INNOVATE Corp. 10-K

ITEM 7. 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 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. Some of the information contained in this discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should review the "Risk Factors" section as well as the section below entitled "Special Note Regarding Forward-Looking Statements" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Unless the context otherwise requires, in this Annual Report on Form 10-K, "INNOVATE" means INNOVATE Corp. (formerly known as HC2 Holdings, Inc.) and the "Company," "we" and "our" mean INNOVATE together with its consolidated subsidiaries. "U.S. GAAP" means accounting principles accepted in the United States of America. Our Business and Our Operations We are a diversified holding company with principal operations conducted through three operating platforms or reportable segments: Infrastructure ("DBMG"), Life Sciences ("Pansend"), and Spectrum, plus our Other segment, which includes businesses that do not meet the separately reportable segment thresholds. For additional information on our business, refer to Note 1. Organization and Business to the Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference. Cyclical Patterns Our segments' operations can be highly cyclical. 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 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. Examples of other items that may cause our results or demand for our services to fluctuate materially from quarter to quarter include: weather or project site conditions; financial condition of our customers and their access to capital; margins of projects performed during any particular period; rising interest rates and inflation; and economic, political and market conditions on a regional, national or global scale. Accordingly, our operating results in any particular period may not be indicative of the results that can be expected for any other period. Recent Developments On July 23, 2023, we announced the unexpected passing of Wayne Barr, our President, Chief Executive Officer and Director. Mr. 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. Mr. 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. 47 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. 48 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. Other Sale of Remaining 19% Interest in HMN 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. 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 provide needed capital for our operations and the operations of our subsidiaries. Infrastructure 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 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. 49 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. Spectrum 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, 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 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. 50 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. Refer to 11. 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. Refer to 11. 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. Other 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 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. 51 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 additional information. Financial Presentation Background In the below section within this Management’s Discussion and Analysis of Financial Condition and Results of Operations, we compare, pursuant to U.S. GAAP and SEC disclosure rules, the Company’s results of operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022. Results of Operations The following table summarizes our results of operations (in millions): Year Ended December 31, 2023 2022 Increase / (Decrease) Revenue Infrastructure $ 1,397.2 $ 1,594.3 $ (197.1) Life Sciences 3.3 4.3 (1.0) Spectrum 22.5 38.7 (16.2) Total revenue $ 1,423.0 $ 1,637.3 $ (214.3) Income (loss) from operations Infrastructure $ 64.4 $ 57.5 $ 6.9 Life Sciences (15.0) (20.1) 5.1 Spectrum (3.4) (3.8) 0.4 Other (3.1) (0.6) (2.5) Non-Operating Corporate (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 from equity investees (9.4) (1.3) (8.1) 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) Net loss $ (38.9) $ (42.0) $ 3.1 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 Less: Preferred dividends 2.4 4.9 (2.5) Net loss attributable to common stockholders $ (37.6) $ (40.8) $ 3.2 52 Revenue : 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, 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, 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. 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, 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. U.S. 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. 53 Segment Results of Operations In the Company's Consolidated Financial Statements, other operating (income) loss includes: (i) (gain) loss on sale or disposal of assets; (ii) lease termination costs; (iii) asset impairment expense; (iv) accretion of asset retirement obligations; and (v) FCC reimbursements. Each table summarizes the results of operations of our operating segments (in millions). Infrastructure Segment Year Ended December 31, 2023 2022 Increase / (Decrease) Revenue $ 1,397.2 $ 1,594.3 $ (197.1) Cost of revenue 1,192.6 1,392.5 (199.9) Selling, general and administrative 126.0 123.9 2.1 Depreciation and amortization 14.4 21.0 (6.6) Other operating income (0.2) (0.6) 0.4 Income from operations $ 64.4 $ 57.5 $ 6.9 Revenue: 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, 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 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, 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 Year Ended December 31, 2023 2022 Increase / (Decrease) Revenue $ 3.3 $ 4.3 $ (1.0) Cost of revenue 2.6 3.5 (0.9) Selling, general and administrative 15.2 20.6 (5.4) Depreciation and amortization 0.5 0.3 0.2 Loss from operations $ (15.0) $ (20.1) $ 5.1 Revenue : 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. 