 2021.

The increase in Adjusted EBITDA was also partially offset by an increase in SG&A, largely from Banker Steel, and to support the growth in the business.

Refer to Footnote 10.

Discontinued Operations and Exit Activities in the Consolidated Financial Statements for additional information related to the one-time restructuring costs.

Life Sciences:

Net loss from our Life Sciences segment for the year ended December 31, 2021 increased $5.4 million to $19.8 million from $14.4 million for the year ended December 31, 2020.

Adjusted EBITDA loss from our Life Sciences segment for the year ended December 31, 2021 increased $5.1 million to $27.6 million from $22.5 million for the year ended December 31, 2020.

The increase in Adjusted EBITDA loss was primarily driven by higher expenses at R2, which ramped-up operations to support the commercial launch of its Glacial Rx products, including notable increases in salaries and benefits from headcount additions, including increased commissions for product sales, as well as higher equity method losses recorded from our investment in MediBeacon as they prepare for their pivotal study.

Net loss from our Spectrum segment for the year ended December 31, 2021 decreased $0.9 million to $12.9 million from $13.8 million for the year ended December 31, 2020.

Adjusted EBITDA from our Spectrum segment for the year ended December 31, 2021 increased $8.1 million to income of $6.9 million from an Adjusted EBITDA loss of $1.2 million for the year ended December 31, 2020.

The overall increase in Adjusted EBITDA to income was primarily driven by higher station revenues as Station Group grew the number of operating stations and launched new customers across its broadcast platform, Network cost reductions, a decrease in compensation, rent, consulting and overhead expenses.

This was partially offset by severance expense incurred during the year and bonus expense in 2020 related to prior year.

Net loss from our Life Sciences segment for the year ended December 31, 2022 decreased $0.6 million to $19.2 million from $19.8 million for the year ended December 31, 2021.

Adjusted EBITDA loss from our Life Sciences segment for the year ended December 31, 2022 decreased $2.2 million to $25.4 million from $27.6 million for the year ended December 31, 2021.

The improvement was primarily driven by an increase in equity method income recorded for Pansend's investment in Triple Ring and a decrease in the equity method losses recorded for Pansend's investment in MediBeacon.

Pansend's net carrying amount of its investment in MediBeacon, inclusive of a $5.0 million loan was reduced to zero in the current year, as losses incurred exceeded Pansend's net basis in MediBeacon, resulting in fewer losses recognized than in the comparable period.

Net loss from our Spectrum segment for the year ended December 31, 2022 increased $0.4 million to $13.3 million from $12.9 million for the year ended December 31, 2021.

Adjusted EBITDA from our Spectrum segment for the year ended December 31, 2022 decreased $2.4 million to $4.5 million from $6.9 million for the year ended December 31, 2021.

The overall decrease in Adjusted EBITDA was primarily driven by the decrease in revenue at the Azteca network driven by a decreased footprint and a decline in paid programming, an increase in station costs as a result of new station builds, as well as an increase in expenses at the Azteca network as a result of higher support fees and license royalty expense incurred under the PLA, which started in the first quarter of 2022.

This was partially offset by decreases in severance expense, salaries and wages, commissions and legal expenses, as well as higher station revenues as the station group launched new customers and grew the number of its operating stations.

Non-operating Corporate:

Net loss from our Non-operating Corporate segment for the year ended December 31, 2022 decreased $28.9 million to $35.3 million from $64.2 million for the year ended December 31, 2021.

Adjusted EBITDA loss from our Non-operating Corporate segment for the year ended December 31, 2021 increased $2.4 million to $18.0 million from $15.6 million for the year ended December 31, 2020.

The increase in Adjusted EBITDA loss was driven by the settlement with the Company's former CEO, discretionary bonus, increases in severance, and legal fees resulting from an increase in activity in 2021.

The Company's remaining selling, general and administrative costs decreased due to lower salary and benefits, professional fees, travel and entertainment expenses, and rent expense.

Adjusted EBITDA loss from our Non-operating Corporate segment for the year ended December 31, 2022 decreased $1.3 million to $16.7 million from $18.0 million for the year ended December 31, 2021.

The decrease in Adjusted EBITDA loss was driven by a decrease in bonus expense, legal expense, as well as the settlement expense for the Company's former CEO accrued in the prior period.

This was partially offset by increased professional fees, additional severance expense in the current period related to the former Chief Legal Officer, and other compensation related items.

Other and Eliminations:

Net income from our Other and Eliminations segment for the year ended December 31, 2021 decreased $65.6 million to $2.4 million from $68.0 million for the year ended December 31, 2020.

Adjusted EBITDA from our Other segment for the year ended December 31, 2021 increased $2.6 million to $4.2 million from $1.6 million for the year ended December 31, 2020.

The increase in Adjusted EBITDA for our Other and Eliminations segment was driven by the equity investment in HMN, as it produced higher income than in the comparable period, which is generally attributable to the timing of project work, partially offset by a reduction in ownership from 49% to 19% as a result of the partial sale of INNOVATE's investment in the second quarter of 2020.

Net income from our Other and Eliminations segment for the year ended December 31, 2022 increased $0.3 million to $2.7 million from $2.4 million for the year ended December 31, 2021.

Adjusted EBITDA from our Other segment for the year ended December 31, 2022 decreased $0.2 million to $4.0 million from $4.2 million for the year ended December 31, 2021.

The decrease in Adjusted EBITDA for our Other and Eliminations segment was primarily driven by our equity investment in HMN, as it produced lower income than in the prior year, which is generally attributable to the timing of project work.

Adjusted EBITDA by segment is summarized as follows:

(in millions):

Year ended December 31,

Years Ended December 31,

2022 2021 Increase / (Decrease)

11 unchanged sentences

Infrastructure Segment

At December 31, 2021, DBMG's backlog was $1,580.9 million, consisting of $1,439.0 million under contracts or purchase orders and $141.9 million under letters of intent or notices to proceed.

Approximately $868.6 million, representing 54.9% of DBMG’s backlog at December 31, 2021, was attributable to five contracts, letters of intent, notices to proceed or purchase orders.

As of December 31, 2022, DBMG's backlog was $1,782.3 million, consisting of $1,536.3 million under contracts or purchase orders and $246.0 million under letters of intent or notices to proceed.

Approximately $927.2 million, representing 52.0% of DBMG’s backlog as of December 31, 2022, was attributable to five contracts, letters of intent, notices to proceed or purchase orders.

If one or more of these projects terminate or reduce their scope, DBMG’s backlog could decrease substantially.

DBMG's backlog at December 31, 2020 was $394.5 million, consisting of $334.9 million under contracts or purchase orders and $59.6 million under letters of intent or notices to proceeds.

DBMG includes an additional $10.4 million in its backlog that is not included in the remaining unsatisfied performance obligations disclosed in Note 3.

