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. 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 included in the Consolidated Financial Statements of 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; customer spending patterns and the financial condition of our customers and their access to capital; margins of projects performed during any particular period; rising interest rates and inflation; and regulatory, 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 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. During 2024, including subsequent to year end, as part of our strategic process, we engaged in several transactions that had or will have an effect on the results of operations and financial condition of our business and individual segments. Rights Offering and Concurrent Private Placement On March 8, 2024, the Company commenced a $19.0 million rights offering ("Rights Offering") for its common stock. Pursuant to the Rights Offering, the Company distributed to each holder of the Company’s common stock, Series A-3 Convertible Participating Preferred Stock, Series A-4 Convertible Participating Preferred Stock and the 2026 Convertible Notes as of March 6, 2024 (the “rights offering record date”), transferable subscription rights to purchase 2.86 shares (0.2858 shares on a pre Reverse Stock Split basis) of the Company’s common stock at a price of $7.00 per whole share ($0.70 per whole share on a pre Reverse Stock Split basis). 52 Per the concurrent investment agreement entered into with Lancer Capital (the "Investment Agreement"), the Rights Offering was backstopped by Lancer Capital, an investment fund led by Avram A. Glazer, the Chairman of the Board and the Company’s largest stockholder. Due to limitations on the common stock that can be issued to Lancer Capital under the rules of the New York Stock Exchange ("NYSE"), in lieu of exercising its subscription rights, pursuant to the Investment Agreement, Lancer Capital would purchase up to $19.0 million of the Company’s newly issued Series C Non-Voting Participating Convertible Preferred Stock (the “Series C Preferred Stock”), for an issue price of $1,000 per share. In connection with the backstop commitment, and as a result of limitations in the amount common equity that can be raised under the Company’s effective shelf registration statement on Form S-3, Lancer Capital also agreed to purchase an additional $16.0 million of Series C Preferred Stock in a private placement transaction ("Concurrent Private Placement") which was to close concurrently with the settlement of the Rights Offering. Lancer Capital did not receive any compensation or other consideration for entering into or consummating the Investment Agreement. As the Rights Offering had not yet settled by March 28, 2024, in accordance with the Investment Agreement, Lancer Capital purchased $25.0 million of Series C Preferred Stock, referred to as the "equity advance." On April 24, 2024, the Company completed and closed on the Rights Offering and issued a total of 530,611 shares of common stock (5,306,105 shares of common stock on a pre Reverse Stock Split basis) for $3.7 million. Based on the number of shares of common stock actually sold upon exercise of the rights to third party investors, there were no excess shares of Series C Preferred Stock purchased by Lancer Capital under the equity advance that the Company was required to redeem, and Lancer Capital purchased an additional approximately 6,286 Series C Preferred Stock for $6.3 million under the backstop commitment. In total, the Company received $35.0 million in aggregate gross proceeds related to the Rights Offering and Concurrent Private Placement and incurred $1.8 million in dealer manager fees and other related costs which have been capitalized into Additional paid in capital ("APIC"). INNOVATE has been utilizing and expects to continue to use the net proceeds from the Rights Offering and Concurrent Private Placement for general corporate purposes, including debt service and working capital. In addition, as a result of the closing of the Rights Offering and Concurrent Private Placement, a mandatory prepayment was required on the CGIC Unsecured Note, and consequently, on April 26, 2024, INNOVATE redeemed $4.1 million of the CGIC Unsecured Note. Under the rules of the NYSE, because the shares purchased by Lancer Capital were greater than 20% of the Company's common stock outstanding before the issuance of the Series C Preferred Stock, those shares of Series C Preferred Stock were not allowed to be converted until stockholder approval of such issuance was obtained. On June 18, 2024, the Company held its annual shareholder meeting where Company's shareholder's approved the conversion of the Series C Preferred Stock into common stock. As a result, approximately 31,286 shares of Series C Preferred Stock, which were held by Lancer Capital, were converted into 4,469,390 shares of common stock (44,693,895 shares of common stock on a pre Reverse Stock Split basis). The Company waived its Tax Benefits Preservation Plan to permit persons exercising rights to acquire 4.9% or more of the outstanding common stock upon the exercise thereof without becoming an Acquiring Person (as defined in the Tax Benefits Preservation Plan). INNOVATE has utilized the net proceeds from the Rights Offering and Concurrent Private Placement for general corporate purposes, including debt service and for working capital. As a result of the closing of the Rights Offering and Concurrent Private Placement, a mandatory prepayment was required on the CGIC Unsecured Note, in the amount of the greater of $3.0 million or 12.5% of the net proceeds. On April 26, 2024, INNOVATE redeemed $4.1 million of the CGIC Unsecured Note. Reverse Stock Split On August 8, 2024, the Company effected a 1-for-10 reverse stock split of its issued and outstanding common stock (the “Reverse Stock Split”) following stockholder approval. The Reverse Stock Split became effective at 5:00 p.m. Eastern Standard Time. The Reverse Stock Split was implemented for the primary purpose of regaining compliance with the minimum bid price requirement for continued listing of the Company’s common stock on the NYSE. As a result of the Reverse Stock Split, every ten shares of the Company’s common stock issued and outstanding were automatically reclassified and changed into one new share of the Company’s common stock, with whole shares issued for fractional shares. Proportionate adjustments were made to the exercise prices and the number of shares underlying the Company’s outstanding equity awards, as applicable, as well as to the number of shares issuable under the Company’s equity incentive plans and conversion of the Company’s outstanding convertible securities. The common stock issued pursuant to the Reverse Stock Split will remain fully paid and non-assessable. The Reverse Stock Split did not change the $0.001 par value per share of the common stock or the authorized number of shares of common stock or preferred stock. As a result of the Reverse Stock Split, the number of outstanding common shares was reduced from 130,529,931 to 13,166,057, inclusive of an additional 113,064 incremental whole shares issued for fractional shares. Unless noted, all common shares and per share amounts of common stock, options and restricted stock and any associated debt or preferred stock conversion rates contained in the historical periods presented within this Management’s Discussion and Analysis of Financial Condition and Results of Operations and within the Consolidated Financial Statements have been retroactively adjusted to reflect the one-for-ten Reverse Stock Split. Stockholders’ Rights Agreement - Tax Benefits Preservation Plan On May 6, 2024, the Company terminated its Tax Benefits Preservation Plan entered into on April 1, 2023 (the “2023 Preservation Plan”) because the Company’s Board of Directors determined that the 2023 Preservation Plan was no longer necessary or desirable for the preservation of the Company’s ability to use its tax net operating losses and other certain tax assets. In connection with the termination of the 2023 Preservation Plan, the Company has taken routine actions to deregister the related preferred stock purchase rights under the Securities Exchange Act of 1934, and to delist the preferred stock purchase rights from the NYSE. These actions were administrative in nature and had no effect on the Company’s common stock, which will continue to be listed on the NYSE. 53 Amendment to Second and Restated 2014 Omnibus Equity Award Plan and Interim CEO Equity Awards On September 30, 2024, the Board adopted, subject to stockholder approval, an amendment to the Company's Second Amended and Restated 2014 Omnibus Equity Award Plan ("Second A&R 2014 Plan") to increase the number of shares of the Company's common stock, par value $0.001 per share, available for issuance thereunder to 1,300,000 (the “Plan Amendment”). The Plan Amendment was approved by holders of a majority in voting power on October 4, 2024, by written consent in lieu of a special meeting, and was effective as of October 29, 2024. On October 29, 2024, when the Plan Amendment became effective, the following awards which were previously awarded to the Company's Interim CEO subject to stockholder approval of the Plan Amendment to increase the number of shares of common stock available thereunder to satisfy the settlement of the grant became effective: (i) 95,322 of restricted stock unit awards ("RSU's"), which were awarded on October 11, 2023; (ii) 100,000 option awards with a strike price of $25.00 (as retroactively adjusted for the Reverse Stock Split in 2024) and an expiration date of September 15, 2033, which were awarded on September 15, 2023; (iii) 142,857 of RSUs, which were awarded on August 19, 2024; and (iv) 100,000 option awards with a strike price of $4.22 and an expiration date of September 15, 2034, which were awarded on September 15, 2024. Debt Obligations and Financing In addition to the Rights Offering and Concurrent Private Placement at the Non-Operating Corporate segment discussed above, during 2024 and subsequent to year end, we have refinanced some of our debt and obtained new capital financing at the subsidiary level. This financing helped us provide needed capital for our operations and the operations of our subsidiaries. Infrastructure On June 28, 2024, DBM and UMB entered into the Third Amendment to the UMB Credit Agreement, which added an incremental separate term loan of $25.0 million to the existing credit facility, with the same interest rate as the Revolving Line with UMB and the same maturity date as the initial UMB term loan which had an outstanding balance of $74.6 million as of December 31, 2024. Life Sciences R2 Technologies had various short-term notes with Lancer Capital, which expired on January 31, 2024, and, effective January 31, 2024, a new 20% note with an aggregate original principal amount of $20.0 million was issued, which was comprised of all prior outstanding principal amounts and unpaid accrued interest of $2.6 million which was capitalized into the new principal balance. Interest on the note accrues at 20% per annum and is payable monthly in arrears, in cash or, if not paid in cash, accrued and unpaid interest is capitalized monthly into the principal balance. As of December 31, 2024, the total principal outstanding, including capitalized interest was $24.0 million. The maturity date of the 20% $20.0 million note, as subsequently amended, was December 31, 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 20% $20.0 million note also includes various exit fees, as amended. As of December 31, 2024, the exit fee, as amended, was equal to 11.90% of the principal amount being repaid, and effective July 31, 2024, an additional exit fee of $1.0 million was incurred each month until the end of November 2024. As of December 31, 2024, total exit fees payable were $7.9 million. The exit fees are payable on the earliest of the maturity date, the date of the acceleration of the principal amount of the note for any reason or, if any portion of the note is prepaid at any time, the date of such prepayment of the note. Subsequent to year end, with an effective date of December 31, 2024, the maturity date of the note was extended to August 1, 2025. In addition, the exit fee continues to increase by 0.17% each month until maturity and an additional exit fee of $1.0 million was incurred under the amendment, which also continues to increase by $1.0 million each month until maturity. A new $5.0 million default fee will be payable on August 1, 2025, in the event all obligations under the note, including principal, any accrued and unpaid interest, and exit fees, are not repaid in full prior to the August 1, 2025, maturity date. Refer to Note 11. Debt Obligations included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference, for additional information on the note and the various amendments during the years ended December 31, 2024 and 2023. 54 On June 20, 2024, Pansend closed on a new Series D Preferred Stock ("Series D") investment in R2. As part of the transaction, R2 Technologies converted its intercompany notes and accrued interest with Pansend, together with an additional cash investment from Pansend, into new Series D convertible participating preferred stock, for a total new additional investment of $21.3 million, which is also eliminated on consolidation and increased Pansend's ownership in R2 Technologies to 81.4% as compared to 56.8% prior to the transaction. Pansend's ownership in R2 Technologies was 81.4% and 56.6%, as of December 31, 2024 and 2023, respectively. Subsequent to year end, on February 20, 2025, Pansend closed on a new $3.5 million convertible 13.0% note instrument with R2 Technologies, which is convertible, together with any accrued interest at the time of conversion, into a new Series E Preferred Stock ("Series E") in R2 Technologies upon written notice to R2 Technologies and has a maturity date of the earlier of July 31, 2025, or a change in control, as defined in the agreement. The transaction is eliminated on consolidation. Refer to Note 16. Equity and Temporary Equity included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference, for additional information on R2 Technologies' convertible preferred stock and convertible notes. Non-Operating Corporate On May 6, 2024, we extended the maturity date of our Revolving Line of Credit with MSD from March 16, 2025, to May 16, 2025. Subsequent to year end, on March 6, 2025, the maturity date of the Revolving Line of Credit was extended to August 1, 2025, with all other terms substantially unchanged. During the year ended December 31, 2024, we repurchased $2.9 million principal amount of our 2026 Convertible Notes at a market discount for $1.1 million, which is inclusive of accrued interest of $0.1 million, and recognized a $1.9 million gain on debt repurchase within Other income, net in the Consolidated Statement of Operations included in this Annual Report on Form 10-K, which is incorporated herein by reference. Equity Method Investments During the year ended December 31, 2024, MediBeacon issued an aggregate $2.3 million of 12% convertible notes payable to Pansend, increasing the total outstanding principal due to Pansend to $12.0 million. As a result of these note issuances by MediBeacon during the year ended December 31, 2024, Pansend recognized $2.3 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. As of December 31, 2024, Pansend's carrying amount of its investment in MediBeacon remains at zero, inclusive of the $12.0 million in outstanding notes which have been offset against recognized losses, and has cumulative unrecognized equity method losses relating to MediBeacon of $17.0 million. Subsequent to year end, in January 2025, MediBeacon received approval from the U.S. Food and Drug Administration ("FDA") for its Transdermal GFR Measurement System ("TGFR"). Pursuant to the terms of MediBeacon's convertible notes, upon the FDA approval, Pansend's convertible notes and the related accrued interest together totaling $12.9 million were converted into Series 3 Preferred Stock. In addition, pursuant to its amended commercial partnership with Huadong and, as a result of FDA approval, a $7.5 million milestone investment in its preferred stock by Huadong was in process. This will decrease Pansend's ownership in MediBeacon from approximately 45.9% prior to the transaction to approximately 44.7% subsequent to the transaction. On a fully diluted basis, Pansend's ownership in MediBeacon will decrease from 40.1% to 39.7%. 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, 2024, as compared to the year ended December 31, 2023. 55 Results of Operations The following table summarizes our results of operations (in millions): Year Ended December 31, 2024 2023 Increase / (Decrease) Revenue Infrastructure $ 1,071.6 $ 1,397.2 $ (325.6) Life Sciences 9.8 3.3 6.5 Spectrum 25.7 22.5 3.2 Total revenue $ 1,107.1 $ 1,423.0 $ (315.9) Income (loss) from operations Infrastructure $ 65.7 $ 64.4 $ 1.3 Life Sciences (14.1) (15.0) 0.9 Spectrum 1.4 (3.4) 4.8 Other — (3.1) 3.1 Non-Operating Corporate (13.0) (16.4) 3.4 Total income from operations $ 40.0 $ 26.5 $ 13.5 Interest expense (74.5) (68.2) (6.3) Loss from equity investees (2.3) (9.4) 7.1 Other income, net 3.4 16.7 (13.3) Loss from operations before income taxes $ (33.4) $ (34.4) $ 1.0 Income tax expense (6.3) (4.5) (1.8) Net loss $ (39.7) $ (38.9) $ (0.8) Net loss attributable to non-controlling interests and redeemable non-controlling interests 5.1 3.7 1.4 Net loss attributable to INNOVATE Corp. $ (34.6) $ (35.2) $ 0.6 Less: Preferred dividends 1.2 2.4 (1.2) Net loss attributable to common stockholders and participating preferred stockholders $ (35.8) $ (37.6) $ 1.8 Revenue : Revenue for the year ended December 31, 2024, decreased $315.9 million to $1,107.1 million from $1,423.0 million for the year ended December 31, 2023. The decrease was driven by our Infrastructure segment, which was partially offset by increases at our Life Sciences and Spectrum segments. The decrease at our Infrastructure segment was primarily driven by the timing and size of projects, including the effect of changes in estimated costs to complete those projects recognized in the ordinary course of business, at Banker Steel and DBMG's commercial structural steel fabrication and erection business, both of which had increased activity in the prior year on certain large commercial construction projects that have since been completed in the current year. This was partially offset by an increase at the industrial maintenance and repair business as a result of an increase in project work. The increase at our Life Sciences segment was attributable to R2 Technologies, primarily driven by an increase in sales in North America and worldwide of all R2 Technologies' products, including Glacial systems and consumables. The increase at our Spectrum segment was primarily driven by network launches and expanded coverage with existing customers. 56 Income from operations : Income from operations for the year ended December 31, 2024, increased $13.5 million to $40.0 million from $26.5 million for the year ended December 31, 2023. The improvement was due to an increase in other operating income of $10.3 million, a decrease in selling, general and administrative ("SG&A") expenses of $7.8 million, a decrease in depreciation and amortization of $2.6 million, which were partially offset by a net decrease in gross profit of $7.2 million. The net increase in other operating income was driven by our Infrastructure segment, primarily as a result of a gain on a lease modification and net gains on disposals of fixed assets. The overall decrease in SG&A was primarily driven by unrepeated severance and reductions in compensation-related expenses at both our Non-Operating Corporate and Spectrum segments, unrepeated transaction expenses at our Other segment related to the sale of New Saxon's 19.0% investment in HMN International Co., Ltd., formerly known as Huawei Marine Networks Co. (“HMN”) in the prior year, as well as by our Infrastructure segment as a result of an unrepeated accounts receivable write-off in 2023, a decrease in expenses related to a foreign office closure in the prior year, and a decrease in legal fees and facility-related expenses. The decrease in SG&A was partially offset by an increase in compensation-related expenses and expenses related to a domestic plant closure and other initiatives announced and executed during the current year to evaluate and realign internal operations and back-office functions at our Infrastructure segment and by R2 Technologies as a result of increases in share-based compensation expense, selling costs, and sales commissions due to an increase in system sales. The overall decrease in depreciation and amortization was primarily driven by our Infrastructure segment, as certain customer contract intangibles became fully amortized in the second quarter of 2023. The decrease in gross profit was primarily driven by our Infrastructure segment due to timing and size of projects that have since been completed in the current year, including the effect of changes in estimated costs to complete those projects recognized in the ordinary course of business. This was partially offset by increases in gross profit at our Spectrum and Life Sciences segments. The increase in gross profit at Spectrum was primarily driven by network launches and expanded coverage with existing customers. The increase in gross profit at our Life Sciences segment was driven by R2 Technologies as a result of incremental Glacial system sales over the comparable year. Interest expense : Interest expense for the year ended December 31, 2024, increased $6.3 million to $74.5 million from $68.2 million for the year ended December 31, 2023. The increase was primarily attributable to increases in exit fees and a higher outstanding principal balance at our Life Sciences segment as a result of the capitalization of unpaid interest into the principal balance subsequent to the prior year, an increase in interest expense on our Non-Operating Corporate segment's CGIC Unsecured Note which was issued in May 2023 and had five months of interest in the prior year compared to a full year of interest in the current year, an increase in interest expense on our Corporate Revolving Line of Credit as a result of a higher outstanding balance drawn during the current year, and, to a lesser extent, an increase in interest at our Spectrum segment due to increased amortization from additional exit fees from refinancings during the second half of the prior year. This was partially offset by our Infrastructure segment due to a net decrease in outstanding principal balances and a slight decrease in interest rates. Loss from equity investees: Loss from equity investees for the year ended December 31, 2024, decreased $7.1 million to $2.3 million from $9.4 million for the year ended December 31, 2023. The decrease in loss was due to a decrease in losses recognized from MediBeacon, Triple Ring and HMN. During the year ended December 31, 2024, as a result of additional convertible note investments in MediBeacon by Pansend, Pansend's basis in MediBeacon increased by $2.3 million and Pansend recognized $2.3 million of equity method losses that were previously unrecognized, whereas during the year ended December 31, 2023, as a result of $4.7 million convertible note investments in MediBeacon by Pansend and a $3.8 million equity transaction with Huadong, Pansend's basis in MediBeacon had increased by $8.5 million and Pansend had recognized $8.5 million of equity method losses that were previously unrecognized. As of both December 31, 2024 and 2023, Pansend's net carrying amount of its investment in MediBeacon was zero, and Pansend had unrecognized losses from this investment. The partial sale of Triple Ring was completed during the fourth quarter of 2023, which resulted in Pansend's investment in Triple Ring no longer being accounted for under the equity method of accounting. Our previous investment in HMN was sold on March 6, 2023 and had losses for the approximately two months of ownership in 2023. Thus, no equity method losses from either Triple Ring or HMN were recognized in the current year. Refer to Note 6. Investments included in the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information on our equity investments. Other income, net: Other income, net for the year ended December 31, 2024, decreased $13.3 million to $3.4 million from $16.7 million for the year ended December 31, 2023. The decrease was primarily driven by the unrepeated $12.2 million gain on the sale of our equity investment in HMN of in the prior year, an unrepeated $3.8 million equity investment step-up gain from an increase in Pansend's carrying amount as a result of MediBeacon issuing $7.5 million of its preferred stock to Huadong in the prior year, and a $2.2 million loss on debt extinguishment at R2 Technologies in the current year. These decreases were partially offset by a $1.9 million gain on debt repurchase at our Non-Operating Corporate segment related to the partial repurchase of the 2026 Convertible Notes in 2024, an increase in foreign currency translation gains from our Infrastructure segment, an increase in interest income earned at our Life Sciences segment resulting from an increase in Pansend's convertible note receivable balance from MediBeacon subsequent to the prior year, and our Non-Operating Corporate segment which earned additional interest income on its money market accounts due to an increase in the outstanding deposited balances as compared to the prior year. Income tax expense : Income tax expense for the year ended December 31, 2024, increased $1.8 million to $6.3 million from $4.5 million for the year ended December 31, 2023. The increase was primarily driven by the tax expense of INNOVATE's U.S. consolidated group utilizing its remaining unlimited NOLs in 2024 and due to the Tax Cuts and Jobs Act's 80% limitation on net operating losses incurred after 2017 and the unrepeated $1.1 million tax benefit, consisting of a current tax expense of $4.4 million related to a foreign 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 put option, both of which were related to the sale of New Saxon's 19.0% investment in HMN on March 6, 2023. 57 The Organization for Economic Cooperation and Development ("OECD") has announced an Inclusive Framework on Base Erosion and Profit Shifting including a Pillar Two Model to provide for a 15% global minimum tax on the earnings of multinational corporations with consolidated revenue over €750 million. Many jurisdictions have enacted Pillar Two legislation that starts to become effective in 2024. The OECD, and its member countries, continue to release new guidance and legislation on Pillar Two. Based on current enacted laws, Pillar Two is not expected to materially impact our effective tax rate or cash flows in the next year. We will continue to evaluate the impact on our financial position as new legislation or guidance is introduced which could change our current assessment. 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 and (gains) losses on lease modifications; (iii) asset impairment expense; (iv) accretion of asset retirement obligations; and (v) Federal Communications Commission (the "FCC") reimbursements. Each table summarizes the results of operations of our operating segments (in millions). Infrastructure Segment Year Ended December 31, 2024 2023 Increase / (Decrease) Revenue $ 1,071.6 $ 1,397.2 $ (325.6) Cost of revenue 880.4 1,192.6 (312.2) Selling, general and administrative 123.1 126.0 (2.9) Depreciation and amortization 12.0 14.4 (2.4) Other operating income (9.6) (0.2) (9.4) Income from operations $ 65.7 $ 64.4 $ 1.3 Revenue: Revenue for the year ended December 31, 2024, decreased $325.6 million to $1,071.6 million from $1,397.2 million for the year ended December 31, 2023. The decrease was primarily driven by the timing and size of projects, including the effect of changes in estimated costs to complete those projects recognized in the ordinary course of business, at Banker Steel and DBMG's commercial structural steel fabrication and erection business, both of which had increased activity in the prior year on certain large commercial construction projects that that have since been completed. This was partially offset by an increase at the industrial maintenance and repair business as a result of an increase in project work. Cost of revenue : Cost of revenue for the year ended December 31, 2024, decreased $312.2 million to $880.4 million from $1,192.6 million for the year ended December 31, 2023. The decrease was primarily driven by the decrease in revenues at Banker Steel and DBMG's commercial structural steel fabrication and erection business from the timing of project activity on certain large commercial construction projects and decreases in costs as they wind down or have since been completed, which was partially offset by an increase in costs associated with the industrial maintenance and repair business as a result of an increase in project work. Selling, general and administrative expense for the year ended December 31, 2024, decreased $2.9 million to $123.1 million from $126.0 million for the year ended December 31, 2023. The decrease was primarily driven by an unrepeated accounts receivable write-off of $2.2 million related to a customer bankruptcy in the prior year, a decrease in expenses related to a foreign office closure in the comparable year, a decrease in legal fees and facility-related expenses, which was partially offset by an increase in compensation-related expenses, expenses related to a domestic plant closure and other initiatives announced and executed during the current year to evaluate and realign DBMG's internal operations and back-office functions. Depreciation and amortization: Depreciation and amortization for the year ended December 31, 2024, decreased $2.4 million to $12.0 million from $14.4 million for the year ended December 31, 2023. The decrease was primarily driven by Banker Steel, as certain customer contract intangibles became fully amortized in the second quarter of 2023, which was partially offset by an increase in depreciation at DBMG's commercial structural steel fabrication and erection business as a result of additional depreciable fixed assets placed into service. Other operating income : Other operating income for the year ended December 31, 2024, increased $9.4 million to $9.6 million from $0.2 million for the year ended December 31, 2023. Other operating income for the year ended December 31, 2024, related to a gain on a lease modification and net gains on the sales of various properties in the current year, which were partially offset by a loss related to a plant closure in the first quarter of 2024. 58 Life Sciences Segment Year Ended December 31, 2024 2023 Increase / (Decrease) Revenue $ 9.8 $ 3.3 $ 6.5 Cost of revenue 6.4 2.6 3.8 Selling, general and administrative 17.1 15.2 1.9 Depreciation and amortization 0.4 0.5 (0.1) Loss from operations $ (14.1) $ (15.0) $ 0.9 Revenue : Revenue for the year ended December 31, 2024, increased $6.5 million to $9.8 million from $3.3 million for the year ended December 31, 2023. The increase in revenue was attributable to R2 Technologies, primarily due to incremental unit sales of Glacial fx systems in North America and worldwide, which launched during the second half of 2023 in North America and in 2024 outside North America, as well as from an increase in consumable sales in both North America and worldwide. In addition, the increase in revenue as compared to the prior year was partially driven by an increase in Glacial Rx units sold in North America and an increase in Glacial Spa units sold outside North America. Cost of revenue : Cost of revenue for the year ended December 31, 2024, increased $3.8 million to $6.4 million from $2.6 million for the year ended December 31, 2023. The increase in cost of revenue was attributable to R2 Technologies, primarily driven by the increase in revenue from the additional system and consumables sales noted above, and, to a lesser extent, increases in royalty expenses, warranty expenses and freight costs driven by the additional systems sold. The increase in cost of revenue was partially offset by changes in product mix sold as the Glacial fx and Glacial Spa systems have a lower production cost per system compared to the Glacial Rx. Selling, general and administrative : Selling, general and administrative expense for the year ended December 31, 2024, increased $1.9 million to $17.1 million from $15.2 million for the year ended December 31, 2023. The increase was primarily driven by R2 Technologies as a result of an increase in share-based compensation expense and increases in selling costs and sales commissions resulting from an increase in system sales. Spectrum Segment Year Ended December 31, 2024 2023 Increase / (Decrease) Revenue $ 25.7 $ 22.5 $ 3.2 Cost of revenue 11.5 11.8 (0.3) Selling, general and administrative 7.3 9.0 (1.7) Depreciation and amortization 5.1 5.2 (0.1) Other operating loss (income) 0.4 (0.1) 0.5 Income (loss) from operations $ 1.4 $ (3.4) $ 4.8 Revenue: Revenue for the year ended December 31, 2024, increased $3.2 million to $25.7 million from $22.5 million for the year ended December 31, 2023. The increase was primarily driven by network launches and expanded coverage with existing customers, which was partially offset by the termination of a number of smaller networks in the prior year. Cost of revenue: Cost of revenue for the year ended December 31, 2024, decreased $0.3 million to $11.5 million from $11.8 million for the year ended December 31, 2023. The decrease was primarily driven by decreased costs as a result of the renegotiation of broadcast tower- related contracts during the current year. Selling, general and administrative: Selling, general and administrative expense for the year ended December 31, 2024, decreased $1.7 million to $7.3 million from $9.0 million for the year ended December 31, 2023. The decrease was primarily driven by unrepeated severance expense in the prior year and a decrease in salaries and benefits expense as a result of a reduction in headcount. Other operating loss (income) : Other operating loss (income) for the year ended December 31, 2024, decreased $0.5 million to a loss of $0.4 million from income of $0.1 million for the year ended December 31, 2023. The decrease in other operating income was primarily driven by a decrease in reimbursements received from the FCC for certain station modification costs and an increase in lease termination costs, which was partially offset by a decrease in asset impairment charges which in the prior year had primarily related to the write-off of certain redundant equipment and associated capitalized costs. 59 Non-Operating Corporate Year Ended December 31, 2024 2023 Increase / (Decrease) Selling, general and administrative $ 12.7 $ 15.8 $ (3.1) Depreciation and amortization 0.1 0.1 — Other operating loss 0.2 0.5 (0.3) Loss from operations $ (13.0) $ (16.4) $ 3.4 Selling, general and administrative : Selling, general and administrative expenses for the year ended December 31, 2024, decreased $3.1 million to $12.7 million from $15.8 million for the year ended December 31, 2023, primarily driven by unrepeated severance expense related to the Company's former Chief Operating Officer in the prior year, a decrease in salaries and benefits from a reduced headcount, decreases in accounting, consulting and legal fees, and a decrease in rent expense primarily as a result of the termination of leases in the current year. Other operating loss: Other operating loss for the year ended December 31, 2024, decreased $0.3 million to $0.2 million from $0.5 million for the year ended December 31, 2023. Other operating loss in the current period consisted of lease termination costs for two leases the Company exited in the current year, while other operating loss in the prior year primarily consisted of an impairment of leasehold improvements for unutilized office space. Loss from Equity Investees Year Ended December 31, 2024 2023 (Increase) / Decrease Life Sciences $ (2.3) $ (9.1) $ 6.8 Other — (0.3) 0.3 Loss from equity investees $ (2.3) $ (9.4) $ 7.1 Life Sciences: Loss from equity investees within our Life Sciences segment for the year ended December 31, 2024, decreased $6.8 million to $2.3 million from $9.1 million for the year ended December 31, 2023. The decrease in loss was due to a decrease in losses recognized from MediBeacon and Triple Ring. During the year ended December 31, 2024, as a result of additional convertible note investments in MediBeacon by Pansend, Pansend's basis in MediBeacon increased by $2.3 million and Pansend recognized $2.3 million of equity method losses that were previously unrecognized, whereas during the year ended December 31, 2023, as a result of $4.7 million convertible note investments in MediBeacon by Pansend and a $3.8 million equity transaction with Huadong, Pansend's basis in MediBeacon had increased by $8.5 million and Pansend had recognized $8.5 million of equity method losses that were previously unrecognized. As of both December 31, 2024 and 2023, Pansend's net carrying amount of its investment in MediBeacon was zero, and Pansend had unrecognized losses from this investment. Also contributing to the decrease in loss from equity investees was the partial sale of Triple Ring which was completed during the fourth quarter of 2023 and resulted in Pansend's investment in Triple Ring no longer being accounted for under the equity method of accounting. Thus, no equity method losses were recognized from Triple Ring in the current year. Other: Loss from equity investees within our Other segment for the year ended December 31, 2024, decreased $0.3 million to zero from a loss of $0.3 million for the year ended December 31, 2023. Loss from equity investees for the year ended December 31, 2023 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. Refer to Note 6. Investments included in the Consolidated Financial Statements of this Annual Report on Form 10-K, for additional information on our equity investments. 60 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, (gains) losses on lease modifications, 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 write-offs; realignment and exit costs; and acquisition and disposition costs. Adjusted EBITDA by segment is summarized as follows: (in millions): Year Ended December 31, 2024 2023 Increase / (Decrease) Infrastructure $ 89.1 $ 100.6 $ (11.5) Life Sciences (14.5) (23.1) 8.6 Spectrum 7.1 2.0 5.1 Non-Operating Corporate (10.4) (13.5) 3.1 Other and Eliminations — (1.0) 1.0 Adjusted EBITDA $ 71.3 $ 65.0 $ 6.3 The tables below provide reconciliations of net income (loss) attributable to INNOVATE Corp to Adjusted EBITDA for the years ended December 31, 2024 and 2023: (in millions) Year Ended December 31, 2024 Infrastructure Life Sciences Spectrum Non-Operating Corporate Other and Eliminations INNOVATE Net income (loss) attributable to INNOVATE Corp. $ 40.3 $ (19.7) $ (20.0) $ (35.3) $ 0.1 $ (34.6) Adjustments to reconcile net income (loss) to Adjusted EBITDA: Depreciation and amortization 12.0 0.4 5.1 0.1 — 17.6 Depreciation and amortization (included in cost of revenue) 15.2 0.1 — — — 15.3 Other operating (income) loss (9.6) — 0.4 0.2 — (9.0) Interest expense 10.3 9.8 14.3 40.1 — 74.5 Other (income) expense, net (3.9) 0.8 8.5 (8.7) (0.1) (3.4) Income tax expense (benefit) 15.2 — 0.2 (9.1) — 6.3 Non-controlling interest 3.8 (7.3) (1.6) — — (5.1) Share-based compensation expense — 1.2 — 2.2 — 3.4 Realignment and exit costs 5.2 — — — — 5.2 Acquisition and disposition costs 0.6 0.2 0.2 0.1 — 1.1 Adjusted EBITDA $ 89.1 $ (14.5) $ 7.1 $ (10.4) $ — $ 71.3 61 (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 write-off 2.2 — — — — 2.2 Realignment 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 Infrastructure: Net income from our Infrastructure segment for the year ended December 31, 2024, increased $11.6 million to $40.3 million from $28.7 million for the year ended December 31, 2023. Adjusted EBITDA from our Infrastructure segment for the year ended December 31, 2024, decreased $11.5 million to $89.1 million from $100.6 million for the year ended December 31, 2023. The decrease in Adjusted EBITDA was primarily driven by decrease in revenue at Banker Steel, due to timing of completion of certain large commercial construction projects and decreased gross margins at the construction modeling and detailing business. These decreases were partially offset by an increase in revenue at the industrial maintenance and repair businesses, higher gross margins on certain large commercial construction projects that have since been completed at DBMG's commercial structural steel fabrication and erection, including the effect of changes in estimated costs to complete those projects recognized in the ordinary course of business, despite the decrease in revenue, as well as a decrease in recurring SG&A, primarily as a result of a decrease in legal fees, which was partially offset by an increase in compensation-related expenses. Life Sciences: Net loss from our Life Sciences segment for the year ended December 31, 2024, increased $4.2 million to $19.7 million from $15.5 million for the year ended December 31, 2023. Adjusted EBITDA loss from our Life Sciences segment for the year ended December 31, 2024, decreased $8.6 million to $14.5 million from $23.1 million for the year ended December 31, 2023. The decrease in Adjusted EBITDA loss was primarily due to a decrease in equity method losses recognized from MediBeacon and Triple Ring, as discussed in the Loss from Equity Investees section above. Additionally contributing to the decrease in Adjusted EBITDA loss was an increase in gross profit at R2 Technologies, driven by an increase in sales in North America and worldwide of all R2's products, including Glacial systems and consumables, which was partially offset by increases in selling costs and sales commissions due to the increase in system sales. Spectrum: Net loss from our Spectrum segment for the year ended December 31, 2024, decreased $2.2 million to $20.0 million from $22.2 million for the year ended December 31, 2023. Adjusted EBITDA from our Spectrum segment for the year ended December 31, 2024, increased $5.1 million to $7.1 million from $2.0 million for the year ended December 31, 2023. The increase in Adjusted EBITDA was primarily due to an increase in revenue primarily driven by network launches and expanded coverage with existing customers, unrepeated severance in the prior year, as well as a decrease in salaries and benefits expense and a decrease in tower-related costs. This was partially offset by the termination of a number of smaller networks and individual markets in the prior year. Non-Operating Corporate: Net loss from our Non-Operating Corporate segment for the year ended December 31, 2024, increased $2.1 million to $35.3 million from $33.2 million for the year ended December 31, 2023. Adjusted EBITDA loss from our Non-Operating Corporate segment for the year ended December 31, 2024, decreased $3.1 million to $10.4 million from $13.5 million for the year ended December 31, 2023. The decrease in Adjusted EBITDA loss was primarily driven by an unrepeated severance expense related to the Company's former Chief Operating Officer in the prior year, a decrease in salaries and benefits from a reduced headcount, decreases in accounting and consulting fees, and a decrease in rent expense primarily as a result of the termination of leases in the current year. Other and Eliminations: Net income from our Other segment and Eliminations for the year ended December 31, 2024, decreased $6.9 million to $0.1 million from $7.0 million for the year ended December 31, 2023. Adjusted EBITDA loss from our Other segment for the year ended December 31, 2024, decreased $1.0 million to zero from an Adjusted EBITDA loss of $1.0 million for the year ended December 31, 2023. The decrease in Adjusted EBITDA loss was driven primarily by unrepeated severance expense at TIC Holdco, Inc. in the prior year and our previous investment in HMN, which was sold on March 6, 2023, and had equity method losses for the approximately two months of ownership in 2023. 62 Backlog Backlog is our estimate of the U.S. dollar amount of future revenues we expect to realize as a result of performing work on projects in 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, 2024, DBMG's backlog was $957.2 million, consisting of $793.8 million under contracts or purchase orders and $163.4 million under letters of intent or notices to proceed. Approximately $461.5 million, representing 48.2% of DBMG’s backlog as of December 31, 2024, 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 $13.6 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 Series A-3 and Series A-4 Preferred Stock and recurring operational expenses. On a consolidated basis, as of December 31, 2024, we had $48.8 million of cash and cash equivalents, excluding restricted cash, compared to $80.8 million as of December 31, 2023. On a stand-alone basis, as of December 31, 2024, our Non-Operating Corporate segment had cash and cash equivalents, excluding restricted cash, of $13.8 million and $1.8 million of marketable securities, as compared to cash and cash equivalents, excluding restricted cash, of $2.5 million as of December 31, 2023. 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, 2024, we had $668.3 million of principal indebtedness on a consolidated basis compared to $722.8 million as of December 31, 2023, a net decrease of $54.5 million, which was primarily due to a $54.1 million net decrease in debt at our Infrastructure segment and a $7.0 million decrease in debt at our Non-Operating Corporate segment, partially offset by an increase at our Life Sciences Segment due to the capitalization of $6.6 million of unpaid accrued interest at R2 Technologies into their principal balance outstanding. On a stand-alone basis, our Non-Operating Corporate segment principal indebtedness was $429.9 million and $436.9 million as of December 31, 2024 and 2023, respectively, a decrease of $7.0 million driven by a partial redemption payment of $4.1 million of the CGIC Unsecured Note on April 26, 2024, and the repurchase of $2.9 million principal amount of 2026 Convertible Notes during the year ended December 31, 2024. The December 31, 2024, indebtedness balance consists of the $330.0 million aggregate principal amount of 2026 Senior Secured Notes, $48.9 million aggregate principal amount of 2026 Convertible Notes (which excludes the $2.9 million 2026 Convertible Notes repurchased by the Company), $31.0 million remaining principal amount of the CGIC Unsecured Note and $20.0 million aggregate principal amount drawn on our 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 increased from 9.0% per annum to 16.0% per annum on May 9, 2024, and will increase from 16.0% per annum to 32.0% per annum on May 9, 2025. We are required to make dividend payments on our outstanding Series A-3 Preferred Stock and Series A-4 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 $8.1 million in net tax sharing payments from our Infrastructure segment for the year ended December 31, 2024. In addition, DBMG redeemed the intercompany $41.8 million DBMG Series A Preferred Stock from DBMGi on June 28, 2024, for $41.8 million in cash, which was remitted to INNOVATE. DBM Global Intermediate Holdco Inc. ("DBMGi") is a 100% owned subsidiary of INNOVATE and all intercompany transactions are eliminated on consolidation. 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. 63 Rights Offering and Concurrent Private Placement On March 8, 2024, the Company commenced a $19.0 million rights offering ("Rights Offering") for its common stock. Pursuant to the Rights Offering, the Company distributed to each holder of the Company’s common stock, Series A-3 Convertible Participating Preferred Stock, Series A-4 Convertible Participating Preferred Stock and the 2026 Convertible Notes as of March 6, 2024 (the “rights offering record date”), transferable subscription rights to purchase 2.86 shares (0.2858 shares on a pre Reverse Stock Split basis) of the Company’s common stock at a price of $7.00 per whole share ($0.70 per whole share on a pre Reverse Stock Split basis). Per the concurrent investment agreement entered into with Lancer Capital (the "Investment Agreement"), the Rights Offering was backstopped by Lancer Capital, an investment fund led by Avram A. Glazer, the Chairman of the Board and the Company’s largest stockholder. Due to limitations on the common stock that can be issued to Lancer Capital under the rules of the NYSE, in lieu of exercising its subscription rights, pursuant to the Investment Agreement, Lancer Capital would purchase up to $19.0 million of the Company’s newly issued Series C Non-Voting Participating Convertible Preferred Stock (the “Series C Preferred Stock”), for an issue price of $1,000 per share. In connection with the backstop commitment, and as a result of limitations in the amount common equity that can be raised under the Company’s effective shelf registration statement on Form S-3, Lancer Capital also agreed to purchase an additional $16.0 million of Series C Preferred Stock in a private placement transaction ("Concurrent Private Placement") which was to close concurrently with the settlement of the Rights Offering. Lancer Capital did not receive any compensation or other consideration for entering into or consummating the Investment Agreement. As the Rights Offering had not yet settled by March 28, 2024, in accordance with the Investment Agreement, Lancer Capital purchased $25.0 million of Series C Preferred Stock, referred to as the "equity advance." On April 24, 2024, the Company completed and closed on the Rights Offering and issued a total of 530,611 shares of common stock (5,306,105 shares of common stock on a pre Reverse Stock Split basis) for $3.7 million. Based on the number of shares of common stock actually sold upon exercise of the rights to third party investors, there were no excess shares of Series C Preferred Stock purchased by Lancer Capital under the equity advance that the Company was required to redeem, and Lancer Capital purchased an additional approximately 6,286 Series C Preferred Stock for $6.3 million under the backstop commitment. In total, the Company received $35.0 million in aggregate gross proceeds related to the Rights Offering and Concurrent Private Placement and incurred $1.8 million in dealer manager fees and other related costs which have been capitalized into Additional paid in capital ("APIC"). INNOVATE has been utilizing and expects to continue to use the net proceeds from the Rights Offering and Concurrent Private Placement for general corporate purposes, including debt service and working capital. In addition, as a result of the closing of the Rights Offering and Concurrent Private Placement, a mandatory prepayment was required on the CGIC Unsecured Note, and consequently, on April 26, 2024, INNOVATE redeemed $4.1 million of the CGIC Unsecured Note. Under the rules of the NYSE, because the shares purchased by Lancer Capital were greater than 20% of the Company's common stock outstanding before the issuance of the Series C Preferred Stock, those shares of Series C Preferred Stock were not allowed to be converted until stockholder approval of such issuance was obtained. On June 18, 2024, the Company held its annual shareholder meeting where Company's shareholder's approved the conversion of the Series C Preferred Stock into common stock. As a result, approximately 31,286 shares of Series C Preferred Stock, which were held by Lancer Capital, were converted into 4,469,390 shares of common stock (44,693,895 shares of common stock on a pre Reverse Stock Split basis). The Company waived its Tax Benefits Preservation Plan to permit persons exercising rights to acquire 4.9% or more of the outstanding common stock upon the exercise thereof without becoming an Acquiring Person (as defined in the Tax Benefits Preservation Plan). INNOVATE utilized the net proceeds from the Rights Offering and Concurrent Private Placement for general corporate purposes, including debt service and for working capital. As a result of the closing of the Rights Offering and Concurrent Private Placement, a mandatory prepayment was required on the CGIC Unsecured Note, and on April 26, 2024, INNOVATE redeemed $4.1 million of the CGIC Unsecured Note. See Note 16. Equity and Temporary Equity for additional information. Going Concern The accompanying Consolidated Financial Statements have been prepared assuming that the Company will continue as a going concern. However, as of the date of these financial statements, there is substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued. The principal conditions leading to this conclusion are the upcoming maturities of current debt at Corporate and certain of the Company's subsidiaries as well as from certain cross-default provisions in the Company's Senior Secured Notes. Based on these conditions, the Company may not be able to meet its obligations at maturity and comply with certain cross-default provisions under the Senior Secured Notes over the next twelve months. Management has evaluated the significance of these conditions in relation to the Company's ability to meet its obligations. The potential inability to refinance or extend the maturity of the aforementioned current debt, or to obtain additional financing, raises substantial doubt about the Company's ability to continue as a going concern. 64 The Company plans to alleviate these conditions through various initiatives it is currently exploring, including potentially refinancing the debt at Corporate and its subsidiaries, pursuing asset sales, and raising additional capital. However, there can be no assurance that the Company will have the ability to raise additional capital when needed, be successful in any asset sales, or refinance its existing debt, on attractive terms, or at all nor any assurances that lenders will provide additional extensions, waivers or amendments in the event of future non-compliance with the Company’s debt covenants or other possible events of default. Further, there can be no assurance that the Company will be able to execute a reduction, extension, or refinancing of the debt, or that the terms of any replacement financing would be as favorable as the terms of the debt prior to the maturity date. There can be no assurance that these plans will be successfully implemented or that they will mitigate the conditions that raise substantial doubt about the Company's ability to continue as a going concern. The Consolidated Financial Statements included in this Annual Report on Form 10-K do not include any adjustments to the carrying amounts and classification of assets, liabilities, or expenses that may result if the Company is unable to continue as a going concern. While the Company has noted the conditions above regarding its ability to continue as a going concern, it is important to note that the Company’s largest subsidiary, DBMG, is operationally profitable, continues to maintain a strong financial position and remains in good standing with its lenders. Under INNOVATE’s Senior Secured Notes Indenture, DBMG is a restricted subsidiary, not a guarantor, and INNOVATE’s equity interests in DBMG are pledged as collateral. Capital Expenditures Capital expenditures are set forth in the table below (in millions): Year Ended December 31, 2024 2023 Infrastructure $ 17.6 $ 16.6 Life Sciences — 0.5 Spectrum 1.4 1.0 Non-Operating Corporate — 0.3 Total $ 19.0 $ 18.4 Purchase Commitments Unrecorded future minimum purchase commitments as of December 31, 2024, were $117.9 million. Refer to Note 13. Commitments and Contingencies included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference, for additional information. 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. If the Company sells certain assets and the net cash proceeds from all applicable asset sales exceed $50.0 million since the issue date of the 2026 Senior Secured Notes, the Company may be required in certain circumstances to make an offer to purchase the notes with the net cash proceeds from such an asset sale in excess of such $50.0 million threshold at a price in cash equal to 101% of the principal amount thereof, together with accrued and unpaid interest, if any, to the date of purchase. 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 the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference. 2026 Convertible Notes The original $51.8 million aggregate principal amount of 7.50% convertible notes (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"). In July 2024, we repurchased $2.9 million principal amount of our 2026 Convertible Notes at a market discount for $1.1 million, which is inclusive of accrued interest of $0.1 million. As of December 31, 2024, we had $48.9 million principal amount of 2026 Convertible Notes outstanding. 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. 65 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 the Consolidated Financial Statements of 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 Line of Credit 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, 2024. 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 Line of Credit with MSD. The maturity date of the Revolving Line of Credit, as amended on May 6, 2024, is May 16, 2025. Subsequent to year end, on March 6, 2025, the maturity date of the Revolving Line of Credit was extended to August 1, 2025, with all other terms substantially unchanged. 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. For additional information on the terms and conditions of the Revolving Line of Credit, including guarantees and ranking and collateral, refer to Note 11. Debt Obligations included in the Consolidated Financial Statements of 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 Series A 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 bore interest at 9.0% per annum through May 8, 2024, bears interest at 16.0% per annum from May 9, 2024, to May 8, 2025, and 32.0% per annum thereafter. The CGIC Unsecured Note also requires a mandatory prepayment from the proceeds from certain asset sales and the greater of $3.0 million or 12.5% of the net 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. As a result of the closing of the Rights Offering, on April 24, 2024, INNOVATE redeemed $4.1 million of the CGIC Unsecured Note on April 26, 2024. Refer to Note 16. Equity and Temporary Equity and to Note 11. Debt Obligations included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference, for additional information. Infrastructure As of December 31, 2024, our Infrastructure segment has aggregate principal outstanding debt, including obligations under finance leases, of $144.7 million. DBMG has a $135.0 million Revolving Line with UMB that bears interest at a prime rate minus a spread with an interest rate floor of 4.25%. As of December 31, 2024, the outstanding balance was $45.0 million. The effective interest rate on the Revolving Line with UMB was 6.98% as of December 31, 2024. The Revolving Line with UMB matures on August 15, 2025, and interest is paid monthly. The Revolving Line with UMB also includes a commitment fee equal to 0.25% per annum times the average daily unused availability under the line. DBMG also has a $74.6 million term loan due 2026 (the "3.25% UMB Term Loan"), which expires May 31, 2026, and bears interest at an annual rate of 3.25% with an effective interest rate of 3.3%. Interest is paid monthly. On June 28, 2024, DBM and UMB entered into the Third Amendment to the UMB Credit Agreement. The amendment added an incremental separate term loan of $25.0 million to the existing credit facility, of which $24.5 million is outstanding as of December 31, 2024. The incremental term loan bears the same interest rate as the Revolving Line with UMB and has the same maturity date as the initial 3.25% UMB Term Loan which had a balance of $74.6 million as of December 31, 2024. Principal payments and interest are paid monthly. During the year ended December 31, 2024, DBMG made $5.0 million in scheduled payments on the 4.0% note that was payable to Banker Steel's former owner. The 4.0% note matured on March 31, 2024, and was fully redeemed on April 2, 2024. 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, 2024, our Life Sciences segment has aggregate principal outstanding debt of $24.0 million. 66 R2 Technologies had various short-term notes with Lancer Capital, which expired on January 31, 2024, and, effective January 31, 2024, a new 20% note with an aggregate original principal amount of $20.0 million was issued, which was comprised of all prior outstanding principal amounts and unpaid accrued interest of $2.6 million which was capitalized into the new principal balance. Interest on the note accrues at 20% per annum and is payable monthly in arrears, in cash or, if not paid in cash, accrued and unpaid interest is capitalized monthly into the principal balance. The maturity date of the 20% note, as subsequently amended, was December 31, 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 20% $20.0 million note also includes various exit fees, as amended. As of December 31, 2024, the exit fee, as amended, was equal to 11.90% of the principal amount being repaid, and effective July 31, 2024, an additional exit fee of $1.0 million was incurred each month until the end of November 2024. As of December 31, 2024, total exit fees payable were $7.9 million. The exit fees are payable on the earliest of the maturity date, the date of the acceleration of the principal amount of the note for any reason or, if any portion of the note is prepaid at any time, the date of such prepayment of the note. Subsequent to year end, with an effective date of December 31, 2024, the maturity date of the note was extended to August 1, 2025. In addition, the exit fee continues to increase by 0.17% each month until maturity and an additional exit fee of $1.0 million was incurred under the amendment, which also continues to increase by $1.0 million each month until maturity. The exit fees are payable on the earliest of the maturity date, the date of the acceleration of the principal amount of the note for any reason or, if any portion of the note is prepaid at any time, the date of such prepayment of the note. A new $5.0 million default fee will be payable on August 1, 2025, in the event all obligations under the note, including principal, any accrued and unpaid interest, and exit fees, are not repaid in full prior to the August 1, 2025, maturity date. Also subsequent to year end, on February 20, 2025, Pansend closed on a new $3.5 million convertible 13.0% note instrument with R2 Technologies, which is convertible, together with any accrued interest at the time of conversion, into a new Series E Preferred Stock ("Series E") in R2 Technologies upon written notice to R2 Technologies and has a maturity date of the earlier of July 31, 2025, or a change in control, as defined in the agreement. The transaction is eliminated on consolidation. Refer to Note 11. Debt Obligations included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference, for additional information. Spectrum As of December 31, 2024, our Spectrum segment has aggregate principal outstanding debt of $69.7 million, consisting of 8.50% and 11.45% Notes. Interest is capitalized and payable upon maturity of the notes. The maturity date, as amended, of Spectrum's 8.50% and 11.45% Notes, is August 15, 2025. The exit fees associated with the notes, which are payable on the earlier of maturity or repayment of the principal, were recorded as original issue discount and are being amortized over the remaining life of the notes, which is assumed to be the maturity date. A corresponding liability of $15.9 million is reflected within Accrued Liabilities in the Consolidated Balance Sheet as of December 31, 2024. As of December 31, 2024 and 2023, the weighted-average effective interest rates on the notes, as amended, was 22.8%. During November 2023, concurrently with Broadcasting's execution of the Ninth Amendment to Secured Notes, which among other things extended the maturity of the notes, INNOVATE entered into a related side letter with the lenders, 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 our Spectrum segment's Senior Secured Notes. Assuming there are sufficient proceeds remaining after such repayment, an additional $2.0 million is payable for payments made after November 9, 2024, and in exchange for the additional fee, the institutional investors will return their equity interests in HC2 Broadcasting Holdings, Inc. and their equity interests in DTV America. Refer to Note 11. Debt Obligations included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference, for additional information. 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. 67 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 Series A-3 and Series A-4 Preferred Stock mandatory cash dividends or any other mandatory cash pay Series A-3 and Series A-4 Preferred Stock but excluding any obligation to pay interest on Series A-3 and Series A-4 Preferred Stock or any other mandatory cash payments on Series A-3 and Series A-4 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, 2024, 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, 2024, the Company was in compliance with this covenant. The instruments governing the Company’s Series A-3 Preferred Stock and Series A-4 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 Series A-3 Preferred Stock and Series A-4 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 loans and Revolving Line with UMB associated with our Infrastructure segment contain customary restrictive and financial covenants related to debt levels and performance, including a Fixed Charge Coverage Ratio covenant, as defined in the agreement. As of December 31, 2024, 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) 2024 2023 Cash provided by operating activities $ 9.1 $ 26.5 $ (17.4) Cash (used in) provided by investing activities (13.9) 39.1 (53.0) Cash used in financing activities (26.5) (65.3) 38.8 Effects of exchange rate changes on cash, cash equivalents and restricted cash (1.7) (0.2) (1.5) Net (decrease) increase in cash and cash equivalents, including restricted cash $ (33.0) $ 0.1 $ (33.1) Operating Activities Cash provided by operating activities was $9.1 million for the year ended December 31, 2024, as compared to $26.5 million for the year ended December 31, 2023, a decrease of $17.4 million. Cash flows from operations are primarily influenced by changes in the timing of demand for services and by operating margins, but can also be affect ed by working capital needs associated with our operations. For the year ended December 31, 2024, the decrease in operating cash flows was primarily driven by a decrease in operating cash flows at our Infrastructure segment, partially offset by improvements at our Non-Operating Corporate segment and our Other segment. The decrease in operating cash flows at our Infrastructure segment was primarily due to the timing of completion of certain large commercial construction projects and decreased gross profit, and the net decrease in working capital cash flows at our Infrastructure segment was primarily driven by normal business fluctuations in accounts receivable, contract-related assets and liabilities, other accrued liabilities and other current liabilities. Partially offsetting the decrease in operating cash flows were improvements at our Non-Operating Corporate segment, primarily due to a decrease in SG&A expenses, and our Other segment, which had an unrepeated $4.4 million foreign tax payment in the prior year related to the 2023 sale of New Saxon's 19% investment in in HMN. 68 Investing Activities Cash used in investing activities was $13.9 million for the year ended December 31, 2024, as compared to cash provided by investing activities of $39.1 million for the year ended December 31, 2023, a decrease of $53.0 million. The decrease was primarily driven by the $54.2 million of gross cash proceeds received in the prior year from the 2023 sale of New Saxon's 19.0% investment in HMN, and the $5.0 million received from Pansend's partial sale of Triple Ring in 2023. In addition, during the year ended December 31, 2024 our Non-Operating Corporate segment paid $2.0 million to purchase an investment in mark-to-market securities and our Spectrum segment paid $1.2 million for the acquisition of additional FCC station licenses. Capital expenditures for the year ended December 31, 2024 were $19.0 million, as compared to $18.4 million for the year ended December 31, 2023, an increase in cash used of $0.6 million. Proceeds from the disposal of PP&E totaled $10.1 million for the year ended December 31, 2024, and primarily related to the sale of various PP&E at our Infrastructure segment, as compared to $1.6 million in proceeds for the year ended December 31, 2023. Loans made by our Life Sciences segment to MediBeacon totaled $2.3 million for the year ended December 31, 2024, as compared to $4.0 million for the year ended December 31, 2023, a decrease in cash used of $1.7 million. Financing Activities Cash used in financing activities was $26.5 million for the year ended December 31, 2024, as compared to $65.3 million for the year ended December 31, 2023, an improvement in financing cash flows of $38.8 million. The improvement was primarily driven by our Non-Operating Corporate segment, which received $33.2 million in net proceeds in the current year from the Rights Offering and Concurrent Private Placement, as well as an increase in proceeds from other debt obligation due to the net proceeds of $24.8 million received in the current year at our Infrastructure segment from an incremental separate term loan, as compared to proceeds received in the prior year of $4.9 million, which related primarily to proceeds received at our Life Sciences segment from Lancer Capital. In addition, during the year ended December 31, 2024, our Other segment made $0.3 million in final distributions to New Saxons' non-controlling interests, whereas for year ended December 31, 2023, our Other segment made $15.9 million in distributions, both related to the 2023 sale of New Saxon's 19.0% investment in HMN, for a decrease in cash outflows of $15.6 million. Our Non-Operating Corporate segment also made a $7.0 million payment in the prior year in connection with the repurchase of the DBMGi Series A Preferred Stock on May 9, 2023 from CGIC, and dividend payments decreased by $1.0 million for the year ended December 31, 2024, as compared to the prior year, due to the repurchase of the DBMGi Series A Preferred Stock in 2024. For the year ended December 31, 2024, principal payments for debt obligations and repurchases of other debt obligations totaled $28.0 million, as compared to $37.1 million in the prior year, a decrease of $9.1 million, due to a decrease of $14.4 million in principal payments at our Infrastructure segment primarily due to the payoff of certain notes in the prior year, partially offset by a $4.1 million repayment on the CGIC Unsecured Note and a $1.1 million payment for the partial repurchase of our 2026 Convertible Notes at our Non-Operating Corporate segment in the current year. These improvements in financing cash flows were partially offset by a $47.3 million increase in net outflows from revolving credit line activity for the year ended December 31, 2024, as compared to the prior year, due to net payments by our Infrastructure segment to reduce the outstanding balance on its Revolving Line with UMB. 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 on 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. DBMG is required to make monthly interest payments on all of its debt. Based upon the December 31, 2024, debt balance, DBMG anticipates that its interest payments will be approximately $1.5 million for each quarter of 2025. New Accounting Pronouncements For information on new accounting pronouncements, refer to Note 2. Summary of Significant Accounting Policies included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference, for additional information. 69 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 and Note 3. Revenue and Contracts in Process included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which discuss our significant accounting and revenue recognition policies and are 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 Company transfers control of a good or service over time and, therefore, satisfies a performance obligation and recognizes revenue over time if one of the following three criteria are met: (a) the customer simultaneously receives and consumes the benefits provided by the Company’s performance as we perform, (b) the Company’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (c) the Company’s performance does not create an asset with an alternative use to us, and we have an enforceable right to payment for performance completed to date. The Company has determined that one or more of these three criteria are met for such contracts. 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 initial scope and price of any subsequently mutually agreed upon change orders due to a change in scope or other cost factors, the work has commenced, and that realization of revenue is reasonably assured. 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. 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. 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 must make significant estimates and assumptions about future taxable income and future tax consequences when determining the amount of the valuation allowance. Based on consideration of both positive and negative evidence, we determined that it was more likely than not that the net deferred tax assets of the INNOVATE Corp. U.S. consolidated income tax group and other separate entity filers will not be realized. Therefore, a full valuation allowance was maintained against the net deferred tax assets as of December 31, 2024. 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 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. 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 are estimates recorded to the extent applicable based on management judgement. 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. 70 Refer to Note 12. Income Taxes included in the Consolidated Financial Statements of this Annual Report on Form 10-K for further information, which is incorporated herein by reference. Goodwill and Intangible Assets Goodwill and intangible assets deemed to have indefinite lives are not amortized, but, rather, are 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 that the carrying amounts of assets may not be recoverable and that there is a potential impairment in accordance with the provisions of ASC 350, Intangibles - Goodwill and Other ("ASC 350"). The factors that we consider important, and which could trigger an impairment review, include, but are not limited to: a more likely than not expectation of selling or disposing all, or a portion, of a reporting unit; a significant decline in the market value of our common stock or debt securities for a sustained period; a material adverse change in economic, financial market, industry or sector trends; a material failure to achieve operating results relative to historical levels or projected future levels; and significant changes in operations or business strategy. Intangible assets that have finite lives are amortized over their estimated useful lives and are subject to the impairment provisions of ASC 360, Property, plant, and equipment ("ASC 360"). We elect to utilize a qualitative assessment to evaluate whether it is more likely than not that the fair value of a reporting unit or indefinite-lived intangible asset is less than its carrying value, and if so, a quantitative test is performed. The quantitative evaluation for impairment of indefinite lived intangibles 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, limited to the amount of recognized goodwill. 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, 2024, 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 consist 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, included in the Consolidated Financial Statements of this Annual Report on Form 10-K for additional information on goodwill and intangible assets, including, if applicable, 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 included in the Consolidated Financial Statements of this Annual Report on Form 10-K, which is incorporated herein by reference. Special Note Regarding Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. We have made statements in this Annual Report on Form 10-K for the fiscal year ended December 31, 2024 (the “2024 Annual Report”) that may constitute “forward-looking statements.” 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. 71 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 future acquisitions and dispositions and the successful integration of acquisitions with INNOVATE or the applicable subsidiary, litigation, potential and contingent liabilities, management’s plans, changes in regulations and taxes. 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 Item 1A of 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. 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: • our dependence on distributions from our subsidiaries to fund our operations and payments on our obligations; • substantial doubt about our ability to continue operating as a going concern; • 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 Line of Credit, the Certificates of Designation governing INNOVATE’s Series A-3 Preferred Stock and Series A-4 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 including the passing in 2023 of Mr. Barr, our former CEO, President and Director and the successful transition of his management responsibilities; • 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; • changes in market conditions, including from political regulatory or market uncertainty, changes in foreign exchange rates, interest rates or inflation, supply chain disruptions, labor shortages and increases in overall price levels, including in transportation costs; • 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 effects related to or resulting from ongoing and recent geopolitical events, such as the political unrest and military conflicts in the Middle East, Russia and Ukraine, including the imposition of additional sanctions and export controls, as well as the broader impact to financial markets and the global macroeconomic and geopolitical environment; • the 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 NYSE; • the Reverse Stock Split may not result in a sustained increase in the per share price of our common stock; • 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; 72 • 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, 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. 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; • changes in economic conditions, including from the impact of inflationary pressures and changes in interest rates; • 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 Sciences 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. 73 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable.