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Item 7. Management’s Discussion and Analysis

2024-03-06 compared with 2023-03-14 · 435 added, 344 removed, 391 unchanged (67% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with the information in our consolidated annual audited financial statements and the notes thereto, each of which are contained in Item 8.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated annual financial statements and the notes thereto, each of which are contained in Item 8.

entitled "Financial Statements and Supplementary Data," and other financial information included herein.

12 unchanged sentences

Our volume of business in our Infrastructure segment may be adversely affected by declines or delays in projects, which may vary by geographic region.

Project schedules, particularly in connection with large, complex, and longer-term projects can also create fluctuations in the services provided, which may adversely affect us in a given period.

Project schedules, particularly in connection with large, complex, and longer-term projects can also create fluctuations in the services provided, which may adversely affect us in any given period.

For example, in connection with larger, more complicated projects, the timing of obtaining permits and other approvals may be delayed, and we may need to maintain a portion of our workforce and equipment in an underutilized capacity to ensure we are strategically positioned to deliver on such projects when they move forward.

7 unchanged sentences

Recent Developments

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

Infrastructure

Banker Steel Acquisition

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.

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

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 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.

On July 23, 2023, we announced the unexpected passing of Wayne Barr, our President, Chief Executive Officer and Director.

Barr had served as a director of INNOVATE since January 2014 and as CEO since November 2020.

He previously served as Lead Director during March 2020 and as Interim CEO from June 2020 until November 2020 when he was appointed as the Company's permanent President and CEO.

During his tenure as a director of INNOVATE, he has also served as Chair and/or as a member of several of the Board committees and as a director and/or officer of certain INNOVATE subsidiaries.

Following Mr.

Barr’s death, on July 25, 2023, Paul K.

Voigt was named Interim Chief Executive Officer of the Company.

Voigt has served as Senior Managing Director of Investments at Lancer Capital since 2019.

From 2014 to 2018, Mr.

Voigt served as Senior Managing Director of Investments of the Company and was involved with sourcing deals and capital raising for the Company.

On September 21, 2023, INNOVATE entered into a separation and release agreement with Suzi Herbst, our Chief Operating Officer.

Pursuant to the agreement, Ms.

Herbst's employment with the Company ceased on October 20, 2023 and the Company is paying Ms.

Herbst severance payments and benefits.

We continually evaluate strategic and business alternatives within our operating segments, which may include the following:

operating, growing or acquiring additional assets or businesses related to current or historical operations;

or winding down or selling our existing operations.

In the longer-term, we may evaluate opportunities to acquire assets or businesses unrelated to our current or historical operations.

In the event we were to enter into a strategic transaction to sell any of our existing operations, our intention is to use available proceeds from such transaction to address our capital structure at Non-Operating Corporate and Spectrum.

In 2023, and subsequent to year end, as part of our strategic process, we engaged in several transactions that had or will have an effect on the results of operations and financial condition of our business and individual segments.

Rights Offering and Private Placement

On February 23, 2024, the Company's Board of Directors approved a plan to proceed with a $19.0 million rights offering for its common stock and fixed March 6, 2024 as the record date for holders of common stock entitled to participate in the rights offering.

On March 5, 2024, the Company set the subscription price at which the rights would be exercisable at $0.70 per share and entered into an investment agreement (the "Investment Agreement") with Lancer Capital ("Lancer Capital"), an entity controlled by Avram A.

Glazer, the Chairman of the Board and a beneficial owner of 29.1% of our common stock, pursuant to which the rights offering will be backstopped by Lancer Capital.

Because the rules of the New York Stock Exchange (“NYSE”) prohibit the issuance to Lancer Capital of more than 1% of our common stock outstanding before the issuance unless stockholder approval of such issuance is obtained, in lieu of purchasing common stock under the back-stop arrangement, Lancer Capital will purchase up to $19.0 million of Series C Non-Voting Participating Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred Stock”) to be newly authorized by the Company.

The Series C Preferred Stock is intended to be the economic equivalent of common stock, participating on an as-converted basis in all dividends, distributions, merger consideration and all other consideration receivable by holders of common stock, and a means through which the back-stop arrangement can be effected prior to the completion of the stockholder vote and the satisfaction of any other regulatory requirements.

Pursuant to the Investment Agreement, and as a result of limitations on the amount that can be raised under the Company’s effective shelf registration statement on Form S-3, Lancer Capital will also purchase an additional $16.0 million of Series C Preferred Stock in a private placement transaction to close concurrently with the settlement of the rights offering.

Under the rules of the NYSE, because the shares Lancer Capital will purchase in the concurrent private placement are greater than 20% of our common stock outstanding before the issuance of the Series C Preferred, those shares of Series C Preferred Stock may not be converted unless stockholder approval of such issuance is obtained.

The Investment Agreement provides that, in the event that for any reason the rights offering is not settled by March 28, 2024, then Lancer Capital will purchase $25 million of Series C Preferred Stock.

We refer to this arrangement as the "equity advance." Upon the closing of the rights offering, to the extent that Lancer Capital would have, based on the number of shares of common stock actually sold upon exercise of the rights, purchased less than $25 million of Series C Preferred Stock under the backstop commitment and the concurrent private placement, the Company will redeem those excess shares of Series C Preferred Stock purchased by Lancer Capital under the equity advance at the redemption price of $1,000 per share from the proceeds of the rights offering.

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

The certificate of designations for the Series C Preferred Stock will be filed with the Secretary of State of the State of Delaware on the earlier of the closing of the equity advance or the settlement of the rights offering.

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

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

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

The rights offering will be made pursuant to the Company’s effective shelf registration statement on Form S-3, filed with the SEC on September 29, 2023 and declared effective on October 6, 2023, and a prospectus supplement containing the detailed terms of the rights offering to be filed with the SEC prior to the commencement of the rights offering.

The foregoing information regarding the rights offering is not complete and is subject to change.

The foregoing information regarding the rights offering shall not constitute an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any offer, solicitation or sale of the securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful under the securities laws of such state or jurisdiction.

The rights offering will be made only by means of a prospectus and a related prospectus supplement.

Copies of the prospectus and related prospectus supplement, when they become available, will be distributed to all eligible stockholders as of the rights offering record date and may also be obtained free of charge at the website maintained by the SEC at www.sec.gov or by contacting the information agent for the rights offering.

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

Dispositions and Acquisition of Investments

Life Sciences

Triple Ring Partial Disposition and Scaled Cell Acquisition

On November 30, 2023, the Company sold 546,709 shares of its common stock of Triple Ring and 804,375 shares of its preferred stock of Triple Ring and exchanged 255,333 of Triple Ring common stock for 240,613 shares of Scaled Cell (valued at $0.9 million).

As a part of this transaction, the Company received $5.0 million in cash proceeds and recognized a loss of $0.2 million on the sale of the investment, which is reflected in Other income (expense), net, in the Consolidated Statement of Operations for the year ended December 31, 2023.

As of December 31, 2023, the Company holds 240,613 shares of Scaled Cell, representing a 20.1% interest.

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

As of December 31, 2022 and prior to the sale in November 2023, the Company held a 25.8% interest in Triple Ring.

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.

On March 6, 2023, the Company, through New Saxon 2019 Limited (“New Saxon”), an indirect subsidiary of GMH, closed on the sale of its remaining 19% interest in HMN to subsidiaries and an affiliate of Hengtong Optic-Electric Co Ltd.

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

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

New Saxon received gross proceeds of $54.2 million, and interest income of $0.5 million, of which $4.4 million was withheld for a foreign tax payment.

During the year ended December 31, 2023, $15.9 million was paid to GMH's non-controlling interest holders and redeemable non-controlling interest holders pursuant to the partnership agreement.

New Saxon recognized a gain on sale of $12.2 million, which is reflected in Other income (expense), net in the Consolidated Statements of Operations for the year ended December 31, 2023.

Debt Obligations and Financing

In 2023 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

On February 1, 2021, the Company repaid its 11.50% senior secured notes due 2021 (the "2021 Senior Secured Notes"), and issued $330.0 million aggregate principal amount of 8.50% senior secured notes due 2026 (the "2026 Senior Secured Notes").

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").

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.

In May 2021, the Company drew $5.0 million under the Revolving Credit Agreement.

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.

This financing helped us provide needed capital for our operations and the operations of our subsidiaries.

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.

On December 12, 2023, DBMG and UMB entered into an amendment to the agreement that extended the maturity date of the Revolving Line from May 31, 2024 to August 15, 2025, increased the interest rate spread for the Revolving Line by 0.35% across all tiers, and established an interest rate floor of 4.25%.

The effective interest rate on the Revolving Line was 8.33% and 6.88% as of December 31, 2023 and 2022, respectively.

Interest is paid monthly.

The Revolving Line also includes a commitment fee equal to 0.25% per annum times the average daily unused availability under the line.

DBMG and Banker Steel, jointly and severally, have a subordinated 4.0% note payable to Banker Steel's former owner, in which Donald Banker's family trust has a 25% interest, and jointly and severally also had a subordinated 8.0% note payable to Donald Banker's family trust.

During the year ended December 31, 2023, DBMG made $12.1 million in scheduled repayments of the principal on these notes and made accelerated repayments of $16.6 million in full settlement of the 8.0% subordinated note.

Banker Steel also previously had a subordinated 11.0% note payable to Donald Banker of $6.3 million, which was redeemed in full by DBMG on April 4, 2022.

As of December 31, 2023, the 4.0% note payable had a remaining balance of $5.0 million.

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 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.

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

During the year ended December 31, 2022, R2 Technologies entered into various note purchase agreements with Lancer Capital, an entity controlled by Avram A.

Glazer, the Chairman of INNOVATE's Board of Directors, for an aggregate $10.8 million in notes at a 18% per annum interest rate as of December 31, 2022.

During 2023, R2 closed on an additional $6.6 million of notes, including $1.3 million of unpaid accrued interest which was capitalized into the new principal balance, increasing the aggregate outstanding principal to $17.4 million as of December 31, 2023.

The per annum interest rate on the outstanding principal balance also increased to 20%.

In addition, after various amendments throughout 2023, R2 entered into an amendment with Lancer Capital on November 15, 2023 to extend the maturity date of all outstanding prior existing notes to the earlier of January 31, 2024 or within five business days of the date on which R2 receives an aggregate $20.0 million from the consummation of a debt or equity financing.

Subsequent to year end, the notes expired on January 31, 2024.

Effective January 31, 2024, R2 and Lancer Capital simultaneously issued a new 20% note with an aggregate original principal amount of $20.0 million, which is comprised of the prior outstanding principal amounts and unpaid accrued interest of $2.6 million which was capitalized into the new principal balance, with future interest payable monthly in arrears, in cash or, if not paid in cash, accrued and unpaid interest will be capitalized monthly into the principal balance.

The maturity date of the new note is April 30, 2024 or within five business days of the date on which R2 Technologies receives an aggregate $20.0 million from the consummation of a debt or equity financing or has a change in control, as defined in the agreement, with an optional prepayment of the entire then-outstanding and unpaid principal and accrued interest upon five-days written notice to Lancer Capital.

The new note also includes an exit fee payable upon the earliest of the maturity date, the acceleration date of the principal amount of the note, for any reason as defined in the agreement, or the date upon which any prepayment is made.

The exit fee shall be equal to 10.20% if payment is made anytime from February 1, 2024 through February 29, 2024, 10.37% if payment is made anytime from March 1, 2024 through March 31, 2024, and 10.54% if payment is made anytime from April 1, 2024 through April 30, 2024.

Refer to Note 11.

Debt Obligations in the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference for additional information on R2 Technologies' debt obligations.

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

Interest is capitalized and payable upon maturity of the principal.

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

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

At the time of the extension, 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%.

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

The interest rate on the $32.9 million 10.5% Senior Notes was increased to 11.45% and cumulative accrued interest and exit fees of $17.5 million were capitalized into the principal balance with both note extensions accounted for as debt modification events.

All other terms were essentially the same.

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

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.

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

Interest is capitalized and payable upon maturity of the principal.

Concurrently therewith and as part of the consideration for extending the 10.5% Senior Notes in December 2022, Broadcasting amended warrants to purchase 145,825 shares of common stock of HC2 Broadcasting Holdings, Inc.

common stock held by the lenders of the 10.5% Senior Notes by extending the time to exercise such to the second half of 2026 and reducing the exercise price per share (i) from $140.00 to $0.01 in the case of the certain of the warrants and (ii) from $130.00 to $0.01 in the case of the remaining warrants.

The warrants are exercisable at any time.

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

On August 8, 2023, Broadcasting entered into an Eighth Amendment to Secured Notes with its lenders which extended the maturity date of its Senior Secured Notes aggregate principal amount of $69.7 million, from May 31, 2024 to August 15, 2024.

In exchange, Broadcasting incurred an additional exit fee of $1.1 million which was recorded as original issue discount with a corresponding liability reflected in Other Liabilities in the Consolidated Balance Sheet.

On November 9, 2023, Broadcasting entered into a Ninth Amendment to its Secured Notes with its lenders which extended the maturity date of its Senior Secured Notes aggregate principal amount of $69.7 million, from August 15, 2024 to August 15, 2025.

In exchange, Broadcasting will pay additional exit fees of $7.2 million which are payable on the earlier of maturity or repayment of the principal.

Interest is also capitalized and payable upon maturity of the principal.

In addition, the time to exercise the related warrants was extended to August 2027.

As of December 31, 2023, the effective interest rates on the notes, as amended, ranged from 20.6% to 24.0% per annum.

In addition, INNOVATE Corp.

entered into a related side letter with the institutional investors, whereby INNOVATE agreed to utilize proceeds from the sale of certain of its existing operations, as allowable under the Company's current agreements and indentures and after all other required payments have been made, for repayment of a portion of Broadcasting's Senior Secured Notes.

Assuming there are sufficient proceeds remaining after such repayment, an additional $1.0 million exit fee is payable if repayment occurs by November 9, 2024, or $2.0 million if repayment occurs after that date.

In exchange for the additional exit fee, the institutional investors will return their equity interests in HC2 Broadcasting Holdings, Inc.

and equity interests in DTV America.

The Company accounted for the transactions related to the Eighth Amendment, Ninth Amendment and the side letter as debt modification events under US GAAP as the present value of cash flows under the amended terms of Broadcasting's Senior Secured Notes was less than 10% different from the present value of cash flows under the original terms of the notes.

As a result of the modifications, and as of December 31, 2023, the Company has total capitalized estimated exit fees of $15.9 million, which are reflected in Other Liabilities in the Consolidated Balance Sheet.

Non-Operating Corporate

On April 25, 2023, INNOVATE extended the maturity date of its Revolving Credit Agreement with MSD PCOF Partners IX, LLC (the "Revolving Line of Credit") from February 23, 2024 to March 16, 2025, changed the interest benchmark rates from LIBOR-based to SOFR-based rates, and lowered the amount of net cash proceeds from certain asset sales in excess of which a prepayment is required from $50.0 million to $10.0 million.

In March 2023, the Company paid down $15.0 million outstanding under the Revolving Line of Credit.

On May 8, 2023, INNOVATE drew an additional $8.0 million under the Revolving Line of Credit, and on July 31, 2023, INNOVATE drew an additional $7.0 million under the Revolving Line of Credit, bringing the total outstanding balance to $20.0 million.

Debt Obligations for additional information.

On May 9, 2023, INNOVATE issued a subordinated unsecured promissory note to CGIC in the principal amount of $35.1 million, in connection with the DBMGi Preferred Stock repurchase from CGIC.

Refer to Footnote 16.

Temporary Equity and Equity for additional information.

The CGIC Unsecured Note is due February 28, 2026, and bears interest at 9% per annum through May 8, 2024, 16% per annum from May 9, 2024 to May 8, 2025, and 32% per annum thereafter.

The CGIC Unsecured Note also requires a mandatory prepayment from the proceeds from certain asset sales and the greater of $3 million or 12.5% of the proceeds from certain equity sales.

Debt Obligations for additional information.

Equity Method Investments

In November 2022, MediBeacon amended its existing agreements with Huadong Medicine Co.