Revenue and Contracts in Process.

This additional backlog includes commitments under master service agreements that are estimated amounts of work to be performed based on customer communications, historic performance and knowledge of our customers' intentions.

Liquidity and Capital Resources

Short- and Long-Term Liquidity Considerations and Risks

Our Non-Operating Corporate segment consists of holding companies, and its liquidity needs are primarily for interest payments on its 2026 Senior Secured Notes, 2022 Convertible Notes and 2026 Convertible Notes, Revolving Credit Agreement, dividend payments on its Preferred Stock and recurring operational expenses.

As of December 31, 2021, the Company had $45.5 million of cash and cash equivalents compared to $43.8 million as of December 31, 2020.

On a stand-alone basis, as of December 31, 2021, the Non-Operating Corporate segment had cash and cash equivalents of $22.0 million compared to $27.5 million at December 31, 2020.

Our subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of steel construction equipment, OTA broadcast station equipment, development of back-office systems, operating costs and expenses, and income taxes.

As of December 31, 2021, the Company had $630.8 million of indebtedness on a consolidated basis compared to $576.6 million as of December 31, 2020.

On a stand-alone basis, as of December 31, 2021 and December 31, 2020, INNOVATE had indebtedness of $390.0 million and $410.4 million, respectively.

INNOVATE's stand-alone debt consists of the $330.0 million aggregate principal amount of 2026 Senior Secured Notes, $3.2 million aggregate principal amount of 2022 Convertible Notes, and $51.8 million aggregate principal amount of 2026 Convertible Notes.

INNOVATE is required to make semi-annual interest payments on its 2026 Senior Secured Notes, 2022 Convertible Notes and 2026 Convertible Notes, and quarterly interest payments on its 2024 Revolving Credit Agreement.

INNOVATE received $4.5 million in dividends from its Infrastructure segment during the year ended December 31, 2021.

Under a tax sharing agreement, the Infrastructure segment reimburses INNOVATE for use of its net operating losses.

During the year ended December 31, 2021, INNOVATE received $5.8 million from its Infrastructure segment under this tax sharing agreement.

INNOVATE received $2.1 million in net management fees from Continental Insurance Group prior to its sale during the year ended December 31, 2021.

On May 29, 2021, pursuant to the Certificate of Designation, certain holders of the Series A and A-2 Preferred Stock caused the Company to redeem the Series A and A-2 Preferred Stock at the accrued value per share plus accrued but unpaid dividends (to the extent not included in the accrued value of Series A and A-2 Preferred Stock), of which $10.4 million was paid in cash to holders of the Series A and A-2 Preferred Stock.

Each share of Series A and A-2 Preferred Stock that was not so redeemed was automatically converted into shares of common stock at the conversion price then in effect, of which 50,410 shares of the Company's common stock were issued in lieu of cash to holders of the Series A Preferred Stock.

In connection with the Stock Purchase Agreement, CGI, formerly a wholly owned subsidiary of the Company, entered into a letter agreement with Continental General Holdings, LLC to not redeem at maturity or seek redemption of the $16.1 million Preferred Stock.

On July 1, 2021, CGI exchanged their Series A and Series A-2 Preferred Stock for new classes of Series A-3 and Series A-4 Preferred Stock with an extended maturity of July 1, 2026, with other terms substantially unchanged from the terms of the Series A and Series A-2 Preferred Stock.

INNOVATE is required to make dividend payments on its outstanding Preferred Stock on January 15 th , April 15 th , July 15 th , and October 15 th of each year.

Our Non-Operating Corporate segment consists of holding companies, and its liquidity needs are primarily for interest payments on its 2026 Senior Secured Notes, 2026 Convertible Notes and Revolving Credit Agreement, dividend payments on its Preferred Stock and recurring operational expenses.

As of December 31, 2022, the Company had $80.4 million of cash and cash equivalents, excluding restricted cash, compared to $45.5 million as of December 31, 2021.

On a stand-alone basis, as of December 31, 2022, the Non-Operating Corporate segment had cash and cash equivalents, excluding restricted cash, of $9.1 million compared to $22.0 million at December 31, 2021.

Our subsidiaries' principal liquidity requirements arise from cash used in operating activities, debt service, and capital expenditures, including purchases of steel construction equipment, over-the-air ("OTA") broadcast station equipment, development of back-office systems, operating costs and expenses, and income taxes.

As of December 31, 2022, the Company had $725.3 million of principal indebtedness on a consolidated basis compared to $630.8 million as of December 31, 2021, an increase of $94.5 million, which was primarily due to a $77.3 million increase in DBMG's Line of Credit to fund working capital requirements, partially offset by principal payments on outstanding debt and repayment of certain instruments.

On a stand-alone basis, as of December 31, 2022 and December 31, 2021, the Non-Operating Corporate segment had indebtedness of $401.8 million and $390.0 million, respectively, an increase of $11.8 million, driven by an increase in the amount drawn under our Revolving Credit Agreement of $15.0 million, partially offset by the $3.2 million repayment of the 2022 Convertible Note upon maturity.

As of December 31, 2022, our Non-Operating Corporate segment's stand-alone indebtedness consists of the $330.0 million aggregate principal amount of 2026 Senior Secured Notes, $51.8 million aggregate principal amount of 2026 Convertible Notes, and $20.0 million aggregate principal amount drawn on its Revolving Credit Agreement.

Our Non-Operating Corporate segment is required to make semi-annual interest payments on the 2026 Senior Secured Notes and 2026 Convertible Notes and quarterly interest payments on the Revolving Credit Agreement.

We are required to make dividend payments on our outstanding Preferred Stock on January 15 th , April 15 th , July 15 th , and October 15 th of each year.

Our Non-Operating Corporate segment received $17.6 million in tax sharing and $13.7 million in dividends from its Infrastructure segment for the year ended December 31, 2022.

We have financed our growth and operations to date, and expect to finance our future growth and operations, through public offerings and private placements of debt and equity securities, credit facilities, vendor financing, capital lease financing and other financing arrangements, as well as cash generated from the operations of our subsidiaries.

In the future, we may also choose to sell assets or certain investments to generate cash.

At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt service and operating leases) and other cash needs for our operations for at least the next twelve months from the issuance of the Consolidated Financial Statements through a combination of available cash and distributions from our subsidiaries.

The ability of INNOVATE’s subsidiaries to make distributions to INNOVATE is subject to numerous factors, including restrictions contained in each subsidiary’s financing agreements, regulatory requirements, availability of sufficient funds at each subsidiary and the approval of such payment by each subsidiary’s board of directors, which must consider various factors, including general economic and business conditions, tax considerations, strategic plans, financial results and condition, expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends, and such other factors each subsidiary’s board of directors considers relevant.