54 Cost of revenue: 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 Year Ended December 31, 2023 2022 Increase / (Decrease) Revenue $ 22.5 $ 38.7 $ (16.2) Cost of revenue 11.8 19.9 (8.1) Selling, general and administrative 9.0 15.5 (6.5) Depreciation and amortization 5.2 5.8 (0.6) Other operating (income) loss (0.1) 1.3 (1.4) Loss from operations $ (3.4) $ (3.8) $ 0.4 Revenue: 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, 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 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 Year Ended December 31, 2023 2022 Increase / (Decrease) Selling, general and administrative $ 15.8 $ 19.5 $ (3.7) Depreciation and amortization 0.1 0.1 — Other operating loss 0.5 — 0.5 Loss from operations $ (16.4) $ (19.6) $ 3.2 Selling, general and administrative : 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. 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. 55 (Loss) Income from Equity Investees Year Ended December 31, 2023 2022 Increase / (Decrease) Life Sciences $ (9.1) $ (6.2) $ (2.9) Other (0.3) 4.9 (5.2) 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, 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. Other: 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 Adjusted EBITDA Adjusted EBITDA is not a measurement recognized under U.S. GAAP. In addition, other companies may define Adjusted EBITDA differently than we do, which could limit its usefulness. Management believes that Adjusted EBITDA provides investors with meaningful information for gaining an understanding of our results as it is frequently used by the financial community to provide insight into an organization’s operating trends and facilitates comparisons between peer companies, since interest, taxes, depreciation, amortization and the other items listed in the definition of Adjusted EBITDA below can differ greatly between organizations as a result of differing capital structures and tax strategies. Adjusted EBITDA can also be a useful measure of a company’s ability to service debt. While management believes that non-U.S. GAAP measurements are useful supplemental information, such adjusted results are not intended to replace our U.S. GAAP financial results. Using Adjusted EBITDA as a performance measure has inherent limitations as an analytical tool as compared to net income (loss) or other U.S. GAAP financial measures, as this non-GAAP measure excludes certain items, including items that are recurring in nature, which may be meaningful to investors. As a result of the exclusions, Adjusted EBITDA should not be considered in isolation and does not purport to be an alternative to net income (loss) or other U.S. GAAP financial measures as a measure of our operating performance. 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; other operating (income) loss, which is inclusive of (gain) loss on sale or disposal of assets, lease termination costs, asset impairment expense and FCC reimbursements; interest expense; other (income) expense, net; income tax expense (benefit); non-controlling interest; share-based compensation expense; legacy accounts receivable expense; restructuring and exit costs; and acquisition and disposition costs. 56 (in millions) Year ended December 31, 2023 Infrastructure 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: Depreciation and amortization 14.4 0.5 5.2 0.1 — 20.2 Depreciation and amortization (included in cost of revenue) 15.7 0.1 — — — 15.8 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 Other (income) expense, net (1.2) (4.1) 7.7 (6.7) (12.4) (16.7) Income tax expense (benefit) 20.2 — 0.3 (14.8) (1.2) 4.5 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 Acquisition and disposition costs 2.1 0.1 0.1 0.5 1.2 4.0 Adjusted EBITDA $ 100.6 $ (23.1) $ 2.0 $ (13.5) $ (1.0) $ 65.0 (in millions) Year ended December 31, 2022 Infrastructure 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: Depreciation and amortization 21.0 0.3 5.8 0.1 — 27.2 Depreciation and amortization (included in cost of revenue) 15.0 — — — — 15.0 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 Income tax expense (benefit) 16.5 — (0.1) (16.2) 0.7 0.9 Non-controlling interest 2.8 (8.2) (1.9) — 1.2 (6.1) Share-based compensation expense — 0.5 — 1.9 — 2.4 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 57 Adjusted EBITDA by segment is summarized as follows: (in millions): Year Ended December 31, 2023 2022 Increase / (Decrease) Infrastructure $ 100.6 $ 101.7 $ (1.1) Life Sciences (23.1) (25.4) 2.3 Spectrum 2.0 4.5 (2.5) 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. Spectrum: 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. 58 Backlog Projects in backlog consist of awarded contracts, letters of intent, notices to proceed, change orders, and purchase orders obtained. Backlog increases as contract commitments are obtained, decreases as revenues are recognized and increases or decreases to reflect modifications in the work to be performed under the contracts. Backlog is converted to sales in future periods as work is performed or projects are completed. Backlog can be significantly affected by the receipt or loss of individual contracts. Infrastructure Segment As of December 31, 2023, DBMG's backlog was $1,057.2 million, consisting of $1,032.9 million under contracts or purchase orders and $24.3 million under letters of intent or notices to proceed. Approximately $487.3 million, representing 46.1% of DBMG’s backlog as of December 31, 2023, was attributable to five contracts, letters of intent, notices to proceed or purchase orders. If one or more of these projects terminate or reduce their scope, DBMG’s backlog could decrease substantially. DBMG includes an additional $15.0 million in its backlog that is not included in the remaining unsatisfied performance obligations disclosed in Note 3. Revenue and Contracts in Process. This additional backlog includes commitments under master service agreements that are estimated amounts of work to be performed based on customer communications, historic performance and knowledge of our customers' intentions. Liquidity and Capital Resources Short- and Long-Term Liquidity Considerations and Risks Our Non-Operating Corporate segment consists of holding companies, and its liquidity needs are primarily for interest payments on its 2026 Senior Secured Notes, 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 $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. 59 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 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. Our ability to sell assets and certain of our investments to meet our existing financing needs may also be limited by our existing financing instruments. In addition, the sale of assets or the Company’s investments may also make the Company less attractive to potential investors or future financing partners. Capital Expenditures Capital expenditures are set forth in the table below (in millions): Year Ended December 31, 2023 2022 Infrastructure $ 16.6 $ 16.5 Life Sciences 0.5 0.8 Spectrum 1.0 3.3 Non-Operating Corporate 0.3 0.1 Total $ 18.4 $ 20.7 60 Indebtedness Non-Operating Corporate 2026 Senior Secured Notes 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 included in this Annual Report on Form 10-K, which is incorporated herein by reference. 2026 Convertible Notes - Terms and Conditions As of December 31, 2023, we had $51.8 million 2026 Convertible Notes outstanding. The 2026 Convertible Notes were issued under a separate indenture dated February 1, 2021, between the Company and U.S. Bank, as trustee (the "Convertible Indenture"). The 2026 Convertible Notes mature on August 1, 2026 unless earlier converted, redeemed or purchased. The 2026 Convertible Notes accrue interest at a rate of 7.5% per year, 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 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 ("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 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, 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. 61 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. 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 additional details regarding the indebtedness of our Infrastructure segment. Life Sciences As of December 31, 2023, our Life Sciences segment has aggregate principal outstanding debt of $17.4 million. 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 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. Spectrum As of December 31, 2023, our Spectrum segment has aggregate principal outstanding debt of $69.7 million. 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, 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 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. 62 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 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. 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. 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 Infrastructure, Life Sciences and Spectrum segments. Restrictive Covenants The indenture governing the 2026 Senior Secured Notes dated February 1, 2021, by and among INNOVATE, the guarantors party thereto and U.S. Bank National Association, a national banking association, as trustee (the "Secured Indenture"), contains certain affirmative and negative covenants limiting, among other things, the ability of the Company, and, in certain cases, the Company’s subsidiaries, to incur additional indebtedness; create liens; engage in sale-leaseback transactions; pay dividends or make distributions in respect of capital stock; make certain restricted payments; sell assets; engage in transactions with affiliates; or consolidate or merge with, or sell substantially all of its assets to, another person. These covenants are subject to a number of important exceptions and qualifications. The Company is also required to comply with certain financial maintenance covenants, which are similarly subject to a number of important exceptions and qualifications. 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 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. The maintenance of collateral coverage provides that the certain subsidiaries' Collateral Coverage Ratio (as defined in the Secured Indenture as the ratio of (i) the Loan Collateral to (ii) Consolidated Secured Debt (each as defined therein)) calculated on a pro forma basis as of the last day of each fiscal quarter may not be less than 1.50 to 1.00. As of December 31, 2023, the Company was in compliance with this covenant. The instruments governing the Company’s Preferred Stock also limit the Company’s and its subsidiaries ability to take certain actions, including, among other things, to incur additional indebtedness; issue additional Preferred Stock; engage in transactions with affiliates; and make certain restricted payments. These limitations are subject to a number of important exceptions and qualifications. 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. If the Company is unable to remain in compliance and does not make alternate arrangements, an event of default would occur under the Company’s Secured Indenture which, among other remedies, could result in the outstanding obligations under the indenture becoming immediately due and payable and permitting the exercise of remedies with respect to the collateral. 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 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. 63 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 (in millions): Year Ended December 31, Increase / (Decrease) 2023 2022 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 in cash and cash equivalents, including restricted cash $ 0.1 $ 34.7 $ (34.6) Operating Activities 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 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 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 Cash Flows Cash flows from operating activities are the principal source of cash used to fund DBMG’s operating expenses, interest payments on debt, and capital expenditures. DBMG's short-term cash needs are primarily for working capital to support operations including receivables, inventories, and other costs incurred in performing its contracts. DBMG attempts to structure the payment arrangements under its contracts to match costs incurred under the project. To the extent it is able to bill in advance of costs incurred, DBMG generates working capital through billings in excess of costs and recognized earnings on uncompleted contracts. DBMG relies on its credit facilities to meet 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. 64 DBMG is required to make monthly or quarterly interest payments on all of its debt. 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 We may enter into certain off-balance sheet arrangements in the ordinary course of business. Our off-balance sheet transactions may include, but are not limited to: leases that have not yet commenced, 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 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 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 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. Critical accounting estimates are defined as those that are reflective of significant judgments and uncertainties and potentially yield materially different results under different assumptions or conditions. Given current facts and circumstances, we believe that our estimates and assumptions are reasonable, adhere to GAAP and are consistently applied. Our selection and disclosure of our critical accounting policies and estimates has been reviewed with our Audit Committee. 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. Refer to Note 2. Summary of Significant Accounting Policies to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which discusses our significant accounting policies and is incorporated herein by reference. Revenue Recognition - Estimated Costs to Complete With respect to our Infrastructure segment (DBM Global Inc.), we recognize a significant portion of our revenue over time using the input method to measure the progress of costs incurred for our service and construction contracts. DBM Global Inc. performs its services primarily under fixed-price contracts and recognizes revenue over time using the input method to measure progress for its projects. 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. 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. Therefore, the input method provides the most reliable method to measure progress. Revenue recognition begins when work has commenced. 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, 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. Provisions for estimated losses on uncompleted contracts are made in the period in which a loss on a contract becomes determinable. Convertible Instruments We evaluate and account for conversion options embedded in convertible instruments in accordance with ASC 815, Derivatives and Hedging Activities . 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. A key component of this analysis includes an calculation of fair value of the embedded derivative instrument, which is performed using inputs that require estimates that management believes are reasonable, such as the projected risk free and volatility rates. These estimates impacting fair value could materially differ if unanticipated events impacting inputs to the fair value such as the risk free or volatility rates unfold differently than anticipated. 65 Income Taxes Our annual tax rate is based on our income, statutory tax rates, exchange rates and tax planning opportunities available to us in the various jurisdictions in which we operate. Tax laws are complex and subject to different interpretations by the taxpayer and respective governmental taxing authorities. Significant judgment is required in determining our tax expense and in evaluating our tax positions, including evaluating uncertainties under ASC No. 740, “Income Taxes” (“ASC 740”). We review our tax positions quarterly and adjust the balances as new information becomes available. Deferred income tax assets represent amounts available to reduce income taxes payable on taxable income in future years. Such assets arise because of temporary differences between the financial reporting and tax bases of assets and liabilities, as well as from net operating loss and tax credit carryforwards. We evaluate the recoverability of these future tax deductions by assessing the adequacy of future expected taxable income from all sources, including reversal of taxable temporary differences, forecasted operating earnings and available tax planning strategies. These sources of income inherently rely heavily on estimates. To provide insight, we use our historical experience and our short and long-range business forecasts. We believe it is more likely than not that a portion of the deferred income tax assets may expire unused and have established a valuation allowance against them. Although realization is not assured for the remaining deferred income tax assets, we believe it is more likely than not the deferred tax assets will be fully recoverable within the applicable statutory expiration periods. However, deferred tax assets could be reduced in the near term if our estimates of taxable income are significantly reduced. We recognize deferred tax assets and liabilities for the expected future tax consequences of transactions and events. Under this method, deferred tax assets and liabilities are determined based on the difference between the book basis and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. If necessary, deferred tax assets are reduced by a valuation allowance to an amount that is determined to be more likely than not recoverable. We must make significant estimates and assumptions about future taxable income and future tax consequences when determining the amount of the valuation allowance. The additional guidance provided by ASC 740, clarifies the accounting for uncertainty in income taxes recognized in the financial statements. Expected outcomes of current or anticipated tax examinations, refund claims and tax-related litigation and estimates regarding additional tax liability (including interest and penalties thereon) or refunds resulting therefrom will be recorded based on the guidance provided by ASC 740 to the extent applicable. We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. These assessments of uncertain tax positions contain judgments related to the interpretation of tax regulations in the jurisdictions in which we transact business. 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 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, which is incorporated herein by reference. Acquisitions The Company’s acquisitions are accounted for using the acquisition method of accounting, which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Estimates of fair value included in the Consolidated Financial Statements, in conformity with ASC 820, Fair Value Measurements and Disclosures , represent the Company’s best estimates and valuations developed, when needed, with the assistance of independent appraisers or, where such valuations have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions. Such estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially. Goodwill and Intangible Assets 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"). 66 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, including any intangible impairments recorded during the years presented, which is incorporated herein by reference. Related Party Transactions For a discussion of our Related Party Transactions, refer to Note 17. Related Parties to our Consolidated Financial Statements included in this Annual Report on Form 10-K, which is incorporated herein by reference. Special Note Regarding Forward-Looking Statements This Annual Report on Form 10-K contains or incorporates a number of "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on current expectations, and are not strictly historical statements. In some cases, you can identify forward-looking statements by terminology such as "if," "may," "should," "believe," "anticipate," "future," "forward," "potential," "estimate," "opportunity," "goal," "objective," "growth," "outcome," "could," "expect," "intend," "plan," "strategy," "provide," "commitment," "result," "seek," "pursue," "ongoing," "include" or in the negative of such terms or comparable terminology. These forward-looking statements inherently involve certain risks and uncertainties and are not guarantees of performance, results, or the creation of stockholder value, although they are based on our current plans or assessments which we believe to be reasonable as of the date hereof. Factors that could cause actual results, events and developments to differ include, without limitation: the ability of our subsidiaries (including, target businesses following their acquisition) to generate sufficient net income and cash flows to make upstream cash distributions, capital market conditions, our and our subsidiaries’ ability to identify any suitable future acquisition opportunities, efficiencies/cost avoidance, cost savings, income and margins, growth, economies of scale, combined operations, future economic performance, conditions to, and the timetable for, completing the integration of financial reporting of acquired or target businesses with INNOVATE or the applicable subsidiary of INNOVATE, completing future acquisitions and dispositions, litigation, potential and contingent liabilities, management’s plans, changes in regulations and taxes. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements. Forward-looking statements are not guarantees of performance. You should understand that the following important factors, in addition to those discussed under the section entitled "Risk Factors" in this Annual Report on Form 10-K and the documents incorporated herein by reference, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in the forward-looking statements. You should also understand that many factors described under one heading below may apply to more than one section in which we have grouped them for the purpose of this presentation. As a result, you should consider all of the following factors, together with all of the other information presented herein, in evaluating our business and that of our subsidiaries. 67 INNOVATE Corp. and Subsidiaries 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, 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; • 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; • the potential for, and our ability to, remediate future material weaknesses in our internal controls over financial reporting; • the impact of recent supply chain disruptions, labor shortages and increases in overall price levels, including in transportation costs; • the impact of a higher interest rate environment; • the effects related to or resulting from 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; • limitations on our ability to successfully identify any strategic acquisitions or business opportunities and to compete for these opportunities with others who have greater resources; • our ability to effectively increase the size of our organization, if needed, and manage our growth; • the impact of expending significant resources in considering acquisition targets or business opportunities that are not consummated; • our expectations and timing with respect to our ordinary course acquisition activity and whether such acquisitions are accretive or dilutive to stockholders; • the effect any interests our officers, directors, stockholders and their respective affiliates may have in certain transactions in which we are involved; • uncertain global economic conditions in the markets in which our operating segments conduct their businesses; • the impact of catastrophic events, including natural disasters, pandemic illness and the outbreak of war, or acts of terrorism; • potential impacts on our business resulting from climate change, greenhouse gas regulations, and the impact of climate change-related changes in the frequency and severity of weather patterns; • the impact of additional material charges associated with our oversight of acquired or target businesses and the integration of our financial reporting; • tax consequences associated with our acquisition, holding and disposition of target companies and assets; • our ability to remain in compliance with the listing standards of the New York Stock Exchange; • the ability of our operating segments to attract and retain customers; • our expectations regarding the timing, extent and effectiveness of our cost reduction initiatives and management’s ability to moderate or control discretionary spending; • management’s plans, goals, forecasts, expectations, guidance, objectives, strategies and timing for future operations, acquisitions, synergies, asset dispositions, fixed asset and goodwill impairment charges, tax and withholding expense, selling, general and administrative expenses, product plans, performance and results; • 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 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; and • our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all. 68 Infrastructure / DBM Global Inc. Our actual results or other outcomes of DBMG, and, thus, our Infrastructure segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • adverse impacts from weather affecting DBMG’s performance and timeliness of completion of projects, which could lead to increased costs and affect the quality, costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • cost overruns on fixed-price or similar contracts or failure to receive timely or proper payments on cost-reimbursable contracts, whether as a result of improper estimates, performance, disputes, or otherwise; • uncertain timing and funding of new contract awards, as well as project cancellations; • potential impediments and limitations on our ability to complete ordinary course acquisitions in anticipated time frames or at all; • changes in the costs or availability of, or delivery schedule for, equipment, components, materials, labor or subcontractors; • the impact of inflationary pressures; • adverse outcomes of pending claims or litigation or the possibility of new claims or litigation, and the potential effect of such claims or litigation on DBMG’s business, financial condition, results of operations or cash flow; • risks associated with labor productivity, including performance of subcontractors that DBMG hires to complete projects; • its ability to realize cost savings from expected performance of contracts, whether as a result of improper estimates, performance, or otherwise; • its ability to settle or negotiate unapproved change orders and claims; • fluctuating revenue resulting from a number of factors, including the cyclical nature of the individual markets in which our customers operate; • our possible inability to raise additional capital when needed or refinance our existing debt, on attractive terms, or at all; and • lack of necessary liquidity to provide bid, performance, advance payment and retention bonds, guarantees, or letters of credit securing DBMG’s obligations under bids and contracts or to finance expenditures prior to the receipt of payment for the performance of contracts. Life Sciences / Pansend Life Sciences, LLC Our actual results or other outcomes of Pansend Life Sciences, LLC, and, thus, our Life Sciences segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • our Life Sciences segment’s ability to invest in development stage companies; • our Life Sciences segment’s ability to develop products and treatments related to its portfolio companies; • medical advances in healthcare and biotechnology; • governmental regulation in the healthcare industry; and • our Life Science's segment possible inability to raise additional capital when needed or refinance its existing debt, on attractive terms, or at all. Spectrum / HC2 Broadcasting Holdings Inc. Our actual results or other outcomes of Broadcasting, and, thus, our Spectrum segment, may differ from those expressed or implied by forward-looking statements contained herein due to a variety of important factors, including, without limitation, the following: • our Spectrum segment’s ability to operate in highly competitive markets and maintain market share; • our Spectrum segment’s ability to effectively implement its business strategy or be successful in the operation of its business; • our Spectrum 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; and • FCC regulation of the television broadcasting industry. We caution the reader that undue reliance should not be placed on any forward-looking statements, which speak only as of the date of this document. Neither we nor any of our subsidiaries undertake any duty or responsibility to update any of these forward-looking statements to reflect events or circumstances after the date of this document or to reflect actual outcomes, except as required by applicable law. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 69