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

On March 15, 2022, MediBeacon issued Pansend a $4.5 million 8.0% convertible note due March 2025, increasing the total outstanding principal due by MediBeacon to Pansend to $5.0 million.

Prior to December 6, 2023, MediBeacon issued $2.0 million in 12% convertible note payable to Pansend, increasing the total outstanding principal by MediBeacon to Pansend to $7.0 million.

On December 6, 2023, MediBeacon terminated the $6.5 million of prior outstanding convertible notes with Pansend and simultaneously issued a new 12% convertible note with an aggregate original principal amount of $7.2 million, which comprised of the prior outstanding convertible principal amounts and unpaid accrued interest of $0.7 million which was capitalized into the new principal balance, with future interest payable upon maturity of the note.

Subsequent to December 6, 2023, MediBeacon issued $2.0 million in 12% convertible notes payable to Pansend, and, as of December 31, 2023, the total outstanding principal by MediBeacon to Pansend was $9.7 million, comprised of $9.2 million of convertible notes and $0.5 million of secured notes payable.

Subsequent to year end, on February 12, 2024, MediBeacon issued Pansend an additional $0.5 million 12% convertible note.

As a result of these modifications and additional note issuances to MediBeacon during the year ended December 31, 2023, Pansend recognized an additional $4.7 million of equity method losses which were previously unrecognized because Pansend's carrying amount of its investment in MediBeacon had been previously reduced to zero.

On February 23, 2023, pursuant to its amended commercial partnership with Huadong, MediBeacon issued $7.5 million of its preferred stock to Huadong, which decreased Pansend's ownership in MediBeacon from approximately 47.2% as of December 31, 2022 to approximately 46.2% subsequent to the transaction.

As a result of this equity transaction, Pansend recognized a gain of $3.8 million in Other income (expense), net in the Consolidated Statements of Operations, which increased Pansend's basis in MediBeacon.

Concurrently, Pansend recognized equity method losses of $3.8 million which were previously unrecognized because Pansend's carrying amount of its investment in MediBeacon had been previously reduced to zero.

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

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

Stockholders' Rights Agreement

On August 30, 2021, the Company entered into a Tax Benefits Preservation Plan (the "Plan").

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.

On April 1, 2023, the Company entered into a Tax Benefits Preservation Plan (the "2023 Preservation Plan") with ComputerShare Trust Company, N.A., as rights agent (the "Rights Agent").

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

In connection with entering into the Plan, on April 1, 2023 the Board of Directors of the Company declared a dividend distribution of one right (a “Right”) for each outstanding share of common stock, par value $0.001 per share, of the Company (the “Common Stock”) to stockholders of record at the close of business on April 10, 2023 (the “Record Date”).

Each Right is governed by the terms of the Plan and entitles the registered holder to purchase from the Company a unit consisting of one one-thousandth of a share (a “Unit”) of Series B Preferred Stock, par value $0.001 per share (the “Series B Preferred Stock”), at a purchase price of $15.00 per Unit, subject to adjustment (the “Purchase Price”).

The Company had entered into a previous Tax Benefits Preservation Plan on August 30, 2021 (the “2021 Preservation Plan”), in order to help protect the Company’s ability to use its Tax Benefits by deterring an ownership change.

The 2021 Preservation Plan expired on March 31, 2023.

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

Refer to Note 16.

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.

Temporary Equity and Equity for additional information.

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 as indicated (in millions):

Years Ended December 31,

The following table summarizes our results of operations (in millions):

Year Ended December 31,

2023 2022 Increase / (Decrease)

11 unchanged sentences

Non-Operating Corporate

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

(16.4) (19.6) 3.2

Total income from operations

$ 26.5 $ 13.4 $ 13.1

Interest expense (68.2) (52.0) (16.2)

Loss on extinguishment of debt — (12.5) 12.5

Loss from equity investees (9.4) (1.3) (8.1)

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

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

Other income (expense), net 16.7 (1.2) 17.9

Loss from operations before income taxes $ (34.4) $ (41.1) $ 6.7

Income tax expense (4.5) (0.9) (3.6)

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

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 $ (38.9) $ (42.0) $ 3.1

Net loss attributable to noncontrolling interest and redeemable noncontrolling interest 6.1 8.7 (2.6)

Net loss attributable to non-controlling interests and redeemable non-controlling interests 3.7 6.1 (2.4)

Net loss attributable to INNOVATE Corp.

$ (35.2) $ (35.9) $ 0.7

Preferred dividends and deemed dividends from conversions 4.9 2.2 2.7

Preferred dividends 2.4 4.9 (2.5)

Net loss attributable to common stockholders $ (37.6) $ (40.8) $ 3.2

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, 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 :

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.

Revenue for the year ended December 31, 2023 decreased $214.3 million to $1,423.0 million from $1,637.3 million for the year ended December 31, 2022.

The decrease was primarily driven by our Infrastructure segment, and, to a lesser extent, our Spectrum segment.

The decrease at our Infrastructure segment was primarily driven by timing and size of projects at DBMG's commercial structural steel fabrication and erection business and lower revenue at the industrial maintenance and repair business.

This was partially offset by an increase at Banker Steel and the construction modeling and detailing business due to the timing and size of projects.

Revenues at our Spectrum segment decreased primarily as a result of the termination of Network and its associated Azteca content on December 31, 2022, partially offset by an increase in station revenues, which launched new markets and networks with its customers in 2023.

Income from operations :

Income from operations for the year ended December 31, 2023, increased $13.1 million to $26.5 million from $13.4 million for the year ended December 31, 2022.

The increase was due to a decrease in selling, general and administrative expenses ("SG&A") of $12.1 million and a decrease in depreciation and amortization of $7.0 million, partially offset by a net decrease in gross profit of $5.4 million and an increase in other operating expense of $0.6 million.

The decrease in consolidated SG&A was primarily driven by a decrease in SG&A at our Spectrum segment from the termination of Azteca in December 2022, a decrease in restructuring charges at our Infrastructure segment, decreases in SG&A at our Life Sciences segment as a result of cost reduction initiatives, decreases at our Non-Operating Corporate segment in compensation related expenses, legal, acquisition and disposition related expenses, which were partially offset by an accounts receivable write-off of $2.2 million in 2023 at our Infrastructure segment related to a legacy customer bankruptcy, and increases in salaries and wages and consulting expenses at our Infrastructure segment and the Station Group at Spectrum, as well as an increase in expenses at our Other segment as a result of the sale of New Saxon's 19% investment in HMN in 2023.

The decrease in consolidated depreciation and amortization was driven primarily by Banker Steel at our Infrastructure segment, as certain intangibles became fully amortized.

The $5.4 million decrease in consolidated gross profit was primarily driven by our Spectrum segment's termination of Network, which was partially offset by an increase at Spectrum's Station Group which launched new markets and networks with its customers in 2023 and an increase at our Infrastructure segment driven by timing of higher margin projects.

The increase in consolidated other operating expense was primarily driven by our Other segment due to a write-off of prepaid rent in 2023 related to the execution of a sublease, and an impairment of leasehold improvements in 2023 for unutilized space at our Non-Operating Corporate segment, partially offset by decreased impairment expense at our Spectrum segment, which had impaired the Network PLA intangible in 2022.

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 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.

Interest expense for the year ended December 31, 2023, increased $16.2 million to $68.2 million from $52.0 million for the year ended December 31, 2022.

The increase was primarily attributable to higher interest rates, increased amortization of debt issuance costs on the debt from extension fees, and higher outstanding principal balances at all segments for a majority of the current year, as a result of additional debt issued in 2023.

Refer to Note 11.

Debt Obligations of the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference, for further details on outstanding principal balances.

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 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.

Loss from equity investees for the year ended December 31, 2023 increased $8.1 million to $9.4 million from $1.3 million for the year ended December 31, 2022.

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

Other income (expense), net:

Other income (expense), net for the year ended December 31, 2023 increased $17.9 million to income of $16.7 million from other expense of $1.2 million for the year ended December 31, 2022.

Other income, net for the year ended December 31, 2023 primarily consisted of a gain on the sale of our 19% equity investment in HMN of $12.2 million and a $3.8 million step-up gain from the increase in Pansend's carrying amount as a result of MediBeacon issuing $7.5 million of its preferred stock to Huadong, which was partially offset by a loss on the partial sale of our equity investment in Triple Ring of $0.2 million.

Refer to Note 6.

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.

Investments of the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference, for additional information on our investments.

Other expense, net for the year ended December 31, 2022 was primarily comprised of a deemed distribution loss of $1.8 million 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.

Additionally contributing to the increase in Other income, net for the year ended December 31, 2023 is an increase in interest income earned primarily from $0.5 million related to the sale of our 19% equity investment in HMN, partially offset by an increase in foreign currency translation losses.

Income tax expense :

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.

Income tax expense for the year ended December 31, 2023 increased $3.6 million to $4.5 million from $0.9 million for the year ended December 31, 2022.

The increase was primarily driven by an unrepeated net tax savings of $3.1 million from the CGIC consolidation on the 2021 tax return, which resulted in a partial release of the valuation in 2022.

Income tax expense primarily relates to the tax expense as calculated under ASC 740 for taxpaying entities, for which there was an increase in current state tax expense at certain taxpaying entities due to an increase in profitability.

The tax provision for the year ended December 31, 2023 includes a $1.1 million net tax benefit, consisting of a current tax expense of $4.4 million related to foreign withholding tax payment and a deferred tax benefit of $5.5 million related to the reversal of the deferred tax liability associated with the $11.3 million HMN put option agreement, both of which were related to the sale of New Saxon's 19% investment in HMN on March 6, 2023.

Additionally, the tax benefits associated with losses generated by the INNOVATE Corp.

consolidated income tax return and certain other businesses in both years 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 prior to expiration.

Segment Results of Operations

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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).

Each table summarizes the results of operations of our operating segments (in millions).

Infrastructure Segment

Years Ended December 31,

Year Ended December 31,

2023 2022 Increase / (Decrease)

3 unchanged sentences

Depreciation and amortization 14.4 21.0 (6.6)

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

Other operating income

(0.2) (0.6) 0.4

Income from operations $ 64.4 $ 57.5 $ 6.9

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.

Revenue for the year ended December 31, 2023 decreased $197.1 million to $1,397.2 million from $1,594.3 million for the year ended December 31, 2022.

The decrease was primarily driven by the timing and size of projects at DBMG's commercial structural steel fabrication and erection business and lower revenue at the industrial maintenance and repair business.

This was partially offset by an increase at Banker Steel and the construction modeling and detailing business due to the timing and size of projects.

Cost of revenue :

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.

Cost of revenue for the year ended December 31, 2023 decreased $199.9 million to $1,192.6 million from $1,392.5 million for the year ended December 31, 2022.

The decrease was primarily driven by the decrease in revenues from the timing and size of projects at DBMG's commercial structural steel fabrication and erection business and the industrial maintenance and repair business.

This was partially offset by an increase at Banker Steel and the construction modeling and detailing business due to the increase in revenues from the timing and size of projects.

Selling, general and administrative :

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.

Selling, general and administrative expense for the year ended December 31, 2023 increased $2.1 million to $126.0 million from $123.9 million for the year ended December 31, 2022.

The increase was primarily driven by an increase in salaries and wages, an accounts receivable write-off of $2.2 million related to a legacy customer bankruptcy, and an increase in support and consulting expenses, partially offset by a decrease in restructuring charges, which included $2.1 million in 2023 for a foreign office closure as compared to $6.5 million in 2022 for internal operational project restructuring and other streamlining activities.

Depreciation and amortization:

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.

Depreciation and amortization for the year ended December 31, 2023 decreased $6.6 million to $14.4 million from $21.0 million for the year ended December 31, 2022.

The decrease was primarily driven by Banker Steel, as certain customer contract intangibles became fully amortized in the second quarter of 2023, and, to a lesser extent, certain capitalized internal-use software became fully depreciated in early 2023.

Other operating income :

Other operating income for the year ended December 31, 2023 decreased $0.4 million to $0.2 million from $0.6 million for the year ended December 31, 2022.

The decrease in income was primarily driven by gain on an unrepeated asset sale in 2022.

Life Sciences Segment

Years Ended December 31,

Year Ended December 31,

2023 2022 Increase / (Decrease)

4 unchanged sentences

Loss from operations $ (15.0) $ (20.1) $ 5.1

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.

Revenue for the year ended December 31, 2023 decreased $1.0 million to $3.3 million from $4.3 million for the year ended December 31, 2022.

The decrease in revenue was attributable to R2, primarily due to a decrease in system sales outside the U.S.

due to payment delays during 2023, as well as a decrease in consumables sold outside the U.S.

Partially offsetting the decrease was an increase in sales in the U.S.

due to the launch of the Glacial fx system in 2023 and an increase in Glacial Rx units sold in the U.S.

Cost of revenue:

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.

Cost of revenue for year ended December 31, 2023 decreased $0.9 million to $2.6 million from $3.5 million for the year ended December 31, 2022.

The decrease in cost of revenue was attributable to R2, primarily driven by changes in revenue and the product mix sold.

Selling, general and administrative :

Selling, general and administrative expense for the year ended December 31, 2023 decreased $5.4 million to $15.2 million from $20.6 million for the year ended December 31, 2022.

The decrease was primarily driven by decreases from R2 in compensation-related expenses, marketing expenses, research and development costs and legal expenses as a result of cost reduction initiatives, as well as a decrease in bad debt expense.

Spectrum Segment

Years Ended December 31,

Year Ended December 31,

2023 2022 Increase / (Decrease)

3 unchanged sentences

Depreciation and amortization 5.2 5.8 (0.6)

Other operating loss 1.3 0.3 1.0

Other operating (income) loss

(0.1) 1.3 (1.4)

Loss from operations $ (3.4) $ (3.8) $ 0.4

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.

Revenue for the year ended December 31, 2023 decreased $16.2 million to $22.5 million from $38.7 million for the year ended December 31, 2022.

The decrease was primarily driven by the elimination of advertising revenues at Azteca of $17.6 million, which ceased operations on December 31, 2022.

This was partially offset by an increase in station revenues, which launched new markets and networks with its customers in 2023.

Cost of revenue:

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.

Cost of revenue for the year ended December 31, 2023 decreased $8.1 million to $11.8 million from $19.9 million for the year ended December 31, 2022.

The overall decrease was primarily driven by a decrease in advertising cost of revenue as a result of the termination of Azteca.

Selling, general and administrative:

Selling, general and administrative expense for the year ended December 31, 2023 decreased $6.5 million to $9.0 million from $15.5 million for the year ended December 31, 2022.

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.

The decrease was primarily driven by the termination of the

Azteca America network, which was partially offset by an increase in severance expense and related compensation costs at our Station Group.

Depreciation and amortization:

Depreciation and amortization expense for the year ended December 31, 2023 decreased $0.6 million to $5.2 million from $5.8 million for the year ended December 31, 2022.

The decrease was primarily driven by the Program License Agreement ("PLA"), which was fully impaired in 2022.

Other operating (income) loss :

Other operating (income) loss for the year ended December 31, 2023 increased $1.4 million to income of $0.1 million from a loss of $1.3 million for the year ended December 31, 2022.

The improvement was primarily related to an unrepeated impairment loss relating to the full impairment of the PLA intangible in 2022.

Non-Operating Corporate

Years Ended December 31,

Year Ended December 31,

2023 2022 Increase / (Decrease)

1 unchanged sentence

Depreciation and amortization 0.1 0.1 —

Other operating loss

Loss from operations $ (16.4) $ (19.6) $ 3.2

1 unchanged sentence

Selling, general and administrative expenses for the year ended December 31, 2023 decreased $3.7 million to $15.8 million from $19.5 million for the year ended December 31, 2022.

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.

primarily driven by decreases in salaries, benefits and bonus from a reduced headcount and change in CEO, a decrease in legal, disposition and acquisition expenses, and a slight decrease in severance expense, which related to the Company's former Chief Operating Officer in 2023 and to the Company's former Chief Legal Officer in 2022.

Other operating loss:

Other operating loss for the year ended December 31, 2023 increased to $0.5 million from zero for the year ended December 31, 2022.

Other operating loss in 2023 consisted primarily of an impairment of leasehold improvements for unutilized office space.

(Loss) Income from Equity Investees

Years Ended December 31,

Year Ended December 31,

2023 2022 Increase / (Decrease)

2 unchanged sentences

Loss from equity investees $ (9.4) $ (1.3) $ (8.1)

Loss from equity investees:

Life Sciences:

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.

Loss from equity investees within our Life Sciences segment for the year ended December 31, 2023 increased $2.9 million to $9.1 million from $6.2 million for the year ended December 31, 2022.

The increase in loss from equity investees was primarily due to equity method losses from our investment in Triple Ring prior to its partial sale on November 30, 2023, which had income in 2022 which was primarily driven by a gain on debt extinguishment recognized in 2022, as well as higher equity method losses recognized from our investment in MediBeacon.

Pansend's carrying amount of its investment in MediBeacon has been reduced to zero and Pansend has unrecognized losses from this investment.

As a result of an additional equity investment made during the first quarter of 2023 by Huadong to MediBeacon, Pansend's basis in MediBeacon increased by $3.8 million, and, in addition, MediBeacon issued an additional $4.7 million in convertible notes payable to Pansend during 2023, which also increased Pansend's carrying amount of its investment in MediBeacon.

Pansend then recognized $8.5 million in equity method losses which were previously unrecognized and subsequently Pansend's carrying amount of its investment in MediBeacon remains at zero.

Loss from equity investees within our Other segment for the year ended December 31, 2023 increased $5.2 million to a loss of $0.3 million from income of $4.9 million for the year ended December 31, 2022.

The increase in loss was driven by our previous investment in HMN, which was sold on March 6, 2023, and had losses for the approximately two months of ownership in 2023, compared to net income in 2022.

Refer to Note 6.

Investments of the Consolidated Financial Statements included in this Annual Report on Form 10-K, for additional information on our equity investments.

Non-GAAP Financial Measures and Other Information

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GAAP financial measures as a measure of our operating performance.

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;

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

discontinued operations, if applicable;

depreciation and amortization;

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other (income) expense, net;

loss on extinguishment of debt;

income tax expense (benefit);

noncontrolling interest;

non-controlling interest;

share-based compensation expense;

legacy accounts receivable expense;

restructuring and exit costs;

non-recurring items;

costs associated with the COVID-19 pandemic;

and acquisition and disposition costs.

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Infrastructure

Life Sciences Spectrum Non-operating Corporate Other and Eliminations INNOVATE

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

Life Sciences Spectrum Non-Operating Corporate

Other and Eliminations INNOVATE

Net income (loss) attributable to INNOVATE Corp.

$ 28.7 $ (15.5) $ (22.2) $ (33.2) $ 7.0 $ (35.2)

Adjustments to reconcile net income (loss) to Adjusted EBITDA:

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Other operating (income) loss

(0.2) — (0.1) 0.5 1.1 1.3

Interest expense 13.8 2.9 13.4 38.1 — 68.2

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Income tax expense (benefit) 20.2 — 0.3 (14.8) (1.2) 4.5

Noncontrolling interest 2.8 (8.2) (1.9) — 1.2 (6.1)

Non-controlling interest 2.8 (7.3) (2.5) — 3.3 (3.7)

Share-based compensation expense — 0.2 — 2.0 — 2.2

Legacy accounts receivable expense 2.2 — — — — 2.2

Restructuring and exit costs 2.1 — 0.1 — — 2.2

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Infrastructure

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 $ 16.9 $ (19.8) $ (12.9) $ (64.2) $ 2.4 $ (77.6)

Life Sciences Spectrum Non-Operating Corporate

Other and Eliminations INNOVATE

Net income (loss) attributable to INNOVATE Corp.

$ 29.2 $ (19.2) $ (13.3) $ (35.3) $ 2.7 $ (35.9)

Adjustments to reconcile net income (loss) to Adjusted EBITDA:

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

Other operating loss 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 extinguishment of debt 1.5 — 1.0 10.0 — 12.5

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

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

Non-controlling interest 2.8 (8.2) (1.9) — 1.2 (6.1)

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

Adjusted EBITDA $ 101.7 $ (25.4) $ 4.5 $ (16.7) $ 4.0 $ 68.1

Infrastructure:

Net income from our Infrastructure segment for the year ended December 31, 2022 increased $12.3 million to $29.2 million from $16.9 million for the year ended December 31, 2021.

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 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, 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, 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, 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):

Years Ended December 31,

Year Ended December 31,

2023 2022 Increase / (Decrease)

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Non-Operating Corporate

(13.5) (16.7) 3.2

Other and Eliminations (1.0) 4.0 (5.0)

Adjusted EBITDA $ 65.0 $ 68.1 $ (3.1)

Infrastructure:

Net income from our Infrastructure segment for the year ended December 31, 2023 decreased $0.5 million to $28.7 million from $29.2 million for the year ended December 31, 2022.

Adjusted EBITDA from our Infrastructure segment for the year ended December 31, 2023 decreased $1.1 million to $100.6 million from $101.7 million for the year ended December 31, 2022.

The slight decrease in Adjusted EBITDA was primarily driven by lower contributions from Banker Steel and the industrial maintenance and repair businesses due to the timing of projects, as well as an increase in recurring SG&A, primarily salaries and wages and consulting expenses.

This was partially offset by DBMG's commercial structural steel fabrication and erection business which had margin improvement as projects completed in 2022, which had lower margins due to market pressure on point-of-sale project margins during the COVID-19 pandemic, were replaced with more recent projects with higher point-of-sale margins in 2023 and increased contribution from the construction modeling and detailing business.

Life Sciences:

Net loss from our Life Sciences segment for the year ended December 31, 2023 decreased $3.7 million to $15.5 million from $19.2 million for the year ended December 31, 2022.

Adjusted EBITDA loss from our Life Sciences segment for the year ended December 31, 2023 decreased $2.3 million to $23.1 million from $25.4 million for the year ended December 31, 2022.

The decrease in Adjusted EBITDA loss was primarily due to a decrease in SG&A expenses at R2, driven by a decrease in compensation-related expenses, marketing costs, research and development and legal expenses as a result of cost reduction initiatives, as well as a decrease in bad debt expense.

The decrease was partially offset by higher equity method losses from our investment in Triple Ring driven by a gain on debt extinguishment recognized in 2022, as well as higher equity method losses recognized from our investment in MediBeacon in 2023 due to additional investments in MediBeacon during 2023 resulting in previously suspended losses being recognized and subsequently Pansend's carrying amount of its investment in MediBeacon remains at zero.

Net loss from our Spectrum segment for the year ended December 31, 2023 increased $8.9 million to $22.2 million from $13.3 million for the year ended December 31, 2022.

Adjusted EBITDA from our Spectrum segment for the year ended December 31, 2023 decreased $2.5 million to $2.0 million from $4.5 million for the year ended December 31, 2022.

The decrease in Adjusted EBITDA was primarily due to an increase in severance expense and related compensation costs at Station Group, and the termination of Azteca in 2022, which were partially offset by an increase in Station revenues, which launched new markets and networks with its customers in 2023.

Non-Operating Corporate:

Net loss from our Non-Operating Corporate segment for the year ended December 31, 2023 decreased $2.1 million to $33.2 million from $35.3 million for the year ended December 31, 2022.

Adjusted EBITDA loss from our Non-Operating Corporate segment for the year ended December 31, 2023 decreased $3.2 million to $13.5 million from $16.7 million for the year ended December 31, 2022.

The decrease in Adjusted EBITDA loss was primarily driven by decreases in salaries, benefits and bonus from a reduced headcount and change in CEO, a decrease in legal expenses, and a slight decrease in severance expense, which related to the Company's former Chief Operating Officer in 2023 and to the Company's former Chief Legal Officer in 2022.

Other and Eliminations:

Net income from our Other segment and Eliminations for the year ended December 31, 2023 increased $4.3 million to $7.0 million from $2.7 million for the year ended December 31, 2022.

Adjusted EBITDA from our Other segment for the year ended December 31, 2023 decreased $5.0 million to an Adjusted EBITDA loss of $1.0 million from Adjusted EBITDA income of $4.0 million for the year ended December 31, 2022.

The decrease in Adjusted EBITDA was primarily driven by reduced contribution from HMN, which was sold on March 6, 2023 and, to a lesser extent, severance related expense incurred in 2023 at TIC Holdco, Inc.

Projects in backlog consist of awarded contracts, letters of intent, notices to proceed, change orders, and purchase orders obtained.

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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, 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.

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, Revolving Line of Credit, CGIC Unsecured Note, and dividend payments on its Preferred Stock and recurring operational expenses.

On a consolidated basis, as of December 31, 2023, we had $80.8 million of cash and cash equivalents, excluding restricted cash, compared to $80.4 million as of December 31, 2022.

On a stand-alone basis, as of December 31, 2023, our Non-Operating Corporate segment had cash and cash equivalents, excluding restricted cash, of $2.5 million compared to $9.1 million at December 31, 2022.

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, 2023, we had $722.8 million of principal indebtedness on a consolidated basis compared to $725.3 million as of December 31, 2022, a net decrease of $2.5 million, which was primarily due to a $44.2 million net decrease in debt at our Infrastructure segment, mostly offset by the issuance of the $35.1 million CGIC Unsecured Note at our Non-Operating Corporate segment and the issuance of additional debt at R2 Technologies in principal amount of $6.6 million.

As of December 31, 2023, on a stand-alone basis, our Non-operating Corporate segment indebtedness increased to $436.9 million from $401.8 million as of December 31, 2022, an increase of $35.1 million, attributable to the issuance of the $35.1 million CGIC Unsecured Note.

As of December 31, 2023, 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, $35.1 million principal amount CGIC Unsecured Note and $20.0 million aggregate principal amount drawn on the Revolving Line of Credit.

Our Non-Operating Corporate segment is required to make semi-annual interest payments on the 2026 Senior Secured Notes and 2026 Convertible Notes on February 1st and August 1st of each year, quarterly interest payments on the Revolving Line of Credit, and monthly interest payments on the CGIC Unsecured Note.

As described below, the interest rate on the CGIC Unsecured Note will increase from 9% per annum to 16% per annum on May 9, 2024 and from 16% per annum to 32% per annum on May 9, 2025.

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.

Our Non-Operating Corporate segment received $24.2 million in tax sharing payments from our Infrastructure segment for the year ended December 31, 2023.

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, finance 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 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.

On March 15, 2023, DBMGi received a redemption notice from CGIC, the holder of the Series A Fixed-to-Floating Rate Perpetual Preferred Stock of DBMGi (the “DBMGi Preferred Stock”) requesting that DBMGi redeem 41,820.25 shares of DBMGi Preferred Stock, representing all of the issued and outstanding shares of DBMGi Preferred Stock, within 60 days of the notice, or by May 15, 2023.

On May 9, 2023, the Company entered into a Stock Purchase Agreement and Subordinated Unsecured Promissory Note with CGIC whereby the Company agreed to purchase the 41,820.25 shares of DBMGi Preferred Stock for full satisfaction of the redemption notice.

In full consideration of the DBMGi Preferred Stock as well as an accrued dividend of $0.4 million, the Company paid CGIC $7.1 million on May 9, 2023, and issued a subordinated unsecured promissory note to CGIC in the principal amount of $35.1 million (the "CGIC Unsecured Note").

The CGIC Unsecured Note is due February 28, 2026, and bears interest at 9% per annum through May 8, 2024, 16% per annum from May 9, 2024 to May 8, 2025, and 32% per annum thereafter.

The CGIC Unsecured Note also requires a mandatory prepayment from the proceeds from certain asset sales and the greater of $3 million or 12.5% of the proceeds from certain equity sales.

Other covenants in the CGIC Unsecured Note are generally consistent with the Company's Indenture governing the 8.50% Senior Secured Notes due 2026, dated as of February 1, 2021, by and among the Company, the guarantors party thereto and U.S.

Bank National Association.

The foregoing is a summary only and does not purport to be a complete description of all of the terms, provisions, covenants, and agreements contained in the Stock Purchase Agreement and Subordinated Unsecured Promissory Note, and is subject to and qualified in its entirety by reference to the full text of the Stock Purchase Agreement and Subordinated Unsecured Promissory Note, which are referenced in our Exhibits listing in this Annual Report on Form 10-K, and are incorporated herein by reference.

On May 8, 2023, INNOVATE drew an additional $8.0 million under the Revolving Credit Agreement.

Additionally, on July 31, 2023, INNOVATE drew an additional $7.0 million under the Revolving Credit Agreement, increasing the outstanding balance to $20.0 million as of December 31, 2023.

On February 23, 2024, the Company's Board of Directors (the “Board”) approved a plan to proceed with a $19.0 million rights offering for its common stock and fixed March 6, 2024 as the record date for holders of common stock entitled to participate in the rights offering.

On March 5, 2024, the Company set the subscription price at which the rights would be exercisable at $0.70 per share and entered into an investment agreement (the "Investment Agreement") with Lancer Capital, a related party and an entity controlled by Avram A.

Glazer, the Chairman of the Board and a beneficial owner of 29.1% of our common stock, pursuant to which the rights offering will be backstopped by Lancer Capital.

Pursuant to the Investment Agreement, Lancer Capital will also purchase an additional $16.0 million of the Company's Series C Preferred Stock in a private placement transaction to close concurrently with the settlement of the rights offering.

For more information regarding the back-stop and private placement commitments from Lancer Capital under the Investment Agreement, see “Recent Developments.” At this time, management believes that the Company will be able to continue to meet its liquidity requirements and fund its fixed obligations (such as debt service and operating leases) and other cash needs for its operations for at least the next twelve months from the issuance of the Consolidated Financial Statements through a combination of available cash on hand, distributions from the Company’s subsidiaries and the rights offering together with the back-stop and private placement commitments from Lancer Capital under the Investment Agreement.

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.

Although the Company believes that it will be able, to the extent needed, 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.

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Capital Expenditures

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

Years Ended December 31,

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

Year Ended December 31,

Infrastructure

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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.

On February 1, 2021, our Non-Operating Corporate segment repaid the senior secured notes that were due in 2021 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 st and August 1 st 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 11.

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

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

2026 Convertible Notes - Terms and Conditions

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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, which interest is paid semi-annually on February 1 and August 1 of each year.

The 2026 Convertible Notes accrue interest at a rate of 7.5% per year, which interest is paid semi-annually on February 1 st and August 1 st 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 11.

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

Debt Obligations 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

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.

We have a revolving credit agreement with MSD PCOF Partners IX, LLC ("MSD") which has a maximum commitment of $20.0 million ("Revolving Line of Credit"), of which $20.0 million had been drawn as of December 31, 2023.

Interest on loans under the Revolving Line of Credit accrues at SOFR plus 5.75% and is payable quarterly.

The Revolving Line of Credit also includes a commitment fee at a per annum rate of 1.0% calculated based off the actual daily amount of unused availability under the revolving credit line with MSD.

The maturity date of the Revolving Line of Credit is March 16, 2025.

The amount outstanding under the Revolving Line of Credit is subject to mandatory prepayment from the net cash proceeds from certain asset sales in excess of $10.0 million.

In March 2023, the Company paid down $15.0 million of the Revolving Credit Agreement, and in May and July 2023, INNOVATE drew an aggregate additional $15.0 million under the Revolving Credit Agreement, bringing the outstanding balance to $20.0 million as of December 31, 2023.

For additional information on the terms and conditions of the Revolving Credit Facility, including guarantees, ranking and collateral, refer to Note 11.

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

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

CGIC Unsecured Note

On May 9, 2023, in connection with the redemption of the DBMGi Preferred Stock, the Company issued a subordinated unsecured promissory note to CGIC in the principal amount of $35.1 million (the "CGIC Unsecured Note").

The CGIC Unsecured Note is due February 28, 2026, and bears interest at 9% per annum through May 8, 2024, 16% per annum from May 9, 2024 to May 8, 2025, and 32% per annum thereafter.

The CGIC Unsecured Note also requires a mandatory prepayment from the proceeds from certain asset sales and the greater of $3 million or 12.5% of the proceeds from certain equity sales.

Refer to Footnote 16.

Temporary Equity and Equity and 11.

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

Infrastructure

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

As of December 31, 2023, our Infrastructure segment had an aggregate principal amount of outstanding debt of $198.8 million, which consists of $91.4 million 3.25% Term Loan with UMB, $100.0 million Revolving Line with UMB, $5.0 million, a 4.0% Note due 2024, and $2.4 million of obligations under finance leases.

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.

On December 12, 2023, Infrastructure and UMB entered into an amendment to the agreement that extended the maturity date of the Revolving Line from May 31, 2024 to August 15, 2025, increased the interest rate spread for the Revolving Line by 0.35% across all tiers, and established an interest rate floor of 4.25%.

The Revolving Line also includes a commitment fee equal to 0.25% per annum times the average daily unused availability under the line.

Banker Steel also previously had a subordinated 11.0% note payable to Donald Banker of $6.3 million, which was redeemed in full by DBMG on April 4, 2022.

As of December 31, 2023, the 4.0% note payable had a remaining balance of $5.0 million.

Refer to Note 11.

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.

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

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, 2023, our Life Sciences segment has aggregate principal outstanding debt of $17.4 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.

During the year ended December 31, 2022, R2 Technologies entered into various note purchase agreements with Lancer Capital, an entity controlled by Avram A.

Glazer, the Chairman of INNOVATE's Board of Directors, for an aggregate $10.8 million in notes at a 18% per annum interest rate as of December 31, 2022.

The per annum interest rate on the outstanding principal balance also increased to 20%.

Subsequent to year end, the notes expired on January 31, 2024.

Refer to Note 17.

Related Parties in the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference for additional information on R2 Technologies' debt obligations.

As of December 31, 2023, our Spectrum segment has aggregate principal outstanding debt of $69.7 million.

Interest is capitalized and payable upon maturity of the principal.

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

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

At the time of the extension, 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%.

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

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.

The warrants are exercisable at any time.

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

In exchange, Broadcasting will pay additional exit fees of $7.2 million which are payable on the earlier of maturity or repayment of the principal.

Interest is also capitalized and payable upon maturity of the principal.

In addition, the time to exercise the related warrants was extended to August 2027.

As of December 31, 2023, the effective interest rates on the notes, as amended, ranged from 20.6% to 24.0% per annum.

In addition, INNOVATE Corp.

entered into a related side letter with the institutional investors, whereby INNOVATE has agreed to utilize proceeds from the sale of certain of its existing operations, as allowable under the Company's current agreements and indentures and after all other required payments have been made, for repayment of a portion of Broadcasting's Senior Secured Notes.

Assuming there are sufficient proceeds remaining after such repayment, an additional $1.0 million fee is payable if repayment occurs by November 9, 2024, or $2.0 million if repayment occurs after that date.

In exchange for the additional fee, the institutional investors will return their equity interests in HC2 Broadcasting Holdings, Inc.

and equity interests in DTV America.

Refer to Note 11.

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

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

Restrictive Covenants

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These covenants include maintenance of (1) liquidity and (2) collateral coverage.

The maintenance of liquidity covenant provides that the Company will not permit the aggregate amount of (i) all unrestricted cash and Cash Equivalents of the Company and the Subsidiary Guarantors, (ii) amounts available for drawing under revolving credit facilities and undrawn letters of credit of the Company and the Subsidiary Guarantors and (iii) dividends, distributions or payments that are immediately available to be paid to the Company by any of its Restricted Subsidiaries to be less than the Company’s obligation to pay interest on the 2026 Senior Secured Notes and all other Debt, including Convertible Preferred Stock mandatory cash dividends or any other mandatory cash pay Preferred Stock but excluding any obligation to pay interest on Convertible Preferred Stock or any other mandatory cash pay Preferred Stock which, in each case, may be paid by accretion or in-kind in accordance with its terms of the Company and its Subsidiary Guarantors for the next six months.

The maintenance of liquidity covenant provides that the Company will not permit the aggregate amount of (i) all unrestricted cash and Cash Equivalents of the Company and the Subsidiary Guarantors, (ii) amounts available for drawing under revolving credit facilities and undrawn letters of credit of the Company and the Subsidiary Guarantors and (iii) dividends, distributions or payments that are immediately available to be paid to the Company by any of its Restricted Subsidiaries to be less than the Company’s obligation to pay interest for the next six months on the 2026 Senior Secured Notes and all other Debt, including Convertible Preferred Stock mandatory cash dividends or any other mandatory cash pay Preferred Stock but excluding any obligation to pay interest on Convertible Preferred Stock or any other mandatory cash payments on Preferred Stock which, in each case, may be paid by accretion or in-kind in accordance with its terms of the Company and its Subsidiary Guarantors.

As of December 31, 2023, the Company was in compliance with this covenant.

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

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

The Company has conducted its operations in a manner that has 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.

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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.

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, including a Fixed Charge Coverage Ratio covenant, as defined in the agreement.

As of December 31, 2023, we were in compliance with the covenants of our debt agreements.

Summary of Consolidated Cash Flows

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 (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 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 financing activities 68.1 4.3 63.8

The below table summarizes the cash provided by or used in our activities (in millions):

Year Ended December 31, Increase / (Decrease)

Cash provided by (used in) operating activities 26.5 (9.5) 36.0

Cash provided by (used in) investing activities 39.1 (22.5) 61.6

Cash (used in) provided by financing activities (65.3) 68.1 (133.4)

Effects of exchange rate changes on cash, cash equivalents and restricted cash (0.2) (1.4) 1.2

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

Net change in cash, cash equivalents and restricted cash $ 34.7 $ 2.2 $ 32.5

Net increase in cash and cash equivalents, including restricted cash $ 0.1 $ 34.7 $ (34.6)

Operating Activities

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.

Cash provided by operating activities was $26.5 million for the year ended December 31, 2023, as compared to cash used in operating activities of $9.5 million for the year ended December 31, 2022, an improvement of $36.0 million.

Cash flows from operations are primarily influenced by changes in the timing of demand for services and operating margins, but can also be affect ed by working capital needs associated with our operations.

For the year ended December 31, 2023, the improvement in cash provided by operating activities was primarily due to an improvement in working capital cash flows at our Infrastructure segment, primarily from changes in contract-related assets and liabilities at our Infrastructure segment, which was partially offset by an increase in net loss after non-cash adjustments.

Investing Activities

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.

Cash provided by investing activities was $39.1 million for the year ended December 31, 2023 as compared to cash used in investing activities of $22.5 million for the year ended December 31, 2022, an improvement of $61.6 million.

The improvement in cash provided by investing activities was primarily driven by the $54.2 million of gross cash proceeds received from the sale of New Saxon's 19% investment in HMN on March 6, 2023 and $5.0 million received from Pansend's partial sale of Triple Ring in 2023.

Capital expenditures, net of disposals for the year ended December 31, 2023 were $16.8 million, as compared to $18.7 million for year ended December 31, 2022, a net decrease in cash used in PP&E activity of $1.9 million, primarily due to the completion of the Spectrum station build-outs in 2022.

Additionally, loans to MediBeacon totaled $4.0 million for year ended December 31, 2023 as compared to $4.5 million for the year ended December 31, 2022, for a decrease in cash outflows of $0.5 million.

Financing Activities

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 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.

Cash used in financing activities was $65.3 million for the year ended December 31, 2023 as compared to cash provided by financing activities of $68.1 million for the year ended December 31, 2022, an increase in cash used of $133.4 million.

The increase in cash used in financing activities was primarily driven by a decrease in net proceeds from our credit facilities of $99.3 million, primarily from a decrease in net proceeds from Infrastructure's UMB Revolving Line of $84.3 million, as the prior year activity included draws on the line to fund working capital requirements on large complex jobs, and a decrease in net proceeds from our Non-Operating Corporate Revolving Line of Credit of $15.0 million.

Net repayments on other debt obligations increased by $14.6 million for the year ended December 31, 2023, primarily due to principal payments on Infrastructure's Term Loan and other notes payable, partially offset by new debt at R2 from Lancer Capital.

In addition, during the year ended December 31, 2023, we made $15.9 million in distributions to non-controlling interests and redeemable non-controlling interests related to the sale of New Saxon's 19% investment in HMN on March 6, 2023.

The Company also made a $7.0 million payment in connection with the repurchase the DBMGi Series A Preferred Stock during the year ended December 31, 2023, which resulted in a decrease in dividend payments of $3.0 million as compared to the prior year.

Infrastructure

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DBMG relies on its credit facilities to meet its working capital needs.

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 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.

DBMG believes that its available funds, cash generated by operating activities and funds available under its bank credit facilities will be adequate to meet all funding requirements for its operating expenses, working capital needs, interest payments on debt and capital expenditures for the foreseeable future.

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.

Based upon the December 31, 2023 debt balance, DBMG anticipates that its interest payments will be approximately $2.8 million for each quarter of 2024.

Off- Balance Sheet Arrangements

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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.

leases that have not yet commenced, short-term leases, 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 9.

Leases, Note 13.

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

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.

Commitments and Contingencies of the Consolidated Financial Statements included in this Annual Report on Form 10-K for additional information on leases and letters of credit and performance and/or payment bonds, respectively.

New Accounting Pronouncements

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.

Summary of Significant Accounting Policies of the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference for additional information.

Critical Accounting Estimates

The preparation of financial statements in accordance with generally accepted accounting principles in the U.S.

GAAP requires the use of estimates and assumptions that have an impact on the assets, liabilities, revenue and expense amounts reported.

The preparation of financial statements in accordance with generally accepted accounting principles under U.S.

Generally Accepted Accounting Principles ("GAAP") requires the use of estimates and assumptions that have an impact on the assets, liabilities, revenue and expense amounts reported.

These estimates can also affect supplemental disclosures, including information about contingencies, risk and financial condition.

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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 used in the preparation of our consolidated financial statements.

The 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.

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The nature of the projects does not provide measurable value to the customer over time and control does not transfer to the customer at discrete points in time.

The customer receives value over the term of the project based on the amount of work that has been completed towards the delivery of the completed project.

There is typically no alternative use to the Company for the partially completed construction project, resulting in the recognition of revenue over time as progress is made towards completion rather than at a single point in time.

The customer receives value based on the amount of work that has been completed towards the delivery of the completed project.

The most reliable measure of progress is the cost incurred towards delivery of the completed project.

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Costs include all direct material and labor costs related to contract performance, subcontractor costs, indirect labor, and fabrication plant overhead costs, which are charged to contract costs as incurred.

Revenues relating to changes in the scope of a contract are recognized when we and a customer or general contractor have agreed on both the scope and price of changes, the work has commenced, it is probable that the costs of the changes will be recovered and that realization of revenue exceeding the costs is assured beyond a reasonable doubt.

Revenues relating to changes in the scope of a contract are recognized when we and a customer or general contractor have agreed on both the scope and price of changes, the work has commenced, and that realization of revenue is assured beyond a reasonable doubt.

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

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We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities .

Applicable U.S.

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.

Applicable 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.

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The judgments and estimates made at a point in time may change based on the outcome of tax audits, expiration of statutes of limitations, as well as changes to, or further interpretations of, tax laws and regulations.

In relation to tax effects for accumulated OCI, our policy is to release the tax effects of amounts reclassified from accumulated OCI to pre-tax income (loss) from continuing operations.

In relation to tax effects for accumulated other comprehensive income ("OCI"), our policy is to release the tax effects of amounts reclassified from accumulated OCI to pre-tax income (loss) from continuing operations.

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

Refer to Note 12.

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

Income Taxes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for further information, which is incorporated herein by reference.

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.

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Goodwill and Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are not amortized but, rather, are tested at least annually for impairment, or more often if events or changes in circumstances indicate that more likely than not the carrying amount of the asset may not be recoverable.

Goodwill is tested for impairment at the reporting unit level.

A reporting unit represents an operating segment or a component of an operating segment.

Goodwill is tested for impairment by either performing a qualitative evaluation or a two-step quantitative test.

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 quantitative impairment test.

Fair value is determined based on discounted cash flow analyses.

The discounted estimates of future cash flows include significant management assumptions such as revenue growth rates, operating margins, weighted average cost of capital, and future economic and market conditions.

If the carrying value of the reporting unit exceeds fair value, goodwill is considered impaired.

The amount of the impairment is the difference between the carrying value of the goodwill and the "implied" fair value, which is calculated as if the reporting unit had just been acquired and accounted for as a business combination.

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.

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

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but, rather, tested for impairment.

We test goodwill and indefinite lived intangibles for impairment at least annually in the fourth quarter (October 1st) or when factors indicate potential impairment (i.e., events occur or circumstances change that indicate the potential impairment under ASC 350, Intangibles - Goodwill and Other ("ASC 350").

In addition to the foregoing, management reviews goodwill and intangible assets for possible impairment whenever events or circumstances indicate that the carrying amounts of assets may not be recoverable.

The factors that we consider important, and which could trigger an impairment review, include, but are not limited to:

a more likely than not expectation of selling or disposing all, or a portion, of a reporting unit;

a significant decline in the market value of our common stock or debt securities for a sustained period;

a material adverse change in economic, financial market, industry or sector trends;

a material failure to achieve operating results relative to historical levels or projected future levels;

and significant changes in operations or business strategy.

Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to the impairment provisions of ASC 360, Property, plant, and equipment ("ASC 360").

We elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value, and if so, a quantitative test is performed.

The quantitative evaluation for impairment of indefinite lived intangibles follows the same approach as described with goodwill above and consists of a comparison of the fair value of an intangible asset with its carrying amount.

If the carrying amount of the intangible asset exceeds its fair value, an impairment loss shall be recognized in an amount equal to the excess.

Under the quantitative test, we estimate the fair value of a reporting unit, which requires various assumptions including projections of future cash flows, perpetual growth rates and discount rates.

The assumptions about future cash flows and growth rates are based on our assessment of a number of factors, including the reporting unit’s recent performance against budget, performance in the market that the reporting unit serves, and industry and general economic data from third-party sources.

Discount rate assumptions are based on an assessment of the risk inherent in those future cash flows.

Changes to the underlying businesses could affect the future cash flows, which in turn could affect the fair value of the reporting unit.

Further, we assess the current market capitalization, forecasts and the amount by which the fair values exceeded the carrying values.

If the carrying amount of the reporting unit exceeds the fair value, an impairment loss shall be recognized in an amount equal to the excess.

Based on qualitative assessments performed as of October 1, 2023, management determined it was more likely than not that the fair value of its reporting units and the fair value of the indefinite-lived intangible assets exceeded their carrying values, and, as such, no impairment was required.

Intangible assets not subject to amortization (i.e.

indefinite lived intangibles) consist of certain television broadcast licenses.

Intangible assets subject to amortization consists of certain trade names, customer contracts and developed technology.

These finite lived intangible assets are amortized based on their estimated useful lives.

Such assets are subject to the impairment provisions of ASC 360, wherein impairment is recognized and measured only if there are events and circumstances that indicate that the carrying amount may not be recoverable.

The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use of the asset group.

An impairment loss is recorded to the extent the carrying amount of the asset or asset group exceeds the fair value and is not recoverable.

Refer to Note 8.

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.

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, including any intangible impairments recorded during the years presented, which is incorporated herein by reference.

Related Party Transactions

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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 recent passing of our Chief Executive Officer, President and Director and the successful transition of his management responsibilities;

• 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 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.

• the impact of covenants in the Indenture governing INNOVATE’s 2026 Senior Secured Notes, 2026 Convertible Notes, CGIC Unsecured Note and Revolving Credit Agreement, the Certificates of Designation governing INNOVATE’s Preferred Stock and all other subsidiary debt obligations as summarized in Note 11.

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;

• bank failures or other similar events that could adversely affect our and our customers' and vendors' liquidity and financial performance;

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

2 unchanged sentences

• 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;

• the effects related to or resulting from military actions in Israel and the Gaza Strip and 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;

14 unchanged sentences

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

• 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;

• our expectations and timing with respect to any strategic dispositions and sales of our operating subsidiaries, or businesses, including the shut-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;

3 unchanged sentences

• 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;

• 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;

21 unchanged sentences

• 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;

• our Spectrum segment's 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;

5 unchanged sentences

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