Although the Company believes, to the extent needed, that it will be able to raise additional equity capital, refinance indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that we are not able to satisfy with the funds on hand or expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company, if at all.

Such financing options, if pursued, may also ultimately have the effect of negatively impacting our liquidity profile and prospects over the long-term.

At this time, we believe that we will be able to continue to meet our liquidity requirements and fund our fixed obligations (such as debt service and lease commitments) and other cash needs for our operations for at least the next twelve months from the issuance of the Consolidated Financial Statements through a combination of available cash and distributions from our subsidiaries.

The ability of INNOVATE’s subsidiaries to make distributions to INNOVATE is subject to numerous factors, including restrictions contained in each subsidiary’s financing agreements, availability of sufficient funds at each subsidiary and the approval of such payment by each subsidiary’s board of directors, which must consider various factors, including general economic and business conditions, tax considerations, strategic plans, financial results and condition, expansion plans, any contractual, legal or regulatory restrictions on the payment of dividends, and such other factors each subsidiary’s board of directors considers relevant.

Although the Company believes, to the extent needed, that it will be able to raise additional debt or equity capital, refinance indebtedness or preferred stock, enter into other financing arrangements or engage in asset sales and sales of certain investments sufficient to fund any cash needs that we are not able to satisfy with the funds on hand or expected to be provided by our subsidiaries, there can be no assurance that it will be able to do so on terms satisfactory to the Company, if at all.

Such financing options, if pursued, may also ultimately have the effect of negatively impacting our liquidity profile and prospects over the long-term and dilute the holders of common stock.

Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments.

In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners.

In September 2018, the Company entered into a 75-month lease for office space.

As part of the agreement, INNOVATE was able to pay a lower security deposit and lease payments, and received favorable lease terms as consideration for landlord required cross default language in the event of default of the shared space leased by Harbinger Capital Partners, formerly a related party, in the same building.

With the adoption of ASC 842, as of January 1, 2019, this lease was recognized as a right of use asset and lease liability on the Consolidated Balance Sheets.

In November 2021, the Company entered into a ten-year lease agreement for a special purpose space in West Palm Beach, Florida.

The new lease has not yet commenced, but will require future monthly lease payments of approximately $0.2 million over the entire lease term and yearly common area maintenance charges of $0.6 million, both of which are subject to a 3% annual upward adjustments, with total square footage of 20,950.

The new lease also provides for the Company to receive an allowance, from the Landlord, of $2.1 million to be used toward costs to design, engineer, install, supply and to construct improvements which is payable at the end of the lease.

The future lease payments and the allowance are not yet recorded on our consolidated balance sheet.

We expect the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin no later than November 2023.

Also in November 2021, the Company entered into a three-year lease agreement for office space in West Palm Beach, Florida.

The lease commencement date was November 15, 2021, and requires monthly lease payments of approximately $12.5 thousand over the entire lease term, subject to a 3% annual upward adjustment, with total square footage of 2,723.

The future lease payments and corresponding right of use asset of $0.4 million were recorded on our consolidated balance sheet as a lease liability.

In December 2021, the Company entered into a five-year lease agreement with an option to extend the lease for another five years for office space in West Palm Beach, Florida.

The new lease has not commenced yet, but will require future monthly lease payments of approximately $0.14 million over the entire lease term, subject to a 3% annual upward adjustment, with total square footage of 15,786.

The future lease payments are not yet recorded on our consolidated balance sheet, as the building is still under construction.

We expect the accounting lease commencement date for this initial portion of the lease for financial reporting purposes to begin in the fourth quarter of 2023.

DBMG’s off-balance sheet arrangements at December 31, 2021 included letters of credit of $13.5 million under Credit and Security Agreements and performance bonds of $900.8 million.

DBMG’s contract arrangements with customers sometimes require DBMG to provide performance bonds to partially secure its obligations under its contracts.

Bonding requirements typically arise in connection with private contracts and sometimes with respect to certain public work projects.

DBMG’s performance bonds are obtained through surety companies and typically cover the entire project price.

COVID-19 Expenditures

We have seen significant cost increases, primarily at our Infrastructure segment, driven by expenses associated with maintaining a safe work environment, and while executing on its projects.

During the years ended December 31, 2021 and 2020, $8.6 million and $19.4 million of COVID-19 costs were incurred.

Although the COVID-19 pandemic did not have a material impact on INNOVATE’s liquidity for the year ended December 31, 2021, management believes the continuation of the pandemic and its related effect on the U.S.

and global economies could introduce added pressure on the Company’s liquidity position and financial performance.

Our sources of liquidity are primarily from the dividends and tax sharing agreement with DBMG, cash proceeds from completed and anticipated monetization’s and other arrangements.

Capital Expenditures

Capital expenditures for the periods ended December 31, 2021 and 2020 are set forth in the table below (in millions):

Capital expenditures for the periods indicated are set forth in the table below (in millions):

Years Ended December 31,

Infrastructure

$ 16.5 $ 18.3

Life Sciences 0.8 0.5

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Non-Operating Corporate

2026 Senior Secured Notes Terms and Conditions

The 2026 Senior Secured Notes mature on February 1, 2026.

The 2026 Senior Secured Notes accrue interest at a rate of 8.50% per year.

Interest on the 2026 Senior Secured Notes is paid semi-annually on February 1 and August 1 of each year.

Issue Price .

The issue price of the 2026 Senior Secured Notes was 100% of par.

The notes and the note guarantees are the Company’s and certain of its direct and indirect domestic subsidiaries’ (the "Subsidiary Guarantors") general senior secured obligations.

The notes and the note guarantees will rank:

(i) senior in right of payment to all of the Company’s and the Subsidiary Guarantors’ future subordinated debt;

(ii) equal in right of payment, subject to the priority of any First-Out Obligations (as defined in the Secured Indenture), with all of the Company’s and the Subsidiary Guarantors’ existing and future senior debt and effectively senior to all of its and the Subsidiary Guarantor’s unsecured debt to the extent of the value of the collateral;

and (iii) effectively subordinated to all liabilities of its non-guarantor subsidiaries.

The notes and the note guarantees are secured on a first-priority basis by substantially all of the Company’s assets and the assets of the Subsidiary Guarantors, subject to certain exceptions and permitted liens.

The 2026 Senior Secured Notes are secured by a first priority lien on substantially all of the Company’s assets (except for certain "Excluded Assets," and subject to certain "Permitted Liens," each as defined in the Secured Indenture), including, without limitation:

• all equity interests owned by the Company or a Subsidiary Guarantor (which, in the case of any equity interest in a foreign subsidiary, will be limited to 100% of the non-voting stock (if any) and 65% of the voting stock of such foreign subsidiary) and the related rights and privileges associated therewith (but excluding Equity Interests of Insurance Subsidiaries (as defined in the Secured Indenture), to the extent the pledge thereof is deemed a "change of control" under applicable insurance regulations);

• all equipment, goods and inventory owned by the Company or a Subsidiary Guarantor;

• all cash and investment securities owned by the Company or a Subsidiary Guarantor;

• all documents, books and records, instruments and chattel paper owned by the Company or a Subsidiary Guarantor;

• all general intangibles owned by the Company or a Subsidiary Guarantor;

• any proceeds and supporting obligations thereof.

The Secured Indenture permits the Company, under specified circumstances, to incur additional debt in the future that could equally and ratably share in the collateral.

The amount of such debt is limited by the covenants contained in the Secured Indenture.

Events of Default .

The Secured Indenture contains customary events of default which could, subject to certain conditions, cause the 2026 Senior Secured Notes to become immediately due and payable.

2022 Convertible Notes Terms and Conditions

The 2022 Convertible Notes mature on June 1, 2022 unless earlier converted, redeemed or purchased.

The 2022 Convertible Notes accrue interest at a rate of 7.5% per year.

Interest on the 2022 Convertible Notes is paid semi-annually on December 1 and June 1 of each year.

Issue Price .

The issue price of the Convertible Notes was 100% of par.

The notes are the Company’s general unsecured and unsubordinated obligations and will rank equally in right of payment with all of the Company’s existing and future unsecured and unsubordinated indebtedness, and senior in right of payment to any of the Company’s future indebtedness that is expressly subordinated to the notes.

The notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness, including the Company’s Secured Notes, to the extent of the value of the collateral securing that indebtedness, and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries, including trade credit.

Optional Redemption .

The Company could not redeem the notes prior to June 1, 2020.

From or after June 1, 2020, the Company may redeem for cash all of the notes if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (which need not be consecutive trading days) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption.

The redemption price will equal 100% of the principal amount of the notes being redeemed, plus accrued and unpaid interest, including additional interest, if any, to, but excluding, the redemption date.

Conversion Rights .

The 2022 Convertible Notes are convertible into shares of the Company’s common stock based on a conversion rate of 234.2971 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to a conversion price of approximately $4.27 per share of the Company’s common stock), at any time prior to the close of business on the business day immediately preceding the maturity date, in principal amounts of $1,000 or an integral multiple of $1,000 in excess thereof.

In addition, following a Make-Whole Fundamental Change (as defined in the indenture governing the 2022 Convertible Notes) or the Company’s delivery of a notice of redemption for the 2022 Convertible Notes, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2022 Convertible Notes in connection with (i) such Make-Whole Fundamental Change or (ii) such notice of redemption.

However, to comply with certain listing standards of The New York Stock Exchange, the Company will settle in cash its obligation to increase the conversion rate in connection with a Make-Whole Fundamental Change or redemption until it has obtained the requisite stockholder approval.

Events of Default .

The indenture governing the 2022 Convertible Notes contains customary events of default which could, subject to certain conditions, cause the 2022 Convertible Notes to become immediately due and payable.

2026 Senior Secured Notes

On February 1, 2021, our Non-Operating Corporate segment repaid the 2021 Senior Secured Notes and issued $330.0 million aggregate principal amount of 8.50% senior secured notes due February 1, 2026 (the "2026 Senior Secured Notes").

The 2026 Senior Secured Notes mature on February 1, 2026, and accrue interest at a rate of 8.50% per year, which interest is paid semi-annually on February 1 and August 1 of each year.

For additional information on the terms and conditions of the 2026 Senior Secured Notes, including guarantees, ranking and collateral, refer to Note 13.

Debt Obligations to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

2026 Convertible Notes - Terms and Conditions

As of December 31, 2022, we had $51.8 million 2026 Convertible Notes outstanding.

The 2026 Convertible Notes were issued under a separate indenture dated February 1, 2021, between the Company and U.S.

Bank, as trustee (the "Convertible Indenture").

The 2026 Convertible Notes mature on August 1, 2026 unless earlier converted, redeemed or purchased.

The 2026 Convertible Notes accrue interest at a rate of 7.5% per year.

Interest on the 2026 Convertible Notes is paid semi-annually on February 1 and August 1 of each year.

Issue Price .

The issue price of the 2026 Convertible Notes was 100% of par.

The notes will be effectively subordinated to all of the Company’s existing and future secured indebtedness, including the Company’s 2026 Senior Secured Notes, to the extent of the value of the collateral securing that indebtedness, and structurally subordinated to all indebtedness and other liabilities of the Company’s subsidiaries, including trade credit.

Optional Redemption .

The Company may not redeem the notes prior to August 1, 2023.

On or after August 1, 2023, the Company may redeem for cash all of the notes if the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (which need not be consecutive trading days) during any 30 consecutive trading-day period ending within five trading days prior to the date on which the Company provides notice of redemption.

Conversion Rights .

The 2026 Convertible Notes are convertible into shares of the Company’s common stock based on an initial conversion rate of 234.2971 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to a conversion price of approximately $4.27 per share of the Company’s common stock), at any time prior to the close of business on the business day immediately preceding the maturity date, in principal amounts of $1,000 or an integral multiple of $1,000 in excess thereof.

In addition, following a Make-Whole Fundamental Change (as defined in the Convertible Indenture) or the Company’s delivery of a notice of redemption for the 2026 Convertible Notes, the Company will, in certain circumstances, increase the conversion rate for a holder who elects to convert its 2026 Convertible Notes in connection with (i) such Make-Whole Fundamental Change or (ii) such notice of redemption.

Events of Default .

The Convertible Indenture contains customary events of default which could, subject to certain conditions, cause the Convertible Notes to become immediately due and payable.

The 2026 Convertible Notes accrue interest at a rate of 7.5% per year, which interest is paid semi-annually on February 1 and August 1 of each year.

For additional information on the terms and conditions of the 2026 Convertible Notes, including optional redemption, conversion rights guarantees, ranking and collateral, refer to Note 13.

Debt Obligations to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

Our debt contains customary events of default which could, subject to certain conditions, cause the 2026 Senior Secured Notes and the 2026 Convertible Notes to become immediately due and payable.

Revolving Credit Agreement

MSD PCOF Partners IX, LLC (“MSD”)

The Revolving Credit Agreement has a maturity date of February 23, 2024.

Obligations under the Revolving Credit Agreement constitute a First-Out Debt, as defined in the Secured Indenture, and are secured on a pari passu basis with the 2026 Senior Secured Notes.

As provided under a Collateral Trust Joinder, the lender was added as a secured party to the Collateral Trust Agreement, and accordingly the pari passu obligations and commitments under the Revolving Credit Agreement are secured equally and ratably by the collateral of the Secured Notes.

We have a revolving credit agreement with MSD PCOF Partners IX, LLC ("Revolving Credit Agreement").

The Revolving Credit Agreements has a maximum commitment of $20.0 million, all of which had been drawn as of December 31, 2022.

The Revolving Credit Agreement has a maturity date of February 23, 2024 and accrues interest at a rate of 5.75% per year, which is paid quarterly.

For additional information on the terms and conditions of the Revolving Credit Facility, including guarantees, ranking and collateral, refer to Note 13.

Debt Obligations to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

Infrastructure

The UMB Term Loan and UMB Revolving Line associated with our Infrastructure segment contains customary restrictive and financial covenants related to debt levels and performance.

As of December 31, 2021, DBMG was in compliance with all of the financial covenants to its debt agreements.

Debt Obligations to the Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K for additional details regarding the Company's indebtedness.

As of December 31, 2022, our Infrastructure segment had an aggregate principal amount of outstanding debt of $243.0 million.

On August 2, 2022, DBMG negotiated and finalized an amendment to its UMB Revolving Line which included a retrospective change to the terms of the Fixed Coverage Ratio, and an increase in the UMB Revolving Line commitment from $110.0 million to $135.0 million, among other things.

Refer to Note 13.

Debt Obligations to the Consolidated Financial Statements included elsewhere in this Annual Report on the Form 10-K for additional details regarding the indebtedness of our Infrastructure segment, which is incorporated herein by reference.

Life Sciences

On June 27, 2022, R2 Technologies issued a $0.5 million short-term 90-day 12.0% bridge financing loan with Lancer Capital, LLC ("Lancer"), a related party, an entity controlled by Avram A.

Glazer, the Chairman of the INNOVATE's Board of Directors.

On July 13, 2022, R2 Technologies entered into a note purchase agreement with Lancer.

The note payable bears interest at 12.0% per annum and was funded in two tranches.

The first tranche of $5.0 million closed on July 13, 2022, and included the settlement of a $0.5 million short-term 90-day 12.0% bridge financing loan made on June 27, 2022 by Lancer, and an additional $4.5 million in cash.

The second tranche of $5.0 million closed on August 8, 2022.

On December 13, 2022, R2 Technologies closed on an additional $0.8 million 18.0% note with Lancer Capital, LLC.

All other terms were substantially unchanged.

Subsequent to year end, on February 15, 2023 and February 28, 2023, R2 Technologies closed on an additional 18% $0.5 million and an additional 18% $0.4 million note with Lancer, respectively.

As of December 31, 2022, our Life Sciences segment has aggregate principal outstanding debt of $10.8 million.

On November 28, 2022, Broadcasting entered into a Sixth Omnibus Amendment to Secured Notes, extending the maturity date of $52.2 million of its Senior Secured Notes from November 30, 2022, to December 30, 2022.

The terms of the notes were otherwise substantially unchanged.

On December 30, 2022, Broadcasting entered into a Seventh Omnibus Amendment to Secured Notes which, among other things, extended the maturity date of $52.2 million of its Senior Secured Notes, due December 30, 2022 to May 31, 2024.

The $52.2 million of Senior Secured Notes consisted of $19.3 million of 8.5% Senior Secured Notes and $32.9 million of 10.5% Senior Secured Notes.

The other terms of the $19.3 million 8.5% Senior Notes remained the same.

At the time of the extension, HC2 Broadcasting had accrued interest and other fees $6.9 million.

The new effective interest rates on the notes range from 12.8% to 19.6%.

All other terms were essentially the same.

Interest is capitalized and payable upon maturity of the principal.

The change in the fair value of the warrants was recorded as original issue discount with a corresponding impact reflected in Noncontrolling interest of $3.1 million.

As of December 31, 2022, our Spectrum segment has aggregate principal outstanding debt of $69.7 million.

Refer to Note 13.

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

Restrictive Covenants

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These limitations are subject to a number of important exceptions and qualifications.

The Company conducted its operations in a manner that resulted in compliance with the Secured Indenture;

The Company has conducted its operations in a manner that resulted in compliance with the Secured Indenture;

however, compliance with certain financial covenants for future periods may depend on the Company or one or more of the Company’s subsidiaries undertaking one or more non-operational transactions, such as the management of operating cash outflows, a monetization of assets, a debt incurrence or refinancing, the raising of equity capital, or similar transactions.

1 unchanged sentence

There is no assurance the Company will be able to complete any non-operational transaction it may undertake to maintain compliance with covenants under the Secured Indenture or, even if the Company completes any such transaction, that it will be able to maintain compliance for any subsequent period.

The UMB Revolving Line associated with our Infrastructure segment contains customary restrictive and financial covenants related to debt levels and performance, including a Fixed Coverage Ratio covenant, as defined in the agreement.

As of December 31, 2022, we were in compliance with the covenants of our debt agreements.

Summary of Consolidated Cash Flows

The below table summarizes the cash provided or used in our activities and the amount of the respective changes between the periods (in millions):

Years Ended December 31, Increase / (Decrease)

The below table summarizes the cash provided by or used in our activities and the amount of the respective changes between the years (in millions):

December 31, Increase / (Decrease)

Cash used in continuing operating activities $ (9.5) $ (6.5) $ (3.0)

Cash provided by discontinued operating activities — 33.5 (33.5)

Cash provided by operating activities 27.0 41.1 (14.1)

Cash (used in) provided by continuing investing activities (1.9) 261.9 (263.8)

Cash (used in) provided by operating activities (9.5) 27.0 (36.5)

Cash used in continuing investing activities (22.5) (1.9) (20.6)

Cash used in discontinued investing activities — (221.3) 221.3

Cash (used in) provided by investing activities (223.2) 162.1 (385.3)

Cash provided by (used in) continuing financing activities 11.9 (182.5) 194.4

Cash used in investing activities (22.5) (223.2) 200.7

Cash provided by continuing financing activities 68.1 11.9 56.2

Cash used in discontinued financing activities — (7.6) 7.6

Cash provided by (used in) financing activities 4.3 (204.5) 208.8

Effect of exchange rate changes on cash and cash equivalents (1.3) 1.1 (2.4)

Net decrease in cash, cash equivalents and restricted cash $ (193.2) $ (0.2) $ (193.0)

Cash provided by financing activities 68.1 4.3 63.8

Effects of exchange rate changes on cash, cash equivalents and restricted cash (1.4) (1.3) (0.1)

Net increase (decrease) in cash and cash equivalents, including restricted cash and cash classified within assets held for sale $ 34.7 $ (193.2) $ 227.9

Net decrease in cash and cash equivalents from discontinued operations — (195.4) 195.4

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Operating Activities

Cash used in operating activities was $6.5 million for the year ended December 31, 2021 as compared to cash used in operating activities of $55.2 million for the year ended December 31, 2020.

The $48.7 million change was primarily related to driven by favorable working capital movements in Non-Operating Corporate due to the change in timing of our interest payments on our Senior Secured Notes and 2026 Convertible Notes, the settlement of the DBMG class action suit in 2020, and lower operating expenses at Non-Operating Corporate.

Additionally, Infrastructure had higher operating profits, which were partially offset by negative working capital movements, as well as R2, which had a decrease in working capital driven by a ramp up of expenses related to its product launch.

Cash used in continuing operating activities was $9.5 million for the year ended December 31, 2022, as compared to $6.5 million for the year ended December 31, 2021.

The $3.0 million increase in cash used in operating activities was primarily due to working capital changes (primarily from accounts receivable, contract assets, contract liabilities, accrued liabilities and accounts payable) at our Infrastructure segment.

These fluctuations resulted from changes in revenue resulting from the timing and volume of work performed, variability in the timing of customer billings, management of collection of receivables and settlement of payables, primarily from the increased activity as a result of the acquisition of Banker Steel at the end of May 2021 and growth of the business.

The net decrease from changes in operating assets and liabilities was significantly offset by a decrease in net loss from improved operations.

Investing Activities

Cash used by investing activities was $1.9 million for the year ended December 31, 2021 as compared to cash provided by investing activities of $261.9 million for the year ended December 31, 2020.

The $263.8 million change was due to the acquisition of Banker Steel at our Infrastructure segment in the second quarter of 2021 and less proceeds from the sale of subsidiaries.

Beyond6 was sold in first quarter of 2021 for net proceeds of $70.0 million and the cash portion of our Insurance segment was sold in the third quarter for $64.7 million compared to GMSL sold in the prior year for net proceeds of $144.0 million and the partial sale of the HMN joint venture in the prior year.

Cash used in continuing investing activities was $22.5 million for the year ended December 31, 2022 as compared to $1.9 million for the year ended December 31, 2021, an increase of $20.6 million.

Capital expenditures for the year ended December 31, 2022 were $20.7 million, or $18.7 million, net of disposals, as compared to $24.1 million, or $10.9 million, net of disposals for the year ended December 31, 2021, for a net increase in cash used in investing activities from PP&E of $7.8 million, primarily as a result of unrepeated sales of non-core assets at our Spectrum segment in 2021.

In addition, during the year ended December 31, 2022, our Life Sciences segment paid $4.5 million to purchase an additional convertible note from MediBeacon, whereas during the year ended December 31, 2021, we sold Continental and Beyond6 for aggregate net proceeds and dividends received of $136.5 million and we paid $128.5 million for the acquisition of Banker Steel.

Financing Activities

Cash provided by financing activities was $11.9 million for the year ended December 31, 2021 as compared to cash used in financing activities of $182.5 million for the year ended December 31, 2020.

The $194.4 million change was primarily due to an increase at Infrastructure to purchase Banker Steel in the second quarter of 2021 and higher debt repayments in 2020, mostly from proceeds received from asset sales and non-controlling interest distributions attributable to prior year asset sales.

Cash provided by continuing financing activities was $68.1 million for the year ended December 31, 2022 as compared to $11.9 million for the year ended December 31, 2021, an increase of $56.2 million.

The increase was driven primarily by a net increase of $61.1 million in credit facility related activity.

Cash provided by financing activities for the year ended December 31, 2022 relates primarily to:

our Infrastructure segment's increase on its revolving line of credit to fund working capital requirements on larger, more complex jobs, which provided $76.6 million in net proceeds, net of deferred financing charges;

an increase on the Corporate credit facility of $15.0 million;

and $10.8 million in proceeds from a short-term note at R2 from Lancer Capital;

partially offset by:

$28.3 million in principal payments on debt obligations;

$5.2 million for payments for dividends;

and $0.7 million for other financing activities.

Cash provided by financing activities for the year ended December 31, 2021 was primarily due to:

the 2021 refinancing of the Infrastructure notes in conjunction with the acquisition of Banker Steel;

financing activities at our Life Sciences segment related to the $10.0 million investment by Huadong into R2 in the first quarter of 2021;

and cash received by subsidiary to purchase preferred stock of $10.5 million;

which was partially offset by:

cash paid for the redemption of preferred stock of $10.4 million;

$13.5 million for payments to noncontrolling interests;

$2.9 million in payments for dividends;

and $1.3 million for other financing activities.

Discontinued Operations

Cash used by discontinued operations was $195.4 million for the year ended December 31, 2021 as compared to cash used by discontinued operations of $20.5 million for the year ended December 31, 2020.

The $169.9 million decrease was largely due to a decline in net investment purchases at our Insurance segment compared to the prior year.

Reclassifications

Certain 2021 statement of cash flow items have been reclassified to conform to the current financial statement presentation.

These reclassifications have no effect on previously reported net income.

Cash from discontinued operations was zero for the year ended December 31, 2022 as compared to cash used by discontinued operations of $195.4 million for the year ended December 31, 2021.

The $195.4 million decrease in cash used was primarily due to the 2021 sales of the Insurance segment and Beyond6, which did not have any activity in the current period.

Infrastructure

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DBMG believes that its existing borrowing availability together with cash from operations will be adequate to meet all funding requirements for its operating expenses, interest payments on debt and capital expenditures for the foreseeable future.

DBMG is required to make monthly or quarterly interest payments on all of its debt.

Based upon the December 31, 2021 debt balance, DBMG anticipates that its interest payments will be approximately $1.8 million each quarter of 2022.

DBMG believes that its available funds, cash generated by operating activities and funds available under its bank credit facilities will be sufficient to fund its capital expenditures and its working capital needs.

However, DBMG may expand its operations through future acquisitions and may require additional equity or debt financing.

DBMG is required to make monthly or quarterly interest payments on all of its debt.

Based upon the December 31, 2022 debt balance, DBMG anticipates that its interest payments will be approximately $3.0 million each quarter of 2023.

Off- Balance Sheet Arrangements

We may enter into certain off-balance sheet arrangements in the ordinary course of business.

Our off-balance sheet transactions may include, but are not limited to:

leases that have not yet commenced, liabilities associated with non-cancelable operating leases with durations of less than twelve months, letter of credit obligations, surety, perfo rmance or payment bonds entered into in the normal course of business, and liabilities associated with multi-employer pension plans.

Refer to Note 11.

Leases, Note 15.

Commitments and Contingencies and 16.

Employee Retirement Plans to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on leases, letters of credit and performance and/or payment bonds, and multi-employer pension plans, respectively, which notes are incorporated herein by reference.

Discontinued Operations

We have reclassified several entities as discontinued operations for the years ended December 31, 2021 and 2020.

Accordingly, revenue, costs, and expenses of the discontinued operations have been excluded from continuing operations.

The entities reported in discontinued operations are as follows:

• The sale of GMSL closed on February 28, 2020.

At the time of the sale, the Company recorded a $39.3 million loss on the sale and recognized $31.3 million Accumulated other comprehensive loss.

During the fourth quarter of 2020, the Company recognized a gain of $2.4 million as a result of bonding releases related to projects which existed prior to sale.

During the first quarter of 2021, the Company recognized a gain of $1.2 million as a result of indemnity release.

• The sale of ICS and its subsidiary, Go2 Tel, Inc., closed on October 31, 2020.

The Company recorded a $0.9 million gain on the sale and recognized $8.2 million of Accumulated other comprehensive loss related to the foreign currency translation of PTGi International Carrier Services Ltd., which was essentially liquidated in conjunction with the sale.

The proceeds were used for general corporate purposes.

• On December 31, 2020, the Company signed the Merger Agreement to sell Beyond6.

The sale closed on January 15, 2021.

During the first quarter of 2021, the Company recognized a $39.2 million gain on the sale.

During the third quarter of 2021, as a result of releases of related escrows and holdbacks, the Company recognized an additional $0.5 million gain on the sale.

• The sale of CIG closed on July 1, 2021 to Continental General Holdings LLC, an entity controlled by Michael Gorzynski, a director of the Company and, as of December 31, 2021, a beneficial owner of approximately 6.6% of the Company's outstanding common stock who has also served as executive chairman of Continental since October 2020.

The Company recorded a $200.8 million loss on the sale.

Cash flows from discontinued operations are reported in the Statement of Cash Flows as a separate line item within the Operations, Investing and Financing activities sections for each year presented.

For the year ended December 31, 2021, Beyond6 and CIG were reported in discontinued operations.

Accordingly, revenue, costs, and expenses of the discontinued operations were excluded from continuing operations.

Cash flows from discontinued operations are reported in the Statement of Cash Flows as a separate line item within the Operating, Investing and Financing activities sections for each year presented.

Refer to Note 10.

Discontinued Operations and Exit Activities to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on discontinued operations.

In the absence of cash flows from the discontinued operations, the Company does not expect there to be an impact on liquidity at the Company.

New Accounting Pronouncements

For a discussion of our New Accounting Pronouncements, refer to Note 2.

Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

For information on new accounting pronouncements refer to Note 2.

Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which note is incorporated herein by reference.

Critical Accounting Estimates

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Our selection and disclosure of our critical accounting policies and estimates has been reviewed with our Audit Committee.

Following is a review of the more significant assumptions and estimates and the accounting policies and methods used in the preparation of our consolidated financial statements.

Following is a review of the more significant assumptions and estimates used in the preparation of our consolidated financial statements.

For all of these estimates, we caution that future events rarely develop exactly as forecast, and the best estimates routinely require adjustment.

Refer to Note 2.

Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Annual Report on Form 10-K which discusses the significant accounting policies that we have adopted.

Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which discusses our significant accounting policies and is incorporated herein by reference.

Revenue Recognition - Estimated Costs to Complete

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Revisions in estimates during the course of contract work are reflected in the accounting period in which the facts requiring the revision become known.

Provisions for estimated losses on uncompleted contracts are made in the period a loss on a contract becomes determinable.

Provisions for estimated losses on uncompleted contracts are made in the period in which a loss on a contract becomes determinable.

Convertible Instruments

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Applicable U.S.

Generally Accepted Accounting Principals ("GAAP") requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria.

Generally Accepted Accounting Principles ("GAAP") requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria.

The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not remeasured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

We account for convertible instruments, when it has been determined that the embedded conversion options should not be bifurcated from their host instruments, as follows:

we record, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.

Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

We account for the conversion of convertible debt when a conversion option has been bifurcated using the general extinguishment standards.

The debt and equity linked derivatives are removed at their carrying amounts and the shares issued are measured at their then-current fair value, with any difference recorded as a gain or loss on extinguishment of the two separate accounting liabilities.

Share-Based Compensation

We account for share-based compensation issued to employees in accordance with the provisions of ASC 718 and to non-employees pursuant to ASC 505-50, Equity-based payments to non-employees .

All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for using a fair-value based method.

We record share-based compensation expense for all new and unvested stock options that are ultimately expected to vest as the requisite service is rendered.

We issue new shares of common stock upon the exercise of stock options.

We use a Black-Scholes option valuation model to determine the grant date fair value of share-based compensation under ASC 718.

The Black-Scholes model incorporates various assumptions including the expected term of awards, volatility of stock price, risk-free rates of return and dividend yield.

The expected term of an award is no less than the option vesting period and is based on our historical experience.

Expected volatility is based upon the historical volatility of our stock price.

The risk-free interest rate is approximated using rates available on U.S.

Treasury securities with a remaining term similar to the option’s expected life.

We use a dividend yield of zero in the Black-Scholes option valuation model as it does not anticipate paying cash dividends in the foreseeable future.

Share-based compensation is recorded net of actual forfeitures.

A key component of this analysis includes an calculation of fair value of the embedded derivative instrument, which is performed using inputs that require estimates that management believes are reasonable, such as the projected risk free and volatility rates.

These estimates impacting fair value could materially differ if unanticipated events impacting inputs to the fair value such as the risk free or volatility rates unfold differently than anticipated.

Our annual tax rate is based on our income, statutory tax rates, exchange rates and tax planning opportunities available to us in the various jurisdictions in which we operate.

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Any remaining tax effect in accumulated OCI is released following a portfolio approach.

Refer to Note 14.

Income Taxes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for further information.

The Company’s acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date.

Estimates of fair value included in the Consolidated Financial Statements, in conformity with ASC 820, Fair Value Measurements and Disclosures , represent the Company’s best estimates and valuations developed, when needed, with the assistance of independent appraisers or, where such valuations have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions.

Such estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company.

Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially.

Goodwill and Intangible Assets

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The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill.

We may elect not to perform the qualitative assessment for some or all reporting units and perform a two-step quantitative impairment test.

We may elect not to perform the qualitative assessment for some or all reporting units and perform a quantitative impairment test.

Fair value is determined based on discounted cash flow analyses.

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The estimates of future cash flows involve considerable management judgment and are based upon assumptions about expected future operating performance, economic conditions, market conditions, and cost of capital.

Inherent in estimating the future cash flows are

uncertainties beyond our control, such as capital markets.

Inherent in estimating the future cash flows are uncertainties beyond our control, such as capital markets.

The actual cash flows could differ materially from management's estimates due to changes in business conditions, operating performance, and economic conditions.

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Goodwill and Intangibles, Net, to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on goodwill and intangible assets.

Refer to Note 2.

Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on New Accounting Pronouncements to be Adopted Subsequent to December 31, 2021.

Related Party Transactions

For a discussion of our Related Party Transactions, refer to Note 19.

Related Parties to our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.

Related Parties to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference.

Special Note Regarding Forward-Looking Statements

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Our actual results or other outcomes may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• the effect of the novel coronavirus (“COVID-19”) pandemic and related governmental responses on our business, financial condition and results of operations;

• the impact of recent supply chain disruptions, labor shortages and increases in transportation costs;

• limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources;

• our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital from our operating segments;

• the impact of catastrophic events, including natural disasters, pandemic illness and the outbreak of war or acts of terrorism;

• our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations;

• the impact on our business and financial condition of our substantial indebtedness and the significant additional indebtedness and other financing obligations we may incur;

• the impact of covenants in the Indenture governing INNOVATE’s new notes, the Certificates of Designation governing INNOVATE’s Preferred Stock and all other subsidiary debt obligations as summarized in Note 9.

Debt Obligations and future financing agreements on our ability to operate our business and finance our pursuit of acquisition opportunities;

• the impact of covenants in the Indenture governing INNOVATE’s 2026 Senior Secured Notes, 2026 Convertible Notes, and Revolving Credit Agreement, the Certificates of Designation governing INNOVATE’s Preferred Stock and all other subsidiary debt obligations as summarized in Note 13.

Debt Obligations to our Consolidated Financial Statements included in this Annual Report on Form 10-K and future financing agreements on our ability to operate our business and finance our pursuit of acquisition opportunities;

• the effect of the novel coronavirus (“COVID-19”) pandemic and related governmental responses on our business, financial condition and results of operations;

• our possible inability to generate sufficient liquidity, margins, earnings per share, cash flow and working capital from our operating segments;

• our dependence on certain key personnel;

• our possible inability to hire and retain qualified executive management, sales, technical and other personnel;

• the potential for, and our ability to, remediate future material weaknesses in our internal controls over financial reporting;

• the impact of recent supply chain disruptions, labor shortages and increases in overall price levels, including in transportation costs;

• the impact of a higher interest rate environment;

• the effects related to or resulting from Russia's military action in Ukraine, including the imposition of additional sanctions and export controls, as well as the broader impact to financial markets and the global macroeconomic and geopolitical environment;

• increased competition in the markets in which our operating segments conduct their businesses;

• limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources;

• our ability to effectively increase the size of our organization, if needed, and manage our growth

• the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated;

• our expectations and timing with respect to our ordinary course acquisition activity and whether such acquisitions are accretive or dilutive to stockholders;

• the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved

• uncertain global economic conditions in the markets in which our operating segments conduct their businesses;

• the impact of catastrophic events, including natural disasters, pandemic illness and the outbreak of war, or acts of terrorism;

• potential impacts on our business resulting from climate change, greenhouse gas regulations, and the impact of climate change-related changes in the frequency and severity of weather patterns;

• the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting;

• tax consequences associated with our acquisition, holding and disposition of target companies and assets;

• our ability to remain in compliance with the listing standards of the New York Stock Exchange;

• the ability of our operating segments to attract and retain customers;

• increased competition in the markets in which our operating segments conduct their businesses;

• our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending;

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• management’s assessment of market factors and competitive developments, including pricing actions and regulatory rulings;

• the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting;

• the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated;

• our expectations and timing with respect to our ordinary course acquisition activity and whether such acquisitions are accretive or dilutive to stockholders;

• our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries, or businesses that we may make in the future and the effect of any such dispositions or sales on our results of operations;

• our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries, or businesses, including the anticipated wind-down of our Network business by our Spectrum segment, that we may make in the future and the effect of any such dispositions or sales on our results of operations;

• the possibility of indemnification claims arising out of divestitures of businesses;

• tax consequences associated with our acquisition, holding and disposition of target companies and assets;

• the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved;

• our ability to effectively increase the size of our organization, if needed, and manage our growth;

• the potential for, and our ability to, remediate future material weaknesses in our internal controls over financial reporting;

• our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all.

• our possible inability to hire and retain qualified executive management, sales, technical and other personnel.

Infrastructure / DBM Global Inc.

Our actual results or other outcomes of DBM Global, Inc.

and its wholly-owned subsidiaries ("DBMG"), and, thus, our Infrastructure segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

Our actual results or other outcomes of DBMG, and, thus, our Infrastructure segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• adverse impacts from weather affecting DBMG’s performance and timeliness of completion of projects, which could lead to increased costs and affect the quality, costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors;

• our ability to maintain efficient staffing and productivity as well as delays and cancellations as a result of the COVID-19 pandemic;

• its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise;

• potential impediments and limitations on our ability to complete ordinary course acquisitions in anticipated time frames or at all;

• uncertain timing and funding of new contract awards, as well as project cancellations;

• cost overruns on fixed-price or similar contracts or failure to receive timely or proper payments on cost-reimbursable contracts, whether as a result of improper estimates, performance, disputes, or otherwise;

• uncertain timing and funding of new contract awards, as well as project cancellations;

• potential impediments and limitations on our ability to complete ordinary course acquisitions in anticipated time frames or at all;

• changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors;

• the impact of inflationary pressures;

• adverse outcomes of pending claims or litigation or the possibility of new claims or litigation, and the potential effect of such claims or litigation on DBMG’s business, financial condition, results of operations or cash flow;

• risks associated with labor productivity, including performance of subcontractors that DBMG hires to complete projects;

• its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise;

• its ability to settle or negotiate unapproved change orders and claims;

• changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors;

• fluctuating revenue resulting from a number of factors, including the cyclical nature of the individual markets in which our customers operate;

• our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all;

• lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing DBMG’s obligations under bids and contracts or to finance expenditures prior to the receipt of payment for the performance of contracts.

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• governmental regulation in the healthcare industry:

• our Life Science's segment possible inability to raise additional capital when needed or refinance its existing debt, on attractive terms, or at all.

Spectrum / HC2 Broadcasting Holdings Inc.

Our actual results or other outcomes of Broadcasting, and, thus, our Spectrum segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• our ability to attract advertisers during the COVID-19 pandemic;

• our Spectrum segment’s ability to operate in highly competitive markets and maintain market share;

• our Spectrum segment’s ability to effectively implement its business strategy or be successful in the operation of its business;

• our Spectrum's segment possible inability to raise additional capital when needed or refinance its existing debt, on attractive terms, or at all;

• new and growing sources of competition in the broadcasting industry;

• FCC regulation of the television broadcasting industry.

Our actual results or other outcomes of our Other segment may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following:

• risks associated with our equity method investment that operates in China (i.e., HMN International Co., Ltd F/K/A Huawei Marine Systems Co.

Limited, a Hong Kong holding company with a Chinese operating subsidiary), including the exercisability of New Saxon 2019 Ltd.'s put option pertaining to its 19% interest in HMN starting on the second year anniversary of the closing date of the First HMN Close.

We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this document.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis